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 SeptemberJune 30, 20172019
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 Street312 – 2630 Croydon Drive
Surrey, British Columbia, V3S 5A5,V3Z 6T3, 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 | [ ] | 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,August 16, 2019, the issuer had 39,476,236825,469 shares of common stock issued and outstanding.
DSG GLOBAL, INC.
TABLE OF CONTENTS
ITEM 1: Financial Statements (unaudited)
The accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at SeptemberJune 30, 2017,2019, 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 periodssix-month period ended SeptemberJune 30, 20172019 are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.
2019.
INTERIM 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)AS AT JUNE 30, 2019 AND DECEMBER 31, 2018
Contingencies (Note 13)(Expressed in U.S. dollars)
Subsequent events (Note 14)(UNAUDITED)
June 30, 2019 | December 31, 2018 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 31,820 | $ | 5,059 | ||||
Trade receivables, net | 227,350 | 139,400 | ||||||
Inventories, net of inventory allowance of $149,577 and $146,292, respectively | 162,104 | 141,296 | ||||||
Prepaid expenses and deposits | 78,847 | 47,484 | ||||||
TOTAL CURRENT ASSETS | 500,121 | 333,239 | ||||||
NON-CURRENT ASSETS | ||||||||
Intangible assets, net | 14,675 | 15,289 | ||||||
Fixed assets, net | 33,195 | 869 | ||||||
Equipment on lease, net | 2,120 | 3,316 | ||||||
TOTAL NON-CURRENT ASSETS | 49,990 | 19,474 | ||||||
TOTAL ASSETS | $ | 550,111 | $ | 352,713 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Trade and other payables | $ | 2,368,800 | $ | 1,897,530 | ||||
Deferred revenue | 147,288 | 215,662 | ||||||
Operating lease liability | 32,695 | - | ||||||
Convertible note payable to related party | 310,000 | 310,000 | ||||||
Loans payable | 1,019,383 | 795,588 | ||||||
Derivative liability | 1,717,939 | 2,188,354 | ||||||
Convertible loans payable, net of unamortized discounts and premiums of $212,401 and $213,461, respectively | 1,743,361 | 1,613,912 | ||||||
TOTAL CURRENT LIABILITIES | 7,339,466 | 7,021,046 | ||||||
Going concern (Note 2) | ||||||||
Commitments (Note 16) | ||||||||
Contingencies (Note 17) | ||||||||
Subsequent events (Note 18) | ||||||||
MEZZANINE EQUITY | ||||||||
Redeemable preferred stock, (2019 and 2018 - to be issued) | $ | 6,702,450 | $ | 6,702,450 | ||||
STOCKHOLDERS’ DEFICIT | ||||||||
Preferred stock to be issued | 4,872,732 | 4,872,732 | ||||||
Common stock, $0.001 par value, 150,000,000 shares authorized, (2018 - 750,000); 787,569 issued and outstanding (2018 - 634,471) | 788 | 634 | ||||||
Additional paid in capital | 22,649,842 | 22,415,121 | ||||||
Discounts on common stock | (69,838 | ) | (69,838 | ) | ||||
Other accumulated comprehensive income | 1,389,278 | 1,465,389 | ||||||
Accumulated deficit | (42,334,607 | ) | (42,054,821 | ) | ||||
TOTAL STOCKHOLDERS’ DEFICIT | (13,491,805 | ) | (13,370,783 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 550,111 | $ | 352,713 |
(
The accompanying notes are an integral part of thesethe unaudited interim condensed consolidated financial statements)statements
4 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. dollars)
(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 |
Three months ending | Six months ending | |||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||
Revenue | $ | 284,646 | $ | 237,046 | $ | 786,070 | $ | 347,942 | ||||||||
Cost of revenue | 32,886 | 79,552 | 338,954 | 97,881 | ||||||||||||
Gross profit | 251,760 | 157,494 | 447,116 | 250,061 | ||||||||||||
Operating expenses | ||||||||||||||||
Compensation expense | 144,673 | 209,174 | 279,756 | 417,802 | ||||||||||||
General and administration expense | 203,938 | 275,480 | 431,694 | 633,493 | ||||||||||||
Warranty expense | - | 46,273 | - | 46,273 | ||||||||||||
Bad debt | (3,290 | ) | 2,099 | (1,866 | ) | 30,992 | ||||||||||
Depreciation and amortization expense | 10,900 | 2,220 | 20,821 | 8,914 | ||||||||||||
Total operating expense | 356,221 | 535,246 | 730,405 | 1,137,474 | ||||||||||||
Loss from operations | (104,461 | ) | (377,752 | ) | (283,289 | ) | (887,413 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Foreign currency exchange gain (loss) | 13,526 | 410,454 | 31,163 | (150,212 | ) | |||||||||||
Change in fair value of derivative instruments | 7,356,541 | 6,013,778 | 720,624 | 397,517 | ||||||||||||
Loss on extinguishment of debt | (54,145 | ) | (768,964 | ) | (128,254 | ) | (2,164,231 | ) | ||||||||
Finance costs | (318,274 | ) | (776,506 | ) | (620,030 | ) | (1,517,068 | ) | ||||||||
Total other income (expense) | 6,997,648 | 4,878,762 | 3,503 | (3,433,994 | ) | |||||||||||
Net income (loss) | $ | 6,893,187 | $ | 4,501,010 | $ | (279,786 | ) | $ | (4,321,407 | ) | ||||||
Net income (loss) per share | ||||||||||||||||
Basic and diluted: | ||||||||||||||||
Basic | $ | 9.80 | $ | 16.80 | $ | (0.41 | ) | $ | (23.26 | ) | ||||||
Diluted | $ | 9.80 | $ | 16.80 | $ | (0.41 | ) | $ | (23.26 | ) | ||||||
Weighted average number of shares used in computing basic and diluted net loss per share: | ||||||||||||||||
Basic | 703,437 | 267,903 | 677,426 | 185,772 | ||||||||||||
Diluted | 703,437 | 267,903 | 677,426 | 185,772 |
(The accompanying notes are an integral part of thesethe unaudited interim condensed consolidated financial statements)
statements
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. dollars)
(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 | ) |
Three months ending | Six months ending | |||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||
Net income (loss) | $ | 6,893,187 | $ | 4,501,010 | $ | (279,786 | ) | $ | (4,321,407 | ) | ||||||
Other comprehensive income | ||||||||||||||||
Foreign currency translation adjustments | (6,476 | ) | (361,594 | ) | (76,111 | ) | 279,497 | |||||||||
Comprehensive income (loss) | $ | 6,886,711 | $ | 4,139,416 | $ | (355,897 | ) | $ | (4,041,910 | ) |
(The accompanying notes are an integral part of thesethe unaudited interim condensed consolidated financial statements)
statements
6 |
DSG GLOBAL, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ DEFICIT
(Expressed in U.S. dollars)
(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) |
Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
Shares | Amount | Additional paid in capital | Discount on common stock | To be issued | Accumulated comprehensive income | Accumulated deficit | Total stockholders’ deficit | |||||||||||||||||||||||||
Balance, December 31, 2017 | 25,485 | $ | 25 | $ | 17,613,525 | $ | - | $ | - | $ | 873,250 | $ | (32,229,417 | ) | $ | (13,742,617 | ) | |||||||||||||||
Shares issued for cash | 12,501 | 12 | 81,647 | - | - | - | - | 81,659 | ||||||||||||||||||||||||
Shares issued on conversion of debt | 185,798 | 186 | 1,802,955 | - | - | - | - | 1,803,141 | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | 641,091 | (8,822,417 | ) | (8,181,326 | ) | ||||||||||||||||||||||
Balance, March 31, 2018 | 223,784 | $ | 223 | $ | 19,498,127 | $ | - | $ | - | $ | 1,514,341 | $ | (41,051,834 | ) | $ | (20,039,143 | ) | |||||||||||||||
Shares issued for commission | 188 | - | 2,250 | - | - | - | - | 2,250 | ||||||||||||||||||||||||
Shares issued on conversion of debt | 92,040 | 92 | 1,172,185 | - | - | - | - | 1,172,277 | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | (361,594 | ) | 4,501,010 | 4,139,416 | |||||||||||||||||||||||
Balance, June 30, 2018 | 316,012 | $ | 315 | $ | 20,672,562 | $ | - | $ | - | $ | 1,152,747 | $ | (36,550,824 | ) | $ | (14,725,200 | ) | |||||||||||||||
Balance, December 31, 2018 | 634,471 | $ | 634 | $ | 22,415,121 | $ | (69,838 | ) | $ | 4,872,732 | $ | 1,465,389 | $ | (42,054,821 | ) | $ | (13,370,783 | ) | ||||||||||||||
Shares issued on conversion of debt | 55,932 | 56 | 119,921 | - | - | - | - | 119,977 | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | (69,635 | ) | (7,172,973 | ) | (7,242,608 | ) | |||||||||||||||||||||
Balance, March 31, 2019 | 690,403 | $ | 690 | $ | 22,535,042 | $ | (69,838 | ) | $ | 4,872,732 | $ | 1,395,754 | $ | (49,227,794 | ) | $ | (20,493,414 | ) | ||||||||||||||
Shares issued for services | 17,500 | 18 | 19,582 | - | - | - | - | 19,600 | ||||||||||||||||||||||||
Shares issued on conversion of debt | 79,666 | 80 | 95,218 | - | - | - | - | 95,298 | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | (6,476 | ) | 6,893,187 | 6,886,711 | |||||||||||||||||||||||
Balance, June 30, 2019 | 787,569 | $ | 788 | $ | 22,649,842 | $ | (69,838 | ) | $ | 4,872,732 | $ | 1,389,278 | $ | (42,334,607 | ) | $ | (13,491,805 | ) |
(The accompanying notes are an integral part of thesethe unaudited interim condensed consolidated financial statements)statements
7 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
(UNAUDITED)
2019 | 2018 | |||||||
Net loss | $ | (279,786 | ) | $ | (4,321,407 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 20,821 | 8,914 | ||||||
Change in inventory allowance | (2,814 | ) | - | |||||
Non-cash financing costs | - | 224,956 | ||||||
Accretion of discounts on debt | 328,055 | 924,905 | ||||||
Change in fair value of derivative liabilities | (720,624 | ) | (397,517 | ) | ||||
Reserve for bad debt | (1,866 | ) | 30,992 | |||||
Shares issued for services | 19,600 | 2,250 | ||||||
Loss on extinguishment of debt | 128,254 | 2,164,231 | ||||||
Unrealized foreign exchange loss (gain) | (81,146 | ) | 152,901 | |||||
(Increase) decrease in assets: | ||||||||
Trade receivables, net | (81,051 | ) | (107,836 | ) | ||||
Inventories | (12,103 | ) | (47,868 | ) | ||||
Prepaid expense and deposits | (35,880 | ) | (33,629 | ) | ||||
Related party receivable | - | 1,034 | ||||||
Increase (decrease) in current liabilities: | ||||||||
Trade payables and accruals | 554,903 | 313,849 | ||||||
Deferred revenue | (68,374 | ) | 123,204 | |||||
Warranty reserve | - | (30,583 | ) | |||||
Operating lease liabilities | (16,228 | ) | - | |||||
Net cash used in operating activities | (248,239 | ) | (991,604 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property, plant and equipment | - | (1,544 | ) | |||||
Net cash used in investing activities | - | (1,544 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuing shares | - | 81,659 | ||||||
Repayments of notes payable | - | (45,000 | ) | |||||
Proceeds from notes payable | 275,000 | 967,000 | ||||||
Net cash provided by financing activities | 275,000 | 1,003,659 | ||||||
Net increase in cash | 26,761 | 10,511 | ||||||
Cash at beginning of period | 5,059 | 5,488 | ||||||
Cash at the end of the period | $ | 31,820 | $ | 15,999 | ||||
Supplemental disclosures | ||||||||
Cash paid during the period for: | ||||||||
Income tax payments | $ | - | $ | - | ||||
Interest payments | $ | 2,513 | $ | - | ||||
Supplemental schedule of non-cash financing activities: | ||||||||
Convertible debenture issued for financing fees | $ | - | $ | 15,000 | ||||
Initial recognition of lease asset | $ | 51,203 | $ | - | ||||
Initial recognition of lease liability | $ | 47,118 | $ | - | ||||
Shares issued for convertible notes payable | $ | 215,275 | $ | 2,975,418 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
8 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 1 – ORGANIZATION
DSG Global, Inc. (the “Company”) 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.,2007.
The Company is 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”), atechnology development company extra provincially registered in British Columbia, Canada, with operationsengaged in the design, manufacture, and marketing of fleet management solutions forin the golf industry as well as commercial, government,industry. The Company’s principal activities are the sale and military applications.rental of GPS tracking devices and interfaces for golf vehicles and related support services.
On April 13, 2015, the Company entered into a share exchange agreement with Vantage Tag Systems Inc. (“VTS”) (formerly DSG Tag Systems Inc.), now wholly-owned subsidiary of the Company, incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008. In March 2011, DSG TAGVTS formed DSG Tag Systems International, Ltd., a in the United Kingdom company (“DSG UK”). DSG UK is a wholly owned subsidiary of DSG TAG.VTS.
On March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one (1) new basis. Upon effect of the reverse split, authorized capital decreased from 3,000,000,000 shares of common stock to 750,000 shares of common stock, with a par value of $0.001. Subsequently, on May 23, 2019, an increase in common shares to 150,000,000 was authorized, with a par value of $0.001. Shares of Preferred Stock remain unchanged. These consolidated financial statements give retroactive effect to such reverse stock split named above and all share and per share amounts have been adjusted accordingly, unless otherwise noted.
Note 2 – GOING CONCERN
These unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and note holders, the ability of the Company to obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations. As at June 30, 2019, the Company has a working capital deficit of $6,839,345 and has an accumulated deficit of $42,334,607 since inception. Furthermore, the Company incurred a net loss of $279,786 and used $248,239 of cash flows for operating activities during the six months ended June 30, 2019. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These unaudited interim condensed consolidated 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 23 – 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 (“USU.S. GAAP”) and with the instructions to Form 10-Q.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore, the unaudited 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, 2016.2018. 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, 20162018 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 ninesix months ended SeptemberJune 30, 20172019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
2019.
Principles of Consolidation
The interim condensed consolidated financial statements include the accounts of DSG Global Inc. and its subsidiarywholly-owned subsidiaries VTS and DSG TAG., and its wholly owned subsidiary DSG UK.UK, collectively referred to as the Company. All material intercompany accounts, transactions and transactionsprofits were eliminated onin consolidation.
Use of Estimates
The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimatesActual results could differ from those estimates. Estimates and assumptions relatedare reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined. New estimates in the period relate to determining the allowance for doubtful accounts, valuation of inventory, fair value andCompany’s 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 ofincremental borrowing rate in recognizing right-of-use assets and lease liabilities. Differences in the estimated incremental borrowing rate could result in materially different lease 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.
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)right-of-use assets.
Accounts ReceivableRecently Adopted Accounting Pronouncements
All trade receivables are due thirty days fromIn February 2016, the date billed. If the funds are not received within thirty days the customer is contactedFinancial Accounting Standards Board, or FASB, established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessors 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:
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,classify leases as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Riskssales-type, direct financing, or operating lease and Uncertaintiesrequires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The Company is subject to risks from, among other things, competition associated withadopted the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange ratesnew standard effective January 1, 2019 and elected the volatility of public markets.modified retrospective for the transition. The Company elected the following practical expedients:
● | Transition method practical expedient – permits the Company to use the effective date as the date of initial application. Upon adoption, the Company did not have a cumulative-effect adjustment to the opening balance of retained earnings. Financial information and disclosures for periods before January 1, 2019 were not updated. | |
● | Package of practical expedients – permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. This allowed the Company to continue classifying its leases at transition in substantially the same manner. | |
● | Single component practical expedient – permits the Company to not separate lease and non-lease components of leases. Upon transition, rental income, expense reimbursement, and other were aggregated into a single line within rental and other revenues on the condensed consolidated statement of operations. | |
● | Short-term lease practical expedient – permits the Company not to recognize leases with a term equal to or less than 12 months. |
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)Lessee Accounting
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The new standard requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating at inception, with classification affecting the pattern and recording of expenses in the statement of operations. Upon transition the Company recognized lease assets and lease liabilities principally for its office lease. When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average incremental borrowing rate applied was 11.98%. Refer to Notes 5 and 11.
ReclassificationsReclassification
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 PronouncementsNote 4 – TRADE RECEIVABLES, NET
For fiscal years beginning afterAs of June 30, 2019, and December 15, 2018:31, 2018, trade receivables consist of the following:
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.
June 30, 2019 | December 31, 2018 | |||||||
Accounts receivables | $ | 272,132 | $ | 184,214 | ||||
Allowance for doubtful accounts | (44,782 | ) | (44,814 | ) | ||||
Total trade receivables, net | $ | 227,350 | $ | 139,400 |
Note 35 – ACCOUNTS RECEIVABLEFIXED ASSETS AND EQUIPMENT ON LEASE
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 |
As of June 30, 2019 and December 31, 2018, fixed assets consisted of the following:
June 30, 2019 | December 31, 2018 | |||||||
Furniture and equipment | $ | 16,250 | $ | 20,509 | ||||
Computer equipment | 25,459 | 28,460 | ||||||
Right-of-use lease asset | 51,203 | - | ||||||
Accumulated depreciation | (59,717 | ) | (48,100 | ) | ||||
$ | 33,195 | $ | 869 |
DSG GLOBAL, INC.As of June 30, 2019 and December 31, 2018, equipment on lease consisted of the following:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019 | December 31, 2018 | |||||||
Tags | $ | 126,042 | $ | 120,998 | ||||
Text | 27,858 | 26,743 | ||||||
Touch | 23,076 | 22,152 | ||||||
Accumulated depreciation | (174,856 | ) | (166,577 | ) | ||||
$ | 2,120 | $ | 3,316 |
SEPTEMBERFor the three months ended June 30, 20172019 and 2018, total depreciation expense for fixed assets and leased equipment was $10,593 and $1,937, respectively.
(UNAUDITED)
For the six months ended June 30, 2019 and 2018, total depreciation expense for fixed assets and leased equipment was $20,207 and $8,348, respectively.
Note 46 – INTANGIBLE ASSETS
September 30, 2017 | December 31, 2016 | |||||||
Patent costs | $ | 21,593 | $ | 21,253 | ||||
Accumulated amortization | (5,650 | ) | (4,673 | ) | ||||
$ | 15,943 | $ | 16,580 |
Intangible assets consist of the following as of June 30, 2019 and December 31, 2018:
June 30, 2019 | December 31, 2018 | |||||||
Intangible asset – Patent | $ | 22,353 | $ | 22,353 | ||||
Accumulated depreciation | (7,678 | ) | (7,064 | ) | ||||
$ | 14,675 | $ | 15,289 |
The estimated useful life of the patent is 20 years. Patents are amortized on a straight-line basis. For the three months ended June 30, 2019 and 2018, total amortization expense was $307 and $283, respectively.
For the six months ended June 30, 2019 and 2018, total amortization expense was $614 and $566, respectively.
Note 57 – 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 |
As of June 30, 2019, and December 31, 2018, trade and other payables consist of the following:
June 30, 2019 | December 31, 2018 | |||||||
Accounts payable | $ | 1,190,174 | $ | 978,770 | ||||
Accrued expenses | 252,502 | 245,737 | ||||||
Accrued interest | 906,052 | 686,354 | ||||||
Other liabilities | 20,072 | (13,331 | ) | |||||
Total payables | $ | 2,368,800 | $ | 1,897,530 |
Note 68 – 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 |
As of June 30, 2019 and December 31, 2018, loans payable consisted of the following:
Loans Payable | June 30, 2019 | December 31, 2018 | ||||||
Unsecured, due on demand, interest at 15% per annum | $ | 190,896 | $ | 183,258 | ||||
Unsecured, due on demand, interest at 36% per annum | 46,701 | 44,830 | ||||||
Unsecured, loan payable, due on demand, interest at 18% per annum | 317,500 | 317,500 | ||||||
Unsecured, loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due on demand. | 250,000 | 250,000 | ||||||
Unsecured share-settled debt, interest at 4.99% per month, due on May 7, 2019. | 214,286 | - | ||||||
$ | 1,019,383 | $ | 795,588 |
On March 8, 2019, the Company entered into a convertible bridge loan agreement (the “Share-Settled Loan”). The Share-Settled Loan bears interest at 4.99% per month, was due in 60 days on May 7, 2019 and is convertible into restricted common shares of the Company at the lender’s option at the market price per share less a 30% discount to market. The Company has accounted the Share-Settled Loan as share-settled debt. It is initially recognized at its fair value and accreted to its share-settled redemption value of $214,286 over the term of the debt. At June 30, 2019, the carrying value consists of principal of $150,000 and accumulated accretion of $64,286. The Share-Settled Loan was not repaid on May 7, 2019 and is in default.
Note 79 – CONVERTIBLE NOTES
As of June 30, 2019 and December 31, 2018, convertible loans payable consisted of the following:
Related Party NotesConvertible Loans Payable
(a) | On March 31, 2015, the Company issued a convertible promissory note in the principal amount of $310,000 to a company owned by a director of the |
Third Party Convertible Loans Payable
(b) | On |
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 |
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.
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.
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 7 – CONVERTIBLE NOTES (continued)
On | |
As at June 30, 2019, the carrying value of |
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.
(d) | On |
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.
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 7 – CONVERTIBLE NOTES (continued)
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.
During the year ended December 31, 2018, $75,000 of the note was reassigned to another unrelated note holder and the note was treated as an extinguishment. There were no material changes to the note upon reassignment. | |
During the year ended December 31, 2018, the Company issued 51,749 common shares with a fair value of $524,487 for the conversion of the remaining principal balance of $35,000, and default penalties and finance costs of $37,448 resulting in a loss on settlement of debt of $452,039. | |
As at June 30, 2019, the carrying value of the note was $9,487 (December 31, 2018 - $9,487), relating to a penalty. | |
(e) | On July 17, 2017, the Company issued a convertible promissory note in the principal amount of $135,000. The |
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.
During the year ended December 31, 2018, the Company issued 25,000 common shares with a fair value of $227,222 for the conversion of $53,530 of principal balance resulting in a loss on settlement of debt of $173,692.
On On May 3, 2018, the Company amended the convertible promissory note to include that at any time after the 100th calendar day after the funds are issued, and at the option of the holder in addition to the right of conversion, the holder may deduct daily payments from the Company’s bank account in the amount of $5,562 per calendar day or $27,812 per week until the Company has paid or the holder has converted an amount equal to the principal balance, interest, accrued interest, and default amount. | |
First Tranche On March 19, 2018, the Company received $270,000 pursuant to the first tranche of the note, | |
On August 31, 2018, the principal balance of $300,000 and accrued interest of $15,978 for the first tranche of the note was reassigned to another unrelated note holder. There were no material changes to the note upon reassignment. Refer to Note 9(l). | |
Second Tranche | |
On May 3, 2018, the Company received $146,500, net of $3,500 in legal fees, pursuant to the second tranche of the note, which is |
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.
On April 26, 2019 and May 22, 2019, an aggregate principal balance of $166,667 and accrued interest of $3,567 for the second tranche of the note was reassigned to another unrelated note holder. There were no material changes to the note upon reassignment. Refer to Note 9(n). | |
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 7 – CONVERTIBLE NOTES (continued)
As at June 30, 2019, the carrying value of the second tranche of the note was $nil (December 31, 2018 - $166,667) and the fair value of the derivative liability was $87,975 (December 31, 2018 - $229,951). During the six months ended June 30, 2019, the Company accreted $nil (2018 - $52,536) of the debt discount to finance costs. | |
Third Tranche | |
On | |
On June 24, 2019, the principal balance of $77,844 and accrued interest of $42,656 for the third tranche of the note was reassigned to another unrelated note holder. There were no material changes to the note upon reassignment. Refer to Note 9(n). | |
As at June 30, 2019, the carrying value of the third tranche of the note was $120,489 (December 31, 2018 - $181,087) and the fair value of the derivative liability was $100,506 (December 31, 2018 - $231,250). During the six months ended June 30, 2019, the Company accreted $17,246 (2018 - $nil) of the debt discount to finance costs. | |
(g) | In January 2018, the Company issued a convertible promissory note in the principal amount of During the year ended December 31, 2018, the Company issued 1,558 common shares with a fair value of $19,937 for the conversion of $10,000 of principal resulting in a loss on settlement of debt of $9,937. |
As at June 30, 2019, the carrying value of the note was $5,000 (December 31, 2018 - $5,000) and the fair value of the derivative liability was $3,076 (December 31, 2018 - $2,714). |
(h) | On May 8, 2018, the Company issued a convertible note in the principal amount of $51,500. The note is unsecured, bears interest at 10% per annum, and is due on |
As at June 30, 2019, the carrying value of the note was $51,500 (December 31, 2018 - $44,223) and | |
(i) | On May 28, 2018 the Company issued a convertible note in the principal amount of $180,000. The note is unsecured, bears interest at 10% per annum, and is due on February 28, 2019. The note is convertible into As at June 30, 2019, the carrying value of the note was $180,000 (December 31, 2018 - $141,522) and the fair value of the derivative liability was $160,460 (December 31, 2018 - $165,742). During the six months ended June 30, 2019, the Company accreted $38,478 (2018 - $21,522) of the debt discount to finance costs. |
(j) | On June 18, 2018, the Company reassigned convertible note balances from another unrelated party in the principal amount of $168,721. The note is unsecured, bears interest at 10% per annum, which was due on August 2, 2018, and is convertible into common shares at a conversion price equal to the |
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.
During the year ended December 31, 2018, the Company issued 43,750 common shares with a fair value of $185,200 for the conversion of $66,672 of principal and $5,653 of accrued interest resulting in a loss on settlement of debt of $112,875. | |
During the six months ended June 30, 2019, the Company issued 34,450 common shares with a fair value of $36,517 for the conversion of $13,324 of principal and $6,571 of accrued interest resulting in a loss on settlement of debt of $16,622. | |
As at | |
(k) | On August 31, |
On May 17, 2017,2018, 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.
On May 7, 2019 and June 28, 2019, an aggregate principal balance of $125,209 was purchased by another unrelated note holder. There were no material changes to |
As at | |
(l) | On August 31, 2018, the Company reassigned the first tranche of a convertible note balance from another unrelated party in the principal amount of $315,978. The first tranche of the note is unsecured, bears interest at 12% per annum, which is due on demand, and is convertible into common shares at a conversion price equal to the lessor of: (i) the lowest trading price during the previous fifteen trading days prior to the date of the promissory note; or (ii) 55% of the lowest trading price during the previous fifteen days prior to the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time of promissory note repayment. |
The deferred financing fees and derivative liability applied as discounts on the reassigned note were fully amortized at the time of the transfer. | |
During the six months ended June 30, 2019, the Company issued 55,915 common shares with a fair value of $119,977 for the conversion of $42,000 of principal and $3,868 of accrued interest resulting in a loss on settlement of debt of $74,109. | |
As at June 30, 2019, the carrying value of the note was $273,978 (December 31, 2018 - $315,978) and the fair value of the derivative liability was $362,395 (2018 - $426,173). | |
(m) | On January 22, 2019, the Company issued a convertible promissory note in the principal amount of |
As at June 30, 2019, the carrying value of the note was $59,897 and the fair value of the derivative liability was $202,332. During the six months ended June 30, 2019, the Company accreted $59,897 of the debt discount to finance costs. | |
(n) | On April 26, 2019, the Company entered into a note purchase and assignment agreement with two unrelated parties pursuant to a certain secured inventory convertible note issued on March 19, 2018 in the principal amount of $900,000. Refer to Note 9(f). Pursuant to this agreement, the seller desires to sell the balance owing under the Second and Third tranche of the original note in four separate closings on April 26, May 22, June 24, and July 24, 2019, totaling $84,396, $85,838, $120,490 and $122,866, respectively (consisting of $375,804 principal and $37,786 of accrued interest). As at June 30, 2019, $290,724 in principal and accrued interest had been assigned to the purchaser. |
As at June 30, 2019, the carrying value of the note was $290,724. | |
(o) | On May 7, 2019, the Company entered into a securities purchase agreement with an unrelated party pursuant to a certain secured inventory convertible promissory note issued on August 31, 2018 in the principal amount of $226,000. Refer to Note 9(k). Pursuant to this agreement, the investor desired to purchase from the Company the balance owing under the original note in four separate closings on or about May 7 and up to three additional tranches, each at the investor’s discretion. As at June 30, 2019, two tranches totaling $125,209 had been purchased by the investor. The derivative liability applied as a discount on the note was $125,209 and is accreted over the life of the note. |
As at June 30, 2019, the carrying value of the note was $9,605 and the fair value of the derivative liability was $166,881. During the six months ended June 30, 2019, the Company accreted $9,605 of the debt discount to finance costs. |
Note 10 – DERIVATIVE LIABILITIES
The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 9 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. For the three and six months ended June 30, 2019, the Company recorded a gain on the change in fair value of derivative liability of $7,356,541 and $720,624, respectively (2018 – $6,013,778 and $397,517, respectively). As at June 30, 2019, the Company’s derivative liability had a balance of $1,717,939 (December 31, 2018 - $2,188,354).
The following inputs and assumptions were used to value the derivative liabilities outstanding at June 30, 2019 and December 31, 2018, assuming no dividend yield:
2019 | 2018 | |||||||
Expected volatility | 218 - 350 | % | 180 - 447 | % | ||||
Risk free interest rate | 1.92 - 2.44 | % | 1.63 - 2.59 | % | ||||
Expected life (in years) | 0.25 - 1.0 | 0.1 - 1.0 |
A summary of the activity of the derivative liabilities is shown below:
$ | ||||
Balance, December 31, 2018 | 2,188,354 | |||
New issuances | 250,209 | |||
Mark to market adjustment | (720,624 | ) | ||
Balance, June 30, 2019 | 1,717,939 |
Note 11 - LEASES
The Company leases certain assets under lease agreements. The lease liability consists of a single lease for office space. Upon adoption of Topic 842, on January 1, 2019 the Company recognized right-of-use assets of $51,203 and lease liabilities of $47,118. The difference between the recorded operating lease assets and lease liabilities is mainly due to the reclassification of prepaid rent deposits. As of June 30, 2019, the lease had a remaining term of 0.92 years. Right-of-use assets have been included within fixed assets, net, and lease liabilities have been included in operating lease liability on the Company’s interim condensed consolidated balance sheet as follows:
Right-of-use asset | June 30, 2019 | |||
Right-of-use asset | $ | 51,203 | ||
Depreciation | (18,072 | ) | ||
Total right-of-use asset | $ | 33,131 |
Lease liability | June 30, 2019 | |||
Lease liability | $ | 47,118 | ||
Lease payments | (18,741 | ) | ||
Interest | 2,513 | |||
Change in foreign exchange rate | 1,805 | |||
Total lease liability | $ | 32,695 |
Current portion | $ | 32,695 | ||
Long-term portion | - | |||
Total lease liability | $ | 32,695 |
Operating lease liabilities are measured at the commencement date based on the present value of future lease payments. As the Company’s lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of 11.98% in determining its lease liabilities. The discount rate was derived from the Company’s assessment of current borrowings.
Right-of-use assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
Interest on operating lease liabilities for the three and six months ended June 30, 2019 was $1,125 and $2,513, respectively. Total payments for principal and interest on operating lease liabilities for the three and six months ended June 30, 2019 were $9,288 and $18,741, respectively.
Future minimum lease payments to be paid by the Company as a lessee for operating leases as of June 30, 2019 for the next two years and thereafter are as follows:
2019 | $ | 18,919 | ||
2020 | 15,766 | |||
Total future minimum lease payments | $ | 34,685 | ||
Discount | (1,990 | ) | ||
Total | $ | 32,695 |
Note 812 – MEZZANINE EQUITY
DSG TAG has 150,000,000Authorized
5,000,000 shares of undesignatedconvertible, redeemable Series C preferred stockshares authorized, each having a par value of $0.001 per share. Each share of Series C preferred shares is convertible into 10 shares of common stock.
1,000,000 shares of convertible, redeemable Series D preferred shares authorized, each having a par value of $0.001 per share. Each share of Series D preferred shares is convertible into 5 shares of common stock.
5,000,000 shares of convertible, redeemable Series E preferred shares authorized, each having a par value of $0.001 per share. Each share of Series E preferred shares is convertible into 4 shares of common stock.
The Series C, D and E preferred shares are mandatorily redeemable upon a major transaction which includes a change in control. As a result, they are classified as mezzanine equity.
Mezzanine equity transactions
During the six months ended June 30, 2019, the Company did not have any mezzanine equity transactions.
Note 13 – PREFERRED STOCK
Authorized
3,000,000 shares of Series A preferred shares authorized, each having a par value of $0.001 per share.
10,000 shares of Series B convertible preferred shares authorized, each having a par value of $0.001 per share. Each share of Series B convertible preferred shares is convertible into 1,000,000 shares of common stock.
On March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one (1) new basis. Preferred share amounts remained unchanged.
Preferred Equity Transactions
During the six months ended June 30, 2019, the Company did not have any preferred share equity transactions.
Note 14 – COMMON STOCK
Authorized
On March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one (1) new basis. Upon effect of the reverse split, authorized capital decreased from 3,000,000,000 shares of common stock to 750,000 shares of common stock. Subsequently, on May 23, 2019, an increase in common shares to 150,000,000 was authorized, with a par value of $0.001. These consolidated financial statements give retroactive effect to such reverse stock split named above and all share and per share amounts have been adjusted accordingly, unless otherwise noted.
There were 787,569 and 634,971 shares of common stock of the Company issued and outstanding as of SeptemberJune 30, 20172019 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 director2018, respectively. Each share 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 arestock is entitled to one (1) vote.
Common Equity Transactions
During the same voting rights as other common shareholders. At any time on or aftersix months ended June 30, 2019 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 toCompany had the following terms:transactions:
● | The Company issued an aggregate of 17,500 shares of common stock with a | |
● | The Company issued an aggregate of |
Date Issued | Common Shares Issued (#) | Fair Value(1) | Converted Balance(2) | Gain (loss) on Conversion | ||||||||||||
January 22, 2019 | 10,189 | $ | 28,527 | $ | 15,690 | $ | (12,837 | ) | ||||||||
March 11, 2019 | 18,606 | 37,212 | 12,280 | (24,932 | ) | |||||||||||
March 15, 2019 | 27,137 | 54,238 | 17,898 | (36,340 | ) | |||||||||||
June 17, 2019 | 45,216 | 58,780 | 21,257 | (37,523 | ) | |||||||||||
June 27, 2019 | 34,450 | 36,517 | 19,895 | (16,622 | ) | |||||||||||
Total | 135,598 | $ | 215,274 | $ | 87,020 | $ | (128,254 | ) |
(1) | Fair values are derived based on the closing price of | |
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.
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-controllingInterest
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).
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 1015 – RELATED PARTY TRANSACTIONS
On March 31, 2015,As at June 30, 2019, 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 relatedowed $216,579 ($283,632 CDN) (December 31, 2018 - $139,835 ($190,764 CDN)) 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 thePresident, CEO, and CFO of the Company for management fees and salaries, which has been recorded in trade and other payables. The amounts owed and owing are unsecured, non-interest bearing, and due on demand. During the six months ended June 30, 2019 the Company incurred $100,000 (2018 - $100,000) in salaries to the President, CEO, and CFO of the Company.
As of Septemberat June 30, 2017,2019, the Company owes $nilowed $13,325 ($17,450 CDN) (December 31, 20162018 - $1,526)$12,791 ($17,450 CDN)) to a director and officercompany controlled by the son of the Company.President, CEO, and CFO of the Company for subcontractor services. The balance owing has been recorded in trade and other payables. The amount owing is unsecured, non-interest bearing, and due on demand.
Note 1116 – SUPPLEMENTAL INFORMATIONCOMMITMENTS
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.
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 1317 – 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 hasChetu Inc. filed a Complaint for Damage in Florida to recover an unpaid amountsinvoice amount of $27,335 plus interest.interest of $4,939. The invoice was not paid as the Company believes the vendor did not provide thedue to a service accordingdispute. As at June 30, 2019, included in trade and other payables is $44,804 related to the agreement between the two parties. On May 31, 2017, the Company was ordered to repay the totalthis unpaid 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.legal fees.
On May 31,24, 2017, in response to the Company’s refusal to process further conversion notices, the Company received legala notice that a lender of default from Coastal Investment Partners LLC (“Coastal”), on three 8% convertible promissory notes issued by the Company would be commencing all collection effortsin aggregate principal amount of $261,389 and commenced a lawsuit on June 12, 2017 in the United States District Court, Southern District of New York. Refer to recoverNote 9. Coastal alleges that the Company failed to deliver shares of common stock underlying the Coastal notes, and thus giving rise to an event of default. Coastal seeks damages in excess of $250,000 for breach of contact damages, and legal fees incurred by Coastal with respect to the lawsuit. This action is still pending but management’s assessment is that an unfavorable outcome is not probable. As at June 30, 2019, the principal balance and accrued interest on this convertible loans of $245,889. The letter also served as notice of an obligation to maintain all documents and records, including electronic information.note is included on the consolidated balance sheet under convertible notes payable.
On October 10, 2017, a vendor filed a complaint for Breachbreach of Contractcontract with Superior Court of the State of California. The Complainantcomplainant is alleging that it is contractually owed 1,848,130462 shares of DSG’sthe Company’s common stock and has asked for a cash rewardis seeking damages of $270,000. In addition, a related vendor also filed in the same filing a complaint for $72,000 as part of a consulting agreement the Company executed. TheNo accrual has been recorded because the Company believesis of the opinion that no obligation exists since the vendors have not performed duties requiredtheir contractual duties. The outcome of this breach is undecided and the company will defend its position if so required.
On April 9, 2018, the Company received a share-reserve increase letter from JSJ Investments Inc. (“JSJ”) pursuant to the terms of a 10% convertible promissory note issued to the Company in the principal amount of $135,000. On April 24, 2018, the Company received a notice of default from JSJ for failure to comply with the share-reserve increase and on April 30, 2018 demanded payment in full of the default amount totaling $172,845. On May 7, 2018, JSJ commenced a lawsuit in the United States District Court, District of Dallas County, Texas. JSJ alleges that the Company failed to comply with the share-reserve increase letter, thus giving rise to an event of default, and failed to pay the outstanding default amount due under the terms of the note. JSJ seeks damages in excess of $200,000 but not more than $1,000,000, which consists of the principal amount of the note, default interest, and legal fees incurred by JSJ with respect to the lawsuit. This action is still pending but as at June 30, 2019, JSJ has negotiated a reduced amount with a private investor. As at June 30, 2019, the principal balance and accrued interest on this convertible note is included on the contractual relationships and that obligations exist, so no obligation has been recorded.consolidated balance sheet under convertible notes payable.
Note 1418 – SUBSEQUENT EVENTS
On November 16, 2017 the DSG Global Inc. Shareholder Report indicatedManagement has evaluated events subsequent to June 30, 2019, for transactions and other events that 60,727,920 shares had been issued to Cede & Co during the monthsmay require adjustment of October and November 2017.and/or disclosure in such financial statements.
On July 24, 2019, the Company issued 37,900 shares of common stock pursuant to the conversion of outstanding convertible debentures and related accrued interest.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:
● | our future financial and operating results; | |
● | our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business; | |
● | the timing and success of our business plan; | |
● | our plans regarding future financings; | |
● | our ability to attract and retain customers; | |
● | our dependence on growth in our customers’ businesses; | |
● | the effects of market conditions on our stock price and operating results; | |
● | our ability to maintain our competitive technological advantages against competitors in our industry; | |
● | the expansion of our business in our core golf market as well as in new markets like commercial fleet management and agriculture; | |
● | our ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance; | |
● | our ability to introduce new offerings and bring them to market in a timely manner; | |
● | our ability to maintain, protect and enhance our intellectual property; | |
● | the effects of increased competition in our market and our ability to compete effectively; | |
● | the attraction and retention of qualified employees and key personnel; | |
● | future acquisitions of or investments in complementary companies or technologies; and | |
● | our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company. |
These forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
Our unaudited financial statements are statestated 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 TAGVantage Tag Systems Inc. (“VTS”) (formerly 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.VTS and the shareholders of DSG TAG SystemsVTS 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 SystemsVTS 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.VTS.
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 SystemsVTS as contemplated by the share exchange agreement by issuing 15,185,875 shares of our common stock to shareholders of DSG TAG SystemsVTS 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.VTS.
Following the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of common stock of DSG TAG SystemsVTS 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.VTS. An aggregate of 4,229,384 shares of Series A Convertible Preferred Stock of DSG TAG SystemsVTS 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 SystemsVTS 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 SystemsVTS upon the closing of the share exchange agreement.
Overview of Our Business
DSG Global, Inc., under the brand name Vantage Tag Systems Inc. (“VTS”), 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”, whichVTS is our primary value statement giving fleet operator’s new capabilities to track and control their vehicles.vehicles through the new INFINITY XL system and the new 3G-4G TAG. We have developed inhouse a proprietary combination of hardware and software that is marketed around the world as the INFINITY TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course operators manage their fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of the National Golf Course Owners Association. To date the TAG system is installed on over 8,000 vehicles around the world and has been used to monitor over 6,000,000millions of rounds of golf.
The TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which can operate independently, we offer two golfer3 information display systems to the golf courses management and golfer — the alphanumeric TEXT and high definition TOUCH —12” INFINITY XL, 10” INFINITY RM and 7” INFINITY DM— providing the operator with twothree display options which is unique in the industry. VTS also offers inhouse financing thru purchase or lease.
The primary market for our TAG system is the 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 directare expanding our sales force in North America, which comprises the most significant portion of the golf fleet market and have developed key relationships with privately owned distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive sales for the North Americanthrough-out Europe, Asia, UK and many other markets worldwide markets.Including our most recent move to New Zealand and Australia.
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 unitsTAG and INFINITY fleet from one supplierfortune 200 companies in NA who has manufacturing in China and our TAG unitsRAPTORS from one supplier in the United Kingdom. We have recently established aKingdom and Asia. This new relationship with a supplier for our TOUCH units in China to providethat has been established provides 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 negotiationsVTS recently engaged with a telecommunications provider to provide new technology in hardware and wireless access.access through-out the world therefor allowing VTS to substantially reduce cellular cost.
Our most recent product that is used to increase the Pace of Play on the course up to 90 minutes per round is the RAPTOR. Our 3 wheel single rider allows the course to revenue share with VTS as the RAPTOR is put on the course free of charge and then allows the course to revenue share with VTS along the way. Each seat is rented to the customers for minimum $25 per round.
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 | |
● | Programmatic Advertising Revenue is a new source of revenue that we believe has the potential to be strategic for us in the future. We are in the process of implementing and designing software to provide advertising and other media functionality on our |
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 | |
● | 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. | |
● | 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. | |
● | Bad debt.Our bad debt expense consists primarily of amounts written down for doubtful accounts recorded on trade receivables. | |
● | 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 SeptemberWe recognized net income of $6,893,187 for the three-month period ended June 30, 2017
Revenues2019, which was $2,392,177 or 53.1% more than the net income of $4,501,010 for the three-month period ended June 30, 2018. The primary reasons are attributable to the increase in gain from change in fair value of derivative liabilities, decrease in loss on extinguishment of debt and Gross Profitdecrease in finance costs. Also contributing to this increase in gain is a decrease in loss from operations.
We recorded revenuesrecognized a net loss of $303,151$279,786 for the six-month period ended June 30, 2019, which was $4,041,621 or 93.5% less than the net loss of $4,321,407 for the six-month period ended June 30, 2018. The primary reasons are attributable to decrease in loss on extinguishment of debt, decrease in finance costs the increase in gain from change in fair value of derivative liabilities. Also contributing to this increase in gain is a decrease in loss from operations and a gross profitincrease in gain from change in fair value of $182,079 duringderivative liabilities.
The following table summarizes key items of comparison and their related increase (decrease) for the three and six month periods June 30, 2019 and 2018:
Three months ended | Increase (Decrease) | Six months ended | Increase (Decrease) | |||||||||||||||||||||
30-Jun-19 | 30-Jun-18 | 2019 – 2018 | 30-Jun-19 | 30-Jun-18 | 2019 – 2018 | |||||||||||||||||||
($) | ($) | �� | (%) | ($) | ($) | (%) | ||||||||||||||||||
Revenues | $ | 284,646 | 237,046 | 20.1 | % | $ | 786,070 | $ | 347,942 | 125.9 | % | |||||||||||||
Cost of revenue | 32,886 | 79,552 | -58.7 | % | 338,954 | 97,881 | 246.3 | % | ||||||||||||||||
Gross profit | 251,760 | 157,494 | 59.9 | % | 447,116 | 250,061 | 78.8 | % | ||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Compensation expense | 144,673 | 209,174 | -30.8 | % | 279,756 | 417,802 | -33.0 | % | ||||||||||||||||
General and administrative expense | 203,938 | 275,480 | -26.0 | % | 431,694 | 633,493 | -31.9 | % | ||||||||||||||||
Warranty expense | - | 46,273 | -100.0 | % | - | 46,273 | -100.0 | % | ||||||||||||||||
Bad debt | (3,290 | ) | 2,099 | -256.7 | % | (1,866 | ) | 30,992 | -106.0 | % | ||||||||||||||
Depreciation and amortization expense | 10,900 | 2,220 | 391.0 | % | 20,821 | 8,914 | 133.6 | % | ||||||||||||||||
Total operating expenses | 356,221 | 535,246 | -33.4 | % | 730,405 | 1,137,474 | -35.8 | % | ||||||||||||||||
Loss from operations | (104,461 | ) | (377,752 | ) | -72.3 | % | (283,289 | ) | (887,413 | ) | -68.1 | % | ||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Foreign currency exchange | 13,526 | 410,454 | -96.7 | % | 31,163 | (150,212 | ) | -120.7 | % | |||||||||||||||
Change in fair value of derivative liabilities | 7,356,541 | 6,013,778 | 22.3 | % | 720,624 | 397,517 | 81.3 | % | ||||||||||||||||
Loss on extinguishment of debt | (54,145 | ) | (768,964 | ) | -93.0 | (128,254 | ) | (2,164,231 | ) | -94.1 | % | |||||||||||||
Finance costs | (318,274 | ) | (776,506 | ) | -59.0 | % | (620,030 | ) | (1,517,068 | ) | -59.1 | % | ||||||||||||
Total other expense | 6,997,648 | 4,878,762 | 43.4 | % | 3,503 | (3,433,994 | ) | -100.1 | % | |||||||||||||||
Provision for income taxes expense (benefit) | - | - | - | % | - | - | - | % | ||||||||||||||||
Net income (loss) | 6,893,187 | 4,501,010 | 53.1 | % | (279,786 | ) | (4,321,407 | ) | -93.5 | % |
Comparison of the three and six months ended June 30, 2019 and 2018:
Revenue
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||
Revenue | $ | 284,646 | $ | 237,046 | 20.1 | $ | 786,070 | 347,942 | 125.9 |
Revenue increased by $47,600 or 20.1%, for the three months ended SeptemberJune 30, 20172019 as compared to revenues of $243,469 and gross profit of $52,083 during the three months ended SeptemberJune 30, 2016.2018. Revenue increased by $438,128 or 125.9%, for the six months ended June 30, 2019 as compared to the three months ended June 30, 2018.
Sales increased as the result of aggressive marketing and installation of the new infinity suite of products compared to lower sales in the comparative period.
Cost of Revenue
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||
Cost of revenue | $ | 32,886 | $ | 79,552 | (58.7 | ) | $ | 338,954 | $ | 97,881 | 246.3 |
Cost of revenue decreased by $46,666, or 58.7%, for the three months ended June 30, 2019 as compared to the three months June 30, 2018. The increase isoverall decrease was due to the fact that we recorded a one-time charge on impairmentdecrease of inventorycost of $83,184 during fiscal 2016. Overall, our revenues are comparablegoods sold, partially offset by an increase in wireless fees. The table below outlines the differences in detail:
For the Three Months Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | Difference | % Difference | |||||||||||||
Cost of Goods | $ | 8,576 | $ | 64,570 | $ | (55,994 | ) | (86.7 | ) | |||||||
Labour | (28 | ) | - | (28 | ) | (100.0 | ) | |||||||||
Mapping & Freight Costs | (38 | ) | 4,478 | (4,516 | ) | (100.8 | ) | |||||||||
Wireless Fees | 24,368 | 10,504 | 13,864 | 132.0 | ||||||||||||
Inventory Write-off/Adjustments | 8 | - | 8 | 100.0 | ||||||||||||
$ | 32,886 | $ | 79,552 | $ | (46,666 | ) | (58.7 | ) |
Cost of revenue increased by $241,073, or 246.3%, for the six months ended June 30, 2019 as compared to the prior year despitesix months June 30, 2018. The overall increase was due to the fact that we have been forcedincrease of cost of goods sold and labour, partially offset by a decrease in wireless fees. The table below outlines the differences in detail:
For the Six Months Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | Difference | % Difference | |||||||||||||
Cost of Goods | $ | 296,270 | $ | 64,570 | $ | 231,700 | 358.8 | |||||||||
Labour | 8,967 | - | 8,967 | 100.0 | ||||||||||||
Mapping & Freight Costs | 12,112 | 5,138 | 6,974 | 135.7 | ||||||||||||
Wireless Fees | 24,368 | 28,173 | (3,805 | ) | (13.5 | ) | ||||||||||
Inventory Write-off/Adjustments | (2,763 | ) | - | (2,763 | ) | (100.0 | ) | |||||||||
$ | 338,954 | $ | 97,881 | $ | 241,073 | 246.3 |
Compensation Expense
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||
Compensation Expense | $ | 144,673 | $ | 209,174 | (30.8 | ) | $ | 279,756 | $ | 417,802 | (33.0 | ) |
Compensation expense decreased by $64,501, or 30.8%, for the three months ended June 30, 2019 as compared to movethe three months ended June 30, 2018 due to a 3G/4G GPS cellular device, require redevelopment of our advertising,reduction in headcount and integrating our tournament software ontoemployees. Compensation expense decreased by $138,046, or 33.0%, for the TOUCH screen. Our company, along withsix months ended June 30, 2019 as compared to the new sales team, is aggressively building its pipeline for continued growth into fiscal 2018.six months ended June 30, 2018 due to a reduction in headcount and employees.
Operating ExpensesGeneral and Administration Expense
General & administration expense decreased by $71,542 or 26.0% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The table below outlines the differences in detail:
For the Three Months Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | Difference | % Difference | |||||||||||||
Accounting & Legal | $ | 75,534 | $ | 96,884 | $ | (21,350 | ) | (22.0 | ) | |||||||
Marketing & Advertising | 24,887 | 7,535 | 17,352 | 230.3 | ||||||||||||
Subcontractor & Commissions | 36,435 | 64,854 | (28,419 | ) | (43.8 | ) | ||||||||||
Hardware | 1,091 | 21,632 | (20,541 | ) | (95.0 | ) | ||||||||||
Office Expense, Rent, Software, Bank & Credit Card Charges, Telephone, Travel, & Meals | 65,991 | 84,575 | (18,584 | ) | (22.0 | ) | ||||||||||
$ | 203,938 | $ | 275,480 | $ | (71,542 | ) | (26.0 | ) |
The overall decrease in general and administrative expenses was primary related to a decrease in subcontractor and commissions. Also contributing to this decrease was a decrease in office expense, rent, software and other charges primarily due to a reduction in rent expense and travel and other expenses. Rent expense decreased as the Company relocating to a new office space. Travel and other expenses decreased as the Company began providing remote service and support, rather than on-site support and attended a trade show in the prior but not current period.
General & administration expense decreased by $201,799 or 31.9% for the six months ended June 30, 2019 compared to the three months ended June 30, 2018. The table below outlines the differences in detail:
For the Six Months Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | Difference | % Difference | |||||||||||||
Accounting & Legal | $ | 84,855 | $ | 144,670 | $ | (59,815 | ) | (41.3 | ) | |||||||
Marketing & Advertising | 45,793 | 20,218 | 25,575 | 126.5 | ||||||||||||
Subcontractor & Commissions | 127,311 | 121,162 | 6,149 | 5.1 | ||||||||||||
Hardware | 3,814 | 37,240 | (33,426 | ) | (89.8 | ) | ||||||||||
Office Expense, Rent, Software, Bank & Credit Card Charges, Telephone, Travel, & Meals | 169,921 | 310,203 | (140,282 | ) | (45.2 | ) | ||||||||||
$ | 431,694 | $ | 633,493 | $ | (201,799 | ) | (31.9 | ) |
The overall decrease in general and administrative expenses was primary related to a decrease in office expense, rent, software and other charges of $140,282 or 45.2% primarily due to a reduction in rent expense and travel and other expenses. Rent expense decreased as the Company relocating to a new office space. Travel and other expenses decreased as the Company began providing remote service and support, rather than on-site support and attended a trade show in the prior but not current period.
Foreign Currency Exchange
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||
Foreign currency exchange (gain) loss | $ | (13,526 | ) | $ | (410,454 | ) | (96.7 | ) | $ | (31,163 | ) | $ | 150,212 | (120.7 | ) |
For the three months ended SeptemberJune 30, 2017,2019, we recorded operating expenses of $499,563recognized a $13,526 foreign exchange gain as compared to operating expenses of $540,794 duringa $410,454 foreign exchange gain for the three months ended SeptemberJune 30, 2016.2018. The decreasechange was primarily due to settlement of various foreign currency denominated debt instruments in operating expenses was attributed to the following:prior year as well as beneficial changes in foreign currency rates on payables, receivables and other foreign exchange transactions denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar, Euro and British pound.
For the six months ended June 30, 2019, we recognized a $31,163 foreign exchange gain as compared to a $150,212 foreign exchange loss for the six months ended June 30, 2018. The change was primarily due to settlement of various foreign currency denominated debt instruments in the prior year as well as beneficial changes in foreign currency rates 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.
NetUnrealized (Gain) Loss on Derivative
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||
Unrealized (gain) loss on derivative | $ | (7,356,541 | ) | $ | (6,013,778 | ) | 22.3 | $ | (720,624 | ) | $ | (397,517 | ) | 81.3 |
During
Derivative gain increased by $1,342,763 or 22.3%, for the three months ended SeptemberJune 30, 2017, we incurred a net loss of $661,850 or $0.02 loss per share2019 as compared to a net loss of $565,378 or loss per share of $0.02 during the three months ended SeptemberJune 30, 2016. In addition to revenues and operating expenses, we also incurred other income and expenses which included:
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 is2018 due to the fact that we recorded a one-time chargechange in fair value as of June 30, 2018 triggering of unrealized gains on impairment of inventory of $107,193 during fiscal 2016. Overall, our revenues are comparablederivative instruments in the current quarter ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s stock price.
Derivative gain increased by $323,107 or 81.3%, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 due to the change in fair value as of June 30, 2018 triggering of unrealized gains on derivative instruments in the current quarter ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s stock price.
Finance Costs
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||
Finance costs | $ | 318,274 | $ | 776,506 | (59.0 | ) | $ | 620,030 | $ | 1,517,068 | (59.1 | ) |
Finance costs decreased by $458,232 or 59.0%, for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. Finance costs decreased due to the large number of conversions of settlement of notes in the current period and prior year despiteyear.
Finance costs decreased by $897,038 or 59.1%, for the fact that we have been forcedsix months ended June 30, 2019 as compared to movethe six months ended June 30, 2018. Finance costs decreased due to a 3G/4G GPS cellular device, require redevelopmentthe large number of our advertising,conversions of settlement of notes in the current period 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.prior year.
Operating ExpensesNet Loss
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | �� | ||||||||||||||||||
Net income (loss) | $ | 6,893,187 | $ | 4,501,010 | 53.1 | $ | (279,786 | ) | $ | (4,321,407 | ) | (93.5 | ) |
For
As a result of the nineabove factors, net income increased by $2,392,177 or 53.1% and net loss decreased by $4,041,621 or 93.5% for the three and six months ended SeptemberJune 30, 2017, we recorded operating expenses of $1,905,9022019 as compared to operating expenses of $1,624,858 during the ninethree and six months ended SeptemberJune 30, 2016. The increase in operating expenses was attributed to the following:2018, respectively.
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:
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 SeptemberJune 30, 2017,2019, 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 SeptemberJune 30, 2017,2019, we had $7,178,280$7,346,720 in outstanding indebtedness, all of which all matures within the next twelve months.
As of September 30, 2017, weWe had cash in the amount of $8,968$31,820 as of June 30, 2019, as compared to $nil$5,059 as of December 31, 2016. Our2018. We had a working capital deficit of $6,839,345 as at Septemberof June 30, 2017 was $6,976,2502019 compared to $5,580,774working capital deficit of $6,687,807 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.2018.
Liquidity and Financial Condition
Our financial position as of June 30, 2019 and 2018, and the changes for the periods then ended are as follows:
Working Capital
At June 30, 2019 | At December 31, 2018 | |||||||
Current Assets | $ | 500,121 | $ | 333,239 | ||||
Current Liabilities | $ | 7,339,466 | $ | 7,021,046 | ||||
Working Capital | $ | (6,839,345 | ) | $ | (6,687,807 | ) |
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 |
June 30, | ||||||||
2019 | 2018 | |||||||
Net cash used in by operating activities | $ | (248,239 | ) | $ | (991,604 | ) | ||
Net cash used in investing activities | - | (1,544 | ) | |||||
Net cash provided by financing activities | 275,000 | 1,003,659 | ||||||
Net increase in cash | 26,761 | 10,511 | ||||||
Cash at beginning of period | 5,059 | 5,488 | ||||||
Cash at end of period | $ | 31,820 | $ | 15,999 |
Net Cash Flows Used in Operating ActivitiesActivities. During the six months ended June 30, 2019, cash used in operations totaled $248,239. This reflects the net loss of $279,786 less $31,547 provided by changes in operating assets and liabilities and adjustments for non-cash items. Non-cash items and working capital items consisted primarily of non-cash change in fair value of derivative liabilities of $720,624, non-cash accretion of discounts on debt of $328,055 and increase in trade payables and accruals of $554,903.
DuringNet Cash (Used in) Provided by Investing Activities. The Company had no investing activities in the ninesix months ended SeptemberJune 30, 2017, we used2019. Investing activities reduced cash of $344,342 for operating activities compared to $472,808 used for operating activities duringby $1,544 in the ninesix months ended SeptemberJune 30, 2016. The majority2018, related to the purchase of cash available to our company is used for operating activities net of any impacts relating to exchange rate changes.property, plant and equipment.
Net 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.
Cash Flows Provided by Financing Activities
During the nine months ended September 30, 2017, we received $766,434 of. Net cash from financing activities relatedduring the six months ended June 30, 2019 totaled $275,000, from various note and loan facilities entered during the period. Net cash provided by financing activities during the six months ended June 30, 2018 was $1,003,659, primarily from various note and loan facilities entered during the period in addition 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.shares.
Outstanding Indebtedness
Our current indebtedness as of SeptemberJune 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, 20172019 is comprised of the following:
● | Unsecured loan payable in the amount of $190,896 bearing interest at 15% per annum and due on demand; | ||
● | Unsecured loan payable in the amount of $317,500 bearing interest at 18% per | ||
● | Unsecured note payable in the amount of | ||
● | Unsecured loan payable in the amount of $250,000, bearing interest at 10% per annum, with a minimum interest amount of $25,000, mature and | ||
● | |||
● | Unsecured, convertible note payable to related party in the amount of $310,000, bearing interest at 5% per annum, mature and | ||
● | |||
● | Unsecured, convertible note payable in the amount of | ||
conversion; | |||
|
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:
● |
● | Unsecured, convertible note payable in the principal amount of $51,500, bears interest at 10% per annum, is due on February 8, 2019, and | ||
● | |||
● | Unsecured, convertible note payable in the principal amount of $88,725, bears interest 10% per annum, is due on August 2, 2018, and is convertible into common shares at a conversion price equal to the lower of (i) lowest trading price during previous (25) trading days prior to the date of note or | ||
● | Unsecured, convertible promissory note in the principal amount of $100,791, bears interest at 12% per annum, is due on August 31, 2019, and is convertible into common shares at a conversion price equal to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion date. Interest will be accrued and payable at the time of promissory note repayment; | ||
● | Unsecured, convertible note payable in the principal amount of $273,978, bears interest 12% per annum, is due on demand, and is convertible into common shares at a conversion price equal to the lower of (i) the lowest trading price during the previous fifteen trading days prior to the date of the promissory note; or (ii) 55% of the lowest trading price during the previous fifteen days prior to the latest complete | ||
● | Unsecured, convertible promissory note in the principal amount of $137,500, bears interest at 12% per annum, is due on January 22, 2020, and is convertible into common shares at a conversion price equal to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion date. Interest will be accrued and payable at the time of promissory note repayment; | ||
● | Unsecured, convertible bridge loan agreement in the principal amount of $150,000, bears interest at 4.99% per month, is due in 60 days on May 7, 2019 and is convertible into restricted common shares of the Company at the lender’s option at the market price per share less a 30% discount to market. Settlement by conversion into common shares would result in settlement for | ||
● | Unsecured, convertible promissory note in the principal amount of $290,724, bears interest at | ||
● | Unsecured, convertible promissory note in the principal amount of $125,210, bears interest at 12% per annum, is due on August 31, 2019, and is convertible into common shares at a conversion price equal to |
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 |
Estimated Expenses for the Twelve-Month Period ending June 30, 2020 | ||||
Management compensation | $ | 500,000 | ||
Professional fees | $ | 150,000 | ||
General and administrative | $ | 1,900,000 | ||
Total | $ | 2,550,000 |
As noted earlier, during the ninesix months ended SeptemberJune 30, 2017,2019, cash used in operations totaled $308,206.$241,038. 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$39,021 in cash as of SeptemberJune 30, 2017,2019 and a working capital deficit of $7,010,466.$6,839,398. 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.
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 SeptemberJune 30, 2017,2019, 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 20172019 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.
On June 4, 2015, a lawsuit was commenced against DSG TAG Systems Inc.VTS in the Supreme Court of British Columbia, captioned Amanda McGuire v. DSG TAG Systems Inc.,VTS, No. S-154634, Vancouver Registry. The plaintiff alleges that a promissory note in the principal amount of $100,000 CDN issued by DSG TAG SystemsVTS was not converted into common shares of DSG TAG Systems,VTS, as asserted by DSG TAG Systems,VTS, 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 SystemsVTS and the plaintiff, pursuant to which DSG TAG SystemsVTS 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 SystemsVTS 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 newan order after we did not make the above-mentioned payments on schedulein relating to the above discussed lawsuit from a shareholder per the settlement agreement. DSG TAGto recover a loan of CAD$100,000. VTS 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. Negotiations have taken place and Amanda McGuire has agreed to accept $50,000 in full and final settlement.
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 TAGVTS 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 SeptemberJune 30, 2017,2019, the Company not yet made any payments.
On May 31,24, 2017, we received a notice of default from Coastal Investment Partners LLC (“Coastal”), on three 8% convertible promissory notes issued by the Company in aggregate principal amount of $261,389 and commenced a lawsuit on June 12, 2017 in responsethe United States District Court, Southern District of New York. Coastal alleges that the Company failed to deliver shares of common stock underlying the Coastal notes, and thus giving rise to an event of default. Coastal seeks damages in excess of $250,000 for breach of contact damages, and legal fees incurred by Coastal with respect to the Company’s refusal to process further conversion notices,lawsuit. This action is still pending. As at June 30, 2019, the Company received legal notice that a lendor ofprincipal balance and accrued interest on this convertible note is included on the Company would be commencing all collection efforts to recoverconsolidated balance sheet under convertible loans of $245,889. The letter also served as notice of an obligation to maintain all documents and records, including electronic information.notes payable.
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.
On April 9, 2018, we received a share-reserve increase letter from JSJ Investments Inc. (“JSJ”) pursuant to the terms of a 10% convertible promissory note issued to the Company in the principal amount of $135,000. On April 24, 2018, the Company received a notice of default from JSJ for failure to comply with the share-reserve increase and on April 30, 2018 demanded payment in full of the default amount totaling $172,845. On May 7, 2018, JSJ commenced a lawsuit in the United States District Court, District of Dallas County, Texas. JSJ alleges that the Company failed to comply with the share-reserve increase letter, thus giving rise to an event of default, and failed to pay the outstanding default amount due under the terms of the note. JSJ seeks damages in excess of $200,000 but not more than $1,000,000, which consists of the principal amount of the note, default interest, and legal fees incurred by JSJ with respect to the lawsuit. This action is still pending. As at June 30, 2019, the principal balance and accrued interest on this convertible note is included on the consolidated balance sheet under convertible notes payable.
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.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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.None.
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.
Not Applicable.
Exhibit | ||||||||||
Number | Exhibit Description | Filed Form | Exhibit | Filing 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 | ||||||||
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 | |||||||||
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. |
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: | 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) |