UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2017

 

or

 

[  ]	Transition Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _____________ to _____________.

 

Commission file number 000-53988

 

DSG GLOBAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		26-1134956
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

214 - 5455 152nd Street

Surrey, British Columbia V3S 5A5, Canada

(Address of principal executive offices, zip code)

 

(604) 575-3848

(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. Yes [X] No [  ]

 

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 [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer	[  ]		Accelerated filer	[  ]
Non-accelerated filer	[  ]	(Do not check if smaller reporting company)	Smaller reporting company	[X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As May 22, 2017, the issuer had 37,216,236 shares of common stock issued and outstanding.

 

 

 

DSG GLOBAL, INC.
TABLE OF CONTENTS

 

		Page No.
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Deficit	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		40

 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1: Financial Statements (unaudited)

 

The accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at March 31, 2017, 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 three month period ended March 31, 2017 are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.

 

 

DSG GLOBAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		March 31, 2017				December 31, 2016
ASSETS
CURRENT ASSETS
Cash		$	-			$	-
Trade receivables, net			162,631				90,038
Inventories			80,923				80,573
Funds held in trust			-				-
Prepaid expenses and deposits			57,239				56,076
Other current assets			-				-
Receivable from related party			-				-
TOTAL CURRENT ASSETS			300,793				226,687
NON-CURRENT ASSETS
Intangible assets, net			16,471				16,580
Fixed assets, net			3,814				4,741
Equipment on lease, net			36,622				42,763
TOTAL NON-CURRENT ASSETS			56,907				64,084
TOTAL ASSETS		$	357,700			$	290,771
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft		$	18,306			$	5,316
Trade and other payables			2,790,124				2,568,792
Payable to related party			1,539				1,526
Deferred revenue			150,720				149,147
Warranty reserve			112,697				111,715
Convertible note payable to related party			340,053				339,791
Loans payable			868,896				866,269
Derivative liability			2,376,529				365,944
Convertible loans payable			1,572,614				1,398,961
TOTAL CURRENT LIABILITIES			8,231,478				5,807,461
Commitments and contingencies			-				-
MEZZANINE EQUITY
Redeemable Noncontrolling Interest - Preferred Shares		$	5,286,731			$	5,286,731
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value, 125,000,000 shares authorized 32,541,187 and 30,291,187 outstanding at March 31, 2017 and December 31, 2016, respectively.			32,541				30,291
Additional paid in capital			16,092,472				15,982,222
Shares to be issued			50,000				-
Other accumulated comprehensive income			1,248,939				1,296,652
Accumulated deficit			(29,107,463	)			(27,013,446	)
Total sharesholders' deficit attributable to DSG Global			(11,683,511	)			(9,704,281	)
Noncontrolling interest			(1,476,998	)			(1,099,140	)
TOTAL STOCKHOLDERS' DEFICIT			(13,160,509	)			(10,803,421	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	357,700			$	290,771

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

DSG GLOBAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(UNAUDITED)

 

		March 31, 2017				March 31, 2016
Revenue		$	248,270			$	254,928
Cost of revenue			69,505				94,548
Gross profit			178,765				160,380
Operating Expenses
Compensation expense			189,309				195,844
Research and development expense			-				17,037
General and administration expense			272,987				305,918
Warranty expense			2,624				45,217
Bad debt			-				3,105
Depreciation and amortization expense			7,824				5,584
Total operating expense			472,744				572,705
Loss from operations			(293,979	)			(412,325	)
Other Income (Expense)
Foreign currency exchange			11,003				72,140
Other (expenses) income			(4,018	)			(490	)
Unrealized gains (losses) on derivative instruments, net			(1,854,417	)			-
Finance costs			(330,464	)			(121,306	)
Total Other Expense			(2,177,896	)			(49,656	)
Loss from continuing operations before income taxes			(2,471,875	)			(461,981	)
Provision for income taxes			-				-
Net loss			(2,471,875	)			(461,981	)
Less attributed to noncontrolling interest			377,858				74,561
Net loss attributable to DSG Global		$	(2,094,017	)		$	(387,420	)
Net loss per share
Basic and Diluted:
Basic		$	(0.067	)		$	(0.013	)
Diluted		$	(0.067	)		$	(0.013	)
Weighted average number of shares used in computing basic and diluted net loss per share:
Basic			31,391,187				30,291,187
Diluted			31,391,187				30,291,187

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

DSG GLOBAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(UNAUDITED)

 

		March 31, 2017				March 31, 2016
Net loss		$	(2,471,875	)		$	(461,981	)
Other comprehensive income
Change in foreign currency translation adjustments			(49,874	)			(199,503	)
Comprehensive loss			(2,521,749	)			(661,484	)
Less: Comprehensive loss attributable to noncontrolling interest			380,019				70,116
Total comprehensive loss attributable to DSG Global		$	(2,141,730	)		$	(591,368	)

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

DSG GLOBAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

		Equity Attributable to Common Shareholders'
										Additional				Shares								Accumulated				Total Deficit Attributable								Total
		Common Stock								Paid in				to be				Accumulated				Comprehensive				Common to				Noncontrolling				Stockholders'
		Shares				Amount				Capital				Issued				Deficit				Income				Shareholders'				Interest				Deficit
Balance December 31, 2016			30,291,187			$	30,291			$	15,982,222			$	-			$	(27,013,446	)		$	1,296,652			$	(9,704,281	)		$	(1,099,140	)		$	(10,803,421	)
Shares issued for services			2,250,000				2,250				110,250				-				-				-				112,500				-				112,500
Shares to be issued			-				-				-				50,000				-				-				50,000				-				50,000
Net (loss) income for 2017			-				-				-				-				(2,094,017	)			(47,713	)			(2,141,730	)			(377,858	)			(2,519,588	)
Balance March 31, 2017			32,541,187			$	32,541			$	16,092,472			$	50,000			$	(29,107,463	)		$	1,248,939			$	(11,683,511	)		$	(1,476,998	)		$	(13,160,509	)

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

DSG GLOBAL INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Three months ended
		March 31, 2017				March 31, 2016
Net loss attributable to the Company		$	(2,471,875	)		$	(461,981	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			7,824				5,584
Inventory write-off			132				-
Amortization on deferred financing fees			2,281				-
Interest on discount of convertible debt			176,654				-
Non-cash fair value adjustment on derivative			1,854,416				-
Reserve for bad debt			47,428				-
Shares issued for services			112,500				-
Notes issued for services			-				(17,706	)
Unrealized foreign exchange			5,614				-
(Increase) decrease in assets:
Trade receivables, net			(120,021	)			(61,117	)
Inventories			(482	)			37,436
Prepaid expense and deposits			(1,163	)			75,651
Related party receivable			-				10,142
Other assets			-				4,218
Increase (decrease) in current liabilities:
Trade payables and accruals			221,332				117,343
Warranty reserve			982				-
Deferred revenue			1,573				30,613
Net cash used in operating activities			(162,804	)			(259,817	)
Cash flows from investing activities
Purchase of property, plant and equipment			-				(1,902	)
Return (purchase) of equipment on lease			-				3,077
Purchase of intangible assets			-				(797	)
Net cash provided by investing activities			-				378
Cash flows from financing activities
Bank overdraft			12,990				4,377
Common stock subscriptions received			50,000				-
Proceeds from note payable			135,000				239,542
Net cash provided by financing activities			197,990				243,919
Net increase in cash and cash equivalents			35,186				(15,520	)
Effect of exchange rate changes on cash and cash equivalents			(35,186	)			15,520
Cash and cash equivalents at beginning of period			-				-
Cash and cash equivalents at the end of the period		$	-			$	-
Supplemental disclosures
Cash paid during the period for:
Income tax payments		$	-			$	-
Interest payments		$	-			$	-
Supplemental schedule of non-cash financing activities:
Shares issued for services		$	112,500			$	-
Noncontrolling interest change to mezzanine equity		$	-			$	-

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

DSG GLOBAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – ORGANIZATION

 

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 for sale to movie studios and production companies.

 

Previously, in anticipation of the share exchange agreement with DSG Tag Systems, Inc. (“DSG TAG”), we undertook to change our name and effect a reverse stock split of our authorized and issued common stock. Accordingly, on January 19, 2015, our board of directors approved an agreement and plan of merger to merge with our wholly-owned subsidiary DSG Global Inc., a Nevada corporation, to affect a name change from Boreal Productions Inc. to DSG Global, Inc. Our company remains the surviving company. DSG Global, Inc. was formed solely for the change of our name.

 

Subsequent to the closing of the share exchange agreement with DSG TAG, we have adopted the business and operations of DSG TAG.

 

DSG TAG was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008. In March 2011, DSG TAG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of DSG TAG.

 

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“US 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 condensed interim consolidated financial statements should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2016. 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, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of DSG Global Inc. and its subsidiary DSG Tag Systems, Inc. and its wholly owned subsidiary DSG Tag Systems International, Ltd., collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined.

 

 

Exchange (Loss) Gain

 

During the three months ended March 31, 2017, and 2016, the transactions of the Company and its subsidiaries were denominated in foreign currencies and were recorded in Canadian dollar (CAD), or British Pounds (GBP), at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

 

Foreign Currency Translation and Comprehensive (Loss) Income

 

The accounts of the Company and its subsidiaries were maintained, and its financial statements were expressed, in CAD and GBP. Such financial statements were translated into United States dollars (USD) with the CAD or GBP as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholders’ deficit is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.

 

Reportable Segment

 

The Company has one reportable segment. The Company’s activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.

 

Revenue Recognition

 

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. The Company accrues for warranty costs, sales returns, and other allowances based on its historical experience.

 

Research and Development

 

Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached. Research and development is expensed and is included in operating expenses.

 

Income Taxes

 

The Company utilizes the liability method of accounting for income tax. Under the liability method, deferred income tax assets and liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities measured by the current enacted tax rates in effect for the years in which these differences are expected to reverse.

 

The Company has adopted accounting standards for the accounting for uncertain income taxes. These standards provide guidance for the accounting and disclosure about uncertain tax positions taken. Management believes that all of the positions taken in its federal and states income tax returns are more likely than not to be sustained upon examination.

 

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in Canada, United States and the United Kingdom. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

Risks and Uncertainties

 

The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

 

Contingencies

 

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

 

If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

Cash and Cash Equivalents

 

Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At March 31, 2017 and December 31, 2016, there were no uninsured balances for accounts in Canada, the United States and the United Kingdom. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

 

Trade Receivable

 

All trade receivables 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 uses the allowance method to account for uncollectable trade receivables. The allowance for doubtful accounts as of March 31, 2017, and December 31, 2016 was $47,728 and $47,289, respectively.

 

Financing Receivables and Guarantees

 

The Company provides financing arrangements, including operating leases and financed service contracts for certain qualified customers. Lease receivables primarily represent sales-type and direct-financing leases. Leases typically have two- to three-year terms and are collateralized by a security interest in the underlying assets. The Company makes an allowance for uncollectible financing receivables based on a variety of factors, including the risk rating of the portfolio, macroeconomic conditions, historical experience, and other market factors. At March 31, 2017 and December 31, 2016 management determined that there was no allowance necessary. The Company also provides financing guarantees, which are generally for various third-party financing arrangements to channel partners and other customers. The Company could be called upon to make payment under these guarantees in the event of nonpayment to the third party.

 

 

Advertising and Promotion Costs

 

The Company expenses all advertising costs as incurred. Advertising and promotion costs were $112,311 and $142,634 for the three months ended March 31, 2017 and 2016, respectively.

 

Inventory

 

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of March 31, 2017, and December 31, 2016, inventory only consisted of finished goods.

 

Fixed Assets

 

Fixed assets are stated at cost and depreciated using the straight line method over the shorter of the estimated useful life of the asset or the lease term. The useful life for rental equipment was adjusted for the tag to 5 years from 10 years, and for the Touch/Text, the useful life was adjusted to 5 years from 8 years. The adjustment properly reflects the average lease term for the rental equipment and the average life of the product. The estimated useful lives of our property and equipment are generally as follows:

 

Rental equipment
Tag	5 year useful life
Touch/Text	5 year useful life
Office furniture and equipment	5 year useful life
Computer equipment	3 year useful life

 

As of March 31, 2017 and December 31, 2016, fixed assets consisted of the following:

 

		March 31, 2017				December 31, 2016
Furniture and equipment		$	21,021			$	20,838
Computer equipment			27,642				23,317
Accumulated Depreciation			(44,849	)			(39,414	)
		$	3,814			$	4,741

 

As of March 31, 2017 and December 31, 2016, leased equipment consisted of the following:

 

		March 31, 2017				December 31, 2016
Tags		$	124,016			$	122,935
Text			27,410				27,171
Touch			22,705				22,507
Accumulated Depreciation			(137,509	)			(129,850	)
		$	36,622			$	42,763

 

For the three months ended March 31, 2017 and 2016, total depreciation expense was $7,492 and $5,288 for the fixed assets and leased equipment, respectively.

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC Topic 815, “Derivatives and Hedging.”

 

The Company’s financial instruments consist of cash, trade receivables, trades payable, loans payable, and convertible notes payable. Other than convertible notes, the fair values of these financial instruments approximate their respective carrying values because of the short maturity of these instruments. The Company determined that the aggregate fair value of loans payable outstanding at March 31, 2017 and December 31, 2016, based on Level 2 inputs in the fair value hierarchy, was equal to their aggregate book value based on the short maturities and current borrowing rates available to the Company.

 

The fair value of the Company’s convertible notes is based on Level 3 inputs in the fair value hierarchy. The Company calculated the fair value of the potential derivative liability on these notes by using the Binomial method to determine the fair value of the conversion feature (see Note 7).

 

Debt issuance costs

 

The Company incurs costs in connection with debt issuances, such as commissions and professional fees. Debt issuance costs are initially recorded as a reduction of the related debt on the consolidated balance sheets, and are amortized to financing expense over the term of the respective borrowings using the effective interest method.

 

Any costs incurred or paid to the lender in connection with the issuance of debt represent a reduction in the proceeds received by the Company. The resulting discount is amortized as accretion expense over the term of the debt using the effective interest method.

 

Basic and Diluted Net Loss per Common Share

 

Basic and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Our potentially dilutive shares, which include outstanding convertible loans and notes, have not been included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the results would be antidilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share.

 

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2017 and 2016:

 

		March 31, 2017				March 31, 2016
Net loss attributable to DSG Global Inc.		$	(2,094,017	)		$	(387,420	)
Net loss per share Basic and Diluted:
Basic		$	(0.067	)		$	(0.013	)
Diluted		$	(0.067	)		$	(0.013	)
Weighted average number of shares used in computing basic and diluted net loss per share:
Basic			31,391,187				30,291,187
Diluted			31,391,187				30,291,187

 

 

Intangible Assets

 

The Company records identifiable intangible assets at fair value on the date of acquisition and evaluates the useful life of each asset. Finite-lived intangible assets primarily consist of software development capitalized. Finite-lived intangible assets are amortized on a straight-line basis and are tested for recoverability if events or changes in circumstances indicate that their carrying amounts may not be recoverable. These intangibles have useful lives ranging from 1 to 20 years.

 

Stock-Based Compensation

 

We recognize all share-based payments to employees and to non-employee directors as compensation for service on our board of directors as compensation expense in the consolidated financial statements based on the fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

For share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

 

Recently Issued Accounting Pronouncements

 

There have been no new accounting pronouncements during the three months ended March 31, 2017 that we believe would have a material impact on our financial position or results of operations.

 

Going Concern

 

As reflected in the accompanying financial statements, the Company had an accumulated deficit of $29,107,463 as of March 31, 2017 and had a net loss of $2,094,017 for the three months ended March 31, 2017.

 

While the Company is attempting to grow revenues, improve margins and lower costs, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management is seeking to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.

 

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Reclassification

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.

 

 

Note 3 – TRADE RECEIVABLES, NET

 

As of March 31, 2017 and December 31, 2016, trade receivables consist of the following:

 

		March 31, 2017				December 31, 2016
Trade receivables		$	210,359			$	137,327
Allowance for bad debt			(47,728	)			(47,289	)
Total trade receivables, net		$	162,631			$	90,038

 

Note 4 – INTANGIBLE ASSETS

 

Intangible assets consist of the following as of March 31, 2017 and December 31, 2016:

 

		March 31, 2017				December 31, 2016
Intangible Asset - Patent		$	21,440			$	21,253
Accumulated Depreciation			(4,969	)			(4,637	)
		$	16,471			$	16,580

 

The estimated useful life of the Patent is 20 years. Patents are amortized on a straight-line basis. For the three months ended March 31, 2017 and 2016, total depreciation expense was $332 and $296, respectively.

 

The following table summarizes our five-year estimated amortization of intangible assets as of March 31, 2017:

 

March 31,
2017		$	1,184
2018			1,184
2019			1,184
2020			1,184
2021			1,184
2022 & Thereafter			10,551
		$	16,471

 

Note 5 – TRADE AND OTHER PAYABLES

 

As of March 31, 2017 and December 31, 2016, trade and other payables consist of the following:

 

		March 31, 2017				December 31, 2016
Trade payables		$	1,065,168			$	940,722
Accrued expenses			349,909				388,331
Accrued interest			1,376,482				1,222,151
Other liabilities			(1,435	)			17,588
Total trade and other payables		$	2,790,124			$	2,568,792

 

Note 6 – LOANS PAYABLE

 

As of March 31, 2017 and December 31, 2016, loans payable consisted of the following:

 

Loans Payable		March 31, 2017				December 31, 2016
Unsecured, due on demand, interest 15% per annum		$	187,829			$	186,192
Unsecured, due on demand, interest 36% per annum			45,949				45,548
Unsecured, loan payable, interest 18% per annum			317,500				317,500
Unsecured, loan payable, fee for services payable on the original loan amount of 5% by May 6, 2016, 10% payable by June 5, 2016, or 20% payable by July 5, 2016			67,618				67,029
Unsecured, loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016.			250,000				250,000
Total current portion		$	868,896			$	866,269

 

 

Note 7 – CONVERTIBLE NOTES

 

As of March 31, 2017 and December 31, 2016, convertible loans payable consisted of the following:

 

Convertible Notes
		March 31, 2017				December 31, 2016
Unsecured, interest 15.2% per annum, mature from February 28, 2015 to December 31, 2015. Principal is repayable in cash or Tags units. Convertible at the average closing price of the 60 days period prior to conversion date		$	924,965			$	916,905
Unsecured, interest 10% per annum. Principal plus interest repayable in cash or common shares due on demand. Convertible at the average closing price of the 60 days period prior to conversion date			250,000				250,000
Unsecured, interest 2% per month. Principal plus interest repayable in cash or common shares. Due 45 days from August 5 2016 or upon filing of registration statement, convertible at $0.27 per share			150,000				150,000
Senior secured, interest 8% per annum. Principal plus interest repayable in cash or common shares at the lower of (i) twelve cents ($0.12) and (ii) the closing sales price of the Common Stock on the date of conversion (1)			261,389				261,389
Unsecured, interest 12% per annum. Matures 1 year from execution date. Principal plus interest is repayable in cash or common shares at the lower of current market price and 50% of the lowest trading price of Common Stock during the 25 Trading Days immediately preceding conversion (2)			74,500				-
Unsecured, interest 12% per annum. Matures on October 18, 2017. Principal is repayable in cash or common shares at the lower of (i) three cents ($0.03) and (ii) 50% of the lowest trading price during the 25 Trading Days immediately preceding the date of conversion (3)			75,000				-
Less: debt discount (1,2,3)			(157,885	)			(179,333	)
Less: deferred financing fees (2,3)			(5,355	)			-
Total		$	1,572,614			$	1,398,961
Current portion			1,572,614				1,398,961
Long term portion		$	-			$	-

 

Convertible Notes to Related Party
		March 31, 2017				December 31, 2016
Unsecured, 8% annual rate for one month; if not paid in one month, 4% per month thereafter; convertible at $0.05 per share			30,053				29,791
Unsecured, interest 5% per annum, matures March 30, 2016, and is convertible at $1.25/per share		$	310,000			$	310,000
Total current portion		$	340,053			$	339,791

 

 

(1)

On November 7, 2016, we entered into a securities purchase agreement with Coastal Investment Partners (the “Lendor”). Pursuant to the agreement, the Lendor provided us with cash proceeds of $125,000 on November 10, 2016. In exchange, we issued a secured convertible promissory note in the principal amount of $138,888.89 (the “$138,888.89 Note”), inclusive of an 8% original issue discount, which bears interest at 8% per annum to the holder. The $138,888.89 Note matures six months from issuance and is convertible at the option of the holder into our common shares at a price per share that is the lower of $0.12 or the closing price of our common stock on the conversion date. In addition, under the same terms, the company also issued a secured convertible note of $50,000 in consideration of cash proceeds of $10,000 and another secured convertible note of $75,000 in consideration of cash proceeds of $10,000. Under the agreements, the Company has the right to redeem $62,500 and $40,000 of the notes in consideration of $1 each at any time prior to the maturity date in the event that the $138,888.89 Note is exchanged or converted into a revolving credit facility with Coastal Investment, whereupon the two $10,000 convertible note balances shall be rolled into such credit facility. Discount on the notes was $116,389 and is being amortized over life of the notes.

The fair market value of the potential derivative liability was $365,944, recorded as of December 31, 2016, and was calculated using the binomial method with a volatility rate of 171% and discount interest rate of 0.62%. Derivative liability applied as discount on the notes was $145,000 and is being amortized over the life of the notes. At March 31, 2017, a derivative loss of $365,073 was recorded for the change in fair value.

 

Subsequent to the quarter ending March 31, 2017, the Lendor provided conversion notice for the $72,500 convertible note dated November 7, 2016. The Company issued 100,000 common shares pursuant to this conversion.

 

(2)

On December 21, 2016, the Company entered into a convertible note agreement for the principal amount of $74,500 in consideration of cash proceeds of $72,250 received January 10, 2017. The terms are payable at the date of maturity, December 21, 2017, together with interest of 12% per annum. Interest will be accrued and payable at the time of promissory note repayment. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i) the closing sale price of the Common Stock on the Trading Day immediately preceding the Closing Date, and (ii) 50% of the lowest sale price for the Common Stock during the twenty five (25) consecutive Trading Days immediately preceding the Conversion Date. Discounts and deferred financing fees on the note were $2,250 and $4,750, respectively, and are being amortized over life of the note.

The fair market value of the potential derivative liability was $413,937 calculated using the binomial method with a volatility rate of 255% and discount interest rate of 0.82%. Derivative liability applied as discount on the notes was $72,250 and is being amortized over the life of the notes. At March 31, 2017, a derivative loss of $123,074 was recorded for the change in fair value.

 

(3)

On January 18, 2017, the Company issued a convertible promissory note in the principal amount of $75,000. The terms are payable at the date of maturity, October 18, 2017, together with interest of 12% per annum. Interest will be accrued and payable at the time of promissory note repayment. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i) 60% multiplied by the lowest Trading Price (representing a discount rate of 40%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Variable Conversion Price which means 50% multiplied by the lowest Trading Price (representing a discount rate of 50%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Debt issuance costs and deferred financing fees on the note were $4,750 and $2,750, respectively, and are being amortized over life of the note.

The fair market value of the potential derivative liability was $1,005,000 calculated using the binomial method with a volatility rate of 283% and discount interest rate of 0.73%. Derivative liability applied as discount on the notes was $75,000 and is being amortized over the life of the notes. At March 31, 2017, a derivative gain of $43,750 was recorded for the change in fair value.

 

 

Note 8 – MEZZANINE EQUITY

 

DSG TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of March 31, 2017 and December 31, 2016. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014. The Series A Shares have no general voting rights and carry a 5% per annum interest rate. Series A Shares that are converted to common shares are entitled to the same voting rights as other common shareholders. At any time on or after the issuance date any holder of Series A Shares may convert to common stock based on predetermined conversion price of $1.25 per share. The preferred shares are recorded in the consolidated financial statements as Mezzanine Equity. The Series A Shares are subject to a redemption obligation pursuant to which the Company must redeem at a price of $1.25 per share the following amounts on the following dates if it is successful in raising financing capital of $2,500,000 as of August 1, 2016, $2,500,000 as of September 1, 2016 and $5,000,000 as of October 1, 2016; 900,000 Series A Shares ($1,250,000) by May 1, 2016, an additional 900,000 Series A Shares ($1,250,000) by June 1, 2016, and the remaining 2,429,384 Series A Shares ($3,136,730) by July 1, 2016.

 

As of March 31, 2017, 80,000 preferred shares have been purchased by an unrelated third-party and exchanged for 80,000 shares of common stock of DSG Global, Inc.

 

 Note 9 – STOCKHOLDERS’ DEFICIT

 

Common Stock

 

The Company has 125,000,000 shares of common stock authorized, each having a par value of $0.001, as of March 31, 2017 and December 31, 2016. According to the Share Exchange Agreement dated April 13, 2015, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares of DSG TAG in exchange for the issuance to the subscribing shareholders of up to 20,000,000 shares of our common stock on the basis of 1 common share of DSG Global, Inc. for 5.4935 common shares of DSG TAG. The Company also issued an additional 179,823 common shares to a director of DSG TAG to meet debt agreement obligations.

 

On December 23, 2017, the Company entered into an investor relations agreement with Chesapeake Group Inc., to assist the Company in all phases of investor relations including broker/dealer relations. The contract will commence on January 3, 2017 and end on July 2, 2017. In consideration for the agreement, the Company is committed to providing 1,800,000 restricted common shares within 10 days of the agreement, plus an additional 450,000 restricted common shares representing a monthly fee of $3,750. These restricted common shares are to be issued in monthly installments of 75,000 restricted common shares on the 2nd of each month beginning on February 2, 2017 and ending on July 2, 2017. As of March 31, 2017, the Company has issued 2,250,000 shares of common stock at a purchase price of $0.051 per common stock satisfying the full terms of the agreement.

 

There were 32,541,187 and 30,291,187 shares of common stock of the Company issued and outstanding as of March 31, 2017 and December 31, 2016, respectively. Each share of common stock is entitled to one (1) vote.

 

Shares to be Issued

 

On March 15, 2017, the Company entered into a Securities Purchase Agreement, pursuant to which the Company agreed to issue 500,000 common shares of the Company at a price of $0.10 per share for aggregate consideration of $50,000. At March 31, 2017, the shares are outstanding to be issued and the funds are included in shares to be issued.

 

Noncontrolling Interest

 

DSG TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of September 30, 2016 and December 31, 2015. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014. The Series A Shares were not exchanged for securities of DSG Global, Inc. as part of the Share Exchange Agreement. Noncontrolling interest as of March 31, 2017 and December 31, 2016 was $1,476,998 or 16.18% or $1,099,140 or 16.18%, respectively.

 

 

Note 10 – RELATED PARTY TRANSACTIONS

 

On March 31, 2015 the Company entered into an agreement with a marketing firm that is owned by one of the directors of the Company. The terms included cash payment of $17,500 and a note in the amount of $310,000, with 5% interest per annum, convertible at the election of the holder into 248,000 shares of Common Stock of DSG Global, Inc. at a price of $1.25 per share, maturing on March 30, 2016. As of September 30, 2016, it was estimated that approximately 90% of the marketing services related to the agreement have been expensed in the amount of $280,000 and the remaining $30,000 is recorded as a prepaid deposit. As of March 31, 2017, the Director of the Company has filed a notice of default in regard to the related party convertible note on the financial statements of DSG TAG. The note was issued in lieu of marketing services, the note maturity date is March 31, 2016. Adore and DSG TAG are currently in arbitration in regards to this matter. (See Note 17).

 

On December 16, 2016, a convertible loan was received from a related party in the amount of $30,053 ($40,000 CAD). Interest is 8% annual rate for one month and 4% monthly rate thereafter if not paid in one month. The note is convertible at $0.05 per share. (See Note 7).

 

Amount due to related parties at March 31, 2017 and December 31, 2016 was $1,539 and $1,526, respectively. The amounts consist of advances to a director and officer of the Company. These amounts are unsecured, non-interest bearing and due on demand.

 

Note 11 – INCOME TAX

 

The following is the income tax expense reflected in the Statement of Operations for the three months ended March 31, 2017 and 2016.

 

Income Tax Expense
			March 31, 2017				March 31, 2016
Current		$	-			$	-
Deferred			-				-
Total		$	-			$	-

 

The following are the components of income before income tax reflected in the Statement of Operations for the three months ended March 31, 2017 and 2016:

 

Component of Loss Before Income Tax and Noncontrolling Interest
		March 31, 2017				March 31, 2016
Loss before income tax and noncontrolling Interest		$	(2,471,875	)		$	(461,981	)
Income Tax		$	-			$	-
Effective tax rate			0	%			0	%

 

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the ability to recover the deferred tax assets within the jurisdiction from which they arise, the Company considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company began with historical results adjusted for changes in accounting policies and incorporates assumptions including the amount of future pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimate the Company are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company consider three years of cumulative operating income (loss).

 

As of March 31, 2017, the Company had net operating losses, or NOLs, of approximately $29.0 million to offset future taxable income in Canada and the United Kingdom. The deferred tax assets at March 31, 2017 were fully reserved. Management believes it is more likely than not that these assets will not be realized in the near future.

 

 

Note 12 – GEOGRAPHIC SEGMENT INFORMATION

 

As a result of the reverse merger on May 6, 2015, the Company operates in three regions: Canada, United Kingdom and the United States of America. All inter-company transactions are eliminated in consolidation. Prior to the merger, the Company operated in two regions.

 

For the three months ended March 31, 2017 and 2016, geographic segment information is as follows:

 

For the Three Months ended March 31, 2017

 

		Canada				United Kingdom				United States				Elimination				Consolidated
Revenue		$	248,270			$	-				-			$	-			$	248,270
Cost of Revenue			69,373				132				-				-				69,505
Total Expenses			471,688				131				925				-				472,744
Other Income (Expenses)			(2,184,068	)			6,547				(375	)			-				(2,177,896	)
Noncontrolling Interest			377,858				-				-				-				377,858
Net (Loss) Income			(2,099,001	)			6,284				(1,300	)			-				(2,094,017	)
Assets			464,246				104,363				47,705				(258,614	)			357,700
Liabilities			8,144,346				336,696				9,051				(258,614	)			8,231,478

 

For the Three Months ended March 31, 2016

 

		Canada				United Kingdom				United States				Elimination				Consolidated
Revenue		$	210,848			$	50,745			$	-			$	(6,666	)		$	254,928
Cost of Revenue			67,077				34,137				-				(6,666	)			94,548
Total Expenses			450,094				124,297				(1,686	)			-				572,705
Other Income (Expenses)			(34,905	)			(13,383	)			(1,368	)			-				(49,656	)
Noncontrolling Interest			74,561				-				-				-				74,561
Net (Loss) Income			(266,667	)			(121,071	)			319				-				(387,420	)
Assets			882,634				64,272				67,594				(255,813	)			758,687
Liabilities			4,230,811				308,528				11,354				(255,813	)			4,294,880

 

Note 13 – COMMITMENTS AND CONTINGENCIES

 

Lease Obligations

 

The Company leases offices in Canada under a renewable operating lease which originally expired on April 30, 2016, following which the term of the lease is month to month, with 30 days’ notice to terminate. If no agreement is signed, the Landlord reserves the right to terminate the Lease on March 31, 2016.

 

On April 7, 2016, the Company signed an additional two-month extension on the current lease with a term of May 1, 2016 to July 31, 2016. During the year ended December 31, 2016, the lease was extended and will expire on January 31, 2017.

 

On February 15, 2017, an additional six-month extension on the lease was signed with the term beginning on February 1, 2017 and ending on July 31, 2017.

 

 

The annual rent for the premises in Canada is approximately $66,000 CDN or $5,500 CDN a month. For the three months ended March 31, 2017 and 2016, the aggregate rental expense was $17,594 and $17,660, respectively. Rent expense included other amounts paid in Canada for warehouse storage and offices on a month-to-month or as-needed basis.

 

The Company signed an operating lease agreement through National Leasing for a photocopier. The lease terms are for 60 months commencing on May 22, 2015 and ending April 22, 2020 with a monthly lease payment of approximately $183.

 

The following table summarizes our future minimum payments under these arrangements as of March 31, 2017:

 

March 31:
2017		$	29,243
2018			2,200
2019			2,200
2020			917
		$	34,560

 

Product Warranties

 

The Company’s product warranty costs are part of its cost of sales based on associated material product costs, labor costs for technical support staff, and associated overhead. The products sold are generally covered by a warranty for a period of one year. As of March 31, 2017, the Company has set up a reserve for future warranty costs of $112,697. The Company’s past experience with warranty related costs was used as a basis for the reserve. Prior to December 31, 2015 the Company expensed warranty costs as incurred. The warranty expense incurred was $2,624 and $45,217 for the three months ended March 31, 2017 and 2016, respectively.

 

In the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.

 

Note 14 – LEGAL MATTERS

 

On December 30, 2012 a corporation filed an action against the Company in the United States courts claiming patent infringement. On March 8, 2013 the parties agreed to a settlement, with the Company admitting no wrongdoing, in the amount of $125,000. The settlement is to be paid over an 18-month period in equal installments of $7,500 with annual interest at a rate of 8%. The Company has accrued all liabilities related to this matter in the financial statements.

 

On June 4, 2015, a shareholder of the Company’s subsidiary filed a lawsuit to recover a loan of CAD$100,000 which was made on October 16, 2012 and was due on July 16, 2013 with accrued interest. A response to the claim was submitted on June 29, 2015. On August 13, 2015 a settlement was reached between both parties to pay the loan amount remaining plus interest, for a total of $119,700. In addition, the shareholder’s outstanding shares of DSG TAG were converted into 18,422 shares of common stock of DSG Global, Inc. on October 22, 2015. On February 16, 2016, a new agreement was reached after a breach of the settlement agreement dated August 13, 2015. DSG TAG defaulted on the settlement agreement and both parties agreed to new terms. DSG TAG Systems agreed to pay the plaintiff $86,780 CDN in monthly installations of $5,423.75 CDN over a period of sixteen consecutive months, the first payment commencing April 20, 2016. DSG TAG failed to make further payments after 2 scheduled payments in May and June 2016. On September 27, the shareholder filed a Subpoena to Debtor at the Supreme Court of British Columbia for a hearing on October 17, 2016.

 

 

On October 17, 2016, the Supreme Court of British Columbia made an order in relating to the above discussed lawsuit from a shareholder to recover a loan of CAD$100,000. DSG TAG was ordered to repay the remaining loan plus costs in the amount of $77,589 to the shareholder in 14 monthly payments of $5,500 each plus $589 at the 15th month, starting February 15, 2017. The Company has accrued liabilities related to this matter in the financial statements. As of March 31, 2017, the Company has not yet made any payments.

 

A Director of the Company, representing their company Adore Creative Agency Inc. (Adore) has filed a notice of default in regards to the related party convertible note on the financial statements of DSG TAG. The note was issued in lieu of marketing services, the note maturity date is March 31, 2016. Adore and DSG TAG are currently in arbitration in regards to this matter.

 

On September 7, 2016, a vendor has filed a Complaint for Damage in Florida (Case Number: CACE-16-016663) to recover unpaid invoice amount of $27,335 plus interest of $4,939. The invoice was not paid due to a dispute that DSG TAG did not think that vendor had delivered the service according to the agreement between the two parties.

 

Note 15 – SUBSEQUENT EVENTS

 

Management has evaluated events subsequent through May 22, 2017, for transactions and other events that may require adjustment of and/or disclosure in such financial statements.

 

On April 3, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The terms are payable at the date of maturity, October 3, 2017, together with interest of 10% per annum. Interest will be accrued and payable at the time of promissory note repayment. In connection with the issuance of this convertible promissory note, the Borrower shall issue 550,000 shares of common stock as a commitment fee provided, however, these shares must be returned if the Note is fully repaid and satisfied prior to the date which is 180 days following the issuance. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i) 55% multiplied by the lowest Trading Price (representing a discount rate of 45%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Alternate Conversion Price which means 55% multiplied by the lowest Trading Price (representing a discount rate of 50%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

On April 7, 2017, the Company issued 500,000 shares of common stock pursuant to the Securities Purchase Agreement dated March 15, 2017 at $0.10 per common share for total consideration of $50,000. Funds were received prior to quarter end and are included in shares to be issued at March 31, 2017.

 

On April 3, 2017, the Company entered into an agreement to issue 481,836 shares of common stock pursuant to the conversion of a $24,092 CDN convertible note balance at a conversion price of $0.05 per share of common stock. The Company also agreed to issue 43,213 shares of common stock pursuant to the conversion of interest outstanding totaling $2,161 CDN at a conversion price of $0.05 per share of common stock.

 

On May 4, 2017, the Company approved the conversion of a $150,000 convertible note held by Gemini Holdings, Inc with the Company. Pursuant to this conversion, on May 17, 2017, the Company issued 3,000,000 free-trading shares of common stock to settle the note.

 

On May 8, 2017, the Company received a notice for the conversion of a $72,500 convertible note held with Coastal Investment Partners. The Company issued 100,000 restricted shares of common stock pursuant to this conversion notice.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

 

	●	our future financial and operating results;
	●	our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
	●	the timing and success of our business plan;
	●	our plans regarding future financings;
	●	our ability to attract and retain customers;
	●	our dependence on growth in our customers’ businesses;
	●	the effects of market conditions on our stock price and operating results;
	●	our ability to maintain our competitive technological advantages against competitors in our industry;
	●	the expansion of our business in our core golf market as well as in new markets like commercial fleet management and agriculture;
	●	our ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance;
	●	our ability to introduce new offerings and bring them to market in a timely manner;
	●	our ability to maintain, protect and enhance our intellectual property;
	●	the effects of increased competition in our market and our ability to compete effectively;
	●	the attraction and retention of qualified employees and key personnel;
	●	future acquisitions of or investments in complementary companies or technologies; and
	●	our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company.

 

These forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements.

 

 

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

 

Our unaudited financial statements are state in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

Corporate History

 

DSG Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007. We were formed to option feature films and TV projects to be packaged and sold to movie studios and production companies.

 

In January 2015, we changed our name to DSG Global, Inc. and effected a one-for-three reverse stock split of our issued and outstanding common stock in anticipation of entering in a share exchange agreement with DSG TAG Systems, Inc., a corporation incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008.

 

On April 13, 2015, we entered into a share exchange agreement with DSG TAG Systems Inc. and the shareholders of DSG TAG Systems who become parties to the agreement. Pursuant to the terms of the share exchange agreement, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares in the capital stock of DSG TAG Systems in exchange for the issuance to the selling shareholders of up to 20,000,000 shares of our common stock on the basis of 1 common share for 5.4935 common shares of DSG TAG Systems.

 

On May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common shares of DSG TAG Systems as contemplated by the share exchange agreement by issuing 15,185,875 shares of our common stock to shareholders of DSG TAG Systems who became parties to the agreement. In addition, concurrent with the closing of the share exchange agreement, we issued an additional 179,823 shares of our common stock to Westergaard Holdings Ltd. in partial settlement of accrued interest on outstanding indebtedness of DSG TAG Systems.

 

Following the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of common stock of DSG TAG Systems from shareholders who became parties to the share exchange agreement, and issued to these shareholders an aggregate of 18,422 shares of our common stock. Following completion of these additional purchases, DSG Global owns approximately 100% of the issued and outstanding shares of common stock of DSG TAG Systems. An aggregate of 4,229,384 shares of Series A Convertible Preferred Stock of DSG TAG Systems continues to be held by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a member of our board of directors.

 

The reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG Systems is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized. We adopted the business and operations of DSG TAG Systems upon the closing of the share exchange agreement.

 

 

Overview of Our Business

 

DSG Global, Inc. is a technology development company based in Surrey, British Columbia, Canada, engaged in the design, manufacture, and marketing of fleet management solutions for the golf industry, as well as commercial, government and military applications. Our principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support services. We were founded by a group of individuals who have dedicated their careers to fleet management technologies and have been at the forefront of the industry’s most innovative developments, and our executive team has over 50 years of experience in the design and manufacture of wireless, GPS, and fleet tracking solutions. We have developed the TAG suite of products that we believe is the first completely modular fleet management solution for the golf industry. The TAG suite of products is currently sold and installed around the world in golf facilities and as commercial applications through a network of established distributors and partnerships with some of the most notable brands in fleet and equipment manufacture.

 

DSG stands for “Digital Security Guard”, which is our primary value statement giving fleet operator’s new capabilities to track and control their vehicles. We have developed a proprietary combination of hardware and software that is marketed around the world as the TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course operators manage their fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of the National Golf Course Owners Association. To date the TAG system is installed on over 8,000 vehicles and has been used to monitor over 6,000,000 rounds of golf.

 

The TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which can operate independently, we offer two golfer information display systems — the alphanumeric TEXT and high definition TOUCH — providing the operator with two display options which is unique in the industry.

 

The primary market for our TAG system is the 40,000 golf operations worldwide. While the golf industry remains the primary focus of our sales and marketing efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new markets.

 

We have a direct sales force in North America, which comprises the most significant portion of the golf fleet market, and have developed key relationships with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive sales for the North American and worldwide markets.

 

In order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier of our hardware units and components at competitive prices. Presently, we source our TOUCH units from one supplier in China and our TAG units from one supplier in the United Kingdom. We have recently established a new relationship with a supplier for our TOUCH units in China to provide us with higher quality, newer technology at competitive pricing. We are also exploring the opportunity of a partnership with a US manufacturer.

 

In addition, DSG is currently in negotiations with a telecommunications provider to provide new technology in hardware and wireless access.

 

Our Revenue Model

 

We derive revenue from four different sources, as follows:

 

	●	Systems Sales Revenue, which consists of the sales price paid by those customers who purchase or lease our TAG system hardware.
	●	Monthly Service Fees are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG systems.

 

 

	●	Monthly Rental Fees are paid by those customers that rent the TAG system hardware. The amount of a customer’s monthly payment varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and TOUCH).
	●	Advertising Revenue is a new source of revenue that we believe has the potential to be strategic for us in the future. We are in the process of implementing and designing software to provide advertising and other media functionality on our TOUCH units.

 

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. We accrue for warranty costs, sales returns, and other allowances based on its historical experience.

 

Our revenue recognition policies are discussed in more detail under “Note 2 – Summary of Significant Accounting Policies” in the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

 

Cost of Revenue

 

Our cost of revenue consists primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and inventory adjustments.

 

	●	Hardware purchases. Our equipment purchases consist primarily of TAG system control units, TEXT display, and TOUCH display tablets. The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or TOUCH high definition “touch activated” display. Hardware purchases also include costs of components used during installations, such as cables, mounting solutions, and other miscellaneous equipment.
	●	Wireless data fees. Our wireless data fees consist primarily of the data fees charged by outside providers of GPS tracking used in all of our TAG system control units.
	●	Mapping. Our mapping costs consist of aerial mapping, course map, geofencing, and 3D flyovers for golf courses. This cost is incurred at the time of hardware installation.
	●	Installation. Our installation costs consist primarily of costs incurred by our employed service technicians for the cost of travel, meals, and miscellaneous components required during installations. In addition, these costs also include fees paid to external contractors for installations on a project by project basis.
	●	Freight expenses and Inventory adjustments. Our freight expenses consist primarily of costs to ship hardware to courses for installations. Our inventory adjustments include inventory write offs, write downs, and other adjustments to the cost of inventory.
	●	Operating Expenses & Other Income (Expenses) We classify our operating expenses and other income (expenses) into six categories: compensation, research and development, general and administrative, warranty, foreign currency exchange, and finance costs. Our operating expenses consist primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade shows, software development, and allocated costs. Allocated costs include charges for facilities, office expenses, telephones and other miscellaneous expenses. Our other income (expenses) primarily consists of financing costs and foreign exchange gains or losses.
	●	Compensation expense. Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses, and employee benefits. This includes salaries for management, administration, engineering, sales and marketing, and service support technicians. Salaries and wages directly related to projects or research and development are expensed as incurred to their operating expense category.

 

 

	●	Research and development. Our research and development expenses consist primarily of personnel costs and professional services associated with the ongoing development and maintenance of our technology.
	●	Research and development expenses include payroll, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached. Research and development is expensed and is included in operating expenses.
	●	General and administrative. Our general and administrative expenses consist primarily of sales and marketing, commissions, travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting and legal professional services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing, marketing materials, and media management.
	●	Warranty expense. Our warranty expenses consist primarily of associated material product costs, labor costs for technical support staff, and other associated overhead. Warranty costs are expensed as they are incurred.
	●	Foreign currency exchange. Our foreign currency exchange consists primarily of foreign exchange fluctuations recorded in Canadian dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
	●	Finance costs. Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing charges for obtaining debt financing.

 

We expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings in new markets like commercial fleet management and agriculture.

 

Additional Capital

 

We require additional capital to continue to develop software and products, meet our contractual obligations, and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.

 

Results of Operations

 

We had a net loss of $2,094,017 for the three month period ended March 31, 2017, which was $1,706,597 or 440.5% more than the net loss of $387,420 for the three month period ended March 31, 2016. The primary reason for the increase in net loss is attributable to the $1,854,416 derivative expense recorded in the current quarter end relating to convertible notes.

 

 

The following table summarizes key items of comparison and their related increase (decrease) for the three month periods ended March 31, 2017 and 2016:

 

		Three Months ended								Increase (Decrease)
		March 31, 2017				March 31, 2016				2017 from 2016
			($)				($)				(%)
Revenues		$	248,270			$	254,928				-2.61	%
Cost of revenue			69,505				94,548				-26.49	%
Gross profit			178,765				160,380				11.46	%
Operating Expenses:
Compensation expense			189,309				195,844				-3.34	%
Research and development expense			-				17,037				-100.00	%
General and administrative expense			272,987				305,918				-10.76	%
Warranty expense			2,624				45,217				-94.20	%
Bad Debt			-				3,105				-100.00	%
Depreciation and amortization expense			7,824				5,844				33.88	%
Total Operating Expenses			472,744				572,705				-17.45	%
Loss from operations			(293,979	)			(412,325	)			-28.7	%
Other Income (Expense):
Foreign currency exchange			11,003				72,140				-84.75	%
Other (expenses) income			(4,018	)			(490	)			720.00	%
Unrealized gains (losses) on derivative instruments, net			(1,854,714	)			-				100	%
Finance costs			(330,464	)			(121,306	)			172.42	%
Total Other Expense			(2,177,896	)			(49,656	)			4285.97	%
Provision for income taxes expense (benefit)			-				-				0	%
Net loss			(2,471,875	)			(461,981	)			435.06	%
Net loss attributable to noncontrolling interest			377,858				74,561				406.78	%
Net loss attributable to DSG Global		$	(2,094,017	)		$	(387,420	)			440.50	%
Net loss per share (basic and diluted)			(0.067	)			(0.013	)			-615.38	%

 

Comparison of the three months ended March 31, 2017 and 2016:

 

Revenue

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Revenue		$	248,270			$	254,928				(2.6	)%

 

 

Revenue decreased by $6,658, or 2.6%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. The decreases was primarily due to lower sales in 2017 and continued design and redevelopment of our product line.

 

Due to the redevelopment of our product line, it has created lower sales overall than anticipated. We have been forced to move to a 3G/4G GPS cellular device, require redevelopment of our advertising, and also software development delays in integrating the tournament software onto the TOUCH screen, all of which that has caused delays in sales. Our company along with the new sales team is aggressively building its pipeline for the next year.

 

Cost of Revenue

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Cost of revenue		$	69,505			$	94,548				(26.5	)%

 

Cost of revenue decreased by $25,043, or 26.5%, for the three months ended March 31, 2017 as compared to the three months March 31, 2016. The table below outlines the differences in detail:

 

		For the Three Months Ended
		March 31, 2017				March 30, 2016				Difference				% Difference
Cost of Goods		$	3,664			$	22,667			$	(19,003	)			(83.8	)%
Labour			81				428				(347	)			(81.1	)%
Mapping & Freight Costs			1,717				3,128				(1,411	)			(45.1	)%
Wireless Fees			63,911				66,384				(2,473	)			(3.7	)%
Inventory Write-off/Adjustments			132				1,942				(1,810	)			(93.2	)%
		$	69,505			$	94,548			$	(25,043	)			(26.5	)%

 

For the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, the decrease was primarily due to lower level of equipment sales. As a result, cost of goods decreased by $19,003 for the three months ended March 31, 2017 in comparison to the three months ended March 31, 2016. Installation costs, such as direct labor decreased by $347, mapping and freight costs decreased by $1,411, and wireless fees decreased by $2,473.

 

Compensation Expense

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Compensation Expense		$	189,309			$	195,844				(3.3	)%

 

Compensation expense decreased by $6,535, or 3.3%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. The decrease was immaterial.

 

 

Research and Development

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Research and development expense		$	-			$	17,037				(100	)%

 

Research and development expense increased by $17,037, or 100% for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. In order to reduce costs, no research and development occurred during the current quarter ending.

 

General and Administration Expense

 

		For the Three Months Ended March 31,
		2017				2016				% Change
General & administration expense		$	272,957			$	318,664				(14.3	)%

 

General & administration expense increased by $105,853, or 15.9% for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. The table below outlines the differences in detail:

 

		For the Three Months Ended
		March 31, 2017				March 31, 2016				Difference				% Difference
Accounting & Legal		$	11,870			$	21,878			$	(10,008	)			(45.7	)%
Marketing & Advertising			112,311				142,634				(30,323	)			(21.3	)%
Subcontractor & Commissions			43,708				24,472				19,236				78.6	%
Hardware Design			873				12,745				(11,872	)			(93.2	)%
Office Expense, Rent, Software, Bank & Credit Card Charges, Telephone, Travel, & Meals			104,225				104,189				36				-	%
		$	272,987			$	305,918			$	(32,931	)			(10.8	)%

 

For the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, the overall decrease in expense is primary related decreases in marketing and advertising of $30,323, as a result of the Company reducing operating costs. Subcontractors and commissions increased by $19,236 due to the hiring of more contract workers. Accounting and legal costs decreased by $10,008 and hardware design decreased by $11,872 both as a result of the Company’s continuing efforts to reduce operating costs.

 

Warranty Expense

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Warranty Expense		$	2,624			$	45,217				(94.2	)%

 

Warranty expense decreased by $42,593, or 94.2% for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. The decrease in warranty expense was mostly due to the additional repairs required because of the technical issues with our touch tablets that we ordered in 2015 from a supplier in China during the quarter ended March 31, 2016. As of March 31, 2017, our balance sheet included a reserve of $112,397 for future warranty costs. No reserve was used in prior periods, and warranty costs were expensed as incurred.

 

 

Foreign Currency Exchange

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Foreign currency exchange		$	11,003			$	72,140				(84.7	)%

 

For the three months ended March 31, 2017, we recognized a $11,003 gain in foreign currency transaction as compared to $72,140 in foreign currency transaction gain for the three months ended March 31, 2016. The decrease was primarily due to exchange rate fluctuations on payables, receivables, and other foreign exchange transactions denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar, Euro and British pound.

 

Finance Costs

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Finance costs		$	330,464			$	121,306				172.4	%

 

Finance costs increased by $209,158 or 172.4%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. The increase was primarily due to increased interest costs recorded in the current quarter ending on convertible notes payable.

 

Derivative Expense

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Unrealized gains (losses) on derivative instruments, net		$	1,854,417			$	-				100	%

 

Derivative expense increased by $1,854,417 or 100%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 due to the triggering of derivative instruments in the current quarter ending on convertible notes payable.

 

Net Loss Attributable to DSG Global

 

		For the Three Months Ended March 31,
		2017				2016				% Change
Net loss attributable to DSG Global		$	2,094,017			$	387,420				440.5	%

 

As a result of the above factors, net loss after noncontrolling interest attributable to DSG Global increased by $1,706,597, or 440.5% for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. The overall increase was primarily due to increased finance costs and from the recording of derivative expense on convertible notes.

 

 

Liquidity and Capital Resources

 

From our incorporation in April 17, 2008 through March 31, 2017, we have financed our operations, capital expenditures and working capital needs through the sale of common shares and the incurrence of indebtedness, including term loans, convertible loans, revolving lines of credit and purchase order financing. At March 31, 2017, we had $8,231,478 in outstanding indebtedness, which all matures within the next twelve months.

 

We had cash in the amount of $0 as of March 31, 2017, as compared to $0 as of March 31, 2016. We had a working capital deficit of $7,930,685 as of March 31, 2017 compared to working capital deficit of $3,666,597 as of March 31, 2016.

 

Liquidity and Financial Condition

 

Our financial position as of March 31, 2017 and 2016, and the changes for the periods then ended are as follows:

 

Working Capital

 

		At March 31, 2017				At March 31, 2016
Current Assets		$	300,793			$	628,283
Current Liabilities		$	8,231,478			$	4,294,880
Working Capital		$	(7,930,685	)		$	(3,666,597	)

 

Cash Flow Analysis

 

Our cash flows from operating, investing and financing activities are summarized as follows:

 

		March 31,
		2017				2016
Net cash (used in) provided by operating activities		$	(162,804	)		$	(259,817	)
Net cash (used in) provided by investing activities			-				378
Net cash provided by financing activities			197,990				243,919
Net (decrease) increase in cash			35,186				(15,520	)
Cash at beginning of period			0.00				0.00
Cash at end of period		$	0.00			$	0.00

 

Net Cash (Used in) Provided by Operating Activities. During the three months ended March 31, 2017, cash used in operations totaled $162,804. This reflects the net loss of $2,471,875 less $2,309,071 provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by interest on discount of convertible debt of $176,654, non-cash fair value adjustment on derivative of $1,854,416, shares issued for services of $112,500, a decrease in trade receivables of $120,021, and an increase in trade payables of $221,332.

 

During the three months ended March 31, 2016, cash used in operations totaled $259,817. This reflects a net loss of $461,981 less $202,164 provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by $17,706 for notes issued for services, an increase of prepaid expense and deposits of $75,651, an increase of inventory of $37,436, a decrease in trade receivables of 61,117, an increase in trade payables of $117,343, and an increase in deferred revenue of $30,613.

 

Net Cash (Used in) Provided by Investing Activities. Investing activities reduced cash by $0 in the three months ended March 31, 2017, and increased cash by $378 for the three months ended March 31, 2016.

 

Net Cash (Used in) Provided by Financing Activities. Net cash from financing activities during the three months ended March 31, 2017 totaled $197,990, mostly from various note and loan facilities entered during the period. Net cash provided by financing activities during the three months ended March 31, 2016 was $243,919 from various note and loan facilities entered during the period.

 

 

Outstanding Indebtedness

 

Our current indebtedness as of March 31, 2017 is comprised of the following. For loans that have expired terms, we are in talks with the lenders to extend them. The company must increase revenue or raise more equity capital to meet the payment obligations.

 

Our current indebtedness as of March 31, 2017 is comprised of the following:

 

	●	Unsecured loan payable in the amount of $187,829 bearing interest at 15% per annum and due on demand;
	●	Unsecured loan payable in the amount of $317,500 bearing interest at 18% per annum;
	●	Unsecured note payable in the amount of $45,949, bearing interest at 36% per annum and due on July 20, 2017;
	●	Unsecured loan payable in the amount of $57,618 fees for services payable on the original loan amount of 5% by May 6, 2016, 10% payable by June 5, 2016, or 20% payable by July 5, 2016
	●	Unsecured loan payable in the amount of $250,000, bearing interest at 10% per annum, with a minimum interest amount of $25,000, and due on July 22, 2016.
	●	Secured convertible loan payable in the amount of $924,965, bearing interest at 15.2% per annum and due on December 31, 2015;
	●	Unsecured, convertible note payable to related party in the amount of $310,000, bearing interest at 5% per annum and due on March 30, 2016;
	●	Unsecured, convertible note payable in the amount of $250,000, bearing interest at 10% per annum and due on February 25, 2016;
	●	Unsecured, convertible note payable in the amount of $150,000, bearing interest at 2% per month. Principal plus interest repayable in cash or common shares. Due 45 days from August 5, 2016 or upon filing of registration statement, convertible at $0.27 per share;
	●	Senior secured discount convertible note payable in the amount of $261,389, bearing interest at 8% per annum. Repayable in cash or common shares at the lower of (i) twelve cents ($0.12) and (ii) the closing sales price of the Common Stock on the date of conversion and due on May 7, 2017;
	●	Unsecured, convertible note payable in the amount of $30,053 (CAD $40,000), bearing interest at 8% annual rate for one month; if not paid by January 15, 2017, bearing interest at 4% per month thereafter; and is convertible at $0.05 per share.
	●	Unsecured, convertible note payable in the amount of $74,500 bearing interest at 12% per annum. Repayable in cash or common shares at the lower of (i) current market price and (ii) 50% of the lowest trading price of Common Stock during the 25 Trading Days immediately preceding the date of conversion. Matures on January 3, 2018.
	●	Unsecured, convertible note payable in the amount of $75,000 bearing interest at 12% per annum. Repayable in cash or common shares at the lower of (i) three cents and (ii) 50% of the lowest trading price of Common Stock during the 25 Trading Days immediately preceding the date of conversion. Matures on October 18, 2017.

 

 

Preferred Stock Redemption Obligations

 

Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a former member of our board of directors, owns 4,229,384 shares (the “Series A Shares”) of Series A Convertible Preferred Stock of DSG TAG Systems. Pursuant to a Subscription / Debt Settlement Agreement dated September 26, 2014 between DSG TAG Systems and Westergaard Holdings, as amended on April 29, 2016, DSG TAG Systems has agreed that DSG Global, Inc. will complete financings for gross proceeds of at least $10 million and use a portion of the proceeds to redeem all of the Series A Shares at a price of $1.25 per share, as follows:

 

	●	On or before August 1, 2016, we must complete a financing for gross proceeds of at least $2.5 million and use at least $1.125 million to redeem a minimum of 900,000 Series A Shares;
	●	On or before September 1, 2016, we must complete an additional financing for gross proceeds of at least $2.5 million and use at least $1.125 million to redeem a minimum of 900,000 additional Series A Shares; and
	●	On or before October 1, 2016, we must complete an additional financing for gross proceeds of at least $5.0 million and use at least $3.14 million to redeem the remaining 2,509,384 Series A Shares.

 

If we fail to satisfy the above described financing and share redemption schedule, we will be in default of the subscription and Debt Settlement Agreement which would entitle the holder of the Preferred Shares to convert the Series A Convertible Preferred Shares into common shares in the capital of DSG Global at the price of $1.25 per share. As of the date of this report, these commitments have not been satisfied and we are currently negotiating an extension on the terms of this agreement.

 

If we fail to satisfy the above described financing and share redemption schedule, we will be in default of the Subscription and Debt Settlement Agreement which would entitle the holder of the Preferred Shares to convert the Series A Convertible Preferred Shares into common shares in the capital of DSG Global at the price of $1.25 per share.

 

Prospective Capital Needs

 

We estimate our operating expenses and working capital requirements for the twelve month period beginning April 1, 2017 to be as follows:

 

Estimated Expenses for the Twelve Month Period ending March 31, 2018
Management compensation		$	500,000
Professional fees		$	150,000
General and administrative		$	1,900,000
Total		$	2,550,000

 

As noted earlier, during the three months ended March 31, 2017, cash used in operations totaled $162,804. The relatively low level of cash used compared to our estimated working capital needs in the future was the result of an accumulation of vendor payables, customer receivables, and an increasing loan payable balance. We need to reduce the current level of payables in the near future to keep a good relationship with our vendors and expand our sales and service team to achieve our operational objectives. At present, our cash requirements for the next 12 months outweigh the funds available. Of the $2,550,000 that we require for the next 12 months, we had $0 in cash as of March 31, 2017, and a working capital deficit of $7,930,685. Our principal sources of liquidity are cash generated from product sales. In order to achieve sustained profitability and positive cash flows from operations, we will need to increase revenue and/or reduce operating expenses. Our ability to maintain, or increase, current revenue levels to achieve and sustain profitability will depend, in part, on demand for our products.

 

 

In order to improve our liquidity, we also plan to pursue additional equity financing from private investors or possibly a registered public offering. We do not currently have any definitive arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. To help finance our day to day working capital needs, the founder and CEO of the company has made a total payment of $108,651 since late 2015. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources obligations, and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.

 

Off-Balance Sheet Transactions

 

We do not have any off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected.

 

We believe that the assumptions and estimates associated with revenue recognition, foreign currency and foreign currency transactions and comprehensive loss have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see the notes to our condensed consolidated financial statements.

 

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, 2017, 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 September 30, 2016, 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 first quarter of 2017 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.

 

 

PART II: OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On June 4, 2015, a lawsuit was commenced against DSG TAG Systems Inc. in the Supreme Court of British Columbia, captioned Amanda McGuire v. DSG TAG Systems Inc., No. S-154634, Vancouver Registry. The plaintiff alleges that a promissory note in the principal amount of $100,000 CDN issued by DSG TAG Systems was not converted into common shares of DSG TAG Systems, as asserted by DSG TAG Systems, and the plaintiff seeks repayment of indebtedness in the amount of $100,000 CDN plus interest and costs. An agreement was reached on August 13, 2015 between DSG TAG Systems and the plaintiff, pursuant to which DSG TAG Systems agreed to pay the plaintiff $119,700 CDN in monthly installations of $17,100 CDN, the first payment commencing on October 1, 2015, and the plaintiff agreed to exchange 101,200 shares of common stock of DSG Tag Systems for 18,422 shares of common stock of DSG Global, which exchange occurred on October 22, 2015.

 

On December 3, 2015, a second action lawsuit was commenced against DSG TAG Systems Inc. in the Supreme Court of British Columbia, captioned Amanda McGuire v. DSG TAG Systems and DSG Global Inc., No. S-1510050, Vancouver Registry. The plaintiff filed a claim for default on the settlement agreement entered in on August 13, 2015 due to non-payment. On February 20, 2016, a new agreement was reached between DSG TAG Systems and the plaintiff, pursuant to which DSG TAG Systems agreed to pay the plaintiff $86,780 CDN in monthly installations of $5,423.75 CDN over a period of sixteen consecutive months, the first payment commencing April 20, 2016.

 

On October 17, 2016, the Supreme Court of British Columbia made a new order after we did not make the above-mentioned payments on schedule to the shareholder per the settlement agreement. DSG TAG was ordered to repay the remaining loan plus costs in the amount of $77,589 to the shareholder in 14 monthly payments of $5,500 each plus $589 at the 15th month starting February 15, 2017.

 

On September 7, 2016, a vendor has filed a Complaint for Damage in Florida (Case Number: CACE-16-016663) to recover unpaid invoice amount of $27,335 plus interest of $4,939. The invoice was not paid due to a dispute that DSG TAG did not think that vendor had delivered the service according to the agreement between the two parties.

 

We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future financial position, results of operations or cash flows.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company we are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

Not Applicable.

 

 

Item 6. Exhibits

 

Exhibit				Filed				Filing
Number		Exhibit Description		Form		Exhibit		Date		Herewith
3.1.1		Articles of Incorporation of the Registrant		SB-2		3.1		10-22-07
3.1.2		Certificate of Change of the Registrant		8-K		3.1		06-24-08
3.1.3		Articles of Merger of the Registrant		8-K		3.1		02-23-15
3.1.4		Certificate of Change of the Registrant		8-K		3.2		02-23-15
3.1.5		Certificate of Correction of the Registrant		8-K		3.3		02-23-15
3.2.1		Bylaws of the Registrant		SB-2		3.2		10-22-07
3.2.2		Amendment No. 1 to Bylaws of the Registrant		8-K		3.2		06-19-15
4.1		Form of the Registrant’s common stock certificate								X
4.1.2		DSG Global, Inc. 2015 Omnibus Incentive Plan		10-Q		10.3		11-13-15
10.1		Subscription Agreement / Debt Settlement, dated September 26, 2014, between DSG TAG Systems Inc. and Westergaard Holdings Ltd.		8-K		10.1		08-17-15
10.2		Addendum to Subscription Agreement / Debt Settlement, dated October 7, 2014, between DSG TAG Systems Inc. and Westergaard Holdings Ltd.		8-K		10.2		08-17-15
10.3		Second Addendum to Subscription Agreement / Debt Settlement, dated April 29, 2015, between DSG TAG Systems Inc. and Westergaard Holdings Ltd.		8-K		10.3		08-17-15
10.4		Third Addendum to Subscription Agreement / Debt Settlement, dated August 11, 2015, between DSG TAG Systems Inc. and Westergaard Holdings Ltd.		8-K		10.4		08-17-15
10.5		Letter from Westergaard Holdings Ltd., dated September 1, 2015, extending dates of redemption obligations.		8-K		10.1		09-08-15
10.6		Letter from Westergaard Holdings Ltd., dated November 10, 2015, extending dates of redemption obligations		10-Q		10.1		11-13-15

 

 

Exhibit				Filed				Filing
Number		Exhibit Description		Form		Exhibit		Date		Herewith
10.7		Letter from Westergaard Holdings Ltd., dated December 31, 2015, extending dates of redemption obligations		8-K		10.1		03-09-16
10.8		Convertible Note of DSG TAG Systems Inc., dated March 31, 2015, payable to Adore Creative Agency, Inc.		8-K		10.5		08-14-15
10.9		Convertible Note Agreement, dated August 25, 2015, between the Registrant and Jerry Katell, Katell Productions, LLC and Katell Properties, LLC		10-Q		10.2		11-13-15
10.10		Agreement (TAG Touch) dated February 15, 2014 between DSG TAG Systems Inc. and DSG Canadian Manufacturing Corp.		8-K		10.1		05-06-15
10.11		Loan agreement, dated October 24, 2014 between DSG TAG Systems Inc. and A.Bosa & Co (Kootenay) Ltd.		10-K		10.11		05-02-16
10.12		Lease agreement (Modified), dated January 21, 2016 and February 1, 2016 between DSG TAG Systems Inc. and Benchmark Group		10-K		10.12		05-02-16
10.13		Loan agreement, dated February 11, 2016 between DSG TAG Systems Inc. and Jeremy Yaseniuk		10-K		10.13		05-02-16
10.14		Loan agreement, dated March 31, 2016 between DSG TAG Systems Inc. and E. Gary Risler		10-K		10.14		05-02-16
10.15		Letter from Westergaard Holdings Ltd., dated April 29, 2016		10-K		10.15		05-20-16
10.16		Security purchase agreement between DSG Global Inc. and Coastal Investment Partners, dated November 7 2016		8-K		10.16		11-15-16
10.17		Letter of Resignation by Board Member Keith Westergaard		10-Q		10.17		12-16-16
21.1		List of Subsidiaries		10-K		21.1		05-02-16

 

 

Exhibit				Filed				Filing
Number		Exhibit Description		Form		Exhibit		Date		Herewith
31.1		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002								X
32.1		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002								X
101*		Interactive Data File
101.INS		XBRL Instance Document								X
101.SCH		XBRL Taxonomy Extension Schema Document								X
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document								X
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document								X
101.LAB		XBRL Taxonomy Extension Label Linkbase Document								X
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document								X

 

#

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.

 

 

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: May 22, 2017	DSG Global Inc.
	(Registrant)
	By:	/s/ Robert Silzer
		Robert Silzer
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and
		Principal Financial and Accounting Officer)