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EX-32.1 - DSG Global Inc.ex32-1.htm
EX-31.1 - DSG Global Inc.ex31-1.htm

 

 

 

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 September 30, 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 [  ] No [X]

 

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 September 30, 2017, the issuer had 39,476,236 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 7
     
  Notes to Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
     
Item 4. Controls and Procedures 28
     
PART II — OTHER INFORMATION  
     
Item 1. Legal Proceedings 30
     
Item 1A. Risk Factors 30
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
     
Item 3. Defaults Upon Senior Securities 31
     
Item 4. Mine Safety Disclosures 31
     
Item 5. Other Information 31
     
Item 6. Exhibits 31
     
Signatures 34

 

 2 

 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1: Financial Statements (unaudited)

 

The accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at September 30, 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 and nine month periods ended September 30, 2017 are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.

 

 3 

 

 

DSG GLOBAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    September 30, 2017     December 31, 2016  
    (unaudited)        
ASSETS                
CURRENT ASSETS                
Cash   $ 8,968     $ -  
Accounts receivable, net of allowances of $12,933 and $47,289, respectively     112,453       90,038  
Inventory     67,689       80,573  
Prepaid expenses and deposits     12,920       56,076  
TOTAL CURRENT ASSETS     202,030       226,687  
                 
NON-CURRENT ASSETS                
Property and equipment     23,001       47,504  
Intangible assets     15,943       16,580  
TOTAL NON-CURRENT ASSETS     38,944       64,084  
                 
TOTAL ASSETS   $ 240,974     $ 290,771  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
CURRENT LIABILITIES                
Bank overdraft   $ -     $ 5,316  
Trade and other payables     3,125,576       2,568,792  
Payable to related party     -       1,526  
Deferred revenue     128,045       149,147  
Warranty reserve     122,120       111,715  
Convertible note payable to related party     310,000       339,791  
Loans payable     894,096       866,269  
Derivative liabilities     777,127       365,944  
Convertible loans payable     1,821,316       1,398,961  
TOTAL CURRENT LIABILITIES     7,178,280       5,807,461  
                 
MEZZANINE EQUITY                
Redeemable non-controlling interest - preferred shares   $ 5,286,731     $ 5,286,731  
                 
STOCKHOLDERS' DEFICIT                
Common stock, $0.001 par value, 850,000,000 shares authorized 39,476,236 and 30,291,187 shares outstanding, respectively     39,476       30,291  
Additional paid in capital     17,156,332       15,982,222  
Shares issued as deposit     (198,000     -  
Other accumulated comprehensive income     870,916       1,296,652  
Deficit     (28,927,197 )     (27,013,446
Total shareholders’ deficit attributable to DSG Global, Inc.     (11,058,473 )     (9,704,281 )
Non-controlling interest     (1,165,564 )     (1,099,140 )
TOTAL STOCKHOLDERS' DEFICIT     (12,224,037 )     (10,803,421 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 240,974     $ 290,771  

 

Going concern (Note 2)

Contingencies (Note 13)

Subsequent events (Note 14)

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 4 

 

 

DSG GLOBAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    Three Months Ended     Nine Months Ended  
    September 30, 2017     September 30, 2016     September 30, 2017     September 30, 2016  
                         
Revenue   $ 303,151     $ 243,469     $ 975,623     $ 980,714  
Cost of revenue     121,072       191,386       326,517       426,453  
Gross profit     182,079       52,083       649,106       554,261  
                                 
Operating expenses                                
Compensation     151,383       186,453       571,778       569,512  
Research and development     -       18,088       -       54,436  
General and administration     299,488       275,106       1,217,183       795,171  
Warranty     18,354       49,390       25,716       161,762  
Bad debts     21,670       2       67,047       4,285  
Depreciation and amortization     8,668       11,755       24,178       39,692  
Total operating expenses     499,563       540,794       1,905,902       1,624,858  
Loss from operations     (317,484 )     (488,711 )     (1,256,796 )     (1,070,597 )
                                 
Other income (expense)                                
Foreign exchange gain (loss)     297,333       (23,816 )     458,279       27,386  
Other income (expense)     (465)       (8,407 )     (5,884 )     (9,950 )
Unrealized gains (losses) on derivative instruments, net     (134,220 )     -       (42,550 )     -  
Finance costs     (439,467)       (153,003 )     (1,109,185 )     (433,516 )
Total other income (expense)     (276,819)       (185,226 )     (699,340 )     (416,080 )
                                 
Net loss     (594,303)       (673,937)       (1,956,136)       (1,486,677)  
                                 
Less attributed to non-controlling interest     (67,547)       108,559       42,385       238,706  
                                 
Net loss attributable to DSG Global, Inc.   $ (661,850)     $ (565,378 )   $ (1,913,751 )   $ (1,247,971 )
                                 
Net loss per share                                
                                 
Basic and diluted   $ (0.02)     $ (0.02)     $ (0.05)     $ (0.04 )
                                 
Weighted average number of shares:                                
                                 
Basic and diluted     38,552,866       30,291,187       35,155,243       30,291,187  

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 5 

 

 

DSG GLOBAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

 

   Three Months Ended   Nine Months Ended 
   September 30, 2017   September 30, 2016   September 30, 2017   September 30, 2016 
                 
Net loss  $(594,303)  $(673,937)  $(1,956,136)  $(1,486,677)
Change in foreign currency translation adjustments   (214,961)   34,481    (425,610)   (134,103)
Comprehensive loss   (809,264)   (639,456)   (2,381,746)   (1,620,780)
Less: Comprehensive loss attributable to non-controlling interest   (67,673)   107,670    42,259    236,759 
                     
Total comprehensive loss attributable to DSG Global, Inc.  $(876,937)  $(531,786)  $(2,339,487)  $(1,384,021)

 

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 6 

 

 

DSG GLOBAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    Nine Months Ended  
    September 30, 2017     September 30, 2016  
Cash flows from operating activities:            
Net loss attributable to the Company   $ (1,956,136 )   $ (1,486,677 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     24,178       39,692  
Inventory write-off     1,930       109,170  
Depreciation included in cost of revenue     5,216       -  
Amortization of deferred financing fees     25,786       -  
Accretion of discounts on convertible debt     532,803       -  
Gain on fair value adjustment on derivative liabilities     (119,268 )     -  
Reserve for bad debts     67,047       -  
Shares issued for services     562,500       -  
Gain / loss on extinguishment of debt     (3,143)       -  
Changes in operating assets and liabilities:                
Accounts receivable     (89,462 )     (4,393 )
Inventory     10,954       145,189  
Funds held in trust     -       3,573  
Prepaid expenses and deposits     43,156       63,435  
Related party receivable     -       79,471  
Other assets     -       34,285  
Trade payables and accruals     562,320       487,653  
Warranty reserve     10,405       -  
Related party transactions     (1,526)       -  
Deferred revenue     (21,102)       55,794  
Net cash used in operating activities     (344,342)       (472,808 )
                 
Cash flows from investing activities                
Purchase of property and equipment     -       (6,925 )
Return of rental equipment     -       1,214  
Purchase of intangible assets     -       (1,002 )
Net cash used in investing activities     -        (6,713
                 
Cash flows from financing activities                
Bank overdraft     (5,316)       4,003  
Proceeds from issuance of common stock     50,000       -  
Payments on notes payable     -       (70,128 )
Proceeds from notes payable     721,750       551,028  
Net cash provided by financing activities     766,434       484,903  
                 
Net increase in cash     422,092       5,382  
                 
Effect of exchange rate changes on cash     (413,124 )     (5,382)  
                 
Cash at beginning of period     -       -  
Cash at the end of the period   $ 8,968     $ -  
                 
Supplemental disclosures (Note 11)                

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 7 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017  

(UNAUDITED)

 

Note 1 – ORGANIZATION

 

DSG Global, Inc. was incorporated under the laws of the State of Nevada on September 24, 2007 as Boreal Productions Inc. We were formed to option feature films and TV projects to be packaged for sale to movie studios and production companies. On January 19, 2015, our board of directors approved an agreement and plan of merger to merge with DSG Global Inc., a Nevada corporation, and effected a name change to DSG Global, Inc. On April 17, 2008, we incorporated our wholly-owned subsidiary, DSG Tag Systems Inc. (“DSG TAG”), a company extra provincially registered in British Columbia, Canada, with operations in the design, manufacture, and marketing of fleet management solutions for the golf industry as well as commercial, government, and military applications. In March 2011, DSG TAG formed DSG Tag Systems International, Ltd., a United Kingdom company (“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 and nine months ended September 30, 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., and its wholly owned subsidiary DSG UK. All material intercompany accounts and transactions were eliminated on consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. The Company regularly evaluates estimates and assumptions related to the allowance for doubtful accounts, valuation of inventory, fair value and estimated useful life of long-lived assets, fair value of convertible loans and derivative liabilities, fair-value of share-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

 8 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017 

(UNAUDITED)

 

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts Receivable

 

All trade receivables are due thirty days from the date billed. If the funds are not received within thirty days the customer is contacted to arrange payment. The Company uses the allowance method to account for uncollectable trade receivables.

 

Property and Equipment

 

Property and equipment 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 estimated useful lives of our property and equipment are generally as follows:

 

Office furniture and equipment 5 years, straight-line
Computer equipment 3 years, straight-line
Rental equipment 5 years, straight-line

 

As of September 30, 2017, and December 31, 2016, property and equipment consisted of the following:

 

    September 30, 2017    

December 31, 2016

 
Office furniture and equipment   $ 21,560     $ 20,838  
Computer equipment     28,352       23,317  
Accumulated depreciation     (47,879 )     (39,414 )
    $ 2,033     $ 4,741  

 

As of September 30, 2017, and December 31, 2016, rental equipment consisted of the following:

 

    September 30, 2017    

December 31, 2016

 
Tags   $ 134,385     $ 122,935  
Text     29,701       27,171  
Touch     24,603       22,507  
Accumulated depreciation     (167,721 )     (129,850 )
    $ 20,968     $ 42,763  

 

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. 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.

 

 9 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Reclassifications

 

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.

 

Recently Issued Accounting Pronouncements

 

For fiscal years beginning after December 15, 2018:

 

In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-08 “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities” an amendment to shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount.

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-11 “Earnings Per Share (Topic 260), Distinguishing Liability from Equity (Topic 480), and Derivatives and Hedging (Topic 815) – (i) Accounting for Certain Financial Instruments with Down Round Features (ii) Replace of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments.” The amendments in (i) change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features and to help clarify existing disclosure requirements. The amendments in (ii) characterize the indefinite deferral of certain provisions and do not have an accounting effect.

 

The Company is currently evaluating the impact of the above standards on their consolidated financial statements. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

Going Concern

 

These condensed consolidated interim financial statements have been prepared on a going concern basis, which imply the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, on the ability of the Company to grow its revenue base, on its ability to successfully grow the companies in which it is invested, and on the ability of the Company to obtain necessary equity financing to both support the latter objectives and to invest in and grow new companies. The Company has recurring losses since inception, and incurred a net loss of $1,913,751 during the period ended September 30, 2017, and had accumulated losses of $28,927,197 and a working capital deficit of $6,976,250 as at September 30, 2017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Although there are no assurances that management’s plans will be realized, management believes that the Company will be able to continue operations into the future. These condensed consolidated interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 3 – ACCOUNTS RECEIVABLE

 

   

September 30, 2017

   

December 31, 2016

 
Trade accounts receivable   $ 132,171     $ 137,327  
Allowance for bad debts     (19,718 )     (47,289 )
Total trade accounts receivable, net   $ 112,453     $ 90,038  

 

 10 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 4 – INTANGIBLE ASSETS

 

   

September 30, 2017

   

December 31, 2016

 
Patent costs   $ 21,593     $ 21,253  
Accumulated amortization     (5,650 )     (4,673 )
    $ 15,943     $ 16,580  

 

Note 5 – TRADE AND OTHER PAYABLES

 

   

September 30, 2017

   

December 31, 2016

 
Trade payables   $ 1,000,239     $ 940,722  
Accrued expenses     233,223       388,331  
Accrued interest     1,737,856       1,222,151  
Other liabilities     154,258       17,588  
Total trade and other payables   $ 3,125,576     $ 2,568,792  

 

Note 6 – LOANS PAYABLE

 

    September 30, 2017    

December 31, 2016

 
             
Unsecured, due on demand, interest 15% per annum   $ 203,533     $ 186,192  
Unsecured, due on demand, interest 36% per annum     49,790       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     73,273       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  
                 
    $ 894,096     $ 866,269  

 

Note 7 – CONVERTIBLE NOTES

 

Related Party Notes

 

(a) On March 31, 2015, the Company issued a convertible promissory note in the principal amount of $310,000 to a company owned by a director of the Company. The convertible promissory note is unsecured, bears interest at 5% per annum, was due on March 30, 2016, and was convertible at $1.25 per share. As at September 30, 2017, the carrying value of the debenture was $310,000 (December 31, 2016 - $310,000).
   
(b)

On December 16, 2016, the Company issued a convertible promissory note in the principal amount of Cdn$40,000 to Brent Silzer, a family member of the CEO and CFO of the Company. The convertible promissory note is unsecured, bears interest at 8% per annum, was due on January 15, 2017, and was convertible at $0.05 per share. After January 15, 2017, interest accrues at 4% per month. Interest will be accrued and payable at the time of promissory note repayment.

   
  On April 3, 2017, this related party convertible debenture and all unpaid interest and penalties was settled in cash of Cdn$45,500 and the issuance of 525,049 common shares pursuant to a debt settlement and subscription agreement as described in Note 9. As at September 30, 2017, the carrying value of the debenture was $nil (December 31, 2016 - $29,791).

 

 11 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 7 – CONVERTIBLE NOTES (continued)

 

Third Party Notes

 

(c)On November 7, 2016, the Company entered into a securities purchase agreement with Coastal Investment Partners (the “Lender”). Pursuant to the agreement, the Lender provided the Company with proceeds of $125,000 on November 10, 2016. In exchange, the Company issued a secured convertible promissory note in the principal amount of $138,888.89 (the “Note”), inclusive of an 8% original issue discount, which bears interest at 8% per annum to the holder. The 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 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 accreted over life of the notes.

 

On May 7, 2017, the Company triggered an event of default, under Section 6(a)(i) of the convertible note agreement with the Lender dated November 7, 2016, by failing to repay the full principal amount and all accrued interest. The entire principal amount of the loan is due on demand and shall continue to accrue interest at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the note is repaid in full.

 

On May 8, 2017, the Company issued 100,000 common shares for the conversion of $5,000 of the $72,500 convertible note dated November 7, 2016. Refer to Note 9.

 

On May 24, 2017, the Company issued 210,000 common shares for the conversion of $10,500 of the $72,500 convertible note dated November 7, 2016. Refer to Note 9.

 

On May 25, 2017, the Lender provided conversion notice for the remaining principal $57,000 of the $72,500 convertible note dated November 7, 2016. This conversion was not processed by the Company’s transfer agent due to direction from the Company not to honor any further conversion notices from the Lender. In response, the Company received legal notification pursuant to the refusal to process further conversion notices, see note 14.

 

As at September 30, 2017, the carrying value of the debenture was $245,889 (December 31, 2016 - $82,056) and the fair value of the derivative liability was $145,000 (December 31, 2016 - $365,944). During the nine months ended September 30, 2017, the Company had accreted $179,333 (2016 - $nil) of the debt discount to interest expense.

 

(d)On December 21, 2016, the Company entered into a convertible note agreement for the principal amount of $74,500 for consideration of proceeds of $72,250 received on 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 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 accreted over life of the note. Derivative liability applied as discount on the note was $72,250 and is being accreted over the life of the note.

 

On July 24, 2017, the Company issued 800,000 common shares for the conversion of $26,850 of the principal and a $750 finance fee. Refer to Note 9.

 

As at September 30, 2017, the carrying value of the debenture was $31,111 (December 31, 2016 - $nil) and the fair value of the derivative liability was $47,650 (December 31, 2016 - $nil). During the nine months ended September 30, 2017, the Company had accreted $58,952 (2016 - $nil) of the debt discount and $3,759 (2016 - $nil) of the financing fees to interest expense.

 

 12 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 7 – CONVERTIBLE NOTES (continued)

 

(e)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 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 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 accreted over life of the note. Derivative liability applied as discount on the note was $75,000 and is being accreted over the life of the note.

 

On July 28, 2017, the Company issued 500,000 common shares for the conversion of $4,474 of principal and $4,586 of interest for a total conversion of $9,060. Refer to Note 9.

 

On September 7, 2017, the Company issued 750,000 common shares for the conversion of $12,549 of principal and $951 of interest for a total conversion of $13,500. Refer to Note 9.

 

As at September 30, 2017, the carrying value of the debenture was $57,977 (December 31, 2016 - $nil) and the fair value of the derivative liability was $57,977 (December 31, 2016 - $nil). During the nine months ended September 30, 2017, the Company had accreted $79,750 (2016 - $nil) of the debt discount and $2,750 (2016 - $nil) of the financing fees to interest expense.

 

(f)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 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 trading day period ending on the latest complete trading day prior to the conversion date. Deferred financing fees on the note were $10,000 and are being accreted over the life of the note. Derivative liability applied as discount on the note was $100,000 and is being accreted over the life of the note.

 

As at September 30, 2017, the carrying value of the debenture was $108,197 (December 31, 2016 - $nil) and the fair value of the derivative liability was $100,000 (December 31, 2016 - $nil). During the nine months ended September 30, 2017, the Company had accreted $98,361 (2016 - $nil) of the debt discount and $9,836 (2016 - $nil) of the financing fees to interest expense.

 

 13 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 7 – CONVERTIBLE NOTES (continued)

 

(g)On June 5, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The terms are payable at the date of maturity, December 5, 2017, together with interest of 10% 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) 55% multiplied by the lowest trading price (representing a discount rate of 45%) during the previous twenty-five trading day period ending on the latest complete trading day prior to the date of this note and (ii) the alternate conversion price which means 55% multiplied by the lowest trading price (representing a discount rate of 50%) during the previous twenty-five trading day period ending on the latest complete trading day prior to the conversion date. Deferred financing fees on the note were $7,000 and are being accreted over the life of the note. Derivative liability applied as discount on the note was $103,000 and is being accreted over the life of the note.

 

As at September 30, 2017, the carrying value of the debenture was $70,328 (December 31, 2016 - $nil) and the fair value of the derivative liability was $103,000 (December 31, 2016 - $nil). During the nine months ended September 30, 2017, the Company had accreted $65,853 (2016 - $nil) of the debt discount and $4,475 (2016 - $nil) of the financing fees to interest expense.

 

(h)On July 17, 2017, the Company issued a convertible promissory note in the principal amount of $135,000. The terms are payable at the date of maturity, July 17, 2018, together with interest of 10% 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) 45% multiplied by the lowest trading price during the previous twenty trading day period ending on the latest complete trading day prior to the date of this note and (ii) the alternate conversion price which means 55% multiplied by the lowest trading price during the previous thirty trading day period ending on the latest complete trading day prior to the conversion date. Deferred financing fees on the note were $16,500 and are being accreted over the life of the note. Derivative liability applied as discount on the note was $118,500 and is being accreted over the life of the note.

 

As at September 30, 2017, the carrying value of the debenture was $27,740 (December 31, 2016 - $nil) and the fair value of the derivative liability was $118,500 (December 31, 2016 - $nil). During the nine months ended September 30, 2017, the Company had accreted $24,350 (2016 - $nil) of the debt discount and $3,390 (2016 - $nil) of the financing fees to interest expense.

 

(i)On August 17, 2017, the Company issued a convertible promissory note in the principal amount of $110,500. The convertible debenture is unsecured, bears interest at 8% per annum, was due on August 16, 2018, and is convertible at 58% of to the lowest trading price during the previous trading days to the date of a conversion notice. Deferred financing fees on the note were $5,250 and are being accreted over the life of the note. Derivative liability applied as discount on the note was $105,000 and is being accreted over the life of the note.

 

As at September 30, 2017, the carrying value of the debenture was $13,592 (December 31, 2016 - $nil) and the fair value of the derivative liability was $105,000 (December 31, 2016 - $nil). During the nine months ended September 30, 2017, the Company had accreted $12,945 (2016 - $nil) of the debt discount and $647 (2016 - $nil) of the financing fees to interest expense.

 

 14 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 7 – CONVERTIBLE NOTES (continued)

 

(j)On September 6, 2017, the Company issued a convertible promissory note in the principal amount of $107,000. The note is unsecured, bears interest at 10% per annum, and is due on March 06, 2018. 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 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 trading day period ending on the latest complete trading day prior to the conversion date. Deferred financing fees on the note were $7,000 and are being accreted over the life of the note. Derivative liability applied as discount on the note was $100,000 and is being accreted over the life of the note.

 

As at September 30, 2017, the carrying value of the debenture was $14,180 (December 31, 2016 - $nil) and the fair value of the derivative liability was $100,000 (December 31, 2016 - $nil). During the nine months ended September 30, 2017, the Company had accreted $13,260 (2016 - $nil) of the debt discount and $928 (2016 - $nil) of the financing fees to interest expense.

 

(k) As at September 30, 2017, the Company owed a convertible promissory note of $nil (December 31, 2016 - $150,000). The convertible promissory note is unsecured, bears interest at 24% per annum, was due on September 19, 2016 or upon filing of registration statement, and was convertible at $0.27 per share.

 

On May 17, 2017, the Company issued 3,000,000 common shares for the conversion of $150,000 of the principal pursuant to a debt settlement and subscription agreement as described in note 9.

 

(l) As at September 30, 2017, the Company owed a convertible promissory note in the principal amount of $1,002,302 (Cdn$1,231,128) (December 31, 2016 - $916,905 (Cdn$1,231,128)). The convertible promissory note is unsecured, bears interest at 15.2% per annum, mature from February 28 to December 31, 2015, and is convertible into Tags units at the average closing price of the 120 days period prior to conversion date.

 

(m) As at September 30, 2017, the Company owed a convertible promissory note in the principal amount of $250,000. The convertible promissory note is unsecured, bears interest at 10% per annum, is due on demand, and is convertible at $1.75 per share.

 

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 September 30, 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 at $1.25 per share pursuant to the following terms:

 

  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.

 

As of September 30, 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.

 

 15 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 9 – COMMON STOCK

 

On December 23, 2016, 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 commenced on January 3, 2017 and will end on July 2, 2017. In consideration for the agreement, the Company is committed to issuing 1,800,000 shares of common stock within ten days of the agreement, plus an additional 450,000 shares of common stock representing a monthly fee of $3,750. These shares of common stock are to be issued in monthly installments of 75,000 shares of common stock on the 2nd of each month beginning on February 2, 2017 and ending on July 2, 2017. On February 15, 2017, the Company 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.

 

On April 3, 2017, the Company entered into an agreement to issue 481,836 shares of common stock pursuant to the conversion of a Cdn$24,092 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 Cdn$2,161 at a conversion price of $0.05 per share of common stock.

 

On April 6, 2017, the Company issued 550,000 shares of common stock as a commitment fee, pursuant to the terms of the convertible promissory note issued on April 3, 2017, see note 7. These shares are contingently redeemable, at the issuers control, pursuant to the agreement that the shares must be returned if the note is fully repaid and satisfied prior to the date which is 180 days following the issuance.

 

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.

 

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 shares of common stock to settle the note at a price of $0.05 per common share.

 

On May 8, 2017, the Company received a notice for the conversion of $5,000 of a $72,500 convertible note held with Coastal Investment Partners. The Company issued 100,000 shares of common stock pursuant to this conversion notice at a price of $0.05 per common share.

 

On May 8, 2017, the Company received a notice for the conversion of $10,500 of a $72,500 convertible note held with Coastal Investment Partners. The Company issued 210,000 shares of common stock pursuant to this conversion notice.

 

On July 11, 2017 the Company received a notice for the conversion of $27,000 of a $74,500 convertible note held with EMA. The Company issued 800,000 common shares at a conversion price of $0.0345 pursuant to this conversion.

 

On July 28, 2017 the Company received a notice for the conversion of $9,060 of a $75,000 convertible note held with Auctus Fund, LLC. The Company issued 500,000 common shares at a conversion price of $0.01812 pursuant to this conversion.

 

On September 7, 2017 the Company received a notice for the conversion of $13,500 of a $75,000 convertible note held with Auctus Fund, LLC. The Company issued 750,000 common shares at a conversion price of $0.018 pursuant to this conversion.

 

Non-controlling 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, 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 were not exchanged for securities of DSG Global, Inc. as part of the Share Exchange Agreement. As of September 30, 2017, the non-controlling interest was $1,165,564 (December 31, 2016 - $1,099,140).

 

 16 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

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 September 30, 2017, a 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. On October 24, 2017, an interim award of $279,000 was enforced by the arbitrator.

 

As of September 30, 2017, the Company owes $205,162 (December 31, 2016 - $254,010) to the CEO and CFO of the Company for management fees, which has been recorded in trade and other payables. The amounts owing are unsecured, non-interest bearing, and due on demand.

 

As of September 30, 2017, the Company owes $nil (December 31, 2016 - $1,526) to a director and officer of the Company. The amount owing is unsecured, non-interest bearing, and due on demand.

 

Note 11 – SUPPLEMENTAL INFORMATION

 

Supplemental disclosures          
Cash paid during the period for:          
Income tax payments  $-   $- 
Interest payments  $24,080   $4,066 
           
Non-cash financing and investing activities:          
Shares issued for services  $562,500   $- 
Shares issued for convertible notes payable  $346,544      
Shares issued for convertible related party note payable  $20,252      
Returnable shares issued for commitment fee  $198,000      

 

Note 12 – WARRANTY RESERVE

 

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 September 30, 2017, the Company has set up a reserve for future warranty costs of $122,120 (December 31, 2016 - $111,715). The Company’s past experience with warranty related costs was used as a basis for the reserve. During the nine months ended September 30, 2017, the Company incurred warranty expense of $25,716 (2016 - $161,762).

 

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.

 

 17 

 

 

DSG GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

Note 13 – CONTINGENCIES

 

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 Cdn$100,000 which was made on October 16, 2012 and was due on July 16, 2013 with accrued interest. 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 Cdn$86,780 in monthly installations of Cdn$5,423.75 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, 2016, the shareholder filed a Subpoena to Debtor at the Supreme Court of British Columbia. 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 Cdn$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 September 30, 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. The arbitrator awarded that a note payable due to Adore $279,000 is issuable and outstanding. The note was previously recorded on the balance sheet as a convertible note payable to a related party.

 

On September 7, 2016, a vendor has filed a Complaint for Damage in Florida to recover unpaid amounts of $27,335 plus interest. The invoice was not paid as the Company believes the vendor did not provide the service according to the agreement between the two parties. On May 31, 2017, the Company was ordered to repay the total invoice amount of $22,396 plus interest of $7,722 as well as costs and reasonable attorney fees totaling $9,971, which has been accrued on the financial statements. As of September 30, 2017, the Company not yet made any payments.

 

On May 31, 2017, in response to the Company’s refusal to process further conversion notices, the Company received legal notice that a lender of the Company would be commencing all collection efforts to recover convertible loans of $245,889. The letter also served as notice of an obligation to maintain all documents and records, including electronic information.

 

On October 10, 2017, a vendor filed a complaint for Breach of Contract with Superior Court of the State of California. The Complainant is alleging that it is contractually owed 1,848,130 of DSG’s common stock and has asked for a cash reward of $270,000. In addition, a related vendor also filed a complaint for $72,000 as part of consulting agreement the Company executed. The Company believes the vendors have not performed duties required on the contractual relationships and that obligations exist, so no obligation has been recorded.

 

Note 14 – SUBSEQUENT EVENTS

 

On November 16, 2017 the DSG Global Inc. Shareholder Report indicated that 60,727,920 shares had been issued to Cede & Co during the months of October and November 2017.

 

 18 

 

 

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.

 

 19 

 

 

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 former member of our board of directors.

 

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

 

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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.

 

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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.

 

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  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

 

Three Months Ended September 30, 2017

 

Revenues and Gross Profit

 

We recorded revenues of $303,151 and a gross profit of $182,079 during the three months ended September 30, 2017 compared to revenues of $243,469 and gross profit of $52,083 during the three months ended September 30, 2016. The increase is due to the fact that we recorded a one-time charge on impairment of inventory of $83,184 during fiscal 2016. Overall, our revenues are comparable to the prior year despite the fact that we have been forced to move to a 3G/4G GPS cellular device, require redevelopment of our advertising, and integrating our tournament software onto the TOUCH screen. Our company, along with the new sales team, is aggressively building its pipeline for continued growth into fiscal 2018.

 

Operating Expenses

 

For the three months ended September 30, 2017, we recorded operating expenses of $499,563 compared to operating expenses of $540,794 during the three months ended September 30, 2016. The decrease in operating expenses was attributed to the following:

 

  Decrease of $35,070 in compensation expense, as we hired less contract workers and had minimal share-based compensation expense;
  Decrease of $18,088 in research and development expense, as we did not incur any expenses in fiscal 2017 to reduce our operating costs and preserve our limited cash flow for other operating activities;
  Increase of $24,382 in general and administrative expense related to an increase in professional fees related to accounting and legal costs with our SEC filing requirements. We also incurred more costs for the hiring of subcontractors, but was partially offset by a decrease in marketing and advertising costs as we reduced our overall costs due to our limited cash flow;

 

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  Increase of $21,668 in bad debt expense as we had a number of uncollectible amounts that were fully impaired during the period; and
  Decrease of $31,036 in warranty expense due to an increase in warranty costs in fiscal 2016 related to the technical issues with our touch tablets that we ordered from a supplier in China during fiscal 2016.

 

Net Loss

 

During the three months ended September 30, 2017, we incurred a net loss of $661,850 or $0.02 loss per share compared to a net loss of $565,378 or loss per share of $0.02 during the three months ended September 30, 2016. In addition to revenues and operating expenses, we also incurred other income and expenses which included:

 

  Finance costs of $439,467 compared to $153,003 during the three months ended September 30, 2016. The increase was due to the fact that we had more loans payable and convertible debentures issued during fiscal 2017 which resulted in a higher amount of interest and accretion expense as compared to the prior year;
  Unrealized losses of $134,220 compared to $nil during the three months ended September 30, 2016 due to the change in fair value of the derivative liabilities which was attributed to an increase in the number and amount of convertible debentures as well as an increase in the volatility of our common stock; and
  Foreign currency exchange gain of $297,333 compared to a foreign exchange currency loss of $23,816 during the three months ended September 30, 2016. The gain was primarily due to unrealized exchange gain on the change in derivative liabilities for the three months ending September 30, 2017 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.

 

Nine Months Ended September 30, 2017

 

Revenues and Gross Profit

 

We recorded revenues of $975,623 and a gross profit of $649,106 during the nine months ended September 30, 2017 compared to revenues of $980,714 and gross profit of $554,261 during the nine months ended September 30, 2016. The increase is due to the fact that we recorded a one-time charge on impairment of inventory of $107,193 during fiscal 2016. Overall, our revenues are comparable to the prior year despite the fact that we have been forced to move to a 3G/4G GPS cellular device, require redevelopment of our advertising, and integrating our tournament software onto the TOUCH screen. Our company, along with the new sales team, is aggressively building its pipeline for continued growth into fiscal 2018.

 

Operating Expenses

 

For the nine months ended September 30, 2017, we recorded operating expenses of $1,905,902 compared to operating expenses of $1,624,858 during the nine months ended September 30, 2016. The increase in operating expenses was attributed to the following:

 

  Increase of $422,012 in general and administrative expense related to fair value of shares that were issued for services during the year offset by decreases in office expense and marketing and advertising costs as we focused on reducing our overall costs due to our limited cash flow;
  Decrease of $54,436 in research and development expense, as we did not incur any expenses in fiscal 2017 to reduce our operating costs and preserve our limited cash flow for other operating activities;
  Increase of $62,762 in bad debt expense as we had a number of uncollectible amounts that were fully impaired during fiscal 2017; and
  Decrease of $136,046 in warranty expense due to an increase in warranty costs in fiscal 2016 related to the technical issues with our touch tablets that we ordered from a supplier in China during fiscal 2016.

 

Net Loss

 

During the nine months ended September 30, 2017, we incurred a net loss of $1,913,751 or $0.05 loss per share compared to a net loss of $1,247,971 or loss per share of $0.04 during the nine months ended September 30, 2016. In addition to revenues and operating expenses, we also incurred other income and expenses which included:

 

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  Finance costs of $1,109,185 compared to $433,516 during the nine months ended September 30, 2016. The increase was due to the fact that we had more loans payable and convertible debentures issued during fiscal 2017 which resulted in a higher amount of interest and accretion expense as compared to the prior year;
  Unrealized losses of $42,550 compared to $nil during the nine months ended September 30, 2016 due to the change in fair value of the derivative liabilities which was attributed to an increase in the number and amount of convertible debentures as well as an increase in the volatility of our common stock;
  Foreign currency exchange gain of $458,279 compared to $27,386 during the nine months ended September 30, 2016. The gain was primarily due to unrealized exchange gain on the change in derivative liabilities for the three months ending September 30, 2017 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.

 

Liquidity and Capital Resources

 

  

At

September 30, 2017

  

At

December 31, 2016

 
Current Assets  $202,030   $226,687 
Current Liabilities  $7,178,280   $5,807,461 
Working Capital  $(6,976,250)  $(5,580,774)

 

From our incorporation in April 17, 2008 through September 30, 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 September 30, 2017, we had $7,178,280 in outstanding indebtedness, which all matures within the next twelve months.

 

As of September 30, 2017, we had cash of $8,968 as compared to $nil as of December 31, 2016. Our working capital deficit as at September 30, 2017 was $6,976,250 compared to $5,580,774 as of December 31, 2016. The increase in our working capital deficit was due to the fact that we are still incurring negative cash flows from operating activities and require the use of debt financing to support our on-going operations.

 

Cash Flow Analysis

 

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

 

   September 30, 
   2017   2016 
         
Net cash (used in) provided by operating activities  $(344,342)  $(472,808)
Net cash (used in) provided by investing activities   -    (6,713)
Net cash provided by financing activities   766,434    484,903 
Net (decrease) increase in cash   422,092    5,382 
Effect of exchange rate changes on cash and cash equivalents   (413,124)   (5,382)
Cash at beginning of period   0.00    0.00 
Cash at end of period  $8,969   $0.00 

 

Cash Flows Used in Operating Activities

 

During the nine months ended September 30, 2017, we used cash of $344,342 for operating activities compared to $472,808 used for operating activities during the nine months ended September 30, 2016. The majority of cash available to our company is used for operating activities net of any impacts relating to exchange rate changes.

 

Cash Flows Used in Investing Activities

 

During the nine months ended September 30, 2017, we did not use any cash for investing activities as compared to the use of $6,713 for investing activities during the nine months ended September 30, 2016.

 

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Cash Flows Provided by Financing Activities

 

During the nine months ended September 30, 2017, we received $766,434 of cash from financing activities related primarily to $721,750 received from the issuance of debt financing and $50,000 of proceeds from the issuance of shares of common stock. During the nine months ended September 30, 2016, we received $484,903 from financing activities which was primarily from receipts of $551,028 from issuance of notes payable less $70,128 of repayments on outstanding notes payable.

 

Outstanding Indebtedness

 

Our current indebtedness as of September 30, 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 September 30, 2017 is comprised of the following:

 

Unsecured loan payable in the amount of $317,500 bearing interest at 18% per annum and due on demand;
   
Unsecured note payable in the amount of $49,790, bearing interest at 36% per annum and due on demand;
   
Unsecured note payable in the amount of $203,533, bearing interest at 15% per annum and due on demand;
   
Unsecured loan payable in the amount of $73,273 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 $1,002,302, 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;
   
Senior secured discount convertible notes payable in the amount of $245,889, bearing interest at 8% per annum. Repayable in cash or common shares at the lower of (i) twelve cents ($0.12) and (ii) the closing sales price of the Common Stock on the date of conversion and due on May 7, 2017. Currently in default, due and payable on demand, and bearing interest at an increased rate of 18% per annum;
   
Unsecured, convertible note payable in the amount of $31,111 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 December 21, 2017.
   
Unsecured, convertible note payable in the amount of $57,977 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.
   
Unsecured, convertible note payable in the amount of $110,000 bearing interest at 10% per annum. Repayable in cash or common shares at the lower of (i) six cents and (ii) 55% of the lowest trading price of Common Stock during the 25 Trading Days immediately preceding the date of conversion. Matures on October 3, 2017.
   
  Unsecured, convertible note payable in the amount of $110,000 bearing interest at 10% per annum. Repayable in cash or common shares at the lower of (i) eight cents and (ii) 55% of the lowest trading price of Common Stock during the 25 Trading Days immediately preceding the date of conversion. Matures on December 5, 2017.

 

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Unsecured, convertible note payable in the amount of $135,000 bearing interest at 10% per annum. Repayable in cash or common shares at the lower of (i) 45% multiplied by the lowest Trading Price (representing a discount rate of 45%) during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) 55% of the lowest trading price of Common Stock during the 30 Trading Days immediately preceding the date of conversion. Matures on July 17, 2017.

 

Unsecured, convertible note payable in the amount of $110,500 bearing interest at 10% per annum. Repayable in cash or common shares according to the respective terms.

 

Unsecured, convertible note payable in the amount of $107,000 bearing interest at 10% per annum. Repayable in cash or common shares at the lower 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) 55% of the lowest trading price of Common Stock during the 25 Trading Days immediately preceding the date of conversion. Matures on March 6, 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 October 1, 2017 to be as follows:

 

Estimated Expenses for the Twelve-Month Period ending September 30, 2018
Management compensation  $500,000 
Professional fees  $150,000 
General and administrative  $1,900,000 
Total  $2,550,000 

 

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As noted earlier, during the nine months ended September 30, 2017, cash used in operations totaled $308,206. 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 $8,969 in cash as of September 30, 2017, and a working capital deficit of $7,010,466. Our principal sources of liquidity are cash generated from product sales. In order to achieve sustained profitability and positive cash flows from operations, we will need to increase revenue and/or reduce operating expenses. Our ability to maintain, or increase, current revenue levels to achieve and sustain profitability will depend, in part, on demand for our products.

 

In order to improve our liquidity, we also plan to pursue additional equity financing from private investors or possibly a registered public offering. We do not currently have any definitive arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. To help finance our day to day working capital needs, the founder and CEO of the company has made a total payment of $113,475 since late 2015. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources obligations, and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.

 

Off-Balance Sheet Transactions

 

We do not have any off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

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

 

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

 

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.

 

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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 September 30, 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.

 

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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. On May 31, 2017, the Company was ordered to repay the total invoice amount of $22,396 plus interest of $7,722 as well as costs and reasonable attorney fees incurred in this action totaling $9,971. The Company has accrued liabilities related to this matter in the financial statements. As of September 30, 2017, the Company not yet made any payments.

 

On May 31, 2017, in response to the Company’s refusal to process further conversion notices, the Company received legal notice that a lendor of the Company would be commencing all collection efforts to recover convertible loans of $245,889. The letter also served as notice of an obligation to maintain all documents and records, including electronic information.

 

On October 10, 2017, a vendor filed a complaint for Breach of Contract with Superior Court of the State of California. The Complainant is alleging that it is contractually owed 1,848,130 of DSG’s common stock and has asked for a cash reward $270,000. In addition, a related vendor filed in the same filing a complaint for $72,000 as part of consulting agreement DSG executed. The Company believes the vendors have not performed duties required on the contractual relationships and that obligations exist.

 

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.

 

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

 

On September 6, 2017 and November 15, 2017, the Company issued a convertible promissory notes in the principal amount of $107,000. The terms are payable at the date of maturity, March 6, 2018, together with interest of 10% 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) 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.

 

The Company used the preceding securities issuances for general working capital purposes.

 

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    

 

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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    

 

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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.

 

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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: December 20, 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)

 

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