DSG GLOBAL INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to the consolidated financial statements included later in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in "Risk Factors" and "Special Note Regarding Forward-Looking
Statements." Business OverviewDSG Global, Inc. , under the brand nameVantage Tag Systems Inc. ("VTS") provides patented electronic tracking systems and fleet management solutions to golf courses and other avenues that allow for remote management of the course's fleet of golf carts, turf equipment and utility vehicles. Their clients use VTS's unique technology to significantly reduce operational costs, improve the efficiency plus profitability of their fleet operations, increase safety, and enhance customer satisfaction. VTS has grown to become a leader in the category of Fleet Management in the golf industry, with its technology installed in vehicles worldwide. VTS is now aggressively branching into several new streams of revenue, through programmatic advertising, licensing and distribution, as well as expanding into Commercial Fleet Management, a single rider golf cart and Agricultural applications. Additional information is available at http://vantage-tag.com/ 40
Ready Golf Ready: Our roots as a company are in golf, and our technology is changing the way golf is being played and driving new revenue for courses.
? Vantage TAG equipped golf carts enhance fleet management.
? Single rider carts speed up pace of play and drive rental revenue.
? Onboard touchscreens drive revenue and offer an enhanced course experience.
? Combination of technology and single rider carts has the ability to decrease
average play time to 2:20 and drive numerous extra plays per hour.
? Our "Pennies A Day, Pennies A Round" model provides easy entry to leasing
single-rider vehicles.
In Development: DSG's Infinity On-Board Screen Offers Gaming Revenue Potential
? In the next 2 years, sports betting will generate
States.
? In negotiations with leading mobile gaming developers.
? DSG's existing infinity screens work with current gaming technology.
Business Unit Overview: On Board Media
? 38,000 courses globally.
? 26,000 courses capable of installing the DSG TAG SYSTEM with the TAG and
INFINITIY.
? Courses with INFINITY screens in carts can generate
additional revenue. ? Screens for free and own revenue generated by 250 golf courses.
? DSG single-rider golf cars are available in any quantity for most courses on
a revenue share basis with no upfront cost to the golf course.
?
standard advertising, an average increase of
Business Unit Overview: TAG / Fleet Management Vantage Golf Potential:
? 38,000 courses globally.
? 4 Million golf carts in the world market.
? DSG Tech on 300 courses now, with an additional 500 courses added in 2020
driving
? Key component of our "Pennies A Day, Pennies A Round" program.
Reverse Acquisition
41 InJanuary 2015 , we changed our name toDSG 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 withDSG TAG Systems, Inc. , a corporation incorporated under the laws of theState of Nevada onApril 17, 2008 and extra provincially registered inBritish Columbia, Canada in 2008. OnApril 13, 2015 , we entered into a share exchange agreement withVantage Tag Systems Inc. ("VTS") (formerlyDSG 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. OnMay 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 toWestergaard Holdings Ltd. in partial settlement of accrued interest on outstanding indebtedness of VTS. Following the initial closing of the share exchange agreement and throughOctober 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 endedDecember 31, 2018 byWestergaard Holdings Ltd. , an affiliate ofKeith Westergaard , a previous member of our board of directors which have not been issued as ofDecember 31, 2020 . 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.
Factors Affecting Our Performance
We believe that the growth of our business and our future success depend on various opportunities, challenges, and other factors, including the following:
Inventory Sourcing In order to successfully deliver products, increase sales, and maintain customer satisfaction, we continue to source new, reliable suppliers of our hardware units and components at competitive prices. Presently, we out-source our INFINITY, TAG and Vantage Golf Carts from suppliers inChina , which continues to provide us with higher quality, newer technology at competitive pricing. In addition, DSG is currently in negotiations with a telecommunications provider to provide new technology in hardware and wireless access. However, there is no guarantee that we will conclude any agreement in this regard. Competition We compete with a number of established producers and distributors of vehicle fleet management systems, as well as producers of non-golf specific utility vehicle fleet management systems. 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 strategy, and increase our financial resources. 42 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, 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.Additional Capital
We require additional capital to continue to develop software and products, meet our contractual obligations, and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.
Components of Our Results of Operations
Revenue
We derive revenue from five different sources, as follows:
Systems sales revenue, which consists of the sales price paid by those customers who purchase or lease our TAG system hardware.
Monthly service fees are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG systems.
Monthly rental Fees are paid by those customers that rent the TAG system hardware. The amount of a customer's monthly payment varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and INFINITY).
Golf Cart Sales Revenue, which consist of the sales price paid by the customers who purchase our Vantage and licensed Shelby golf carts.
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 3 - Summary of Significant Accounting Policies" in the notes to our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-K. Cost of Revenue
Our cost of revenue consists primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and inventory adjustments.
Hardware purchases. Our equipment purchases consist primarily of TAG system control units, TEXT display, and INFINITY displays. The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or INFINITY high definition "touch activated" display. Hardware purchases also include costs of components used during installations, such as cables, mounting solutions, and other miscellaneous equipment. 43
Wireless data fees. Our wireless data fees consist primarily of the data fees charged by outside providers of GPS tracking used in all of our TAG system control units.
Mapping. Our mapping costs consist of aerial mapping, course map, geofencing, and 3D flyovers for golf courses. This cost is incurred at the time of hardware installation.
Installation. Our installation costs consist primarily of costs incurred by our employed service technicians for the cost of travel, meals, and miscellaneous components required during installations. In addition, these costs also include fees paid to external contractors for installations on a project-by-project basis. Freight expenses and Inventory adjustments. Our freight expenses consist primarily of costs to ship hardware to courses for installations. Our inventory adjustments include inventory write offs, write downs, and other adjustments to the cost of inventory. Operating expenses & other income (expenses) We classify our operating expenses and other income (expenses) into six categories: compensation, general and administrative, warranty, foreign currency exchange, and finance costs. Our operating expenses consist primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade shows, software development, and allocated costs. Allocated costs include charges for facilities, office expenses, telephones and other miscellaneous expenses. Our other income (expenses) primarily consists of financing costs and foreign exchange gains
or losses. Compensation expense. Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses, and employee benefits. This includes salaries for management, administration, engineering, sales and marketing, and service support technicians. Salaries and wages directly related to projects or research and development are expensed as incurred to their operating expense category. General and administrative. Our general and administrative expenses consist primarily of sales and marketing, commissions, travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting and legal professional services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing, marketing materials, and media management.
Warranty expense (recovery). Our warranty expenses consist primarily of associated material product costs, labour costs for technical support staff, and other associated overhead. Warranty costs are expensed as they are incurred.
Bad debt. Our bad debt expense consists primarily of amounts written down for doubtful accounts recorded on trade receivables.
Depreciation and amortization. Our depreciation and amortization costs consist primarily of depreciation and amortization on fixed assets, equipment on lease and intangible assets.
Foreign currency exchange. Our foreign currency exchange consists primarily of foreign exchange fluctuations recorded in Canadian dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
Finance costs. Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing charges for obtaining debt financing.
We expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings in new markets like commercial fleet management and agriculture. 44 Results of Operations
The following tables set forth our consolidated results of operations as a percentage of revenue for the periods presented:
For the year ended
December 31, 2022 December 31, 2021
Revenue 100.0 % 100.0 %
Cost of revenue 54.4 % 53.1 %
Gross profit 45.6 % 46.9 %
Operating expenses
Compensation expense 90.2 % 144.2 %General and administration expense 89.4 %
165.7 %
Research and development 1.4 % 18.5 %
Bad debt (0.8 )% 2.4 %Depreciation and amortization expense 0.3 %
0.6 %
Total operating expense 182.6 % 331.4 %
Loss from operations (136.9 )% (284.5 )%
Other income (expense)
Foreign currency exchange (0.7 )% (2.9 )%
Other (expenses) income - % 0.6 %
Redemption premium (0.1 )% - %
Gain (loss) on sale (0.1 )% - %
Gain (loss) on disposal 0.1 % - %Gain (loss) on extinguishment of debt 1.1 %
1.7 %
Finance costs (60.2 )% (20.1 )%
Total other expense (59.9 )% (20.6 )%
Loss before income taxes (196.9 )% (305.1 )%
Provision for income taxes - % - %
Net loss (196.9 )% (305.1 )%
Other comprehensive income (expense)
Foreign currency translation adjustments 1.5 % 1.8 %
Comprehensive loss (195.4 )% (303.3 )%
Comparison of the Years Ended
Revenue
For the Years Ended
December 31,
2022 2021 % Change
Revenue $ 3,833,853 $ 2,092,819 83.2 %
45
Revenue increased by $1,741,034 or 83.2%, for the year ended December 31, 2022
as compared to year ended December 31, 2021 . Sales increased for the year ended,
year over year, as the result of overcoming challenges related to COVID-19 and
aggressive marketing and installation of new product. This compares to the
comparative period in which the Company experienced a decreased of revenue
due
to Covid-19.
Cost of Revenue
For the Years Ended
December 31,
2022 2021 % Change
Cost of revenue $ 2,085,171 $ 1,110,698 87.7 %
Cost of revenue increased by$974,473 or 87.7%, for the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The table below outlines the differences in detail: For the Years Ended December 31, December 31, 2022 2021 Difference % Difference Cost of goods$ 1,988,216 $ 993,869 $ 994,347 100.0 % Mapping & freight costs 25,474 41,143 (15,669 ) (38.1 )% Wireless fees 71,481 75,686 (4,205 ) (5.6 )%$ 2,085,171 $ 1,110,698 $ 952,303 85.7 %
Cost of sales increased for the years ended, year over year, primarily due to increase of price of product sold. This increase was consistent with the increase in revenue for the same period.
Compensation Expense
For the Years Ended
December 31,
2022 2021 % Change
Compensation expense $ 3,459,553 $ 3,017,181 14.7 %
Compensation expense increased by $442,372 or 14.7%, for the year ended December
31, 2022 as compared to the year ended December 31, 2021 primarily as a result
of non-cash warrants and shares issued for consulting services during the
period, and hire new employees for sales.
General and Administration Expense
For the Years Ended
December 31,
2022 2021 % Change
General & administration expense
46
General & administration expense decreased by$38,920 or 1.1% for the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The table below outlines the differences in detail: For the Years Ended December 2022 December 2021 Difference % Difference Accounting & legal$ 302,143 $ 212,659 $ 89,484 42.1 % Marketing & advertising 286,717 134,856 151,861 112.6 % Subcontractor & commissions 644,575 1,601,963
(957,388 ) (59.8 )%
Hardware 57,861 49,808 8,053 16.2 %
111,465 117,386 (5,921 ) (5.0 )%
Office expense, rent, software,
design, bank & credit card
charges, telephone & meals 2,019,874 1,351,323
668,551 49.5 %
$ 3,429,075 $ 3,467,995 $ (38,920 ) (1.1 )%
The overall increased of general and admin expenses was primarily due to
decreases in subcontractors and commission, offset by substantial increase in
marketing and advertising and other expenses. Subcontractors and commissions
decreased as a result of reduction of contractors due to delays in homologation
process. General office expenses increased as a result of greater trade show
presentations, new software implementation, design of SR1 and operating lease
expenses in the current period. Accounting and legal expenses increased because
of switching audit firms, and legal representation for the company.
Research and Development Expense
For the Years Ended
December 31,
2022 2021 % Change
Research and development $ 52,344 $ 388,035 (86.5 )%
Research and development expense decreased by
Foreign Currency Exchange
For the Years Ended
December 31,
2022 2021 % Change
Foreign currency exchange (gain) loss
For the year endedDecember 31, 2022 , we recognized a$28,241 gain in foreign exchange gain as compared to$59,793 in foreign exchange gain for the year endedDecember 31, 2021 . The change was primarily due to beneficial movements in foreign currency rates and a reduction on payables, receivables and other foreign exchange transactions denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian dollar, Euro, and British pound. 47
(Gain) loss on extinguishment of debt
For the Years Ended
December 31,
2022 2021 % Change
(Gain) loss on extinguishment of debt
The Company recorded a gain of$40,355 for the year endedDecember 31, 2022 , compared to a gain of$35,169 for the year endedDecember 31, 2021 . The Company recorded a gain for amounts owing to various vendors as not deemed payable
or as
settled.
Research and development
For the Years Ended
December 31,
2022 2021 % Change
Research and development $ 52,344 $ 388,035 (86.5 )%
Research and development expense decreased by $335,691 or 86.5% for the year
ended December 31, 2022 as compared to the year ended December 31, 2021 . The
decrease is the result of delays in the homologations process of our High speed
vehicles.
Finance Costs
For the Years Ended
December 31,
2022 2021 % Change
Finance costs $ 2,306,849 $ 420,102 449.1 %
Finance costs increased by $1,886,747 or 449.1%, for the year ended December 31,
2022 as compared to the year ended December 31, 2021 . The increase is as a
result of interest on new convertible debt being recorded for the year ended
December 31, 2022 .
Net Loss
For the Years Ended
December 31,
2022 2021 % Change
Net loss $ (7,547,391 ) $ (6,384,655 ) 19.5 %
As a result of the above factors, net loss increased by
48
Liquidity and Capital Resources
From our incorporation inApril 17, 2008 throughDecember 31, 2022 , we have financed our operations, capital expenditures and working capital needs through the sale of common shares and preferred shares and the incurrence of indebtedness, including term loans, convertible loans, revolving lines of credit and purchase order financing. AtDecember 31, 2022 , we had$8,960,165 in outstanding current liabilities which has either already reached maturity or matures within the next twelve months. The Company had cash of$48,713 atDecember 31, 2022 , compared to$275,383 as atDecember 31, 2021 . And a working capital deficit of$6,846,711 as ofDecember 31, 2022 compared to working capital deficit of$2,314,163 as ofDecember 31, 2021 .
Liquidity and Financial Condition
At December 31, At December 31, Percentage
2022 2021 Increase/(Decrease)
Current assets $ 2,162,895 $ 1,700,226 27.2 %
Current liabilities $ 9,009,606 $ 4,014,389 124.4 %
Working capital $ (6,846,711 ) $ (2,314,163 ) 195.9 %
Cash Flow Analysis
Our cash flows from operating, investing, and financing activities are
summarized as follows:
December 31
2022 2021
Net cash (used in) provided by operating activities $ (3,627,148 ) $ (5,613,568 )
Net cash (used in) provided by investing activities 1,333 (26,541 )
Net cash (used in) provided by financing activities 3,343,116 4,496,907
Effect of exchange rate changes on cash 56,029 46,568
Net (decrease) increase in cash (221,604 ) (1,096,633 ) Cash at beginning of year 275,383 1,372,016 Cash at end of year$ 48,713 $ 275,383
During the year endedDecember 31, 2022 , cash used in operations totaled$3,627,148 . This consists of the net loss of$7,547,391 , adjusted by$3,925,309 for non-cash items and changes in non-cash working capital. Non-cash and working capital adjustments consisted primarily of non-cash change in accretion of discounts on debt of$315,065 , offset by increase in prepaid expenses of$195,439 , increase in trade payables and accruals of$2,277,657 , decrease in accounts receivable and other receivables of$496,881 , an increase in deferred revenue of$225,490 , decrease in inventories of$499,031 , and the settlement of payables for services with preferred shares in the amount of$1,887,700 . During the year endedDecember 31, 2021 , cash used in operations totaled$5,613,568 . This consists of the net loss of$6,384,655 , adjusted by$771,087 for non-cash items and changes in non-cash working capital. Changes in non-cash working capital items consisted primarily of increases in; lease receivables of$763,592 , inventories of$457,817 , prepaids of$259,909 , and trade receivables of$259,437 , and a reduction in trade payables and accruals of$362,792 . 49
During the year ended
During the year ended
Net Cash Provided by Financing Activities.
Net cash provided by financing activities during the year endedDecember 31, 2022 , totaled$3,343,116 which consisted primarily of$1,000,000 in proceeds from the issuance of preferred shares,$1,000,000 in proceeds from notes payable,$500,000 from loans payable, and$863,527 from the sale of lease receivables, partially offset by repayments made of$20,411 on loans payable. Net cash provided by financing activities during the year endedDecember 31, 2021 , totaled$4,496,907 which consisted primarily of$2,536,066 in proceeds from the issuance of preferred shares,$261,934 in proceeds from issuing warrants and warrants to be issued, and$1,897,500 in proceeds from the loan facility entered into during the year, partially offset by payments on outstanding notes payable of$193,889 .
Outstanding Indebtedness
Our current indebtedness as of
? Unsecured, convertible note payable to a former related party with an
outstanding principal amount of
mature and in default;
? Senior secured, convertible note payable with an outstanding principal amount
of $Nil, and a carrying value of
? Unsecured, promissory note with outstanding principal amount of
bearing interest at 9% per annum and 24% per annum in default, maturing June
20, 2022. If not repaid by
guaranteed interest will be added on
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
During the year ended
interest expense including
31, 2022, the carrying value of the convertible promissory note was
(
As the note is in default, it has become convertible at the holders 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 $29,520
(
forgiveness if repaid by
2022, the loan bears interest at 5% per annum and is due on
? Unsecured loan payable with an outstanding principal amount of
(
forgiveness if repaid by
2022, the loan bears interest at 5% per annum and is due on
? Secured loan payable with an outstanding principal amount of
loan bears interest at 3.75% per annum and is due on
secured by all tangible and intangible assets of Company. Fixed payments of
applied against any accrued interest first.
50
? Series F Preferred Stock payments, five payments in the amount of
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
expense, included as part of the loan, and will be repaid as part of the 20%
gross sales remittance. As at
? Unsecured promissory note payable with an outstanding principal amount of
is due on
interest at 18% per annum on all interest and outstanding principal amounts.
Related Party Transactions During the year endedDecember 31, 2022 , the Company incurred$412,573 (2021 -$409,038 ) in salaries, bonuses of$120,000 , and$241,284 (2021 -$197,906 ) 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 atDecember 31, 2022 , the Company owed $nil (2021 -$28,118 ($35,710 CDN)) to the President, CEO, and CFO of the Company and the$49,441 (2021 - $nil) to the President, CEOs, and CFOs of the Company's subsidiaries for management fees and salaries, which is recorded in trade and other payables. The amounts owed and owing are unsecured, non-interest bearing, and due on demand. OnMarch 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 SharesStephen Johnston 4 James B Singerling 4Robert Silzer 4Carol Cookerly 2Michael Leemhuis 2 Total 16
The Series B preferred stock convertible on a 1 for 100,000 basis into common shares.
On
Director # of Preferred SharesStephen Johnston 25 James B Singerling 25Robert Silzer 25Carol Cookerly 15Michael Leemhuis 15 Total 105 51
The Series B preferred stock is convertible on a 1 for 100,000 basis into common shares.
OnAugust 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. 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 endingDecember 31, 2023 General and administrative $ 5,929,500 Research and development 4,230,600 Marketing 1,500,000 Sales and dealer network 785,000 Payroll overhead 2,449,000 Service and maintenance 2,355,900 Assembly facility 2,750,000 Inventory 15,700,500 Total $ 35,700,500
During the year endedDecember 31, 2022 , cash used in operating activities totaled$3,627,148 . The relatively normal level of cash used compared to our estimated working capital needs in the future was the result of an accumulation of lease receivable that increased due to in house finance of selected customers. We need to reduce the current level of payables in the future to maintain a good relationship with our vendors and expand our sales and service team to achieve our operational objectives. At present, our cash requirements for the next 12 months outweigh the funds available. Of the$35,700,500 that we require for the next 12 months, we had$48,713 in cash as ofDecember 31, 2022 , and a working capital deficit of$6,874,764 . Our principal sources of liquidity are cash generated from product sales and debt financings. As ofDecember 31, 2022 , the Company had secured signed contracts of over$10.5 million of which approximately$3 million was recognized the fiscal year 2022. The Company expects to satisfy the majority of its performance obligations on the remaining contracts during fiscal 2023 totaling approximately$7.5 million . To achieve sustained profitability and positive cash flows from operations, we will need to increase revenue and/or reduce operating expenses. Our ability to maintain, or increase, current revenue levels to achieve and sustain profitability will depend, in part, on demand for our products. In order to improve our liquidity, we also plan to pursue additional equity financing from private investors or possibly a registered public offering. We do not currently have any definitive arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. To help finance our day to day working capital needs, the founder and CEO of the Company has made total payments of$113,475 since late 2015. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources obligations and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements.
52
Contractual Obligations and Known Future Cash Requirements
Indemnification Agreements In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheet, consolidated statements of operations, consolidated statements of comprehensive loss or consolidated statements of cash flows.
Operating Leases We currently lease our corporate headquarters inSurrey, British Columbia under an operating lease agreement that expire onJuly 31, 2023 , respectively. The terms of the lease agreement provides for rental payments on a graduated basis.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance withU.S. GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected. We believe that the assumptions and estimates associated with revenue recognition, derivative liabilities, 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 consolidated financial statements.
Recently Issued and Adopted Accounting Pronouncements
Recently Issued Accounting Pronouncements Applicable to the Company
Applicable for fiscal years beginning after
InJuly 2022 , FASB issued ASU 2022-03, Fair Value Measurement (Topic 820); Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The FASB issued final guidance to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual sale restriction as a separate unit of account is not permitted. The guidance will be applied prospectively, with special transition provisions for entities that qualify as investment companies under ASC 946. The guidance is effective in 2024 for calendar-year public business entities and in 2025 for all other calendar-year companies. Early adoption is permitted. InOctober 3, 2022 , FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The FASB issued final guidance that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about their obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The guidance should be applied retrospectively to all periods in which a balance sheet is presented, except for the rollforward requirement, which should be applied prospectively. The guidance is effective for all entities for fiscal years beginning after15 December 2022 , including interim periods within those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after15 December 2023 . Early adoption is permitted.
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