UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from _____________ to _____________.
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, zip code)
(Registrant’s telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each classes | Trading Symbols(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
As at August 28, 2023 the issuer had shares of common stock issued and outstanding.
DSG GLOBAL, INC.
TABLE OF CONTENTS
| 2 |
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements (unaudited)
The accompanying unaudited interim condensed consolidated financial statements of DSG Global Inc. as at June 30, 2023, 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, 2023, are not necessarily indicative of the results that can be expected for the year ending December 31, 2023.
| 3 |
DSG GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2023, AND DECEMBER 31, 2022
(Expressed in U.S. dollars)
(UNAUDITED)
June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Trade receivables, net | ||||||||
| Lease receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and deposits | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Lease receivable | ||||||||
| Fixed assets, net | ||||||||
| Right-of-use assets, net | ||||||||
| Intangible assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Trade and other payables | $ | $ | ||||||
| Deferred revenue | ||||||||
| Lease liability | ||||||||
| Due to related party | ||||||||
| Loans payable | ||||||||
| Convertible notes payable | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Lease liability | ||||||||
| Loans payable | ||||||||
| TOTAL LIABILITIES | ||||||||
| Contingencies (Note 16) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Redeemable preferred stock, $ par value, shares authorized (2022 – ), issued and outstanding, to be issued (2022 – issued and outstanding, to be issued) | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $ par value, shares authorized (2022 – ), issued and outstanding (2022 – issued and outstanding) | ||||||||
| Common stock, $ par value, shares authorized, (2022 – ); issued and outstanding (2022 – ) | ||||||||
| Additional paid in capital, common stock | ||||||||
| Discounts on common stock | ( | ) | ( | ) | ||||
| Obligation to issue warrants | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| 4 |
DSG GLOBAL, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Expressed in U.S. dollars)
(UNAUDITED)
| Three months ended | Six months ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Compensation expense | ||||||||||||||||
| General and administration expense | ||||||||||||||||
| Research and development | ||||||||||||||||
| Bad debt expense | ||||||||||||||||
| Inventory write-down | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Foreign currency exchange | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on sale of lease receivable | ( | ) | ( | ) | ||||||||||||
| Gain on lease modification | ||||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Gain on disposal | ||||||||||||||||
| Redemption premium on preferred shares | ( | ) | ||||||||||||||
| Finance costs | ( | ) | ( | ( | ) | ( | ) | |||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares used in computing basic and diluted net income (loss) per share: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| 5 |
DSG GLOBAL, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Expressed in U.S. dollars)
(UNAUDITED)
| Three months ended | Six months ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) income | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
| 6 |
DSG GLOBAL, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 2023
(Expressed in U.S. dollars)
(UNAUDITED)
| Common Stock | Preferred Stock (equity) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional paid in capital | Discount on common stock | To be issued | Obligation to issue warrants | Shares | Par value | Additional paid in capital | To be issued | Accumulated other comprehensive income | Accumulated deficit | Total stockholders’ deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
| Shares issued for debt settlement | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares and warrants issued for services | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued on conversion of preferred shares | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | $ |
| $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Shares issued on conversion of preferred shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance,March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance,June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| 7 |
DSG GLOBAL INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2023, AND 2022
(Expressed in U.S. Dollars)
(UNAUDITED)
June 30, 2023 | June 30, 2022 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Change in ROU assets | ||||||||
| Accretion of discounts on debt | ||||||||
| Loss on sale of lease receivable | ||||||||
| Gain on lease modification | ( | ) | ||||||
| Bad debt expense | ||||||||
| Accretion on lease liability | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Preferred shares issued for services | ||||||||
| Shares and warrants issued for services | ||||||||
| Unrealized foreign exchange loss | ||||||||
| Inventory write down | 64,680 | - | ||||||
| Gain on asset disposal | ( | ) | ||||||
| Changes in non-cash working capital: | ||||||||
| Trade receivables, net | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expense and deposits | ( | ) | ||||||
| Lease receivable | ( | ) | ( | ) | ||||
| Trade payables and accruals | ||||||||
| Deferred revenue | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Interest on mandatorily redeemable preferred shares | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Disposal of property and equipment | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuing preferred shares, and shares to be issued | ||||||||
| Proceeds from related party loans payable | ||||||||
| Proceeds from loans payable | ||||||||
| Proceeds from sale of lease receivable | ||||||||
| Payments on related party loans payable | ( | ) | ||||||
| Payments on loans payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at the end of the period | $ | $ | ||||||
| Supplemental Cash Flow Information (Note 17) | ||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| 8 |
DSG GLOBAL, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(UNAUDITED)
Note 1 – ORGANIZATION
DSG Global, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on September 24, 2007.
The Company is a technology development company engaged in the design, manufacture, and marketing of fleet management solutions in the golf industry. The Company’s principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles and related support services. Starting during the year ended December 31, 2021, the Company began to market low speed electric vehicles, and e-bikes, recognizing its first sales in this space. Sales from these product lines have not reached a level of materiality to be disclosed as separate segments of the business. The Company also began the start of the homologation project for electric vehicles.
On April 13, 2015, the Company entered into a share exchange agreement with DSG Tag Systems Inc. (“DSG”), now a wholly-owned subsidiary of the Company, incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008. In March 2011, DSG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of DSG.
On September 15, 2020, the Company incorporated Imperium Motor Corp. (“Imperium”), under the laws of the State of Nevada on September 10, 2020, for which it subscribed to all authorized capital stock, shares of Preferred Class A Stock, at a price of $ per share. Imperium is a wholly owned subsidiary of the Company.
On August 12, 2021, the Company incorporated Imperium Motor of Canada Corporation (“Imperium Canada”), under the laws of British Columbia, Canada, for which it subscribed to all authorized capital stock, shares of Class A Voting Participating common shares, at a price of $ per share. Imperium Canada is a wholly owned subsidiary of the Company.
On September 17, 2021, the Company incorporated AC Golf Carts, Inc. (“AC Golf Carts”), under the laws of the State of Nevada, for which it subscribed to all authorized stock, common shares at a price of $ par value per share. AC Golf Carts is a wholly owned subsidiary of the Company.
On January 5, 2023, Imperium Motor Corp. had its name changed to Liteborne Motor Corporation.
Note 2 – GOING CONCERN
These unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and note holders, the ability of the Company to obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations.
As
of June 30, 2023, the Company had working capital deficit of $
| 9 |
Note 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore, the unaudited interim condensed 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, 2022. 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, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
Principles of Consolidation
The interim condensed consolidated financial statements include the accounts of DSG Global Inc., its subsidiary VTS, and its wholly owned subsidiaries Liteborne Motor Corp., DSG Tag Systems Inc., DSG UK, and AC Golf Carts, collectively referred to as the “Company”. All intercompany accounts, transactions and profits were eliminated in the consolidated financial statements.
Use of Estimates
The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined. There were no new estimates in the period.
Recently Adopted Accounting Pronouncements
Recent accounting pronouncements issued by FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s interim condensed consolidated financial statements.
Significant Accounting Policies
Revenue from Contracts with Customers
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under Topic 606 in a manner that reasonably reflects the delivery of its products and services to customers in return for expected consideration and includes the following elements:
| ● | executed contracts with the Company’s customers that it believes are legally enforceable; | |
| ● | identification of performance obligations in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
| 10 |
Accounts Receivable and provision for current expected credit losses (“CECLs”)
All accounts receivable under standard terms are due thirty (30) days from the date billed. If the funds are not received within thirty (30) days, the customer is contacted to arrange payment. The company assesses its receivables at each period end in accordance with ASC 326-20. This exercise requires considerable judgement, including consideration of how changes in economic factors affect CECLs which are determined on a probability-weighted basis. The Company measures provision for ECLs on its trade receivables at an amount equal to lifetime ECLs.
Performance Obligations and Signification Judgments
The Company’s revenue streams can be categorized into the following performance obligations and recognition patterns:
1. Sale, delivery and installation of Tag, Text and Infinity products, along with digital mapping and customer training. The Company recognizes revenue at a point in time when final sign-off on the installation is obtained from the General Manager and/or Director of Golf.
2. Provision of internet connectivity, regular software updates, software maintenance and basic customer support service. The Company recognizes revenue over time, evenly over the term of the service.
3. Sale and delivery of Fairway Rider products. The Company recognizes revenue at a point in time when control transfers to the customer.
4. Sale and delivery of Electric Vehicles. The Company recognizes revenue at a point in time when control transfers to the customer.
Transaction prices for performance obligations are explicitly outlined in relevant agreements, therefore, the Company does not believe that significant judgments are required with respect to the determination of the transaction price, including any variable consideration identified.
Warranty Reserve
The Company accrues for warranty costs, sales returns, and other allowances based on its historical experience. During the period ended June 30, 2023 and the comparable period of June 30, 2022, the Company did not provide a warranty for any of its products sold during those periods. The warranty reserve was $ as at June 30, 2023 and 2022.
Re-classification
During the period ended June 30, 2022, the Company re-classified dividends that were accrued on its redeemable preferred shares during the year ended December 31, 2021. An amount of $455,500 was re-classified from additional paid in capital on common stock, to additional paid in capital preferred stock – mezzanine equity (Note 13). This change is reflected in the interim condensed consolidated statement of changes in stockholders’ deficit.
Note 4 – TRADE RECEIVABLES, NET
As of June 30, 2023, and December 31, 2022, trade receivables consist of the following:
June 30, 2023 | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ||||||
| Total trade receivables, net | $ | $ | ||||||
Note 5 – INVENTORIES
As of June 30, 2023, and December 31, 2022, finished goods inventories consist of the following:
June 30, 2023 | December 31, 2022 | |||||||
| Parts and accessories | $ | $ | ||||||
| Golf carts | ||||||||
| E-bikes | ||||||||
| Electric vehicles | ||||||||
| Total inventories | $ | $ | ||||||
| 11 |
During
the period ended June 30, 2023, the Company recorded an inventory write-down of $
Note 6 – FIXED ASSETS
As of June 30, 2023, and December 31, 2022, fixed assets consisted of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Machinery | $ | $ | ||||||
| Furniture and equipment | ||||||||
| Computer equipment | ||||||||
| Vehicles | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
For
the three and six months ended June 30, 2023, total depreciation expense for fixed assets was $
Note 7 – INTANGIBLE ASSETS
As of June 30, 2023, and December 31, 2022, intangible assets consist of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Intangible asset – Patent | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Patents
are amortized on a straight-line basis over their estimated useful life of
Note 8 – TRADE AND OTHER PAYABLES
As of June 30, 2023, and December 31, 2022, trade and other payables consist of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Other liabilities | ||||||||
| Total payables | $ | $ | ||||||
| 12 |
Note 9 – LOANS PAYABLE
As of June 30, 2023, and December 31, 2022, loans payable consisted of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Unsecured loan payable in the amount of CAD$ | $ | $ | ||||||
| Unsecured loan payable in the amount of CAD$ | ||||||||
| Secured loan payable, due on | ||||||||
| Unsecured loan payable, due on | ||||||||
| Preferred F series shares issued with mandatory redemption(f) | ||||||||
| Unsecured loan payable (g) | ||||||||
| Foreign exchange | ( | ) | ||||||
| Total | ||||||||
| Current portion | ( | ) | ( | ) | ||||
| Loans payable, Long term | $ | $ | ||||||
| (a) | |
| (b) | |
| (c) | |
| (d) | |
| (e) | On September 13, 2021, the Company entered into a securities purchase agreement with a non-related party. Pursuant to the agreement, the Company received cash proceeds of $ on September 13, 2021 in exchange for the issuance of an unsecured convertible promissory note in the principal amount of $, which was inclusive of a $ original issue discount and bears interest at % per annum to the holder and matures . Any principal or interest on the convertible note that was not paid when due or during any period of default bears interest at % per annum. |
| In the event of a default, the note is convertible at the price that is equal to a 40% discount to the lowest trading price of the Company’s common shares during the 30 day trading period prior to the conversion date. | |
During
the three and six months ended June 30, 2023, the Company recorded $
As the note is now in default, it has become convertible. See Note 10. | |
| (f) | |
| During the six months ended June 30, 2023, the Company made required payments in the amount of $, which was applied against the loan payable. | |
| (g) |
| 13 |
Note 10 – CONVERTIBLE NOTES
As of June 30, 2023, and December 31, 2022, convertible loans payable consisted of the following:
Third Party Convertible Notes Payable
| (a) | On
March 31, 2015, the Company issued a convertible promissory note in the principal amount of $ |
| (b) | On
June 5, 2017, the Company issued a convertible promissory note in the principal amount of $ |
| (c) | As
per Note 9 (e) above, the $ |
Note 11 - LEASES
Lessor
During
the six months ended June 30, 2023, the Company recognized new lease receivables of $, net of the $ of leases transferred to third
party management (December 31, 2022 - $
| Lease receivable | June 30, 2023 | December 31, 2022 | ||||||
| Balance, beginning of the period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to third party | ( | ) | ||||||
| Interest on lease receivables | ||||||||
| Receipt of payments | ( | ) | ( | ) | ||||
| Foreign exchange | ( | ) | ||||||
| Balance, end of the period | ||||||||
| Current portion of lease receivables | ( | ) | ( | ) | ||||
| Long term potion of lease receivables | $ | $ | ||||||
| 14 |
Lease receivables are measured at the commencement date based on the present value of future lease payments less the present value of the unguaranteed residual asset. The Company uses the rate implicit in the rental revenue contracts to calculate the present value of future payments and unguaranteed residual asset at the date of commencement.
Lessee
The Company leases certain assets under lease agreements.
On
October 1, 2019, the Company entered into a
On
July 10, 2020, the Company entered into a lease agreement for retail, showroom and warehouse space in Fairfield, CA (the “Fairfield
Lease”). Upon initial recognition of the lease, the Company recognized right-of-use assets of $
On
July 14, 2020, the Company entered into a lease agreement for office space in Surrey, BC (the “Croydon Lease”). Upon
initial recognition of the lease, the Company recognized right-of-use assets of $
The
new lease has a commencement date of August 1, 2023 for a term of
On
April 1, 2021, the Company entered into a lease agreement for a credit card processing machine (the “FD 150 Lease”). Upon
initial recognition of the lease, the Company recognized right-of-use assets of $
On
June 2, 2021, the Company entered into a lease agreement for a trailer (the “Trailer Lease”). Upon recognition of the lease,
the Company recognized right-of-use assets of $
On
March 1, 2023, the Company entered into a lease agreement for additional office and warehouse space in Surrey, BC in the same location
as our initial office space. Upon initial recognition of the lease, the Company recognized right-of-use assets of $
| 15 |
Right-of-use assets:
| Right-of-use assets | June 30, 2023 | December 31, 2022 | ||||||
| Opening | $ | $ | ||||||
| Derecognition of leases | ( | ) | ||||||
| Recognition of new leases | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Foreign exchange | ( | ) | ||||||
| Total right-of-use assets, net | $ | $ | ||||||
| Lease liability | June 30, 2023 | December 31, 2022 | ||||||
| Current portion | $ | $ | ||||||
| Long-term portion | ||||||||
| Total lease liability | $ | $ | ||||||
Lease
liabilities are measured at the commencement date based on the present value of future lease payments. As the Company’s leases
did not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at the commencement
date in determining the present value of future payments. The Company used a weighted average discount rate of
Right-of-use assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
Lease
expense for the six months ended June 30, 2023, was $
Future minimum lease payments to be paid by the Company as a lessee for leases as of June 30, 2023, for the next four years are as follows:
| Lease commitments and lease liability | June 30, 2023 | ||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Total future minimum lease payments | |||||
| Discount | ( | ) | |||
| Total | |||||
| Current portion of lease liabilities | ( | ) | |||
| Long-term portion of lease liabilities | $ | ||||
| 16 |
Note 12 – MEZZANINE EQUITY
Authorized
shares of redeemable Series C preferred shares, authorized, each having a par value of $ per share.
shares of redeemable Series D preferred shares, authorized, each having a par value of $ per share.
shares of redeemable Series E preferred shares, authorized, each having a par value of $ per share.
shares of redeemable Series F preferred shares, authorized, each having a par value of $ per share.
The following table summarizes the Company’s redeemable preferred share activities for the three and six months ended June 30, 2023, and for the comparative June 30, 2022 periods.
| Shares | Par | Additional paid in capital | To be issued | Total | ||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Issuance | ||||||||||||||||||||
| Converted for common shares | ( | ) | ( | ) | ( | )(2) | ( | ) | ||||||||||||
| Accrued preferred stock dividends(1) | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2022 | ||||||||||||||||||||
| Issuance | ( | ) | ||||||||||||||||||
| Accrued preferred stock dividends | ( | ) | ||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Issuance | ||||||||||||||||||||
| Converted for common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Accrued preferred stock dividends | - | ( | ) | |||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Accrued preferred stock dividends | ( | ) | ||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| (1) | |
| (2) |
Mezzanine Preferred Equity Transactions
During the six months ended June 30, 2023:
| ● | Series F Preferred Shares were converted into common shares (see note 14). | |
| ● | On
January 18, 2023, pursuant to the January 2023 Series F SPA, the Company received $ | |
| ● | On
January 23, 2023, pursuant to the January 2023 Series F SPA, the Company received $ |
| 17 |
During the year ended December 31, 2022:
| ● | Series F Preferred Shares were converted into common shares (see note 14). | |
| ● | On
October 21, 2022, pursuant to the December 2021 Series F SPA, the Company received $ | |
| ● | On
September 15, 2022, pursuant to the December 2021 Series F SPA, the Company received $ | |
| ● | On
August 26, 2022, pursuant to the December 2021 Series F SPA, the Company received $ | |
| ● | On
July 29, 2022, pursuant to the December 2021 Series F SPA, the Company received $ | |
| ● | On
March 31, 2022, pursuant to the December 2021 Series F SPA, the Company received $ | |
| ● | On
February 7, 2022, pursuant to the December 2021 Series F SPA, the Company received $ | |
| ● | On
January 4, 2022, pursuant to the December Series 2021 F SPA, the Company received $ |
Note 13 – PREFERRED STOCK
Authorized
shares of Series A preferred shares authorized each having a par value of $ per share.
shares of Series B convertible preferred shares authorized each having a par value of $ per share. Each share of Series B convertible preferred shares is convertible into shares of common stock.
| 18 |
Preferred Stock Transactions
During the six months ended June 30, 2023:
| ● |
Series B preferred shares were converted into common shares with a fair value of $ |
During the year ended December 31, 2022:
| ● | On
November 3, 2022, the Company issued shares of Series B preferred shares to a consultant of the Company for services to be rendered.
These preferred shares were value at $ | |
| ● | On
August 1, 2022, the Company issued an aggregate of shares of Series B preferred shares to the CEO of the Company for past services.
These preferred shares were value at $ | |
| ● | On
June 27, 2022, the Company issued an aggregate of shares of Series B preferred shares to the Company’s board of directors
for past services. These preferred shares were value at $ |
Note 14 – COMMON STOCK
Authorized
On January 18, 2023, the Company received approval to increase the number of authorized common shares from to .
common shares, authorized, each having a par value of $ per share.
Common Stock Transactions
During the six months ended June 30, 2023:
| ● | The
Company issued shares of common stock with a fair value of $ | |
| ● | The
Company issued shares of common stock with a fair value of $ |
During the year ended December 31, 2022:
| ● | The
Company issued an aggregate of shares of common stock to satisfy shares to be issued for investor relations. The shares had
a fair value of $ | |
| ● | The
Company issued shares of common stock with a fair value of $ | |
| ● | The
Company issued shares of common stock with a fair value of $ | |
| ● | The
Company issued shares of common stock with a fair value of $ |
| 19 |
Common Stock to be Issued
Common stock to be issued as at June 30, 2023 consists of:
None.
Common stock to be issued as at December 31, 2022 consists of:
None.
Warrants
During the six months ended June 30, 2023:
warrant activity took place in the six months ended June 30, 2023.
During the year ended December 31, 2022:
| ● | On December 31, 2022, warrants of the Company expired. |
The fair values of the warrants were calculated using the following assumptions for the Black Sholes Option Pricing Model:
| December 31, 2022 | ||||
| Risk-free interest rate | % | |||
| Expected life | ||||
| Expected dividend rate | % | |||
| Expected volatility | % | |||
The continuity of the Company’s common stock purchase warrants issued and outstanding is as follows:
| Warrants | Weighted average exercise price | ||||||||
| Outstanding as at December 31, 2020 | $ | ||||||||
| Granted | |||||||||
| Outstanding as at December 31, 2021 | $ | ||||||||
| Expired | |||||||||
| Outstanding as at June 30, 2023 and December 31, 2022 | $ | ||||||||
As
of June 30, 2023, the weighted average remaining contractual life of warrants outstanding was
Note 15 – RELATED PARTY TRANSACTIONS
During
the six months ended June, 2023, the Company incurred $
On March 15, 2023, the Company received a loan from a related party in the principal amount of $
On March 15, 2023, the Company received a loan from a related party in the principal amount of $
On March 17, 2023, the Company received a loan from a related party in the principal amount of $
On March 23, 2023, the Company received a loan from a related party in the principal amount of $
On
April 11, 2023, the Company received a loan from a related party in the principal amount of $
On
June 21, 2023, the Company received a loan from a related party in the principal amount of $
On
June 30, 2023, the Company received a loan from a related party in the principal amount of $
| 20 |
Note 16 – SEGMENT INFORMATION
During the six months ended June 30, 2023 and June 30, 2022, the Company’s operations included revenue and costs from the sale and rental of GPS tracking devices and interfaces for golf vehicles and related support services, the sale of golf vehicles, and the sale of electric vehicles which includes e-bikes. The Company’s reporting segments are those associated with operating segments above, and the administration of the Company.
| Six months ended June 30, 2023 | Administration | Electric Vehicles | Golf Carts | GPS Units | Total | |||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Compensation expense | ( | ) | ||||||||||||||||||
| General and administration expense | ||||||||||||||||||||
| Bad debt expense | ||||||||||||||||||||
| Inventory write-down | ||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||
| Total operating expense | ||||||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense) | ||||||||||||||||||||
| Foreign currency exchange | ( | ) | ( | ) | ||||||||||||||||
| Gain on lease modification | ||||||||||||||||||||
| Finance costs | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Total Assets | $ | $ | $ | $ | $ | |||||||||||||||
| Six months ended June 30, 2022 | Administration | Electric Vehicles | Golf Carts | GPS Units | Total | |||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Compensation expense | ||||||||||||||||||||
| General and administration expense | ||||||||||||||||||||
| Research and development | ||||||||||||||||||||
| Bad debt expense (recovery) | ||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||
| Total operating expense | ||||||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ||||||||||||||||||||
| Foreign currency exchange | ( | ) | ( | ) | ||||||||||||||||
| (Loss) Gain on extinguishment of debt | ||||||||||||||||||||
| Gain (loss) on disposal | ( | ) | ||||||||||||||||||
| Redemption premium | ( | ) | ( | ) | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| Total Assets (December 31, 2022) | $ | $ | $ | $ | $ | |||||||||||||||
| 21 |
The following table shows a breakdown of the geographic location where the Company’s assets as at June 30, 2023, and December 31, 2022, are located.
As at June 30, 2023:
| Canada | USA | UK | Mexico | Australia | China | Total | ||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
As at December 31, 2022:
| Canada | USA | UK | Mexico | Australia | China | Total | ||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Note 17 – COMMITMENTS
Product Warranties
The Company’s warranty policy generally covers a period of two years which is also covered by the manufacturer warranty. Thus, any warranty costs incurred by the Company are immaterial.
Indemnifications
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 18 – SUPPLEMENTAL CASH FLOW INFORMATION
| Six-months ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
| Non-cash investing and financing transactions: | ||||||||
| Shares issued for debt settlement | $ | $ | ||||||
| Dividends payable with preferred shares to be issued | ||||||||
| Initial recognition of ROU assets | ||||||||
| Shares issued on conversion of preferred shares | ||||||||
Note 19 – SUBSEQUENT EVENTS
On
July 7, 2023, the Company entered into a short-term loan with a non-related party for $,
bearing an annual interest rate of
On July 19, 2023, the Company issued an aggregate of shares of Series F redeemable preferred stock to a non-related party, at the price of $ per share for a total of $ net of $ in legal expenses.
On July 20, 2023, the Company issued shares
of common stock with a fair value of $
On July 25, 2023, the Company entered into a loan agreement with a non-related party, for $ bearing an annual interest rate of % and a maturity date of .
| 22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based on, and should be read in conjunction with, the condensed, consolidated interim financial statements and the related notes thereto of DSG Global, Inc. contained in this Quarterly Report on Form 10-Q (this “Report”).
As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to DSG Global, Inc. a Nevada corporation, together with our consolidated subsidiaries,
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
In particular, without limiting the generality of the foregoing disclosure, the forward-looking statements contained in this Quarterly Report on Form 10-Q and which are inherently subject to a variety of risks and uncertainties that could cause actual results, performance or achievements to differ significantly include but are not limited to:
| ● | our ability to successfully homologate our electric vehicles offerings; | |
| ● | anticipated timelines for product deliveries; | |
| ● | the production capacity of our manufacturing partners and suppliers; | |
| ● | the stability, availability and cost of international shipping services; | |
| ● | our ability to establish and maintain dealership network for our electric vehicles; | |
| ● | our ability to attract and retain customers; | |
| ● | the availability of adequate manufacturing facilities for our PACER golf carts; | |
| ● | the consistency of current labor and material costs; | |
| ● | the availability of current government economic incentives for electric vehicles; | |
| ● | the expansion of our business in our core golf market as well as in new markets like electric vehicles, commercial fleet management and agriculture; | |
| ● | the stability of general economic and business conditions, including changes in interest rates; | |
| ● | the Company’s ability to obtain financing to execute our business plans, as and when required and on reasonable terms; | |
| ● | our ability to accurately assess and respond to market demand in the electric vehicle and golf industries; | |
| ● | our ability to compete effectively in our chosen markets; | |
| ● | consumer willingness to accept and adopt the use of our products; | |
| ● | the anticipated reliability and performance of our product offerings; | |
| ● | our ability to attract and retain qualified employees and key personnel; | |
| ● | our ability to maintain, protect and enhance our intellectual property; | |
| ● | our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company. | |
| ● | the ability of our Chairman, President and Chief Executive Officer to control a significant number of shares of our voting capital; | |
| ● | frustration or cancellation of key contracts; | |
| ● | short selling activities; | |
| ● | our ability to complete an offering of our common stock and warrants pursuant to the Registration Statement on Form S-1 filed by with the Securities and Exchange Commission on April 21, 2021 (the “Offering”) and the concurrent listing of our common stock and of the warrants on the Nasdaq Capital Market. | |
| ● | the immediate and substantial dilution of the net tangible book value of our common stock by the Offering; | |
| ● | our ability to meet the initial or continuing listing requirements of the Nasdaq Capital Market; and | |
| ● | our intention to effect a reverse stock split of our outstanding common stock immediately following the effective date of the Offering but prior to the closing of the Offering. |
Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions, which may have been used.
| 23 |
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.
ABOUT DSG GLOBAL INC.
DSG Global Inc. is a technology development, manufacturing and distribution company based in British Columbia, Canada and Fairfield, California. DSG stands for “Digital Security Guard”, our first fleet management technology and primary value statement. Through Vantage TAG, our golf and fleet management division, we are engaged in the design, manufacture, and sale of fleet and player experience management solutions for the golf industry, and for commercial, government and military applications. More recently, Vantage TAG has introduced a range of innovative single player and luxury golf carts. In 2020, we established an electric vehicle division, Imperium Motor Company, headquartered at our Imperium Experience Centre in Fairfield, California. Imperium Motors is engaged in the importation, marketing and distribution of a wide range a low-speed and high-speed electric passenger vehicles for commuter, family, commercial, and public use.
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. Our executive team has over 50 years of experience in the design and manufacture of wireless, GPS, and fleet tracking solutions, and over 40 years of experience in automotive retail, wholesale, distribution, and manufacturing.
Powered by patented analytics and an extraordinary depth of industry knowledge, DSG’s mandate is to improve lives and businesses with intelligent, affordable, adaptable and environmentally responsible transportation technologies and electric vehicles.
Our principal executive office is located at 207 - 15272 Croydon Drive Surrey, British Columbia, V3Z 0Z5, Canada. The telephone number at our principal executive office is 1 (877) 589-8806. Our electric vehicle division, Imperium Motor Company, is headquartered at our Imperium Experience Center, Located at 4670 Central Way, Suite D, Fairfield, CA 95605. Imperium’s telephone number is 1 (707) 266-7575. The Company’s stock symbol is DSGT.
Corporate History
DSG Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007. We were formed to option feature films and TV projects to be packaged and sold to movie studios and production companies.
In January 2015, we changed our name to DSG Global, Inc. and effected a one-for-three reverse stock split of our issued and outstanding common stock in anticipation of entering in a share exchange agreement with DSG TAG Systems, Inc., a corporation incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008.
On April 13, 2015, we entered into a share exchange agreement with Vantage Tag Systems Inc. (“VTS”) (formerly DSG Tag Systems Inc.) and the shareholders of VTS who become parties to the agreement. Pursuant to the terms of the share exchange agreement, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares in the capital stock of VTS in exchange for the issuance to the selling shareholders of up to 20,000,000 pre-reverse split shares of our common stock on the basis of 1 common share for 5.4935 common shares of VTS.
| 24 |
On May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common shares of VTS as contemplated by the share exchange agreement by issuing 15,185,875 pre-reverse split shares of our common stock to shareholders of VTS who became parties to the agreement. In addition, concurrent with the closing of the share exchange agreement, we issued an additional 179,823 pre-reverse split shares of our common stock to Westergaard Holdings Ltd. in partial settlement of accrued interest on outstanding indebtedness of VTS.
Following the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of common stock of VTS from shareholders who became parties to the share exchange agreement and issued to these shareholders an aggregate of 18,422 pre-reverse split shares of our common stock. Following completion of these additional purchases, DSG Global Inc. owns approximately 100% of the issued and outstanding shares of common stock of VTS. An aggregate of 4,229,384 shares of Series A Convertible Preferred Stock of VTS were exchanged for 51 Series B and 3,000,000 Series E preferred shares during the year ended December 31, 2018 by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a previous member of our board of directors which have not been issued as of September 30, 2021.
The reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein VTS is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized. We adopted the business and operations of VTS upon the closing of the share exchange agreement.
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.
On March 26, 2019, we effected a reverse stock split of our authorized and issued and outstanding shares of common stock on a four thousand (4,000) for one (1) basis. Upon effect of the reverse split, our authorized capital decreased from 3,000,000,000 pre-reverse split shares of common stock to 750,000 shares of common stock and correspondingly, our issued and outstanding shares of common stock decreased from 2,761,333,254 pre-reverse split to 690,403 shares of common stock, all with a par value of $0.001. Our outstanding shares of Preferred Stock remain unchanged.
On December 22, 2020, we amended our Articles of Incorporation to increase our authorized common shares from 150,000,000 to 350,000,000, and to designate 14,010,000 shares of preferred stock, par value $0.001 per share, including 3,000,000 Series A Preferred stock, 10,000 Series B Convertible Preferred stock, 10,000 Series C Convertible Preferred stock, 1,000,000 Series D Convertible Preferred stock, 5,000,000 Series E Convertible Preferred stock and 10,000 Series F Convertible Preferred Stock.
Imperium Motor Corp. was incorporated under the laws of the State of Nevada on September 15, 2020. Imperium Motor of Canada Corporation was incorporated under the laws of British Columbia, Canada, on August 12, 2021.
On August 12, 2021, the Company incorporated Imperium Motor of Canada Corporation (“Imperium Canada”), under the laws of British Columbia, Canada, for which it subscribed to all authorized capital stock, 100 shares of Class A Voting Participating common shares, at a price of $0.10 per share. Imperium Canada is a wholly owned subsidiary of the Company.
On September 17, 2021, the Company incorporated AC Golf Carts, Inc. (“AC Golf Carts”), under the laws of the State of Nevada, for which it subscribed to all authorized stock, 100 common shares at a price of $0.001 par value per share. AC Golf Carts is a wholly owned subsidiary of the Company.
On January 5, 2023, Imperium Motor Corp. had its name changed to Liteborne Motor Corporation.
On January 18, 2023, the Company received approval to increase the number of authorized common shares from 350,000,000 to 1,000,000,000.
| 25 |
About our Business Divisions
Electric Vehicle Division
Imperium Motor Company USA, name changed to Liteborne Motor Corporation (“LMC or Liteborne”)
Imperium Motor Company Canada
Overview
Imperium Motor Company USA and Canada (“Imperium”) is a global technology company - specializing in fleet management, vehicle charging network, lithium air battery development, and marketing and distribution of electric vehicles.
On October 5, 2020, through Imperium Motor Corp., we entered into a Memorandum of Understanding dated September 10, 2020 with Skywell Shenzen Vehicles Co. Ltd. aka Skywell New Energy Automobile Group Co., Ltd. (“Skywell”), a leading manufacturer of electric vehicles in China. Pursuant to the Memorandum of Understanding, Imperium has received the exclusive right, subject to placement of an initial vehicle order and corresponding payment to Skywell, to purchase, homologate, and distribute Skywell’s range of ET5 electric sport utility vehicles in North America and the Caribbean. The Memorandum of Understanding, while stated to be non-binding, provides for the conclusion of a definitive agreement by the parties following the placement of an initial vehicle order by the Company. The definitive agreement was to have a minimum term of 3 years, and will renew automatically for successive 3-year terms, subject to the right of each party to terminate the agreement by giving 30 days notice prior to renewal.
Effective February 9, 2021, we entered into a definitive OEM Cooperation Agreement with Skywell dated February 5, 2021, which agreement modifies and replaces the Memorandum of Understanding. Pursuant to the OEM Cooperation Agreement, Skywell has granted to the Company the exclusive right to distribute Skywell’s electric passenger cars, trucks (including but not limited to the ET5 sport utility vehicle), buses and spare parts in the United States and Canada for a term of 5 years. In order to maintain the distributions rights accorded by the agreement, the Company must purchase and deliver 1,000 units within the first year of the term, 2,000 units in the second year, 3,000 units in the third year, 4,000 units in the fourth year, and 5,000 units in the fifth and final year of the term. Skywell may terminate the agreement in its distribution with 30 days’ notice if the Company fails to satisfy sales quotas. Product price, terms of payment and logistical matters are subject to the ongoing approval and agreement of the parties from time to time.
Imperium will hold the exclusive rights to distribute the innovative Skywell Automotive Group lineup of electric vehicles (EV) in the North American market. Skywell is one of the premier EV manufacturers in China, with a full range of advanced passenger vehicles, large and medium-sized buses, light buses, logistics vehicles, and special purpose automobiles.
On November 1, 2022, the Company announced the appointment of Alan M. Wagner as chief executive officer of the Imperium USA. Mr. Wagner’s extensive expertise and reach across the automotive industry. Before joining LMC, Wagner served as executive director of Hyundai Transys and was vice president of product development for Mercedes Benz Tech. Before that, he held multiple executive positions with Lear Corporation. He was the vice president of engineering at Saleen Automotive/SMS Supercars and executive vice president of Saleen Electric. Wagner was also vice president of Entech. Through the years, he has worked with General Motors, Ford, Shelby, Petty Enterprises, Toyota, Chrysler, and BMW among other iconic automotive brands.
Imperium offers an opportunity to be part of a potential $500 million EBITDA business in the electric vehicle industry with a well-known, proven partner already exporting superior road ready vehicles worldwide. Among the many proof points to the quality of these vehicles is a five passenger SUV, whose debut at the LA Auto Show, prompted extraordinary reviews and a surprise purchase off the floor by a legendary automotive design expert in addition to pre-orders from attendees.
| 26 |
On January 5, 2023, the Company changed the name of Imperium USA to Liteborne Motor Company (“Liteborne”).
Liteborne, now with strong industry leadership and a board of directors of exceptional industry depth, is well-poised to navigate the U.S. certification process (known as homologation) already underway as it continues to build out a sales and dealer network.
In short, while others struggle to manufacture and deliver vehicles at an affordable price, Liteborne’s reasonably priced solutions based on modern, nimble, on-demand manufacturing is unique versus the chaos and cost of American design and build that characterizes the EV landscape. We’re proud of the mission to offer North Americans an unprecedented, value driven line of electric vehicles by importing beautifully designed, skillfully manufactured, and reliably-delivered EVs.
The rest of the management team include Mr. Daniel Lock and Mr. Jonathan D’Agostino. Mr Lock, who is leading Homologation has over 20-years of automotive development and engineering management experience. Prior to Joining Liteborne he was a senior manager and program manager at Hyundai Transys. A program planning manager at Gentherm, program manager and a product design engineer at Visteon. Mr. Lock earned his BS in chemical engineering from Yale University. Mr. Jonathan D’Agostino Started career at Sands Brothers in 1999. After graduating from Fordham University with honors from NYS in legal and ethical studies he joined Lehman Brothers in 2003, spent several years as an investment and merchant banker with several different banks, including Morgan Brothers, which was founded by a Lehman vice chair. He became Professor Luc Montagnier’s partner in commercializing his preventative healthcare business, during which time he won the 2008 Noble Prize for Medicine. After leaving traditional Merchant Banking he entered the green energy space working to create power-efficient production of Green Hydrogen. Before Liteborne he founded and now is testing and commercializing HydroBoost, a product that creates green hydrogen on demand for automobiles and trucks.
Electric Vehicle Market Overview
Low Speed Electric Vehicles (LSEV)
| ● | The global market size for LSEVs is expected to reach $68B by 2025. | |
| ● | Imperium LSEV and HSEV sales are on track to reach $132 million by 2023. |
High Speed Electric Vehicles (HSEV)
| ● | The global electric vehicle market size was valued at $11.9B in 2017 and is projected to reach $56.7B by 2025, growing at a CAGR of 22.3% from 2018 to 2025. | |
| ● | Liteborne is expected to begin importing vehicles in Q4 2023 with initial sales reaching up to $130,000,000 in Rev and in 2024 Revenues will reach up to $850,000,000. High profitability is expected. |
Production Partners
Zhejiang Jonway Automobile Co.
Imperium has exclusive distribution rights in the United States, Canada, Mexico and the Carribean for Jonway built EVs.
Zhejiang Jonway Automobile Co., Ltd (“Jonway”) began manufacturing in May 2003. The Taizhou city, Zhejiang province manufacturing plant has an area of 57.3 hectares with more than 800 employees. It has invested more than 600 million RMB in producing the three and five-door SUVs, with a capacity to produce up to 30,000 units per year. The manufacturing operations include pressing, welding, painting and assembling lines. It has also gained the TS16949:2009, GCC, SASO, SONCAP and CCC certification. Jonway offers a network of more than 500 auto dealerships in China alone and has started a distribution network in Italy.
As a national first-class production enterprise, Jonway has passed the ISO 9001 quality management system certification, the product has passed the European certification and the American DOT, EPA certification, and has been exported to more than 80 countries in the world. Jonway has announced its third assembly plant in the city of Xuzhou, China.
Skywell New Energy Automobile Group Co. Ltd.
Sky-well New Energy Automobile Group Co. Ltd. was founded in 2011. Primarily engaged in the manufacturing and sales of large, medium and light buses, passenger cars and related components, it has gradually become a leading enterprise of China’s new energy automobile industry. By the end of 2016, the total assets of the company were 7.838 billion Yuan, with the net assets of 1.429 billion Yuan.
Skywell owns Nanjing Jinlong Bus Manufacturing Co., Ltd., Wuhan Sky-well New Energy Automobile Co., Ltd., Shenzhen Sky-well Automobile Co., Ltd, Nanjing Sky Source World Power Technology Co., Ltd and Qingdao Sky-well New Energy Automobile Group Co. Ltd. Its products include the 3.6-18 m series of electric passenger cars and passenger vehicles, which are widely sold in many countries and regions in Southeast Asia and widely used in public transport, tourism, commuting, leasing and other markets. Skywell is also one of the first companies to enter the clean energy bus industry. Known for its emphasis on technology research and development, its skilled workforce, its innovative designs and high-quality products, it has achieved excellent results. Since 2014, Skywell has ranked as the leading seller of new energy passenger cars in the China.
Skywell has granted to the Company the exclusive right to distribute Skywell’s electric passenger cars, trucks (including but not limited to the ET5 sport utility vehicle), buses and spare parts in the United States and Canada for a term of 5 years.
Imperium’s Green Story
Gas powered combustion engines are not the future of transportation, they are the past. Our line of electric vehicles produces no emissions, almost no heat, little noise, and can be fully powered by renewable electricity producing resources like solar and wind energy. Imperium intends to offer a combination solar/wind home charging station for a 100% sustainable, 100% zero carbon solution.
| 27 |
Imperium EV Passenger Vehicles
 |
IMPERIUM ET5 by Skywell | |
| ● | SEATING for five passengers | |
| ● | MOTOR 150 kW max power | |
| ● | SPEED up to 150 kp/h | |
| ● | RANGE up to 404 km or 520 km NEDC estimate | |
| ● | BATTERY 55.33 or 71.98 kWh Li-ion | |
| ● | EQUIPPED with Automatic Transmission, Air Conditioning, Heater, Power Windows, Power Door Locks, Rear Camera, Push Button Start, Alloy Wheels, Am-Fm USB/SD Stereo and more | |
| 28 |
Competition in the EV Market
The EV market is highly competitive and evolving rapidly, with new manufacturers and distributors consistently entering the industry to satisfy actual and expected growth in the demand for competitively priced vehicles. As a result, we expect that we will experience significant competition from new and established manufacturers, marketers and distributors. These include niche manufacturers of specialty electric vehicles, and large established manufacturers of automobiles. These, including manufacturers of EVs such as the Tesla Model S, the Chevrolet Volt and the Nissan Leaf.
Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.
DSG Technologies and Products—Fleet Management and Golf Division
We have developed the TAG suite of products that we believe is the first completely modular fleet management solution for the golf industry. The TAG suite of products is currently sold and installed around the world in golf facilities and as commercial applications through a network of established distributors and partnerships with some of the most notable brands in fleet and equipment manufacture.
VTS is giving fleet operator’s new capabilities to track and control their vehicles through the new INFINITY XL system and the new 3G-4G TAG. We have developed in-house a proprietary combination of hardware and software that is marketed around the world as the INFINITY TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course operators manage their fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of the National Golf Course Owners Association. To date, the TAG system is installed on vehicles around the world and has been used to monitor millions of rounds of golf.
The TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which can operate independently, we offer 3 information display systems to the golf courses management and golfer — the alphanumeric TEXT and high definition 12” INFINITY XL, 10” INFINITY RM and 10” INFINITY DM— providing the operator with three display options which is unique in the industry. VTS also offers inhouse financing thru purchase or lease.
The primary market for our TAG system is the golf industry, with over 40,000 golf operations worldwide. While the golf industry remains the primary focus of our sales and marketing efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new markets.
We are expanding our sales force in North America, which comprises the most significant portion of the golf fleet market and have developed key relationships with privately owned distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive sales through-out Europe, Asia, UK and many other markets worldwide Including our most recent move to New Zealand and Australia.
Our most recent Vantage product range includes the Vantage brand Fleet golf cart, and retail golf carts for individual users under the Vantage and Shelby brands. Shelby Golf cart products represent a unique offering within the golf and low speed vehicle industry, emphasizing customization and user brand association. Shelby products will be sold via DSG and a network of licensed Shelby dealers under the AC Golf Carts outlet brand. Those dealers will also act as service agents for both Shelby products and other DSG products in their locality.
| 29 |
In order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier of our hardware units and components at competitive prices. Presently, we source our TAG and INFINITY fleet from a North American Fortune 200 company with manufacturing in China and our RAPTORS from a supplier operating in the United Kingdom and Asia. This new relationship that has been established provides us with higher quality, newer technology at a competitive price.
In addition, VTS recently engaged with a telecommunications provider to provide new technology in hardware and wireless access through-out the world therefor allowing VTS to substantially reduce cellular cost.
Technology Overview
DSG produces a “modular” suite of products to provide fleet management solution for any vehicle required for a golf operation and provides two golfer information display options to meet the operators budget requirements. DSG believes that it is currently the only company in the golf fleet management industry with these capabilities.
The VTS TAG System is designed from the ground up to be a golf/turf vehicle fleet management system. Its main function is addressing the golf course operator needs. While employing same core technology (cellular wireless and GPS) as traditional commercial vehicle fleet management systems, DSG has created patent pending solutions to adapt it to the very specific requirements of the golf environment. Compared to mainstream fleet tracking products, DSG collects 10 to 50 times more data points per MB (megabyte) of cellular data due to its proprietary data collection and compression algorithms. Also, the relative positioning accuracy is improved by almost one order of magnitude by the use of application-specific geo-data validation and correction methods.
DSG’s proprietary methods make it possible to offer a solution suitable for use on golf courses at a price low enough to be affordable in the industry. Every system component incorporates state-of-the-art technology (server, mobile trackers, display). In developing its products VTS TAG Systems has adopted an application-oriented approach placing the most emphasis (and research & development) on server and end-user software by taking advantage of the commodity level reached by mainstream technologies such as Global Positioning (GPS) and M2M (Machine to Machine) Cellular Data in the wider context of Commercial Fleet Management.
DSG leveraged the existence of an abundance of very cost-effective telematics solutions by selecting an “off-the-shelf” hardware platform that meets all the main performance and environmental requirements for operation in the harsh, outdoor golf course environment. While removing all risk and cost associated with developing a proprietary hardware platform, DSG has maintained the unique nature of its hardware solution by developing a set of proprietary adapters and interfaces specifically for the golf application.
DSG has secured an exclusive supply agreement with the third-party hardware manufacturers for the vertical of golf industry. Additionally, DSG owns the design of all proprietary adapters and interfaces. This removes the risk of a potential competitor utilizing the same hardware platform. Competitors could attempt to reverse engineer or copycat the TAG technology and equipment. This risk factor is mitigated by the fact that our product does not rely on a particular technology or hardware platform to be successful but on a very specific vertical software application that is far more difficult to copy (and respectively easier to protect).
The application software contains patent features implemented in every core component of the system. The TAG device runs DSG proprietary firmware incorporating unique data collection and compression algorithms. The web server software which powers the end-user application is also proprietary and incorporates the industry knowledge accumulated through the over 70 years of collective experience of the DSG team.
This approach has given the product line a high level of endurance against technology obsolescence. At any point in time, if a hardware component is discontinued or a better/less expensive hardware platform becomes available, the software application can be easily adapted to operate on the new platform or with the new component. The company benefits from the constant increase of performance and cost reduction of mainstream hardware technology without any additional cost.
| 30 |
The web-based Software-as-a-Service (SaaS) model used by VTS TAG System is optimal for low operating and support costs and rapid-cycle release for software updates. It is also a major factor in eliminating or substantially reducing the need for any end-user premises equipment. Customers have access to the service through any internet connected computer or mobile device, there is no need for a local wireless network on the facility and installation time and cost are minimal.
DSG is positioned to take advantage of mainstream technology and utilize “best of breed” hardware platforms to create new generations of products. Our software is designed to be “portable” to future new platforms with better GPS and wireless technology in order to maintain the Company competitive edge.
All new product development effort of DSG is following the same model: select the best of breed third-party hardware platform, design and produce custom proprietary accessories while focusing the bulk of the development efforts on vertical software application to address a very specific set of end-customer needs.
The latest addition to the TAG family of products, the TAG INFINITY is a perfect example of this development philosophy in action: the main component is a last-generation Android tablet PC wrapped in a custom designed outdoor enclosure containing the power supply and interface components required for the golf environment. The software application is taking advantage of all the advanced high-resolution graphics, touch user interface and computing power of the Android OS delivering a vastly superior user experience compared to competitive systems. The time to market for this product was 30% of how long it took to develop and launch this type of products in the past.
The TAG Control Unit
The company’s flagship product is the TAG Control unit. The TAG can operate as a “stand alone” unit or with one of two displays; the INFINITY 10” alphanumeric display or the INFINITY high definition “touch activated” screen. The TAG is GPS enabled and communicates with the TAG software using cellular GSM networks. Utilizing the cellular networks rather than erecting a local Wi-Fi network assures carrier grade uptime, and vehicle tracking “off- property”. GSM is the de facto global standard for mobile communications.
The TAG unit itself is discreetly installed usually in the nose of the vehicle to give the GPS clear line of site. It is then connected to the vehicle battery and ignition. The property is then mapped using the latest satellite imagery that is graphically enhanced and loaded into the TAG System as a map.
Once installed the vehicle owner utilizes the TAG software to locate the vehicle in real time using any computer, smartphone, or tablet that has an internet connection and perform various management operations.
| 31 |
The operator can use the geo-fencing capabilities to create “zones” on the property where they can control the vehicles behavior such as shutting down a vehicle that is entering a sensitive or dangerous area. The TAG System also monitors the strength of the vehicle’s battery helping to prevent sending out vehicles undercharged batteries which can be an inconvenience for the course and negatively impact the golfer experience.
Features and Benefits:
| ● | Internal battery utilizing Smart Power technology which charges the battery only when the vehicle is running (gas) or being charged (electric) |
| ● | Pace of Play management and reporting which is a critical statistic for the golf operator |
| ● | No software to install |
| ● | Web based access on any computer, smartphone, or tablet |
| ● | Set up restricted zones to protect property, vehicles, and customers |
| ● | Real time tracking both on and off property (using Street Maps) |
| ● | Email alerts of zone activity |
| ● | Cart lockdown |
| ● | Detailed usage reporting for improved maintenance, proper vehicle rotation, and staff efficiency |
| ● | Geofencing security features |
| ● | Ability to enforce cart path rules which is key to protecting course on wet weather days |
| ● | Modular system allows for hardware and feature options to fit any budget or operations |
| 32 |
INFINITY 10” Display
The INFINITY 10” is paired with the TAG Control unit as DSG’s entry level display system for operators who desire to provide basic hole distance information and messaging to the golf customer. The INFINITY 10” is a very cost-effective solution for operators who desire to give their customers GPS services with the benefits of a Fleet Management back end. The INFINITY 10” can be mounted on the steering column or the dash depending on the customer’s preference.
VTS’s entry level alphanumeric golf information display
Features and Benefits:
| ● | Hole information display |
| ● | Yardage displays for front, middle, back locations of the pin |
| ● | Messaging capabilities – to individual carts or fleet broadcast |
| ● | Zone violation warnings |
| ● | Pace of Play notifications |
| ● | Smart battery technology to prevent power drain |
| ● | Versatile mounting option |
| 33 |
INFINITY XL 12” Display
The INFINITY XL 12” is a solution for operators who desire to provide a high-level visual information experience to their customers. The INFINITY XL 12” is a high definition “Infinity XL 12” “ activated display screen mounted in the golf cart integrated with the TAG Control unit to provide a full back/front end Fleet Management solution. The INFINITY XL 12” displays hole graphics, yardage, and detailed course information to the golfer and provides interactive features such as Food and Beverage ordering and scorekeeping.
The industry leading Infinity XL 12” HD – the most sophisticated display in the market.
Features and Benefits:
| ● | Integrated Food and Beverage ordering |
| ● | Pro Tips |
| ● | Flyover capability |
| ● | Daily pin placement display |
| ● | Interactive Scorecard with email capability |
| ● | Multiple language choices |
| ● | No power drain with Smart Battery technology |
| ● | Full broadcast messaging capabilities |
| ● | Pace of Play display |
| ● | Vivid hole graphics |
| ● | Option of steering or roof mount |
| ● | Generate advertising revenue and market additional services |
| 34 |
PROGRAMMATIC Advertising Platform
A unique feature of the INFINITY XL 12” system is the advertising display capability. This can be used by the operator for internal promotion of services or for generating revenue by selling the ad real estate since the golf demographic is very desirable to advertisers. The INFINITY XL 12” displays banner, panel, full page, pro tip, and Green view ads. There is also ad real estate on the interactive feature screens for Food and Beverage ordering and the scorecard. The Infinity XL 12” System can also display animated GIF files or play video for added impact.
Advertising displayed in multiple formats including animated GIF and video
DSG has developed proprietary “Ad Manager” software which is used to place and change the ads on the system(s) from a central NOC (Network Operations Center) in real time. The Ad Manager can deploy to a single system or multiple systems. This creates a network of screens that is also very desirable to advertisers as ad content can be deployed locally, regionally, or nationally. The advertising platform is an important part of the company’s future marketing and sales strategy.
| 35 |
DSG R3 Advertising Platform
The DSG R3 program delivers advance ROI (Revenue Optimization Intelligence). Utilizing all streams of advertising delivery, such as automated, direct, and self-serve. The R3 program has the ability to deliver relevant advertising to golfers the moment they sit in the cart. The R3 model is more effective than the previous advertising model of ‘One to One’, these are local ads only sold through direct sales by courses, or 3 rd party advertising sales firms. The new R3 model offers ‘Many to one’ advertising options, delivering thousands of national, regional, and local advertisers an opportunity to advertise on our screens through our R3 Marketplace.
Previous ‘One to One’ model vs the new R3 model ‘Many to One’
| 36 |
TAG TURF/ECO TAG
The TAG Turf and the new ECO TAG were developed to give course operators the same back end management features for their turf equipment and utility vehicles. Turf equipment is expensive, and a single piece can run over $100,000 and represents a large portion of a golf course operating budget. The TAG Turf and ECO TAG have comprehensive reporting that the operator can utilize to implement programs that can increase efficiencies, reduce labor costs, help lower idle times, provide fuel consumption and equipment performance, provide historical data on cutting patterns, and reduce pollution from emissions by monitoring idle times. Since the golf course needs to be maintained regardless of volume these cost saving measures directly impact the operator’s bottom line.
Features and Benefits:
| ● | Can be installed on any turf, utility, or service vehicle |
| ● | Work activity tracking and management |
| ● | Work breakdown and analysis per area, work group, activity type or specific vehicle |
| ● | Vehicle idling alerts |
| ● | Zone entry alerts |
| ● | Detailed travel (cutting patterns) history |
| ● | Detailed usage reports with mileage and hours |
| ● | Protection for ecological areas through geo fencing |
| ● | Vehicle lock down and ‘off property’ locating features |
| 37 |
The TAG Turf provides detailed trail history and cutting patterns
Golf Carts
The Company distributes fleet carts for golf courses, as well as consumer and utility carts under the Vantage brand, ranging from newly in-house designed SR-1 Single Rider, to the Vantage V-Club and Pro carts.
In early 2022 the Company acquired the global distribution and branding rights to market the “Shelby” branded golf carts and E-bikes named for the legendary American race car driver. The carts will be marketed to the rapidly growing and lucrative Golf Community market such as the Villages in Florida where personal golf carts are both the preferred means of transportation and a status symbol.
The unique styling and performance features of the Shelby range of vehicles has broad appeal among consumers looking for a vehicle with performance heritage. Shelby golf cart models include the Shelby G.T. 500 series 2 seat, 4 seat and 6 seat models also available in Cobra ultimate high-performance trim, with a sport utility model due for release in the 3rd quarter of 2023. DSG exhibited the Shelby range at the 2023 PGA golf show where it generated enormous excitement with more than 70 dealers from the USA alone registering their interest.
Vantage BayCar
| 38 |
Motor: Industry leading maintenance free 5kw AC. Highly efficient, smooth, high torque motor.
Battery Pack.: Extended range from larger 105ah LITHIUM battery pack.
Battery Charger: Opportunity on board charge anywhere there’s access to regular 110v power outlet.
Braking System: Regenerative engine braking with auto park brake system
Suspension: McPherson Strut front suspension.
Full electrics. LED Headlights, taillights, Sequential turn lights, LCD Screen. 10” Display. Speedo, Battery State of Charge. Trip and Total Milage, Gear selection indicator.
USB outlets. 4 x on-dash USB jacks, 10” Alloy wheels with ProTour or radial tires
Convertible rear seat. Folds out to handy flat bed for groceries, guest luggage or equipment.
Extended canopy to protect rear seat occupants
Warranty. The industry’s most comprehensive 5-year Bumper to bumper warranty
Telemetry. Your service technician has Password protected App connect Bluetooth Smart Phone access to vehicle controller. Change vehicle setting, Diagnostics, fault history and reports.
Telemetry. Password protected App connect Bluetooth access to Lithium Battery Management System.
AC Smart Drive maintenance free motor. Integrated onboard Smart Charger
VantagePro
Motor: Industry leading maintenance free 5kw AC. Highly efficient, smooth, high torque motor.
Battery Pack.: Extended range from larger 105ah LITHIUM battery pack.
Battery Charger: Opportunity on board charge anywhere there’s access to regular 110v power outlet.
GPS Fleet Management System: Level 1 GPS Fleet management included in lease or rental. (Pace of play alerts, Geo Fencing, Security lockdown and more)
Braking System: Regenerative engine braking with auto park brake system
Suspension: Automotive McPherson Strut front suspension. USB outlets. 4 x on-dash USB jacks
Accessories. 2 x sand bottles, Beverage Cool Box, Club and Ball Washer
Warranty. The industry’s most comprehensive 7-year Bumper to bumper warranty
Service & Maintenance. Level 1 on-site service included in lease or rental.
Vantage Tag GPS fleet management system from the world leaders in Golf Cart Fleet Management.
Telemetry. Password protected App connect Bluetooth Smart Phone access to vehicle controller. Change vehicle setting, Diagnostics, fault history and reports.
Telemetry. Password protected App connect Bluetooth access to Lithium Battery Management System. AC Smart Drive maintenance free motor. Integrated onboard Smart Charger.
| 39 |
Vantage Tour
Motor: Industry leading maintenance free 5kw AC. Highly efficient, smooth, high torque motor.
Battery Pack.: Extended range from larger 105ah LITHIUM battery pack.
Battery Charger: Opportunity on board charge anywhere there’s access to regular 110v power outlet.
Braking System: Regenerative engine braking with auto park brake system
Suspension: McPherson Strut front suspension.
Full electrics. LED Headlights, taillights, Sequential turn lights, LCD Screen. 10” Display. Speedo, Battery State of Charge. Trip and Total Milage, Gear selection indicator.
USB outlets. 4 x on-dash USB jacks
10” Alloy wheels with ProTour or radial tires
Warranty. The industry’s most comprehensive 7 year Bumper to bumper warranty
Service & Maintenance. Complimentary first on-site cart service (your home or golf course) Meet your service tech. The comfort of knowing you have professional parts and service support.
Telemetry. Your service technician has Password protected App connect Bluetooth Smart Phone access to vehicle controller. Change vehicle setting, Diagnostics, fault history and reports.
Telemetry. Password protected App connect Bluetooth access to Lithium Battery Management System.
AC Smart Drive maintenance free motor. Integrated onboard Smart Charger
| 40 |
Shelby Golf Cart
Motor: Enormous power from true 6.3kw AC Motor.
Battery Pack. 110ah Lithium Battery pack.
Onboard integrated battery charger.
Electrics. LED Headlights, tail lights, blinkers and turn lights.
USB outlets on dash.
9” Bluetooth Touchscreen. Hands free phone calls, audio and video streaming, backup camera, inbuilt radio
14” alloy wheels with radial
Tires Front trunk.
Distinctive styling and colour options from the Officially Licensed Shelby
GT500 Golf Cart.
| 41 |
Revenue Model
The Company reports four operating segments, GPS Devices, Golf Carts, Electric Vehicles and Administrative.
GPS Devices
In this segment revenue is recognized for sales of the Tag system hardware either by direct sales to those customers who purchase or lease our TAG system hardware, rental of the units, and monthly service fees paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG systems. The Company offers different levels of the system from a base model up to an advanced system (a TAG, a TAG and TEXT, or a TAG and INFINITY).
Golf Carts
Golf Cart Sales Revenue consists of the sales price paid by the customers who purchase our Vantage and licensed Shelby golf carts.
Electric Vehicles
Electric fleet sales revenue is a new source of revenue which consists primarily of wholesale distribution sales of our electronic fleet including vehicles, e-bikes and e-scooters. Golf cart sales are also included within this source of revenue.
Administrative
Expenses related to the overall operations of the Company not associated with a specific revenue segment
| In Planning |
Programmatic advertising revenue is a new source of revenue that we believe has the potential to be strategic for us in the future. We are in the process of implementing and designing software to provide advertising and other media functionality on our INFINITY units. No costs have been incurred yet for this project.
We recognize revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. We accrue for warranty costs, sales returns, and other allowances based on its historical experience.
Our revenue recognition policies are discussed in more detail under “Note 2 – Summary of Significant Accounting Policies” in the notes to our Consolidated Financial Statements included in Part II, Item 8 of the Company’s filed Form 10-K for the year ended December 31, 2022.
Markets
Sales and Marketing Plan
The market for the TAG System is the worldwide golf cart and Turf equipment fleets. There are 40,000 golf courses around the world with North America being the largest individual market with 20,000. This represents over 3,000,000 vehicles. The golf market has five distinct types of operations. Municipal, Private Country Clubs, Destination Resorts, Public Commercial, Military and University affiliated. VTS has deployed and has case studies developed TAG systems in each of these categories.
Our marketing strategy is focused on building brand awareness, generating quality leads, and providing excellent customer service.
North America Sales
Since the largest market is North America the Company employs a direct sales team and sales agents that provide full sales coverage. Our sales agents are experienced golf industry professionals who maintain established relationships with the golf industry and carry multiple golf lines. Our sales objective is to offer our existing and prospective customers a dedicated, knowledgeable, and outstanding customer service team.
In addition, our team is dedicated to existing accounts that focus on up-selling and cross-selling additional products to our current customer base, securing renewal agreements, and providing excellent customer service. The current regions are:
| ● | Western Canada |
| ● | Central Canada |
| ● | Eastern Canada |
| ● | Northeast USA |
| ● | Western USA |
| ● | Southeastern USA |
| ● | Midwest USA |
| 42 |
International Sales
DSG focuses on select global golf markets that offer significant volume opportunities and that value the benefits that our products deliver.
We utilize strategic distributor partnerships in each targeted region/country to sell, install and service our products. Distributors are selected based on market strength, market share, technical and selling capability, and overall reputation. We believe that DSG solutions appeal to all distributors because they are universal and fit any make or model of vehicle. We maintain and leverage our strong relationship with Yamaha, E-Z-GO and Ransomes Jacobsen (sister company to E-Z-GO) in developing our distributor network around the world. Today, many of our distributor partners are the leading distributors for E-Z-GO and RJ and hold a dominant position in their respective markets. While they are Yamaha or E-Z-GO distributors, most sell DSG products to all courses regardless of their choice of golf car as a value add to their customers and to generate additional revenue. We complement this distributor base with independent distributors as needed to ensure we have sufficient coverage in critical markets.
Currently DSG is focused on expanding in Europe, Asia and South Africa. The Company plans to expand next into Australia, New Zealand and Latin America.
Management Companies
Many golf facilities are managed by management companies. The portfolios of these companies vary from a few to hundreds of golf courses. Troon®, the world’s largest player in golf course management, has over 200 courses under management. The management companies provide everything from branding, staffing, management systems, marketing, and procurement. DSG is currently providing products and services to Troon, OB Sports, Kemper Sports, Trump, Marriott Golf, Blue Green, Crown Golf, American Golf, Billy Casper, Club Corp, and Club Link.
DSG has been successful in completing installations and developing relationships with several of the key players who control a substantial number of courses. DSG will continue to implement system developments that are driven by the needs of these management companies such as combined reporting, multiple course access through a centralized dashboard. This development will become a competitive advantage for DSG in the management company market.
DSG has dedicated a team to create specific collateral for this market and has assigned a senior executive to have direct responsibility to manage these relationships.
Competition
We compete with a number of established producers and distributors of vehicle fleet management systems. Our competitors include producers of golf specific applications, such as GPS Industries, LLC., one of the leading suppliers of golf cart fleet management systems, as well as producers of non-golf specific utility vehicle fleet management systems, such as Toro. Many of our competitors have longer operating histories, better brand recognition and greater financial resources than we do. In order for us to successfully compete in our industry we must:
| ● | demonstrate our products’ competitive advantages; | |
| ● | develop a comprehensive marketing system; and | |
| ● | increase our financial resources. |
| 43 |
However, there can be no assurance that even if we do these things, we will be able to compete effectively with the other companies in our industry.
We believe that we will be able to compete effectively in our industry because of the versatility, reliability, and relative affordability of our products when compared to those of our competitors. We will attempt to build awareness of our competitive advantages among existing and potential customers through trade shows, sales visits and demonstrations, online marketing, and positive word of mouth advertising.
However, as we are a newly established company relative to our competitors, we face the same problems as other new companies starting up in an industry, such as limited access to capital. Our competitors may be substantially larger and better funded than us, and have significantly longer histories of research, operation and development than us. In addition, they may be able to provide more competitive products than we can and generally be able to respond more quickly to new or emerging technologies and changes in legislation and regulations relating to the industry. Additionally, our competitors may devote greater resources to the development, promotion and sale of their products or services than we do. Increased competition could also result in loss of key personnel, reduced margins or loss of market share, any of which could harm our business.
Our primary competitor in the field of golf course fleet management is GPS Industries, a company that was founded in 1996 by our sole officer, founder and one of our directors, Mr. Bob Silzer. GPS Industries is currently the largest player in the marketplace with an installed base of approximately 750 golf courses worldwide. GPS Industries was consolidated by various mergers and acquisitions with a diversity of hardware platforms and application software. Since 2009, when GPS Industries has introduced their latest product offering called the Visage, in an exclusive partnership with Club Car, their strategy has been to target mostly their existing customers and motivate them into replacing their existing, older GPS system, with the Visage system.
GPS Industries is leveraging very heavily their partnership with Club Car, which is one of the three largest golf cart manufacturers in the world and at times is benefiting from golf operators’ preference for Club Car and their vehicles when they select their management system.
Market Mix
Since the introduction of the DSG product line, we have shown golf course operators that they have now access to a budget-friendly fleet management tool that works not only on golf carts but also with all other vehicles used on the golf course such as turf maintenance, shuttles, and other utility vehicles.
Marketing studies have identified that half of the golf course operators only need a fleet management system and only 15% need a high-end GPS golf system. This illustrates the strong competitive advantage that VTS TAG Systems has versus GPS Industries since their product can only address the needs of a relatively small fraction of the marketplace.
Consequently, GPS Industries’ installed base has steadily declined since most of their new product installations have replaced older product for existing customers and some customers have opted for a lower budget system and switched over to VTS TAG Systems.
Marketing Activities
The Company has a multi-layered approach marketing the TAG suite of products. One of the foundations of this plan is attending industry trade shows which are well attended by golf operators. The two largest shows are the PGA Merchandise Show and the Golf Industry Show which are held in Florida at the end of January. The Company also attends a number of regional shows around North America. International events are attended by our distributors and partners.
The second layer of marketing is memberships in key organizations such as the National Golf Course Owners Association, Golf Course Superintendents Association, and Club Managers Association of America. These are very influential in the industry and have marketing channels such as publications, email blasts, and web-based marketing. The Company also markets directly to course operators through email, surveys direct mail programs.
| 44 |
Lead Generation
One of the primary sources of lead generation is through the Company’s strategic partnerships with E-Z-GO, Yamaha, and Ransomes Jacobson. These relationships provide the Company with a great deal of market intelligence. The sales forces of the partners work in tandem with the DSG sales team by passing on the leads, creating joint proposals, and distributing TAG sales material. The Company has also created co-branded materials for specific value items of interest to operators such as Pace of Play solutions. DSG sale s and marketing staff attend partner sales events to conduct training and discuss marketing strategies.
The Company is in the process of testing an internal telemarketing program in several key markets to gauge whether this particular channel warrants larger scale implementation.
Competitive Advantages
Pricing
One of the “heroes” of the TAG System is providing the course operator a range of modular fleet management options that are very competitively priced. Pricing options range from the TURF, TAG, Infinity 10”, and Infinity XL 12” System, giving the customer a wide range of pricing options.
Functional advantages
DSG has the distinctive advantage of being able to offer a true fleet management system, encompassing all the vehicles on the golf course, not just the golf carts. Due to the modular nature of the system, customers have now the option to configure their system’s configuration to match exactly their needs and their budget.
Product advantages
DSG products are the robust, reliable, and user-friendly systems in the world. DSG is the only company currently providing systems that are waterproof with internal batteries to ensure our partners retain the full golf cart manufacturer’s warranty.
Operational Plan
Our Operations Department’s main functions are outlined below:
Product Supply Chain Management
| ● | Product procurement, lead-time management |
| ● | Inventory Control |
Customer Service
| ● | Training |
| ● | Troubleshooting & Support |
| ● | Hardware Repairs |
Installations
| ● | Content & graphics procurement |
| ● | System configurations |
| ● | Shipping and Installation |
Infrastructure Management
| ● | Communication Servers Management |
| ● | Cellular Data Carriers |
| ● | Service and administration tools |
| 45 |
Product Supply Chain
In order to maintain high product quality and control, and to optimize production costs, the Company is currently procuring all main hardware components offshore. Final assembly is locally performed to ensure product quality. Other key components are also procured directly from local manufacturers or suppliers to keep the price as low as possible.
The Company is requesting the suppliers to perform a complete set of quality testing and minimum 24 hours’ burn-in before the product is delivered. The local hardware assembler and components supplier offers a 12-month warranty. The main hardware components offshore supplier offers a warranty plan of 15 months from the date the product is shipped. With an extended 90 days beyond the current warranty, such repair service would be paid by the supplier except for component replacement costs, which would be paid by DSG.
Another important activity related to the management of the product supply chain is working closely with the suppliers and ensuring that we have alternate sources for the main components and identify well in advance any components that may go “end-of-life” and find suitable replacements before product shortages may occur.
Inventory Control
The Company has implemented strict inventory management procedures that govern the inbound flow of products from suppliers, the outgoing flow to customers as well as the internal movement of inventory between warehouses (Canada, US and UK). There are also procedures in place to control the flow of equipment returning from customers for repairs and their replacements.
Installation
The Company is utilizing a small number of its own field engineers, geographically positioned to be in close proximity of areas with high concentrations of current and future customers. Occasionally, when new installations exceed the internal capacity, the company employs a number of external contractors, on a project-by-project basis. Each contractor has been trained extensively to perform product installations and the Company has created an extensive collection of Installation Manuals for all products and vehicle types.
The product was designed with ease of installation as one of its features. Additionally, the installation process includes a pre-shipping configuration process that prepares each device with all the settings and graphics content (if applicable) required for the specific location it will be deployed. This makes the installation process a lot simpler and less time consuming in the field which reduces costs (accommodations, food, travel) for internal staff as well as external contractor cost (less billable time).
Another benefit of the simplified installation procedure is increased scalability in anticipation of increased number of installs in the future by reducing the skill level and training time requirements for additional contractors.
| 46 |
Customer Service
The Company has deployed its Customer Service staff strategically, so it has at least one service representative active during business hours in North America, Europe and South Africa.
The Company handles Customer Service directly in North America and UK, offering telephone and on-line support to end-customers. In other international markets, the first-line customer service is handled by local distributor’s staff while DSG is supplying training and more advanced support to the distributors.
For the management of the customer service activities, the Company is utilizing SalesForce.com CRM system which allows creating, updating, closing and escalation of service cases, including the issuance of RMA (Return Material Authorization) numbers for defective equipment. Using SalesForce.com also allows generation of management reports for service issues, customer satisfaction, and equipment failures in order to quickly identify trends, problem accounts or systemic issues.
In addition, DSG began offering the DSG Par 72 Service & Support Plan to guarantee service and support to client courses in the golf business, during fiscal 2016. This program for client courses guarantees service and support programs within 24 hours of a problem arising.
Product Development and Engineering
The Company employs a team of software engineers in-house to develop and maintain the main components of the server software and firmware. As at the period ended June 30, 2023, nothing has been developed.
All product development is derived from business needs assessment and customer requests.
The Product Manager reviews periodically the list of feature requests with the Sales, establishes priorities and updates the Product Roadmap.
The software engineers are also responsible for developing specialized tools and systems utilized increase efficiency in the operation of the Company. These projects include functionality such as: automated system monitoring, automatic service alerts, improved remote troubleshooting tools, cellular data monitoring and reporting. All these tools are critical in the future ability to support more customers with less resources, streamline support, and improve internal efficiency.
All hardware development (electronics and mechanical) is generally outsourced, however small projects like mounting solutions or cabling are handled in house.
| 47 |
Other Recent Developments
On February 17, 2022, the Company entered into a Waiver of Conditions to the Share Purchase Agreement (the “SPA”) dated December 13, 2021. The Company received two payments in the amount of $250,000 on each of February 28, 2022 and March 31, 2022. The Company agrees to repay these amounts, on an ongoing basis, with an amount equaling 20% of any gross proceeds collected by the Company until such time that 250 shares of the Series F Preferred Stock issued pursuant to this agreement and the SPA are redeemed in full. Under the original terms of the SPA, the redemption required a 15% premium, and due to the redemption being mandatory, the above transactions were treated as loans and not as mezzanine equity. A Redemption Premium of $75,000 was recognized, and recorded as part of the loan.
During the six months ended June 30, 2023, the Company made required payments in the amount of $26,307, which was applied against the loan payable.
Material Contracts
On March 2, 2020, we entered into an advisory services agreement with a third party. Under the terms of this five-year agreement, the third party has agreed to provide the Company with strategic brand and business positioning, strategic marketing, concept development and ongoing strategic consulting services. In consideration of the services to be rendered by the third party, the Company has agreed to (1) make a cash payment in the amount of $350,000 payable in several tranches following the Company’s completion of future financings of the Company, and monthly payments of $10,000 following the first twelve months of the engagement, and (2) issue a five-year warrant to purchase 2,829,859 at an exercise price of $0.25 per share, upon the execution of the agreement (the “First Warrant”), and a five-year warrant to purchase such number the Company’s common shares that is equal to 10% of the Company’s common shares calculated on a fully diluted basis as of the closing date of the future financing, at an exercise price per share equal to the 80% of the price of the Company’s securities in such future financing less the number of shares represented by the First Warrant. The warrants contains, among other provisions customary for the instruments of this nature, provisions pertaining to cashless exercise, and two-year piggy-back registration rights which entitle the holders of the warrants to register the common shares underlying their warrants alongside other registrable securities of the Company, subject to underwriter cutbacks in case of underwritten public offering(s) of the Company’s securities, if any.
On July 10, 2020, we signed a two-year lease agreement for retail, showroom and warehouse space in Fairfield, CA expiring on August 31, 2022 and with the first right of refusal for a 3–5-year lease extension, if written notice is provided prior to the expiration of the current term. The annual rent for the premises starts at $93,000. The lease includes a rent-free period with rent payments commencing on October 1, 2020.
On July 14, 2020, we signed a three-year lease agreement expiring on July 31, 2023 for office space in Surrey, BC with two rights to renew, each for an additional two-year term, if written notice is provided no later than 9 months prior to the expiration of the current term. The annual base rent for the premises starts at CAD$51,552, with additional rent of CAD$1,551 per month for operating expenses. The lease includes a rent-free period with rent payments commencing on November 1, 2020. On May 31st, 2023, we terminated the lease for one of the units under lease, and entered into a new lease on the other unit. The new lease was entered into with a possession date of March 1, 2023, but the lease has a commencement date of August 1, 2023 for a term of three years. As this new agreement would be for a previously leased space with no additional rights granted, it was accounted for as a lease modification of the existing lease. The annual base rent for the premises starts at CAD$44,160, with additional rent of CAD$1,380 per month for operating expenses. The lease contains two rights to renew, each for an additional three year term, if written notice is provided no later than 9 months prior to the expiration of the current term.
On February 11, 2023, we signed a three-year lease with a possession date of March 1, 2023 for additional warehouse space in Surrey, BC in the same location as our office space. The lease contains two rights to renew, each for an additional two year term, if written notice is provided no later than 9 months prior to the expiration of the current term. The annual base rent for the premises starts at CAD$65,760, with additional rent of CAD$1,827 per month for operating expenses. The lease includes a rent-free period with rent payments commencing on June 1, 2023.
On October 26, 2020, we entered into an amended Investor Relations Agreement with a third party for a term of twelve (months), expiring on October 3, 2021, whereby the Company agrees to issue 100 Series B preferred shares convertible into 1,000,000 common shares and 1,000,000 warrants exercisable into common shares at an exercise price of $0.25 for a period of three years.
| 48 |
On December 23, 2020, we entered into a two-year redeemable stock purchase agreement (the “Series F SPA”) with a third party for the purchase of shares of the Company’s Series F Preferred stock (“Series F”) at a price of $1,000 per share. In addition, the Company agreed to issued 3,000,000 Warrants, exercisable into one common share per Warrant at an exercise price of $0.50, for a term of 5 years and are not eligible for cashless exercise. On the date of the SPA, the third party purchased 1,500 shares of Series F in exchange for $1,500,000. Further, under the terms of the SPA, the third party agreed to purchase an additional 1,500 shares of Series F upon the filing by the Company of a registration statement with the Securities and Exchange Commission (the “Registration Statement”) registering the shares underlying the Series F and underlying the Warrants. At the Company’s request, the third party agrees to purchase an additional 1,000 shares of Series F every thirty days (an “Additional Closing”) as long as the Registration Statement remains effective and the Company’s average daily trading volume for the third trading days prior to an Additional Closing is at least $500,000 per day.
Description of Property
Our principal executive office is located at 207-15272 Croydon Drive, Surrey, BC, V3Z 0Z5 Canada, where we lease approximately 2,024 square feet of office space. On July 14, 2020, the Company entered into a three-year lease agreement expiring on July 31, 2023 for office space in Surrey, BC with two rights to renew, each for an additional two-year term, if written notice is provided no later than 9 months prior to the expiration of the current term. The annual base rent for the premises starts at CAD$51,552, with additional rent of CAD$1,551 per month for operating expenses. The lease includes a rent-free period with rent payments commencing on November 1, 2020.
Imperium Motors has an office located at 4670 Central Way, Unit D, Fairfield, California 94534, which is also the location of our Imperium Experience Center. On July 10, 2020, the Company entered into a two-year lease agreement for retail, showroom and warehouse space in Fairfield, CA expiring on August 31, 2022 and with the first right of refusal for a 3–5-year lease extension, if written notice is provided prior to the expiration of the current term. The annual rent for the premises starts at $93,000. The lease includes a rent-free period with rent payments commencing on October 1, 2020.
Vantage Tag Systems has an office and warehouse located at 3850 Anchuca Dr, Bay 22-23 Lakeland, Florida. On February 1, 2023, the Company entered into a six-month lease expiring on July 31, 2023, with one right to renew for an additional six-month term. The annual base rent for the premises starts at $6,975, with additional rent of $1,058 per month for the proportionate share of common area expenses, taxes, management fees, and insurance.
The Company entered into a new lease agreement dated March 6, 2023, for an executive office located at 107-15272 Croydon Drive, Surrey, BC, V3Z 0Z5 Canada, for approximately 1,840 square feet of office space. The commencement date of this lease is set as August 1, 2023. See above in the “Material Contracts” section for a description of the lease for the unit 107 space.
The Company entered into a new lease agreement dated January 18, 2023, for an executive office located at 208-15272 and 209-15272 Croydon Drive, Surrey, BC, V3Z 0Z5 Canada, for approximately 2,740 square feet of office space. The commencement date of this lease is set as June 1, 2023, but the Company took possession of the property on March 1, 2023 under the “rent-free” period of the lease.
Intellectual Property
General
Our success will depend in part on our ability to protect our products and product candidates by obtaining and maintaining a strong proprietary position both in the United States and in other countries. To develop and maintain our proprietary position, we will rely on patent protection, trade secrets, know-how, continuing technological innovations and licensing opportunities. In that regard, we retain and rely on the advice of legal counsel specialized in the field of intellectual property.
Patents
DSG owns two U.S. patents:
| ● | US Patent No. 8,836,490 for a “Vehicle Management” was issued September 16, 2014 and expires June 29, 2031. |
| ● | US Patent No. 9,280,902 for a “Facilities Management” was issued March 8, 2016 and expires January 24, 2032. |
Domain Names
We have registered and own the domain name of our websites www.vantage-tag.com, www.dsgtglobal.com, www.imperiummotorcompany.com, and www.liteborne.com.
Copyright
We own the common law copyright in the contents of our websites (www.vantage-tag.com, www.dsgtglobal.com, www.imperiummotorcompany.com, www.liteborne.com.) and our various promotional materials.
Trademarks
We own the common-law trademark rights in our corporate names, product names, and associated logos, including “DSG TAG”, “TAG Golf”, “ECO TAG”, “TAG Text”, “TAG Touch”, “TAG”, “TAG Commercial”, “TAG Military”, “Imperium”, and “Imperium Motors”. We have not applied to register any trademarks with the U.S. Patent and Trademark Office or with any other national or multi-national trademark authority. We assert common law trademark rights in our corporate name and those of our subsidiaries.
| 49 |
Employees
As of the date of this quarterly report we have forty full-time employees in general and administrative, operations, engineering, research and development, business development, sales and marketing, and finance. We also engage independent contractors and consultants from time to time on an as-needed basis to supplement our core staff.
Government Regulation
As a vehicle importer and distributor, we are required to ensure that all vehicles meet applicable safety and environmental standards. In the United States, our vehicles must meet the applicable provisions of the U.S. Code of Federal Regulations (“CFR”) Title 49 — Transportation. This includes providing Manufacture Identification information (49 CFR Part 566), VIN-deciphering information (49 CFR Part 565, and certifying that our vehicles meet or exceed the applicable sections of the Federal Motor Vehicle Safety Standards (40 CFR Part 571) and Environmental Protection Agency noise emission standards (40 CFR 205).
In Canada, issuance of the National Safety Mark (the “NSM”) by the Minister of Transport for Canada will be required to distribute vehicles in Canada for the Canadian market. Receipt of the NSM is contingent on us demonstrating that our vehicles are designed and manufactured to meet or exceed the applicable sections of the Canadian Motor Vehicle Safety Act (C.R.C. Chapter 1038) and that appropriate records are maintained.
Automotive dealers, including us and the members of our dealership network, are also regulated by, among other agencies, the Federal Trade Commission (FTC) and the Federal Reserve Board. Congress even enhanced the FTC’s rulemaking authority over motor vehicle dealers as part of the Wall Street Reform law. The major federal statutes and regulations that currently cover automobile dealers include the Truth in Lending Act, Federal Consumer Leasing Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Gramm-Leach-Blilely Act, Federal Trade Commission Act, etc.
In addition to federal laws, motor vehicle dealers are subject to rigorous state laws and regulations, licensed in every state, and bonded in virtually in every state. Dealers are subject to state consumer protection statutes, enforced by 50 state consumer protection agencies and state attorneys general.
In addition to regulations applicable to businesses in general, we may also be subject to direct regulation by governmental agencies, including the FCC and Department of Defense.
Components of Our Results of Operations
Revenue
We derive revenue from four different sources, with an additional source in planning stages, as follows:
| The Company reports four operating segments, GPS Devices, Golf Carts, Electric Vehicles and Administrative. | ||
| GPS Devices | ||
| In this segment revenue is recognized for sales of the Tag system hardware either by direct sales to those customers who purchase or lease our TAG system hardware, rental of the units, and monthly service fees paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG systems. The Company offers different levels of the system from a base model up to an advanced system (a TAG, a TAG and TEXT, or a TAG and INFINITY). | ||
| Golf Carts | ||
| Golf Cart Sales Revenue consists of the sales price paid by the customers who purchase our Vantage and licensed Shelby golf carts. | ||
Electric Vehicles | ||
| Electric fleet sales revenue is a new source of revenue which consists primarily of wholesale distribution sales of our electronic fleet including vehicles, e-bikes and e-scooters. Golf cart sales are also included within this source of revenue. | ||
| Administrative | ||
| Expenses related to the overall operations of the Company not associated with a specific revenue segment. | ||
| In Planning | ||
| ● | Programmatic advertising revenue is a new source of revenue that we believe has the potential to be strategic for us in the future. We are in the process of implementing and designing software to provide advertising and other media functionality on our INFINITY units. No costs have been incurred yet for this project. |
| 50 |
We recognize revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. We accrue for warranty costs, sales returns, and other allowances based on its historical experience.
Our revenue recognition policies are discussed in more detail under “Note 3 – Summary of Significant Accounting Policies” in the notes to our 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, golf cart purchases, freight expenses and inventory adjustments.
| ● | Hardware purchases. Our equipment purchases consist primarily of TAG system control units, TEXT display, and INFINITY displays. The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or INFINITY high definition “touch activated” display. Hardware purchases also include costs of components used during installations, such as cables, mounting solutions, and other miscellaneous equipment. | |
| ● | Wireless data fees. Our wireless data fees consist primarily of the data fees charged by outside providers of GPS tracking used in all of our TAG system control units. | |
| ● | Mapping. Our mapping costs consist of aerial mapping, course map, geofencing, and 3D flyovers for golf courses. This cost is incurred at the time of hardware installation. | |
| ● | Installation. Our installation costs consist primarily of costs incurred by our employed service technicians for the cost of travel, meals, and miscellaneous components required during installations. In addition, these costs also include fees paid to external contractors for installations on a project-by-project basis. | |
| ● | Electronic fleet purchases. Our electronic fleet purchases consists of the landed cost of electronic vehicles, e-bikes and e-scooters which includes the cost of the unit, and any relevant freight and import fees. | |
| ● | Golf cart purchases. Our electronic fleet purchases consists of the landed cost of electronic vehicles, e-bikes and e-scooters which includes the cost of the unit, and any relevant freight and import fees. | |
| ● | Freight expenses and Inventory adjustments. Our freight expenses consist primarily of costs to ship hardware to courses for installations. Our inventory adjustments include inventory write offs, write downs, and other adjustments to the cost of inventory. | |
| ● | Operating expenses & other income (expenses) We classify our operating expenses and other income (expenses) into six categories: compensation, general and administrative, warranty, foreign currency exchange, and finance costs. Our operating expenses consist primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade shows, software development, and allocated costs. Allocated costs include charges for facilities, office expenses, telephones and other miscellaneous expenses. Our other income (expenses) primarily consists of financing costs and foreign exchange gains or losses. |
| ● | Compensation expense. Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses, and employee benefits. This includes salaries for management, administration, engineering, sales and marketing, and service support technicians. Salaries and wages directly related to projects or research and development are expensed as incurred to their operating expense category. | |
| ● | General and administrative. Our general and administrative expenses consist primarily of sales and marketing, commissions, travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting and legal professional services fees, allocated costs and other corporate expenses and lease expense. Sales and marketing includes brand marketing, marketing materials, and media management. | |
| ● | Warranty expense (recovery). Our warranty expenses consist primarily of associated material product costs, labor costs for technical support staff, and other associated overhead. Warranty costs are expensed as they are incurred. |
| 51 |
| ● | Bad debt. Our bad debt expense consists primarily of amounts written down for doubtful accounts recorded on trade receivables. | |
| ● | Depreciation and amortization. Our depreciation and amortization costs consist primarily of depreciation and amortization on fixed assets and intangible assets. | |
| ● | Foreign currency exchange. Our foreign currency exchange consists primarily of foreign exchange fluctuations recorded in Canadian dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred. | |
| ● | Finance costs. Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing charges for obtaining debt financing. |
We expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings in new markets like commercial fleet management and agriculture.
Results of Operations
The following table summarizes key items of comparison and their related increase (decrease) for the three and six months ended June 30, 2023, and 2022:
| Three months ended | Increase (Decrease) | Six months ended | Increase (Decrease) | |||||||||||||||||||||
| 30-Jun-23 | 30-Jun-22 | 2023 – 2022 | 30-Jun-23 | 30-Jun-22 | 2023 – 2022 | |||||||||||||||||||
| ($) | ($) | (%) | ($) | ($) | (%) | |||||||||||||||||||
| Revenues | $ | 1,016,037 | 1,174,878 | (13.5 | ) | $ | 1,315,485 | $ | 1,919,129 | (31.5 | ) | |||||||||||||
| Cost of revenue | 395,285 | 814,882 | (51.5 | ) | 545,377 | 1,301,839 | (58.1 | ) | ||||||||||||||||
| Gross profit | 620,752 | 359,996 | 73.4 | 770,108 | 617,290 | 24.8 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Compensation expense | 321,644 | 1,211,309 | (73.4 | ) | 684,562 | 1,667,263 | (58.9 | ) | ||||||||||||||||
| General and administrative expense | 755,452 | 566,176 | 33.4 | 1,665,851 | 1,244,665 | 33.8 | ||||||||||||||||||
| Research and development | - | 36,750 | (100.0 | ) | - | 36,750 | (100.0 | ) | ||||||||||||||||
| Bad debt expense | - | - | - | 104,124 | 12,482 | 734.2 | ||||||||||||||||||
| Inventory write-down | 64,680 | - | - | 64,680 | - | - | ||||||||||||||||||
| Depreciation and amortization expense | 2,779 | 3,093 | (10.2 | ) | 5,770 | 6,230 | (7.4 | ) | ||||||||||||||||
| Total operating expenses | 1,144,555 | 1,817,328 | (37.0 | ) | 2,524,987 | 2,967,390 | (14.9 | ) | ||||||||||||||||
| Loss from operations | (523,803 | ) | (1,457,332 | ) | (64.1 | ) | (1,754,879 | ) | (2,350,100 | ) | (25.3 | ) | ||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Foreign currency exchange | (2,401 | ) | 1,721 | (239.5 | ) | (6,225 | ) | (26,712 | ) | (76.7 | ) | |||||||||||||
| Redemption premium | - | - | - | - | (3,062 | ) | (100.0 | ) | ||||||||||||||||
| Gain (Loss) on lease modification | - | (3,923 | ) | (100.0 | ) | 6,932 | (3,923 | ) | (276.7 | ) | ||||||||||||||
| Gain (Loss) on disposal of asset | - | - | - | - | 3,960 | (100.0 | ) | |||||||||||||||||
| Gain (Loss) on extinguishment of debt | - | - | - | - | 10,240 | (100.0 | ) | |||||||||||||||||
| Finance costs | (551,389 | ) | (527,937 | ) | 4.4 | (1,093,473 | ) | (1,084,549 | ) | 0.8 | ||||||||||||||
| Total other expense | (553,790 | ) | (530,139 | ) | 4.5 | (1,092,766 | ) | (1,104,046 | ) | (1.0 | ) | |||||||||||||
| Net loss | $ | (1,077,593 | ) | (1,987,471 | ) | (45.8 | ) | $ | (2,847,645 | ) | (3,454,146 | ) | (17.6 | ) | ||||||||||
| 52 |
Comparison of the six months ended June 30, 2023, and 2022:
Revenue
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
| Revenue | $ | 1,016,037 | $ | 1,174,878 | (13.5) | $ | 1,315,485 | $ | 1,919,129 | (31.5) | ||||||||||||||
Revenue decreased by $158,841 or 13.5% for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. Revenue decreased by $603,644 or 31.5% for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.
Sales decreased for the three and six months ended June 30, 2023. This decrease is related to the inventory delivery delays that affected the installation of GPS Tracking system. $140,918 is attributed to sales of Shelby License Golf carts and the remaining $158,530 is attributed to the GPS Tracking systems.
There were no electric vehicle sales made during the six months ended June 30, 2023, as compared to $63,630 for the six months ended June 30, 2022. This decrease is the result of the revamp of the electric vehicle division, changing the name of the Company from Imperium to Liteborne and bringing in new leadership for the division. The Company expects growth in this section over the rest of the fiscal year.
As of June 30, 2023, the Company had signed contracts totaling over $7.7 million in gross sales, inclusive of recurring revenue on GPS tracking system and Vantage Pro fleet carts. Due to delays related to manufacturing and shipment of product, fulfilment was not yet completely satisfied for the fleet management solution (GPS and Infinity), and only $299,448 was recognizable as a revenue stream including our new line of Shelby and Vantage golf carts, for the six months ended June 30, 2023. As product becomes available, DSG expects to satisfy its performance obligations on the remaining contracts for fleet management solution during the Second half of fiscal year 2023.
Cost of Revenue
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
| Cost of revenue | $ | 395,285 | $ | 814,882 | (51.5 | ) | $ | 545,377 | $ | 1,301,839 | (58.1 | ) | ||||||||||||
Cost of revenue decreased by $419,597 or 51.5% for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. The table below outlines the differences in detail:
| For the Three Months Ended | ||||||||||||||||
June 30, 2023 | June 30, 2022 | Difference | % Difference | |||||||||||||
| Cost of goods | $ | 372,033 | $ | 796,661 | $ | (424,628 | ) | (53.3 | ) | |||||||
| Mapping & freight costs | 16,250 | 10,425 | 5,825 | 55.9 | ||||||||||||
| Wireless fees | 7,002 | 7,796 | (794 | ) | (10.2 | ) | ||||||||||
| $ | 395,285 | $ | 814,882 | $ | (419,597 | ) | (51.5 | ) | ||||||||
Cost of revenue decreased by $756,462, or 58,1%, for the six months ended June 30, 2023 as compared to the six months June 30, 2022. The table below outlines the differences in detail:
| For the Six Months Ended | ||||||||||||||||
June 30, 2023 | June 30, 2022 | Difference | % Difference | |||||||||||||
| Cost of goods | $ | 509,101 | $ | 1,250,302 | $ | (741,201 | ) | (59.3 | ) | |||||||
| Mapping & freight costs | 18,999 | 13,324 | 5,675 | 42.6 | ||||||||||||
| Wireless fees | 17,277 | 38,213 | (20,936 | ) | (54.8 | ) | ||||||||||
| $ | 545,377 | $ | 1,301,839 | $ | (756,462 | ) | (58.1 | ) | ||||||||
Cost of goods decreased for the three and six months ended June 30, 2023, respectively due to the decline in sales for these periods. Our Wireless fees decreased due to a newly negotiated rate for the active and upcoming Wireless services for our GPS Tracking system.
| 53 |
Compensation Expense
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
| Compensation expense | $ | 321,644 | $ | 1,211,309 | (73.4 | ) | $ | 684,562 | $ | 1,667,263 | (58.9 | ) | ||||||||||||
Compensation expense decreased by $889,665, or 73.4%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. This is related to a reduction of cost of labor of internal projects allocated to the GPS tracking system that came to completion at the end of 2021 and beginning of 2022. Compensation expense decreased by $982,701, or 58.9%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. This reduction was for the same reason as described above. Costs incurred during 2022 for the GPS tracking system have not been incurred during fiscal 2023.
General and Administration Expense
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
| General & administration expense | $ | 755,452 | $ | 566,176 | 33.4 | $ | 1,665,851 | $ | 1,244,665 | 33.8 | ||||||||||||||
General & administration expense increased by $189,276 or 33.4% for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. The table below outlines the differences in detail:
| For the Three Months Ended | ||||||||||||||||
June 30, 2023 | June 30, 2022 | Difference | % Difference | |||||||||||||
| Accounting & legal | $ | 26,212 | $ | 39,056 | $ | (12,844 | ) | (32.9 | ) | |||||||
| Marketing & advertising | 24,566 | 77,198 | (52,632 | ) | (68.2 | ) | ||||||||||
| Subcontractor & commissions | 375,192 | 51,936 | 323,256 | 622.4 | ||||||||||||
| Hardware | 30,689 | 18,848 | 11,841 | 62.8 | ||||||||||||
| Lease expense | 28,324 | 62,946 | (34,622 | ) | (55.0 | ) | ||||||||||
| Office expense, rent, software, bank & credit card charges, telephone & meals | 270,469 | 316,192 | (45,723 | ) | (14.5 | ) | ||||||||||
| $ | 755,452 | $ | 566,176 | $ | 189,276 | 33.4 | ||||||||||
The overall increase in general and admin expenses was primarily due to subcontractor and commission expenses related to the company’s participation on the annual PGA show, to introduce our Vantage golf cart line of products, licensed Shelby golf cart and new 10’ Infinity, the increase in accounting and legal fees relates to financial filings and the creation of patents (in process), and the increase of hardware expenses are due to newly purchase equipment to finalize the current projects for the GPS and newly introduce SR-1 Golf cart.
General & administration expense increased by $421,186 or 33.8% for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The table below outlines the differences in detail:
| For the Six Months Ended | ||||||||||||||||
| June 30, 2023 | June 30, 2022 | Difference | % Difference | |||||||||||||
| Accounting & legal | $ | 179,323 | $ | 63,677 | $ | 115,646 | 181.6 | |||||||||
| Marketing & advertising | 49,617 | 162,333 | (112,716 | ) | (69.4 | ) | ||||||||||
| Subcontractor & commissions | 680,794 | 191,903 | 488,891 | 254.8 | ||||||||||||
| Hardware | 60,973 | 34,907 | 26,066 | 74.7 | ||||||||||||
| Lease expense | 47,473 | 63,915 | (16,442 | ) | (25.7 | ) | ||||||||||
| Office expense, rent, software, bank & credit card charges, telephone & meals | 647,671 | 727,930 | (80,250 | ) | (11.0 | ) | ||||||||||
| $ | 1,665,851 | $ | 1,244,665 | $ | 421,186 | 33.8 | ||||||||||
The overall increase in general and admin expenses was primarily due to subcontractor and commission expenses related to the company’s participation on the annual PGA show, to introduce our Vantage golf cart line of products, licensed Shelby golf cart and new 10’ Infinity, the increase in accounting and legal fees relates to financial filings and the creation of patents (in process), and the increase of hardware expenses are due to newly purchase equipment to finalize the current projects for the GPS and newly introduce SR-1 Golf cart.
| 54 |
Foreign Currency Exchange
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
| Foreign currency exchange | $ | (2,401 | ) | $ | 1,721 | (239.5 | ) | $ | (6,225 | ) | $ | (26,712 | ) | (76.7 | ) | |||||||||
For the three months ended June 30, 2023, we recognized a foreign exchange loss of $2,401 compared to a gain of $1,721 for the three months ended June 30, 2022. For the six months ended June 30, 2023, we recognized a foreign exchange loss of $6,225 compared to a loss of $26,712 for the six months ended June 30, 2022. The changes were due to changes in foreign currency rates on payables, receivables, loans and other foreign balances denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the United States dollar, Canadian dollar, Euro and British pound.
Finance Costs
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
| Finance costs | $ | (551,389 | ) | $ | (527,937 | ) | 4.4 | $ | (1,093,473 | ) | $ | (1,084,549 | ) | 0.8 | ||||||||||
Finance costs decreased by $23,452 or 4.4%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. Finance costs decreased by $8,924 or 0.8% for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. Finance costs for the three months ended June 30, 2023 are comparable to those amounts recorded for the three months ended June 30, 2022.
Net Loss
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
| Net loss | $ | (1,077,593 | ) | $ | (1,987,471 | ) | 45.8 | $ | (2,847,645 | ) | $ | (3,454,146 | ) | 16.3 | ||||||||||
As a result of the above factors, net loss decreased by $909,878 or 45.8% for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 and decreased by $606,501 or 16.3% for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.
| 55 |
Liquidity and Capital Resources
From our incorporation on April 17, 2008 through June 30, 2023, 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. As of June 30, 2023, we had $11,149,411 in total liabilities, the majority of which matures within the next twelve months.
We had cash in the amount of $19,546 as of June 30, 2023, as compared to $53,779 as of December 31, 2022. We had a working capital deficit of $9,111,139 as of June 30, 2023 compared to working capital deficit of $6,846,711 as of December 31, 2022.
Liquidity and Financial Condition
Our financial position as of June 30, 2023, and December 31, 2022, and the changes for the periods then ended are as follows:
Working Capital
| June 30, 2023 | December 31, 2022 | |||||||
| Current assets | $ | 1,684,983 | $ | 2,162,895 | ||||
| Current liabilities | $ | 10,796,122 | $ | 9,009,606 | ||||
| Working capital | $ | (9,111,139 | ) | $ | (6,846,711 | ) | ||
Cash Flow Analysis
Our cash flows from operating, investing, and financing activities are summarized as follows:
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in by operating activities | $ | (835,245 | ) | $ | (343,399 | ) | ||
| Net cash used in investing activities | - | 1,333 | ||||||
| Net cash provided by financing activities | 803,013 | 1,593,116 | ||||||
| Effect of exchange rate changes on cash | (2,001 | ) | 50,285 | |||||
| Net increase (decrease) in cash | (34,233 | ) | 1,301,335 | |||||
| Cash at beginning of period | 53,779 | 275,383 | ||||||
| Cash at end of period | $ | 19,546 | $ | 1,576,718 | ||||
Net Cash Used in Operating Activities.
During the six months ended June 30, 2023, cash used in operations totaled $835,245. This reflects the net loss of $2,847,645 adjusted for $2,012,400 changes in non-cash working capital items and adjustments for non-cash items. Non-cash and working capital adjustments consisted primarily of non-cash changes in ROU assets and amortization of $48,417, bad debt expense of $104,124, inventory write-down of $64,680, offset by an decrease in prepaid expense of $253,251, increase in trade payables and accruals of $1,516,003, increase in accounts receivable and other receivables of $255,942, and an increase in deferred revenue of $30,847.
Net Cash Used in Investing Activities.
During the six months ended June 30, 2023, the Company had no investing activities during this period.
| 56 |
Net Cash Provided by Financing Activities.
Net cash from financing activities during the six months ended June 30, 2023 totaled $803,013, which mainly relates to $612,000 received from issuing preferred shares and $159,986 received from loans payable and $71,570 received from loans payable from related parties partially offset by repayments made of $40,543 on loans payable of which $14,236 was a repayment on the related party loans.
Outstanding Indebtedness
Our current indebtedness as of June 30, 2023 is comprised of the following:
| ● | Unsecured, convertible note payable to a former related party with an outstanding principal amount of $310,000, bearing interest at 5% per annum, mature and in default; | |
| ● | Senior secured, convertible note payable with an outstanding principal amount of $Nil, and a carrying value of $9,488 relating to an outstanding penalty; | |
| ● | Unsecured, promissory note with outstanding principal amount of $2,400,000, bearing interest at 9% per annum and 24% per annum in default, maturing June 20, 2022. If not repaid by December 12, 2021, an additional $100,000 of guaranteed interest will be added on December 12, 2021 and the 12th day of each succeeding month during which any portion of the convertible note remains unpaid. In the event of a default, the note is convertible at the price that is equal to a 40% discount to the lowest trading price of the Company’s common shares during the 30 day trading period prior to the conversion date; As at June 30, 2023, the note is in default.
During the three and six months ended June 30, 2023, the Company recorded $444,000 and $445,600 in interest expense including $300,000 and $600,000 of additional interest, respectively. As at June 30, 2023, the carrying value of the convertible promissory note was $2,400,000 (December 31, 2022 - $2,400,000).
As the note is in default, it has become convertible at the holder’s request. The fair value of the loan approximates carrying value as it is now short term in nature, effectively due on demand. |
| ● | Unsecured loan payable with an outstanding principal amount of $30,187 (CAD$40,000). The loan is non-interest bearing and eligible for CAD$10,000 forgiveness if repaid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest at 5% per annum and is due on December 31, 2025; | |
| ● | Unsecured loan payable with an outstanding principal amount of $30,187 (CAD$40,000). The loan is non-interest bearing and eligible for CAD$10,000 forgiveness if repaid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest at 5% per annum and is due on December 31, 2025; | |
| ● | Secured loan payable with an outstanding principal amount of $150,000. The loan bears interest at 3.75% per annum and is due on June 5, 2050. The loan is secured by all tangible and intangible assets of the Company. Fixed payments of $731 are due monthly and begin 12 months from the date of the loan which is applied against any accrued interest first. | |
| ● | Series F Preferred Stock payments, five payments in the amount of $250,000 on February 28, 2022, $250,000 on March 31, 2022, $90,000 on July 29, 2022, $250,000 on August 29, 2022, and $125,000 on September 15, 2022, $125,000 on October 21, 2022, and $285,000 on October 21, 2022. Until such time that the 965 shares of the Series F Preferred Stock are redeemed in full, an amount equal to 20% of any gross proceeds collected by the Company are also required to be remitted. Under the original terms of the SPA, redemption of preferred F series shares requires a 15% premium payment on the face value. As such, a Redemption Premium of $75,000 was recognized, and recorded as interest expense, included as part of the loan, and will be repaid as part of the 20% gross sales remittance. As at June 30, 2023, there was a balance of $1,331,344 outstanding. | |
| ● | On May 26, 2023, the Company entered into a loan agreement with a non-related party for an amount of up to $327,390. The loan is non-interest bearing; however, the creditor will share 50/50 in the net profit from specified sales. The loan was provided to the Company for specific trade payables required to generate the sales for which the creditor will share in the net profit. As at June 30, 2023, the Company had borrowed $159,985 on the loan. As at June 30, 2023, no sales had been made related to the split profit agreement. There is no maturity date on the loan. | |
| ● | Unsecured promissory note payable with an outstanding principal amount of $1,000,000 on December 1, 2022. The note bears interest at 10% per annum and is due on December 1, 2025. If not repaid by December 1, 2025, the note bears interest at 18% per annum on all interest and outstanding principal amounts. | |
| ● | Unsecured loan payable from a related party with an outstanding principal amount of $10,000. The loan is non-interest bearing and due on demand. | |
| ● | Unsecured loan payable from a related party with an outstanding principal amount of $20,000. The loan is non-interest bearing and due on demand. | |
| ● | Unsecured loan payable from a related party with an outstanding principal amount of $3,000. The loan is non-interest bearing and due on demand. | |
| ● | Unsecured loan payable from a related party with an outstanding principal amount of $2,000. The loan is non-interest bearing and due on demand. | |
| ● | Unsecured loan payable from a related party with an outstanding principal amount of $2,000. The loan is non-interest bearing and due on demand. | |
| ● | Unsecured loan payable from a related party with an outstanding principal amount of $10,000. The loan is non-interest bearing and due on demand. | |
| ● | Unsecured loan payable from a related party with an outstanding principal amount of $10,530. The loan is non-interest bearing and due on demand. |
| 57 |
Related Party Transactions
During the six months ended June, 2023, the Company incurred $204,556 (2022 - $376,153) in salaries, bonuses of $60,000 (2022 - $60,000), and $284,102 (2022 - $47,990) in consulting fees to the President and CEO, and CFO of the Company, and the President, CEO’s, and CFO’s of the Company’s subsidiaries. As at June 30, 2023, the Company owed $97,000 (December 31, 2022 - $nil) to the President, CEO, and CFO of the Company and $200,367 (December 31, 2022 - $49,441) to the President, CEOs, and CFOs of the Company’s subsidiaries for management fees and salaries, which is recorded in trade and other payables. Amounts owed and owing are unsecured, non-interest bearing, and due on demand. Recorded in due to related party are $55,334 (2022 - $nil) owed to the President and CEO of the Company. These amounts are non-interest bearing and due on demand.
On March 4, 2021, the Company issued an aggregate of 16 shares of Series B convertible preferred shares to the Company’s board of directors for past services. These preferred shares were valued at $849,600 based on the fair value of the underlying common stock. The issuance is recorded under compensation expense.
| Director | # of Preferred Shares | |||
| Stephen Johnston | 4 | |||
| James B Singerling | 4 | |||
| Robert Silzer | 4 | |||
| Carol Cookerly | 2 | |||
| Michael Leemhuis | 2 | |||
| Total | 16 | |||
The Series B preferred stock is convertible on a 1 for 100,000 basis into common shares.
On June 27, 2022, the Company issued an aggregate of 105 shares of Series B convertible preferred shares to the Company’s board of directors for past services. These preferred shares were valued at $777,000 based on the fair value of the underlying common stock. The issuance is recorded under compensation expense.
| Director | # of Preferred Shares | |||
| Stephen Johnston | 25 | |||
| James B Singerling | 25 | |||
| Robert Silzer | 25 | |||
| Carol Cookerly | 15 | |||
| Michael Leemhuis | 15 | |||
| Total | 105 | |||
The Series B preferred stock is convertible on a 1 for 100,000 basis into common shares.
On August 1, 2022, the Company issued an aggregate of 191 shares of Series B convertible preferred shares to the CEO of the Company. These preferred shares were value at $897,700 based on the fair value of the underlying common stock.
| 58 |
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, 2024 | ||||
| General and administrative | $ | 2,404,000 | ||
| Research and development | 2,043,600 | |||
| Marketing | 755,000 | |||
| Sales and dealer network | 540,000 | |||
| Payroll overhead | 1,259,000 | |||
| Service and maintenance | 785,900 | |||
| Assembly facility | 1,750,000 | |||
| Inventory | 10,700,000 | |||
| Total | $ | 20,237,500 | ||
As noted earlier, during the six months ended June 30, 2023, cash used in operations totaled $835,245 and is expected to increase in the future periods as the Company obtains more contract sales. At present, our cash requirements for the next 12 months outweigh the funds available. Of the $20,237,500 that we require for the next 12 months, we had $19,546 in cash as of June 30, 2023, and working capital deficit of $9,111,139. Our principal sources of liquidity are cash generated from product sales, securities purchase agreements 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 and 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. 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.
| 59 |
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The phrase “disclosure controls and procedures” refers to controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, or SEC. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our interim chief executive officer, or Interim CEO, and chief financial officer, or CFO, as appropriate to allow timely decision regarding required disclosure.
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of June 33, 2023, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the second quarter of 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
| 60 |
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 7, 2016, Chetu Inc. filed a Complaint for Damage in Florida to recover an unpaid invoice amount of $27,335 plus interest of $4,939. The invoice was not paid due to a service dispute. As at June 30, 2023, included in trade and other payables is $17,983 (December 31, 2022 - $17,983) related to this unpaid invoice, interest and legal fees.
ITEM 1A. RISK FACTORS
An investment in our Company has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this Quarterly Report. If any of the following risks actually occur, our business, operating results and financial condition could be harmed, and the value of our stock could go down. This means you could lose all or a part of your investment.
RISKS RELATED TO OUR COMPANY
Our limited operating history in key areas of our business may not serve as an adequate basis to judge our future prospects and results of operations.
DSG Global and our subsidiaries, Vantage Tag and Imperium Motors, have a relatively limited operating history in the business golf cart manufacturing and electric vehicle marketing and distribution. Our limited operating history and the unpredictability of the golf and electric vehicle industries make it difficult for investors to evaluate our business. An investor in our securities must consider the risks, uncertainties and difficulties frequently encountered by companies in rapidly evolving markets.
We do not currently have all arrangements in place that are required to fully execute our business plan.
To sell our electric vehicles and PACER golf carts as envisioned we must enter into certain additional agreements and arrangements that are not currently in place. These include entering into agreements with distributors, arranging for the transportation and storage for our planned electric vehicles, arranging for a facility for the assembly of our electric vehicles, and obtaining battery and other essential supplies in the quantities that we require. If we are unable to enter into such agreements or are only able to do so on terms that are unfavorable to us, we may not be able to fully carry out our business plans.
| 61 |
We have limited cash on hand and we will require a significant amount of capital to carry out our proposed business plan to import, market and sell electric vehicles, to continue to expand our fleet management technology sales and service operations, and to manufacture, market and sell our new line of PACER golf carts. There is no assurance that we will raise sufficient capital to execute our business plan or to continue to fund operations of our Company. There is substantial doubt as to the ability of our Company to continue as a going concern.
We incurred a comprehensive loss of $7,491,362 and $6,347,178 during the years ended December 31, 2022 and 2021, respectively. During the six months ended June 30, 2023 we incurred a comprehensive loss of $2,847,645 compared to our comprehensive loss of $3,403,861 for the same period in 2022. We had cash of $19,546 as of June 30, 2023 and working capital deficit of $9,111,139, and we believe that we will need significant additional equity financing to execute our business plan and to continue as a going concern, given that, among other things:
| ● | we have begun the importation and homologation of our range of electric vehicles, and we expect to incur significant ramp-up in costs and expenses through the establishment and supply of our dealership network and the fulfillment of anticipated product orders; | |
| ● | we have endeavored to manufacture and assemble our new line of PACER golf carts in North America, and we anticipate significant ramp-up costs and expenses through the establishment of a manufacturing facility; | |
| ● | we anticipate that the gross profit generated from the sale of our electric vehicle and golf cart offerings will not be sufficient to cover our operating expenses until we achieve a high volume of sales, and our achieving profitability will depend, in part, on our ability to materially reduce the bill of materials and per unit manufacturing cost of our products; and | |
| ● | we do not anticipate that we will be eligible to obtain bank loans, or other forms of debt financing on terms that would be acceptable to us. |
We anticipate generating a significant loss for the current fiscal year. The report of independent registered public accounting firm on our audited financial statements includes an explanatory paragraph relating to our ability to continue as a going concern.
We expect significant increases in costs and expenses to forestall profits for the foreseeable future, even if we generate increased revenues in the near term. Our recently introduced and planned products might not become commercially successful. If we are to ever achieve profitability, we must have a successful introduction and acceptance of our electric vehicles and golf carts, which may not occur. We expect that our operating losses will increase substantially in 2023, and thereafter, and we also expect to continue to incur operating losses and to experience negative cash flows for the next several years.
There is no assurance that any amount raised through the Offering will be sufficient to continue to fund the operations of our Company.
We will need additional financing to implement our business plan.
The Company will need additional financing to fully implement its business plan in a manner that not only continues to expand an already established direct-to-consumer approach, but also allows the Company to establish a stronger brand name in all the areas in which it operates. In particular, the Company will need additional financing to:
| ● | Effectuate its business plan and further develop its golf products and service division, and its electric vehicle marketing and distribution division; | |
| ● | Expand its facilities, human resources, and infrastructure; and | |
| ● | Increase its marketing efforts and lead generation. |
There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund our capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders and incurring additional indebtedness could involve the imposition of covenants that restrict the Company’s operations.
| 62 |
We currently have negative operating cash flows, and if we are unable to generate positive operating cash flows in the future our viability as an operating business will be adversely affected.
We have made significant up-front investments in research and development, sales and marketing, and general and administrative expenses to rapidly develop and expand our business. We are currently incurring expenditures related to our operations that have generated a negative operating cash flow. Operating cash flow may decline in certain circumstances, many of which are beyond our control. We might not generate sufficient revenues in the near future. Because we continue to incur such significant future expenditures for research and development, sales, marketing, general, and administrative expenses, we may continue to experience negative cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses. An inability to generate positive cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses or raise additional capital on reasonable terms will adversely affect our viability as an operating business.
To carry out our proposed business plan for the next 12 months to develop, manufacture, sell and service electric vehicles we will require additional capital.
To carry out our proposed business plan for the next 12 months, we estimate as of June 30, 2023, that we will need approximately $20 million in addition to cash on hand. If cash on hand, revenue from the sale of our cars, if any, and cash received upon the exercise of outstanding warrants, if any are exercised, are not sufficient to cover our cash requirements, we will need to raise additional funds through the sale of our equity securities, in either private placements or registered offerings and/or shareholder loans. If we are unsuccessful in raising enough funds through such capital-raising efforts we may review other financing possibilities such as bank loans. Financing might not be available to us or, if available, may not be available on terms that are acceptable to us.
Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our current corporate structure. We might not be able to obtain any funding, and we might not have sufficient resources to conduct our business as projected, either of which could mean that we would be forced to curtail or discontinue our operations.
Terms of future financings may adversely impact your investment.
We may have to engage in common equity, debt or preferred stock financing in the future. Your rights and the value of your investment in our securities could be reduced. Interest on debt securities could increase costs and negatively impacts operating results. Preferred stock could be issued in series from time to time with such designation, rights, preferences and limitations as needed to raise capital. The terms of preferred stock could be more advantageous to those investors than to the holders of common shares. In addition, if we need to raise equity capital from the sale of common shares, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment. Common shares which we sell could be sold into any market which develops, which could adversely affect the market price.
Our future growth depends upon consumers’ willingness to adopt our range of electric vehicles.
Our growth highly depends upon the adoption by consumers of, and we are subject to an elevated risk of, any reduced demand for alternative fuel vehicles in general and electric vehicles in particular. If the market for low speed or for high speed electric vehicles does not develop as we expect, or develops more slowly than we expect, our business, prospects, financial condition and operating results will be negatively impacted. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include:
| ● | perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles; |
| 63 |
| ● | the limited range over which electric vehicles may be driven on a single battery charge; | |
| ● | the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge; | |
| ● | concerns about electric grid capacity and reliability, which could derail our efforts to promote electric vehicles as a practical solution to vehicles which require gasoline; | |
| ● | the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles; | |
| ● | the availability of service for electric vehicles; | |
| ● | volatility in the cost of oil and gasoline; | |
| ● | government regulations and economic incentives promoting fuel efficiency and alternate forms of energy; | |
| ● | access to charging stations, standardization of electric vehicle charging systems and consumers’ perceptions about convenience and cost to charge an electric vehicle; |
The influence of any of the factors described above may cause current or potential customers not to purchase our electric vehicles, which would materially adversely affect our business, operating results, financial condition and prospects.
The range of our electric vehicles on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our vehicles.
The range of our electric vehicles on a single charge declines principally as a function of usage, time and charging patterns. For example, a customer’s use of their vehicle as well as the frequency with which they charge the battery of their vehicle can result in additional deterioration of the battery’s ability to hold a charge. Battery deterioration will be variable as between our various offered vehicles. Such battery deterioration and the related decrease in range may negatively influence potential customer decisions whether to purchase our vehicles, which may harm our ability to market and sell our vehicles.
If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.
We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position. Any failure to keep up with advances in electric vehicle technology would result in a decline in our competitive position which would materially and adversely affect our business, prospects, operating results and financial condition. Our research and development efforts may not be sufficient to adapt to changes in electric vehicle technology. As technologies change, we plan to upgrade or adapt our vehicles and introduce new models to continue to provide vehicles with the latest technology, and particularly battery cell technology. However, our vehicles may not compete effectively with alternative vehicles if we are not able to source and integrate the latest technology into our vehicles. For example, we do not manufacture battery cells which makes us depend upon other suppliers of battery cell technology for our battery packs.
Demand in the vehicle industry is highly volatile.
Volatility of demand in the vehicle industry may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we will be competing have been subject to considerable volatility in demand in recent periods. Demand for automobile sales depends to a large extent on general, economic, political and social conditions in a given market and the introduction of new vehicles and technologies. As a new start-up manufacturer, we will have fewer financial resources than more established vehicle manufacturers to withstand changes in the market and disruptions in demand.
We depend on third parties for our electric vehicle manufacturing needs.
The delivery of our licensed vehicles to future customers and the revenue derived therefrom depends on the ability of our suppliers, including Jonway and Skywell, to fulfil their obligations under their respective license and distribution agreement with our company. Fulfilment of these obligations is outside of our control and depends on a variety of factors, including their respective operations, financial condition and geopolitical and economic risks that could affect China. The novel coronavirus (COVID-19) pandemic or measures taken by the Chinese government relating thereto may also result in non-performance by our suppliers. If they are unable to fulfil their obligations or are only able to partially fulfil their obligations under our existing agreements with them, or if they are forced to terminate our agreements with them, either as a result of the coronavirus outbreak, the Chinese government’s measures relating thereto or otherwise, we will not be able to produce or sell our licensed vehicles in the volumes anticipated and on the timetable that we anticipate, if at all.
| 64 |
We are subject to order and shipment uncertainties. Inaccuracies in our estimates of customer demand and product mix could negatively affect our inventory levels, sales and operating results.
We derive revenue primarily from customer purchase orders rather than long-term purchase commitments. To ensure availability of our products, in some cases we may start manufacturing based on forecasts provided by customers in advance of receiving purchase orders from them. In some cases, our supply chain has been affected by both tariffs or cost premiums imposed by national governments or as a result of the COVID-19 pandemic. Our customers can cancel purchase orders or defer the shipments of our products under certain circumstances with little or no advance notice to us. Some of our products are manufactured according to our estimates of customer demand, which requires us to make demand forecast assumptions for every customer, and which may introduce significant variability into our aggregate estimate. We typically sell to distributors and end users, and we consequently have limited visibility into future end-user demand, which could adversely affect our revenue forecasts and operating margins. Additionally, we sometimes receive soft commitments for larger order sizes which do not materialize. If we manufacture more products than we are able to sell to our customers or distributors, we will incur losses and our results of operation and financial condition will be harmed.
Our sales and marketing efforts may be unsuccessful in maintaining and expanding existing sales channels, developing new sales channels and increasing the sales of our products.
To grow our business, we must add new customers for our products in addition to retaining and increasing sales to our current customers. Our ability to attract new customers will depend in part on the success of our sales and marketing efforts. There can be no guarantee that we will be successful in implementing our sales and marketing strategy. If suitable sales channels do not develop, we may not be able to sell certain of our products in significant volumes and our operating results, business and prospects may be harmed.
We are subject to numerous environmental and health and safety laws and any breach of such laws may have a material adverse effect on our business and operating results.
We are subject to numerous environmental and health and safety laws, including statutes, regulations, bylaws and other legal requirements. These laws relate to the generation, use, handling, storage, transportation and disposal of regulated substances, including hazardous substances (such as batteries), dangerous goods and waste, emissions or discharges into soil, water and air, including noise and odors (which could result in remediation obligations), and occupational health and safety matters, including indoor air quality. These legal requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws and/or requirements would have a material adverse effect on our Company and its operating results.
Our vehicles are subject to motor vehicle standards and the failure to satisfy such mandated safety standards would have a material adverse effect on our business and operating results.
All vehicles sold must comply with federal, state and provincial motor vehicle safety standards. In both Canada and the United States vehicles that meet or exceed all federally mandated safety standards are certified under the federal regulations. In this regard, Canadian and U.S. motor vehicle safety standards are substantially the same. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Failure by us to have the SOLO, the Tofino or any future model EV satisfy motor vehicle standards would have a material adverse effect on our business and operating results.
| 65 |
If we are unable to reduce and adequately control the costs associated with operating our business, including our costs of manufacturing, sales and materials, our business, financial condition, operating results and prospects will suffer.
If we are unable to reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and servicing our electric vehicles relative to their selling prices, our operating results, gross margins, business and prospects could be materially and adversely impacted.
We have very limited experience servicing our vehicles. If we are unable to address the service and warranty requirements of our future customers our business will be materially and adversely affected.
If we are unable to address the service requirements of our future customers our business and prospects will be materially and adversely affected. In addition, we anticipate the level and quality of the service we will provide our customers will have a direct impact on the success of our future vehicles. If we are unable to offer satisfactory service to our customers, our ability to generate customer loyalty, grow our business and sell additional vehicles could be impaired.
We will continue to encounter substantial competition in our business.
The Company believes that existing and new competitors will continue to improve their products and services, as well as introduce new products and services with competitive price and performance characteristics. The Company expects that it must continue to innovate, and to invest in product development and productivity improvements, to compete effectively in the several markets in which the Company participates. The Company’s competitors could develop a more efficient product or service or undertake more aggressive and costly marketing campaigns than those implemented by the Company, which could adversely affect the Company’s marketing strategies and have an adverse effect on the Company’s business, financial condition and results of operations.
Important factors affecting the Company’s current ability to compete successfully include:
| ● | lead generation and marketing costs; | |
| ● | service delivery protocols; | |
| ● | branded name advertising; and | |
| ● | product and service pricing. |
In periods of reduced demand for the Company’s products and services, the Company can either choose to maintain market share by reducing product and service pricing to meet the competition, or maintain its product and service pricing, which would likely sacrifice market share. Sales and overall profitability may be reduced in either case. In addition, there can be no assurance that additional competitors will not enter the Company’s existing markets, or that the Company will be able to continue to compete successfully against its competition.
The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results and prospects.
Any reduction, elimination or discriminatory application of government subsidies and economic incentives that are offered to purchasers of EVs or persons installing home charging stations, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result in the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles in particular. This could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition and operating results.
| 66 |
If we fail to manage future growth effectively, we may not be able to market and sell our vehicles successfully.
Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We plan to expand our operations in the near future in connection with the planned marketing and sale of our licensed vehicles and our PACER golf carts. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:
| ● | training new personnel | |
| ● | forecasting production, sales and revenue; | |
| ● | controlling expenses and investments in anticipation of expanded operations; | |
| ● | establishing or expanding design, manufacturing, sales and service facilities; | |
| ● | implementing and enhancing administrative infrastructure, systems and processes; | |
| ● | addressing new markets; and | |
| ● | establishing international operations. |
We intend to continue to hire a number of additional personnel, including design and manufacturing personnel and service technicians, for our electric vehicles and golf carts. Competition for individuals with experience in designing, manufacturing and servicing electric vehicles is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.
Our business may be adversely affected by labor and union activities.
Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. We will also directly and indirectly depend upon other companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs within our business, or that of our key suppliers, it could delay the manufacture and sale of our electric vehicles and have a material adverse effect on our business, prospects, operating results or financial condition. Additionally, if we expand our business to include full in-house manufacturing of our vehicles, our employees might join or form a labor union and we may be required to become a union signatory.
We may become subject to product liability claims or other litigation, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
There is the potential that we could be party to disputes for which an adverse outcome could result in us incurring significant expenses, being liable for damages, and subject to indemnification claims. In connection with any disputes or litigation in which we are involved, we may be forced to incur costs and expenses in connection with defending ourselves or in connection with the payment of any settlement or judgment or compliance with any injunctions in connection, therewith, if there is an unfavorable outcome. The expense of defending litigation may be significant, as is the amount of time to resolve lawsuits unpredictable and defending ourselves may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations, financial condition, and cash flows. Additionally, an unfavorable outcome in any such litigation could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Without limiting the foregoing, we may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition. The automobile industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunction resulting in personal injury or death. Our risks in this area are particularly pronounced given we have limited field experience of our vehicles. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our vehicles and business and inhibit or prevent commercialization of other future vehicle candidates which would have a material adverse effect on our brand, business, prospects and operating results. We plan to maintain product liability insurance for all our vehicles, but any such insurance might not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage or outside of our coverage may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under our policy.
| 67 |
What’s more, a highly publicized complaint or claim, whether or not justified and whether or not resulting in litigation, could adversely affect the market’s perception of our product, resulting in a decline in demand for our product and could divert the attention of our management, having a materially adverse effect our business, financial condition, results of operations and prospects.
We rely on key executive officers, and their knowledge of our business and technical expertise would be difficult to replace.
We are highly dependent on our executive officers, including our Chief Executive Officer, Robert Silzer. If the Company’s senior executive or other key personnel are unable or unwilling to continue in their present positions, the Company may not be able to replace them easily or at all, and the Company’s business may be disrupted. Competition for senior management personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or attract and retain high-quality senior executives in the future. Such failure could have a material adverse effect on the Company’s business, financial condition and results of operations.
If we fail to implement proper and effective internal controls, our ability to produce accurate financial statements would be impaired, which could adversely affect our operating results, our ability to operate our business and our stock price.
We must ensure that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis. We have tested our internal controls and identified a material weakness and may find additional areas for improvement in the future. Remediating this material weakness will require us to hire and train additional personnel. Implementing any future changes to our internal controls may require compliance training of our directors, officers and employees, entail substantial costs to modify our accounting systems and take a significant period of time to complete. Such changes may not, however, be effective in establishing the adequacy of our internal control over financial reporting, and our failure to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In addition, investors’ perceptions that our internal control over financial reporting is inadequate or that we are unable to produce accurate financial statements may materially adversely affect our stock price.
Protecting our intellectual property is necessary to protect our brand.
We may not be able to protect important intellectual property and we could incur substantial costs defending against claims that our products infringe on the proprietary rights of others. Our ability to compete effectively will depend, in part, on our ability to protect our proprietary system-level technologies, systems designs, and manufacturing processes.
We will rely on patents, trademarks, and other policies and procedures related to confidentiality to protect our intellectual property. However, some of our intellectual property is not covered by any patent or patent application. We could incur substantial costs in prosecuting or defending patent infringement suits or otherwise protecting our intellectual property rights. While we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be completely successful in doing so. Moreover, patent applications and enforcement, thereof, filed in foreign countries may be subject to laws, rules and procedures that are substantially different from those of the United States, and any resulting foreign patents may be difficult and expensive to enforce. We could incur substantial costs in prosecuting or defending trademark infringement suits.
Further, our competitors may independently develop or patent technologies or processes that are substantially equivalent or superior to ours. In the event we are found to be infringing third party patents, we could be required to pay substantial royalties and/or damages, and we do not know whether we will be able to obtain licenses to use such patents on acceptable terms, if at all.
Failure to obtain needed licenses could delay or prevent the development, manufacture, or sale of our products, and could necessitate the expenditure of significant resources to develop or acquire non-infringing intellectual property.
| 68 |
Asserting, defending and maintaining our intellectual property rights could be difficult and costly and failure to do so may diminish our ability to compete effectively and may harm our operating results. As a result, we may need to pursue legal action in the future to enforce our intellectual property rights, to protect our trade secrets and domain names, and to determine the validity and scope of the proprietary rights of others. If third parties prepare and file applications for trademarks used or registered by us, we may oppose those applications and be required to participate in proceedings to determine the priority of rights to the trademark.
Similarly, competitors may have filed applications for patents, may have received patents and may obtain additional patents and proprietary rights relating to products or technology that block or compete with ours. We may have to participate in interference proceedings to determine the priority of invention and the right to a patent for the technology.
Confidentiality agreements to which we are party may be breached, and we may not have adequate remedies for any breach. Also, our trade secrets may also be known without breach of such agreements or may be independently developed by competitors. Inability to maintain the proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages we may have.
Acquisitions may expose us to additional risks.
We may acquire or make investments in businesses, technologies or products, whether complementary or otherwise, as a means to expand our business, if appropriate opportunities arise. There can be no assurance that we will be able to identify suitable candidates or consummate these transactions on favorable terms. If required, the financing for these transactions could result in an increase in our indebtedness, dilute the interests of our stockholders or both. The purchase price for some acquisitions may include additional amounts to be paid in cash in the future, a portion of which may be contingent on the achievement of certain future operating results of the acquired business. If the performance of any such acquired business exceeds such operating results, then we may incur additional charges and be required to pay additional amounts. Acquisitions including strategic investments or alliances entail numerous risks, which may include:
| ● | difficulties in integrating acquired operations or products, including the loss of key employees from, or customers of, acquired businesses; | |
| ● | diversion of management’s attention from our existing businesses; | |
| ● | adverse effects on existing business relationships with suppliers and customers; | |
| ● | adverse impacts of margin and product cost structures different from those of our current mix of business; and | |
| ● | conforming standards, controls, procedures, accounting and other policies, business cultures, and compensation structures between the two companies. |
Many of these factors are outside of our control and any one of these factors could result in, among other things, increased costs and decreases in the amount of expected revenues, which could materially adversely impact our business, financial condition, and results of operations. In addition, even if we are able to successfully integrate acquired businesses, the full benefits, including the synergies, cost savings, revenue growth, or other benefits that are expected, may not be achieved within the anticipated time frame, or at all. All of these factors could decrease or delay the expected accretive effect of the acquisitions, and negatively impact our business, operating results, and financial condition.
RISKS ASSOCIATED WITH OUR COMMON STOCK
If we issue additional shares in the future our existing shareholders will experience dilution.
Our certificate of incorporation authorizes the issuance of up to 1,000,000,000 shares of common stock with a par value of $0.001. Our Board of Directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
| 69 |
The price of our common stock could be volatile and could decline following the Offering at a time when you want to sell your holdings.
Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:
| ● | quarterly variations in our results of operations or those of our competitors; | |
| ● | delays in the establishment of manufacturing, assembly, and storage facilities for the distribution of our products; | |
| ● | announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments; | |
| ● | intellectual property infringements; | |
| ● | our ability to develop and market new and enhanced products on a timely basis; | |
| ● | commencement of, or our involvement in, litigation; | |
| ● | major changes in our Board of Directors or management, including the departure of Mr. Silzer; | |
| ● | changes in governmental regulations; | |
| ● | changes in earnings estimates or recommendations by securities analysts; | |
| ● | the impact of the COVID-19 pandemic on capital markets; | |
| ● | our failure to generate material revenues; | |
| ● | our public disclosure of the terms of this financing and any financing which we consummate in the future; | |
| ● | any acquisitions we may consummate; | |
| ● | announcements by us or our competitors of significant contracts, new services, acquisitions, commercial relationships, joint ventures or capital commitments; |
| ● | frustration or cancellation of key contracts; | |
| ● | short selling activities; | |
| ● | changes in market valuations of similar companies; and | |
| ● | general economic conditions and slow or negative growth of end markets. |
Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources.
Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.
Our common stock may be affected by limited trading volume and price fluctuations, which could adversely impact the value of our common stock.
Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.
| 70 |
Future sales or perceived sales of our common stock could depress our stock price.
If the holders of our presently issued our future issued common stock were to attempt to sell a substantial amount of their holdings at once, the market price of our common stock could decline. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short the common stock, a practice in which an investor sells shares that he or she does not own at prevailing market prices, hoping to purchase shares later at a lower price to cover the sale. As each of these events would cause the number of shares of our common stock being offered for sale to increase, our common stock market price would likely further decline. All of these events could combine to make it very difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Provisions in our articles of incorporation and bylaws could discourage a change in control, or an acquisition of us by a third party, even if the acquisition would be favorable to you, thereby adversely affecting existing shareholders.
Our articles of incorporation and bylaws contain provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our Company, even when these attempts may be in the best interests of our shareholders. For example, our articles of incorporation authorize our Board of Directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of common stock. These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.
| 71 |
Because Robert Silzer, our Chief Executive Officer and Chairman, controls a significant number of shares of our voting capital stock, he has effective control over actions requiring stockholder approval.
Robert Silzer, our Chairman and Chief Executive Officer, holds 2,019 shares of our common stock and 150,376 shares of Series A Preferred stock, which are entitled to vote with holders of the common stock as a class at the rate of 665 votes per share of Series A Preferred stock (100,000,040 votes, or approximately 75.0% of votes). In addition, our Directors James Singerling and Stephen Johnston each holds 25,000 shares of Series A Preferred stock (16,625,000 votes, or approximately 12.5% of aggregate votes each). As a result, Mr. Silzer, Singerling and Johnston control 133,250,040 or approximately 100% of shares entitled to vote, and have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, they have the ability to control the management and affairs of our company. Accordingly, any investors who purchase shares will be minority shareholders and as such will have little to no say in the direction of us and the election of directors. Additionally, this concentration of ownership might harm the market price of our common stock by:
| ● | delaying, deferring or preventing a change in corporate control; | |
| ● | impeding a merger, consolidation, takeover or other business combination involving us; or | |
| ● | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. |
We may never pay dividends to our common stockholders.
So long as any shares of our senior ranking Series A, B, C, D, or E Preferred Stock are outstanding, the Company may not declare, pay or set apart for payment any dividend or make any distribution on the common stock. Furthermore, each of the 4,233 shares of Series F Preferred stock outstanding as of the date of this Quarterly report is entitled, until converted or redeemed, to receive cumulative dividends of 10% per annum, payable quarterly, in cash or Preferred Shares.
Subject to our obligation to pay Series F Preferred stock dividends, and regardless of restrictions imposed by our other series of Preferred Stock, we currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any non-compulsory dividends on our preferred stock or common stock in the foreseeable future, if at all. Any future determination to declare dividends will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant. Any return to stockholders will therefore be limited to the increase, if any, of our share price that stockholders may be able to realize if they sell their shares.
RISKS RELATED TO THE PROSPECTIVE PUBLIC OFFERING OF OUR COMMON STOCK AND WARRANTS AND REVERSE STOCK SPLIT
Investors in the Offering will experience immediate and substantial dilution in net tangible book value.
The public offering price will be substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors in the Offering will incur immediate dilution. Investors in the Offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of the Offering. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of the Offering.
Participation in the Offering by certain of our directors and their affiliates would reduce the available public float for our shares.
It is possible that one or more of our directors or their affiliates or related parties could purchase common stock and warrants in the Offering at the public offering price and on the same terms as the other purchasers in the Offering. However, these persons or entities may determine not to purchase any shares or warrants in the Offering, or the underwriter may elect not to sell any shares or warrants in the Offering to such persons or entities. Any purchases by our directors or their affiliates or related parties would reduce the available public float for our shares because such shareholders would be subject to volume restrictions on the resale of the common stock and warrants \pursuant to applicable securities laws. As a result, any purchase of common stock and warrants by such shareholders in the Offering may reduce the liquidity of our common stock relative to what it would have been had these common stock and warrants been purchased by investors that were not affiliated with us.
| 72 |
Our management will have broad discretion over the use of proceeds from the Offering and may not use the proceeds effectively.
Our management will have broad discretion over the use of proceeds from the Offering. We intend to use the net proceeds from the Offering to provide funding for the following purposes: research and development; engineering, operations, quality inspection, information technology and sales force expansion; marketing and sales and working capital. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not improve our operating results or enhance the value of our securities.
Our expected use of net proceeds from the Offering represents our current intentions based upon our present plans and business condition. As of the date of this Quarterly Report, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of the Offering. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including amount of cash used in our operations, which can be highly uncertain, subject to substantial risks and can often change. Our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of the Offering.
The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from the Offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from the Offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Warrants are speculative in nature.
The Warrants offered in the Offering do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of our common stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire the common stock and pay an exercise price of $[_] per share (100% of the assumed public offering price per Unit), prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. In addition, there is no established trading market for the Warrants and, although we have applied to list the warrants on Nasdaq, there can be no assurance that an active trading market will develop.
Holders of the Warrants will have no rights as a common stockholder until they acquire our common stock.
Until holders of the Warrants acquire shares of our common stock upon exercise of the Warrants, the holders will have no rights with respect to shares of our common stock issuable upon exercise of the Warrants. Upon exercise of the Warrants, the holder will be entitled to exercise the rights of a common stockholder as to the security exercised only as to matters for which the record date occurs after the exercise.
There is no established market for the Warrants to purchase shares of our common stock being offered in the Offering.
There is no established trading market for the warrants. Although we have applied to list the warrants on the Nasdaq Capital Market there can be no assurance that there will be an active trading market for the Warrants. Without an active trading market, the liquidity of the warrants will be limited.
Provisions of the Warrants offered by the Offering could discourage an acquisition of us by a third party.
Certain provisions of the Warrants being offering through the Offering could make it more difficult or expensive for a third party to acquire us. The Warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the warrants. These and other provisions of the Warrants offered by the Offering could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.
| 73 |
Unless an active trading market develops for our securities, investors may not be able to sell their shares.
We are a reporting company and our common shares are quoted on OTC Markets (OTC Pink) under the symbol “DSGT”. However, there is a very limited active trading market for our common stock; and an active trading market may never develop or, if it does develop, may not be maintained. Failure to develop or maintain an active trading market will have a generally negative effect on the price of our common stock, and you may be unable to sell your common stock or any attempted sale of such common stock may have the effect of lowering the market price, and therefore, your investment may be partially or completely lost.
There is no assurance that once listed on the Nasdaq Capital Market we will not continue to experience volatility in our share price.
The OTCQB Venture Market, where our common stock is currently quoted, is an inter-dealer, over-the-counter market that provides significantly less liquidity than the Nasdaq Capital Market. Our stock is thinly traded due to the limited number of shares available for trading on the OTCQB Venture Market thus causing large swings in price. As such, investors and potential investors may find it difficult to obtain accurate stock price quotations, and holders of our common stock may be unable to resell their securities at or near their original offering price or at any price. Our public offering price per Unit may vary from the market price of our common stock after the offering. If an active market for our stock develops and continues, our stock price may nevertheless be volatile. If our stock experiences volatility, investors may not be able to sell their common stock at or above the public offering price per Unit. Sales of substantial amounts of our common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a short period of time. As a result, our shareholders could suffer losses or be unable to liquidate their holdings. No assurance can be given that the price of our common stock will become less volatile when listed on the Nasdaq Capital Market.
Since our common stock is thinly traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the price paid.
Since our common stock is thinly traded its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including (but not necessarily limited to):
| ● | the trading volume of our shares; | |
| ● | the number of securities analysts, market-makers and brokers following our common stock; | |
| ● | new products or services introduced or announced by us or our competitors; | |
| ● | actual or anticipated variations in quarterly operating results; | |
| ● | conditions or trends in our business industries; | |
| ● | announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; | |
| ● | additions or departures of key personnel; | |
| ● | sales of our common stock; and | |
| ● | general stock market price and volume fluctuations of publicly traded, and particularly microcap, companies. |
Investors may have difficulty reselling shares of our common stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, there is a history of securities class action litigation following periods of volatility in the market price of a company’s securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result in the incursion of substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, and as noted below, our shares are currently traded on the OTC Link (OTC Pink tier) and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation by market-makers, short-sellers and option traders.
| 74 |
Even if the Reverse Stock Split achieves the requisite increase in the market price of our common stock, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement of the Nasdaq Capital Market.
Even if our Reverse Stock Split achieves the requisite increase in the market price of our common stock to be in compliance with the minimum bid price of the Nasdaq Capital Market, there can be no assurance that the market price of our common stock following the Reverse Stock Split will remain at the level required for continuing compliance with that requirement. It is not uncommon for the market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to meet or maintain the Nasdaq Capital Market’s minimum bid price requirement.
Even if the reverse stock split increases the market price of our common stock and we meet the initial listing requirements of the Nasdaq Capital Market, there can be no assurance that we will be able to comply with the continued listing standards of the Nasdaq Capital Market, a failure of which could result in a de-listing of our common stock.
The Nasdaq Capital Market requires that the trading price of its listed stocks remain above one dollar in order for the stock to remain listed. If a listed stock trades below one dollar for more than 30 consecutive trading days, then it is subject to delisting from the Nasdaq Capital Market. In addition, to maintain a listing on the Nasdaq Capital Market, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, and certain corporate governance requirements. If we are unable to satisfy these requirements or standards, we could be subject to delisting, which would have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the minimum bid price requirement, or prevent future non-compliance with the listing requirements.
The reverse stock split may decrease the liquidity of the shares of our common stock.
The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may increase the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.
Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 11, 2021 the Company issued an aggregate of 250, 124 Series A Preferred Shares, par value $0.001 per share, to its directors, Robert Silzer, Stephen Johnston, James Singerling, Michael Leemhuis, and Carol Cookerly. The Series A Preferred Stock carry voting rights with the common stock equal to 665 votes per share of Series A Preferred stock and shall be deemed cancelled five (5) years following issuance, provided that the Board of Directors may, in its discretion, retire the Series A Preferred Stock at any time after two (2) years following issuance, or defer the retirement of the Series A Preferred Stock for up to ten (10) years following issuance. As a result of the issuance the members of the Board of Directors collectively control 450,500 shares of Series A Preferred Stock holding approximately 71% of the Company’s eligible voting securities. The Series A Preferred Stock are non-redeemable and non- convertible into common shares and have no dividend entitlement,
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
| 75 |
Item 6. Exhibits
| 76 |
| 77 |
| #* | The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of DSG Global Inc. under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
| 78 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 28, 2023 | /s/ Robert Silzer |
| Robert Silzer | |
| President, CEO, Secretary, Treasurer, and Director | |
| (Principal Executive Officer) | |
| Date: August 28, 2023 | /s/ Robert Silzer |
| Robert Silzer | |
| Chief Financial Officer (Acting) | |
| (Principal Financial Officer, Principal Accounting Officer) |
| 79 |