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, 20172020
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]
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
As September 30, 2017,August 14, 2020, the issuer had 39,476,23631,291,821 shares of common stock issued and outstanding.
DSG GLOBAL, INC.
TABLE OF CONTENTS
| 2 |
ITEM 1: Financial Statements (unaudited)
The accompanying unaudited interim condensed consolidated interim financial statements of DSG Global Inc. as at SeptemberJune 30, 2017,2020, 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 ninesix month periods ended SeptemberJune 30, 20172020 are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.2020.
| 3 |
DSG GLOBAL, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2020 AND DECEMBER 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
| 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 | ||||
| June 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 112,628 | $ | 25,494 | ||||
| Trade receivables, net | 104,955 | 74,793 | ||||||
| Inventories, net of inventory allowance of $144,264 and $151,191, respectively | 138,116 | 140,943 | ||||||
| Prepaid expenses and deposits | 9,323 | 9,570 | ||||||
| TOTAL CURRENT ASSETS | 365,022 | 250,800 | ||||||
| Fixed assets, net | 1,009 | 139,823 | ||||||
| Equipment on lease, net | 926 | 1,457 | ||||||
| Intangible assets, net | 13,447 | 14,061 | ||||||
| TOTAL ASSETS | $ | 380,404 | $ | 406,141 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Trade and other payables | $ | 2,771,929 | $ | 2,345,333 | ||||
| Deferred revenue | 177,017 | 65,274 | ||||||
| Operating lease liability | - | 62,935 | ||||||
| Loans payable | 577,522 | 789,469 | ||||||
| Derivative liability | 5,226,343 | 2,856,569 | ||||||
| Convertible notes payable, net of unamortized discount of $254,991 and $550,876, respectively | 2,793,048 | 2,507,653 | ||||||
| TOTAL CURRENT LIABILITIES | 11,545,859 | 8,627,233 | ||||||
| Operating lease liability | - | 74,225 | ||||||
| Loans payable | 228,690 | - | ||||||
| TOTAL LIABILITIES | 11,774,549 | 8,701,458 | ||||||
| Going concern (Note 2) | ||||||||
| Commitments (Note 16) | ||||||||
| Contingencies (Note 17) | ||||||||
| Subsequent events (Note 19) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Redeemable preferred stock, $0.001 par value, 11,000,000 shares authorized (2019 – 11,000,000), to be issued (2019 - to be issued) | 33,807 | 33,807 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $0.001 par value, 3,010,000 shares authorized (2019 – 3,010,000), 200,512 issued and outstanding (2019 - 200,376) | 767,240 | 200 | ||||||
| Common stock, $0.001 par value, 150,000,000 shares authorized, (2019 - 150,000,000); 17,862,008 issued and outstanding (2019 - 1,146,302) | 17,864 | 1,146 | ||||||
| Additional paid in capital, common stock | 37,473,312 | 28,097,710 | ||||||
| Discounts on common stock | (69,838 | ) | (69,838 | ) | ||||
| Common stock to be issued | 171,429 | 7,402,254 | ||||||
| Other accumulated comprehensive income | 1,469,836 | 1,372,345 | ||||||
| Accumulated deficit | (51,257,795 | ) | (45,132,941 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (11,427,952 | ) | (8,329,124 | ) | ||||
| TOTAL LIABILITIES MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | $ | 380,404 | $ | 406,141 | ||||
Going concern (Note 2)
Contingencies (Note 13)
Subsequent events (Note 14)
(The accompanying notes are an integral part of thesethe unaudited interim condensed consolidated financial statements)statements
| 4 |
DSG GLOBAL, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(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, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||||||||
| Revenue | $ | 123,955 | $ | 284,646 | $ | 274,167 | $ | 786,070 | ||||||||
| Cost of revenue | 50,085 | 32,886 | 78,651 | 338,954 | ||||||||||||
| Gross profit | 73,870 | 251,760 | 195,516 | 447,116 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Compensation expense | 1,023,836 | 144,673 | 1,666,372 | 279,756 | ||||||||||||
| General and administration expense | 191,962 | 212,974 | 716,709 | 449,766 | ||||||||||||
| Bad debt expense (recovery) | 5,872 | (3,290 | ) | 15,220 | (1,866 | ) | ||||||||||
| Depreciation and amortization expense | 646 | 1,864 | 1,302 | 2,749 | ||||||||||||
| Total operating expense | 1,222,316 | 356,221 | 2,399,603 | 730,405 | ||||||||||||
| Loss from operations | (1,148,446 | ) | (104,461 | ) | (2,204,087 | ) | (283,289 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Foreign currency exchange | 54,534 | 13,526 | (66,147 | ) | 31,163 | |||||||||||
| Change in fair value of derivative instruments | (1,226,715 | ) | 7,356,541 | (2,172,309 | ) | 720,624 | ||||||||||
| Loss on extinguishment of debt | (389,428 | ) | (54,145 | ) | (817,893 | ) | (128,254 | ) | ||||||||
| Finance costs | (456,840 | ) | (318,274 | ) | (864,418 | ) | (620,030 | ) | ||||||||
| Total other income (expense) | (2,018,449 | ) | 6,997,648 | (3,920,767 | ) | 3,503 | ||||||||||
| Net income (loss) | $ | (3,166,895 | ) | $ | 6,893,187 | $ | (6,124,854 | ) | $ | (279,786 | ) | |||||
| Net income (loss) per share | ||||||||||||||||
| Basic and diluted: | ||||||||||||||||
| Basic | $ | (0.22 | ) | $ | 9.80 | $ | (0.69 | ) | $ | (0.41 | ) | |||||
| Diluted | $ | (0.22 | ) | $ | 9.80 | $ | (0.69 | ) | $ | (0.41 | ) | |||||
| Weighted average number of shares used in computing basic and diluted net income (loss) per share: | ||||||||||||||||
| Basic | 14,331,313 | 703,437 | 8,923,451 | 677,426 | ||||||||||||
| Diluted | 14,331,313 | 703,437 | 8,923,451 | 677,426 | ||||||||||||
(The accompanying notes are an integral part of thesethe unaudited interim condensed consolidated financial statements)statements
| 5 |
DSG GLOBAL, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(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, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||||||||
| Net income (loss) | $ | (3,166,895 | ) | $ | 6,893,187 | $ | (6,124,854 | ) | $ | (279,786 | ) | |||||
| Other comprehensive income (loss) | ||||||||||||||||
| Foreign currency translation adjustments | (92,100 | ) | (6,476 | ) | 97,491 | (76,111 | ) | |||||||||
| Comprehensive income (loss) | $ | (3,258,995 | ) | $ | 6,886,711 | $ | (6,027,363 | ) | $ | (355,897 | ) | |||||
(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 | Amount | Accumulated other comprehensive income | Accumulated deficit | Total stockholders’ deficit | ||||||||||||||||||||||||||||
| 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 income 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 | ) | ||||||||||||||||
| Balance, December 31, 2019 | 1,146,302 | $ | 1,146 | $ | 28,097,710 | $ | (69,838 | ) | $ | 7,402,254 | $ | 200 | $ | 1,372,345 | $ | (45,132,941 | ) | $ | (8,329,124 | ) | ||||||||||||||||
| Shares to be issued for cash | 191,865 | 192 | 99,839 | - | - | - | - | - | 100,031 | |||||||||||||||||||||||||||
| Shares and warrants issued for services | 320,000 | 320 | 636,128 | - | - | - | - | - | 636,448 | |||||||||||||||||||||||||||
| Shares issued on conversion of debt | 1,178,518 | 1,180 | 565,375 | - | - | - | - | - | 566,555 | |||||||||||||||||||||||||||
| Issuance of shares to be issued | 1,766,451 | 1,766 | 1,384,487 | - | (1,386,253 | ) | - | - | - | - | ||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | 189,591 | (2,957,959 | ) | (2,768,368 | ) | |||||||||||||||||||||||||
| Balance, March 31, 2020 | 4,603,136 | 4,604 | 30,783,539 | (69,838 | ) | 6,016,001 | 200 | 1,561,936 | (48,090,900 | ) | (9,794,458 | ) | ||||||||||||||||||||||||
| Shares issued for services | 1,183,000 | 1,183 | 108,768 | - | - | - | - | - | 109,951 | |||||||||||||||||||||||||||
| Shares issued on conversion of debt | 3,799,933 | 3,801 | 530,423 | - | - | - | - | - | 534,224 | |||||||||||||||||||||||||||
| Shares issued and to be issued for share-settled debt | 612,244 | 612 | 42,245 | - | 171,429 | - | - | - | 214,286 | |||||||||||||||||||||||||||
| Preferred shares issued for services | - | - | - | - | - | 767,040 | - | - | 767,040 | |||||||||||||||||||||||||||
| Issuance of shares to be issued | 7,663,695 | 7,664 | 6,008,337 | - | (6,016,001 | ) | - | - | - | - | ||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | (92,100 | ) | (3,166,895 | ) | (3,258,995 | ) | ||||||||||||||||||||||||
| Balance, June 30, 2020 | 17,862,008 | $ | 17,864 | $ | 37,473,312 | $ | (69,838 | ) | $ | 171,429 | $ | 767,240 | $ | 1,469,836 | $ | (51,257,795 | ) | $ | (11,427,952 | ) | ||||||||||||||||
(The accompanying notes are an integral part of thesethe unaudited interim condensed consolidated financial statements)statements
| 7 |
DSG GLOBAL INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Expressed in U.S. Dollars)
(UNAUDITED)
| June 30, 2020 | June 30, 2019 | |||||||
| Net loss | $ | (6,124,854 | ) | $ | (279,786 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,302 | 2,749 | ||||||
| Change in inventory allowance | - | (2,814 | ) | |||||
| Non-cash financing costs | - | - | ||||||
| Accretion of discounts on debt | 537,385 | 328,055 | ||||||
| Change in fair value of derivative liabilities | 2,172,309 | (720,624 | ) | |||||
| Bad debt expense | 15,220 | (1,866 | ) | |||||
| Shares and warrants issued for services | 1,513,439 | 19,600 | ||||||
| Loss on extinguishment of debt | 817,893 | 128,254 | ||||||
| Unrealized foreign exchange gain (loss) | 37,956 | (81,146 | ) | |||||
| Changes in non-cash working capital: | ||||||||
| Trade receivables, net | (48,804 | ) | (81,051 | ) | ||||
| Inventories | (3,631 | ) | (12,103 | ) | ||||
| Prepaid expense and deposits | (191 | ) | (35,880 | ) | ||||
| Trade payables and accruals | 536,454 | 554,903 | ||||||
| Deferred revenue | 114,716 | (68,374 | ) | |||||
| Operating lease liabilities | (8,555 | ) | 1,844 | |||||
| Net cash used in operating activities | (439,361 | ) | (248,239 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuing shares | 100,031 | - | ||||||
| Payments on notes payable | (7,531 | ) | - | |||||
| Proceeds from notes payable | 434,202 | 275,000 | ||||||
| Net cash provided by financing activities | 526,702 | 275,000 | ||||||
| Effect of exchange rate changes on cash | (207 | ) | - | |||||
| Net increase (decrease) in cash | 87,134 | 26,761 | ||||||
| Cash at beginning of period | 25,494 | 5,059 | ||||||
| Cash at the end of the period | $ | 112,628 | $ | 31,820 | ||||
| Supplemental Cash Flow Information (Note 18) | ||||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
| 8 |
DSG GLOBAL, INC.
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 DSG Tag Systems Inc. (“DSG”), 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 TAG formed DSG Tag Systems International, Ltd., a in the United Kingdom company (“DSG UK”). DSG UK is a wholly owned subsidiary of DSG TAG.DSG.
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. On May 23, 2019, the Company approved to increase its authorized common stock to 150,000,000, 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, 2020, the Company has a working capital deficit of $11,180,837 and has an accumulated deficit of $51,257,795 since inception. Furthermore, the Company incurred a net loss of $6,124,854 and used $439,361 of cash flows for operating activities during the six months ended June 30, 2020. 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 interim 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 interim 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, 2016.2019. 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, 20162019 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, 20172020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2020.
| 9 |
Principles of Consolidation
The interim condensed consolidated financial statements include the accounts of DSG Global Inc. and its subsidiarywholly-owned subsidiaries DSG, TAG.,Vantage Tag Systems, Inc. and its wholly owned subsidiary DSG UK.UK (collectively referred to as the “Company”). All material intercompany accounts, transactions and transactionsprofits were eliminated on consolidation.in the interim condensed consolidated financial statements..
Use of Estimates
The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimatesActual results could differ from those estimates. Estimates and assumptions related to the allowance for doubtful accounts, valuation of inventory, fair value and estimated useful life of long-lived assets, fair value of convertible loans and derivative liabilities, fair-value of share-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilitiesare reviewed periodically, and the accrualeffects of costs and expenses thatrevisions are not readily apparent from other sources. The actual results experienced byreflected in the Company may differ materially and adversely fromcondensed consolidated financial statements in the Company’s estimates. Toperiod they are determined. There were no new estimates in 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)
Accounts Receivable
All trade receivables are due thirty days from the date billed. If the funds are not received within thirty days the customer is contacted to arrange payment. The Company uses the allowance method to account for uncollectable trade receivables.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows:
As of September 30, 2017, and December 31, 2016, property and equipment consisted of the following:
| September 30, 2017 | December 31, 2016 | |||||||
| Office furniture and equipment | $ | 21,560 | $ | 20,838 | ||||
| Computer equipment | 28,352 | 23,317 | ||||||
| Accumulated depreciation | (47,879 | ) | (39,414 | ) | ||||
| $ | 2,033 | $ | 4,741 | |||||
As of September 30, 2017, and December 31, 2016, rental equipment consisted of the following:
| September 30, 2017 | December 31, 2016 | |||||||
| Tags | $ | 134,385 | $ | 122,935 | ||||
| Text | 29,701 | 27,171 | ||||||
| Touch | 24,603 | 22,507 | ||||||
| Accumulated depreciation | (167,721 | ) | (129,850 | ) | ||||
| $ | 20,968 | $ | 42,763 | |||||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in Canada. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Risks and Uncertainties
The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.period.
Recently IssuedAdopted Accounting Pronouncements
In June 2016, FASB issued ASU 2016-13, For fiscal years beginning after December 15, 2018:Measurement of Credit Loss on financial Instruments. ASU 2016-13 replaces the current incurred loss impairment methodology with the expected credit loss impairment model, which requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses over the life of the instrument instead of only when losses are incurred. This standard applies to financial assets measured at amortized cost basis and investments in leases recognized by the lessor. The Company adopted ASU 2016-13 on January 1, 2020 with no impact on the interim condensed consolidated financial statements.
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 futureinterim condensed consolidated financial statements.
Going Concern
These condensed consolidated interim financial statements have been prepared on a going concern basis, which imply the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, on the ability of the Company to grow its revenue base, on its ability to successfully grow the companies in which it is invested, and on the ability of the Company to obtain necessary equity financing to both support the latter objectives and to invest in and grow new companies. The Company has recurring losses since inception, and incurred a net loss of $1,913,751 during the period ended September 30, 2017, and had accumulated losses of $28,927,197 and a working capital deficit of $6,976,250 as at September 30, 2017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Although there are no assurances that management’s plans will be realized, management believes that the Company will be able to continue operations into the future. These condensed consolidated interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3 – ACCOUNTS RECEIVABLE
September 30, 2017 | December 31, 2016 | |||||||
| Trade accounts receivable | $ | 132,171 | $ | 137,327 | ||||
| Allowance for bad debts | (19,718 | ) | (47,289 | ) | ||||
| Total trade accounts receivable, net | $ | 112,453 | $ | 90,038 | ||||
| 10 |
DSG GLOBAL, INC.Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNote 4 – TRADE RECEIVABLES, NET
SEPTEMBER
As of June 30, 20172020 and December 31, 2019, trade receivables consist of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Accounts receivables | $ | 118,301 | $ | 82,927 | ||||
| Allowance for doubtful accounts | (13,346 | ) | (8,134 | ) | ||||
| Total trade receivables, net | $ | 104,955 | $ | 74,793 | ||||
(UNAUDITED)Note 5 – FIXED ASSETS AND EQUIPMENT ON LEASE
As of June 30, 2020 and December 31, 2019, fixed assets consisted of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Computer equipment | $ | 25,787 | $ | 27,025 | ||||
| Right-of-use lease asset | - | 178,202 | ||||||
| Accumulated depreciation | (24,778 | ) | (65,404 | ) | ||||
| $ | 1,009 | $ | 139,823 | |||||
| 11 |
As of June 30, 2020 and December 31, 2019, equipment on lease consisted of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Tags | $ | 121,004 | $ | 126,817 | ||||
| Text | 26,747 | 28,029 | ||||||
| Touch | 22,154 | 23,218 | ||||||
| Accumulated depreciation | (168,979 | ) | (176,607 | ) | ||||
| $ | 926 | $ | 1,457 | |||||
For the three and six months ended June 30, 2020, total depreciation expense for fixed assets was $339 and $688, respectively (2019 - $1,557 and $2,135, respectively) and is included in general and administration expense. For the three and six months ended June 30, 2020, total depreciation for right-of-use assets was $6,024 and $23,345, respectively (2019 - $9,036 and $18,072, respectively) and is included in general and administration expense as operating lease expense.
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 | |||||
As of June 30, 2020 and December 31, 2019, intangible assets consist of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Intangible asset – Patent | $ | 22,353 | $ | 22,353 | ||||
| Accumulated depreciation | (8,906 | ) | (8,292 | ) | ||||
| $ | 13,447 | $ | 14,061 | |||||
The estimated useful life of the patent is 20 years. Patents are amortized on a straight-line basis. For the three and six months ended June 30, 2020, total amortization expense was $307 and $614, respectively (2019 - $307 and $614, 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, 2020 and December 31, 2019, trade and other payables consist of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Accounts payable and accrued expenses | $ | 1,435,479 | $ | 1,334,685 | ||||
| Accrued interest | 1,274,471 | 992,755 | ||||||
| Other liabilities | 61,979 | 17,893 | ||||||
| Total payables | $ | 2,771,929 | $ | 2,345,333 | ||||
| 12 |
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, 2020 and December 31, 2019, loans payable consisted of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Unsecured loan payable, due on demand, interest at 18% per annum | $ | 317,500 | $ | 317,500 | ||||
| Unsecured loan payable, due on demand, interest 10% per annum, with a minimum interest amount of $25,000 | 250,000 | 250,000 | ||||||
| Unsecured share-settled debt, due on May 7, 2019, non-interest bearing(a) | - | 214,286 | ||||||
| Unsecured loan payable in the amount of CDN$10,000, due on demand, non-interest bearing | - | 7,683 | ||||||
| Unsecured loan payable in the amount of CDN$40,000, due on or before December 31, 2025(b) | 29,324 | |||||||
| Unsecured loan payable in the amount of CDN$40,000, due on or before December 31, 2025 (c) | 29,323 | |||||||
| Unsecured loan payable, due on May 21, 2022, interest at 1% per annum(d) | 30,065 | - | ||||||
| Secured loan payable, due on June 5, 2050, interest at 3.75% per annum(e) | 150,000 | - | ||||||
| 806,212 | 789,469 | |||||||
| Current portion | (577,522 | ) | (789,469 | ) | ||||
| Loans payable | $ | 228,690 | $ | - | ||||
| (a) | On March 8, 2019, the Company entered into a convertible bridge loan agreement (the “Share-Settled Loan”). The Share-Settled Loan initially bore 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. The Share-Settled Loan was not repaid on May 7, 2019 and is in default. Effective September 1, 2019, interest was reduced to 2% per month and effective December 1, 2019, the loan became non-interest bearing. On April 23, 2020, the Company received notice to settle the debt for 3,061,224 shares of common stock at $0.049 per share, a 30% discount to market. As at June 30, 2022, 612,244 shares have been issued and 2,448,980 remain to be issued. |
| (b) | On April 17, 2020, the Company received a loan in the principal amount of CDN$40,000 under the Canada Emergency Business Account program. The loan is non-interest bearing and eligible for CDN$10,000 forgiveness if repaid paid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest at 5% per annum and is due on December 31, 2025. |
| (c) | On April 21, 2020, the Company received a loan in the principal amount of CDN$40,000 under the Canada Emergency Business Account program. The loan is non-interest bearing and eligible for CDN$10,000 forgiveness if repaid paid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest at 5% per annum and is due on December 31, 2025. |
| (d) | On May 21, 2020, the Company received a loan in the principal amount of $30,065 under the Paycheck Protection Program. The loan bears interest at 1% per annum and is due on May 21, 2022 with payments deferred for the first six months of the term. |
| (e) | On June 5, 2020, the Company received a loan in the principal amount of $150,000. The loan bears interest at 3.75% per annum and is due on June 5, 2050. The loan is secured by all tangible and intangible assets of Company. Fixed payments of $731 are due monthly and begin 12 months from the date of the loan. |
Note 79 – CONVERTIBLE NOTES
As of June 30, 2020 and December 31, 2019, convertible loans payable consisted of the following:
Related PartyConvertible Notes 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 former director of the |
| (b) | On |
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 7 – CONVERTIBLE NOTES (continued)
Third Party Notes
On May 7, 2017, the Company triggered an event of default, under Section 6(a)(i) of the convertible note agreement with the Lender dated November 7, 2016, by failing to repay the full principal amount and all accrued interest. The entire principal amount of the loan is due on demand and shall continue to accrue interest at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the note is repaid in full.
On May 8, 2017, the Company issued 100,000 common shares for the conversion of $5,000 of the $72,500 convertible note dated November 7, 2016. Refer to Note 9.
On May 24, 2017, the Company issued 210,000 common shares for the conversion of $10,500 of the $72,500 convertible note dated November 7, 2016. Refer to Note 9.
On May 25, 2017, the Lender provided conversion notice for the remaining principal $57,000 of the $72,500 convertible note dated November 7, 2016. This conversion was not processed by the Company’s transfer agent due to direction from the Company not to honor any further conversion notices from the Lender. In response, the Company received legal notification pursuant to the refusal to process further conversion notices, see note 14.
As at September 30, 2017, the carrying value of the debenture was $245,889 (December 31, 2016 - $82,056) and the fair value of the derivative liability was $145,000 (December 31, 2016 - $365,944). During the nine months ended September 30, 2017, the Company had accreted $179,333 (2016 - $nil) of the debt discount to interest expense.
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 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.
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.
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.
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.
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 $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.
On May 17, 2017, the Company issued 3,000,000 common shares for the conversion of $150,000 of the principal pursuant to a debt settlement and subscription agreement as described in note 9.
| (c) | On November 7, 2016, the Company entered into a securities purchase agreement with a non-related party. Pursuant to the agreement, the Company was provided with proceeds of $125,000 on November 10, 2016 in exchange for the issuance of a secured convertible promissory note in the principal amount of $138,889, which was inclusive of an 8% original issue discount and bears interest at 8% per annum to the holder. The convertible promissory note matures nine months from the date of issuance and is convertible at the option of the holder into our common shares at a price per share that is the lower of $480 or the closing price of the Company’s common stock on the conversion date. In addition, under the same terms, the Company also issued a secured convertible note of $50,000 in consideration for proceeds of $10,000 and another secured convertible note of $75,000 in consideration for proceeds of $10,000. Under the agreements, the Company has the right to redeem $62,500 and $40,000 of the notes for consideration of $1 each at any time prior to the maturity date in the event that the convertible promissory note is exchanged or converted into a revolving credit facility with the lender, whereupon the two $10,000 convertible note balances shall be rolled into such credit facility. |
| On May 7, 2017, the Company triggered an event of default in the convertible note by failing to repay the full principal amount and all accrued interest on the due date. The entire convertible note payable became due on demand and would accrue interest at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the convertible note payable was repaid in full. | |
| On May 8, 2017, the Company issued 25 common shares for the conversion of $5,000 of the $72,500 convertible note dated November 7, 2016. On May 24, 2017, the Company issued 53 common shares for the conversion of $10,500 of the $72,500 convertible note dated November 7, 2016. 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. Refer to Note 17. | |
| During the year ended December 31, 2019, the Company issued 72,038 common shares with a fair value of $59,097 for the conversion of $32,000 of principal resulting in a loss on settlement of debt of $27,097. | |
| During the six months ended June 30, 2020, the Company issued 53,764 common shares with a fair value of $53,226 for the conversion of $20,000 of principal resulting in a loss on settlement of debt of $33,226. | |
| As at June 30, 2020, the carrying value of the note was $193,889 (December 31, 2019 - $213,889) and the fair value of the derivative liability was $635,721 (December 31, 2019 - $360,718). |
| 13 |
| (d) | On June 5, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. As at June 30, 2020, the carrying value of the note was $9,487 (December 31, 2019 - $9,487), relating to an outstanding penalty. |
| (e) | On July 17, 2017, the Company issued a convertible promissory note in the principal amount of $135,000. The note is unsecured, bears interest at 10% per annum, is due on July 17, 2018, and is convertible into common shares at a conversion price equal to the lessor of (i) 55% multiplied by the lowest trading price during the previous twenty trading day period ending on the latest complete trading day prior to the date of this note and (ii) $244. Interest will be accrued and payable at the time of promissory note repayment. Financing fees on the note were $16,500. Derivative liability applied as discount on the note was $118,500 and is accreted over the life of the note. |
| As at June 30, 2020, the carrying value of the note was $81,470 (December 31, 2019 - $81,470) and the fair value of the derivative liability was $326,243 (December 31, 2019 - $111,990). | |
| (f) | In January 2018, the Company issued a convertible promissory note in the principal amount of $15,000 as a commitment fee. The note is unsecured, non-interest bearing until default, was due on August 16, 2018, and is convertible into common shares at a conversion price equal to 75% of the average closing trading price during the previous five trading days prior to conversion date, with a minimum of $0.20. |
| 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, 2020, the carrying value of the note was $5,000 (December 31, 2019 - $5,000) and the fair value of the derivative liability was $3,292 (December 31, 2019 - $2,601). | |
| (g) | 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 February 8, 2019. The note is convertible into common shares at a 32% discount to the lowest intra-day trading price of the Company’s common stock for the ten trading days immediately preceding the conversion date. |
| During the six months ended June 30, 2020, the Company issued 736,000 common shares with a fair value of $117,940 for the conversion of $34,316 principal and accrued interest resulting in a loss on settlement of debt of $83,624. | |
| As at June 30, 2020, the carrying value of the note was $38,236 (December 31, 2019 - $51,500) and the fair value of the derivative liability was $43,759 (December 31, 2019 - $48,918). During the six months ended June 30, 2020, the Company accreted $Nil (2019 - $7,277) of the debt discount to finance costs. | |
| (h) | 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 was due on February 28, 2019. The note is convertible into common shares at a 32% discount to the lowest intra-day trading price of the Company’s common stock for the ten trading days immediately preceding the conversion date. |
| As at June 30, 2020, the carrying value of the note was $180,000 (December 31, 2018 - $180,000) and the fair value of the derivative liability was $290,524 (December 31, 2019 - $169,234). During the six months ended June 30, 2020, the Company accreted $Nil (2019 - $38,478) of the debt discount to finance costs. | |
| (i) | On June 18, 2018, the Company reassigned convertible note balances from the original lender to 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 lesser of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory note; or (ii) the latest complete trading day prior to the conversion date. Interest is accrued will be and payable at the time of promissory note repayment. The remaining derivative liability applied as a discount on the reassigned note was $25,824 and is accreted over the remaining life of the note. |
| During the year ended December 31, 2019, the Company issued 234,350 common shares with a fair value of $268,614 for the conversion of $63,012 of principal and $9,671 of accrued interest resulting in a loss on settlement of debt of $195,931. | |
| During the six months ended June 30, 2020, the Company issued 258,000 common shares with a fair value of $30,960 for the conversion of $7,166 of principal and accrued interest resulting in a loss on settlement of debt of $23,794. | |
| As at June 30, 2020, the carrying value of the note was $33,582 (December 31, 2019 - $39,037) and the fair value of the derivative liability was $82,875 (December 31, 2019 - $21,869). |
| 14 |
| (j) | 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. Pursuant to this agreement, the seller desired 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, 2020, $413,590 in principal and accrued interest had been assigned to the purchaser. |
| The note is unsecured, bears interest at 12% per annum, is due 184 days upon receipt, and is convertible into common shares after 180 days from issuance date 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. | |
| As at June 30, 2020, the carrying value of the note was $413,590 (December 31, 2019 - $413,590). The fair value of the derivative liability was $665,496 (December 31, 2019 - $181,870). | |
| (k) | On May 7, 2019, the Company entered into a secured convertible promissory note agreement with an unrelated party. The note is secured by an unconditional first priority interest in and to, any and all property of the Company and its subsidiaries, of any kind or description, tangible or intangible, whether now existing or hereafter arising or acquired until the balance of all Notes has been reduced to $Nil. The note bears interest at 10% per annum, each tranche matures 12 months from the funding date and is convertible into common shares at the holder’s discretion at a conversion price equal to 62% of the lowest trading price of the Company’s common stock during the 10 trading days immediately preceding the conversion of the note. |
| The note was funded in four tranches on May 7, 2019, June 28, 2019, July 8, 2019 and August 8, 2019, totaling $250,420. Proceeds from the note were paid directly to a former lender as an inducement for entering into a debt assignment arrangement. The $250,420 inducement is recorded to finance costs for the year ended December 31, 2019. | |
| Deferred financing fees and original issuance discount on the note were $26,765. The derivative liability applied as a discount on the note was $250,420 and is accreted over the life of the note. | |
| As at June 30, 2020, the carrying value of the note was $239,956 (December 31, 2019 - $124,695) and the fair value of the derivative liability was $366,333 (December 31, 2019 - $323,514). During the six months ended June 30, 2020, the Company accreted $115,261 (2019 - $9,605) of the debt discount to finance costs. | |
| (l) | On July 30, 2019, the Company issued a convertible promissory note in the principal amount of $220,000. The note is unsecured, bears interest at 10% per annum, is due on July 30, 2020, and is convertible into common shares at a conversion price equal to the lesser of (i) 60% of the lowest trading price during the previous twenty trading days prior to the issuance date, or (ii) the lowest trading price for the Common Stock during the twenty day period ending one trading day prior to conversion of the note. Deferred financing fees and original issuance discount on the note were $23,500. The derivative liability applied as a discount on the note was $196,500 and is accreted over the life of the note. |
| During the six months ended June 30, 2020, the Company issued 2,450,970 common shares with a fair value of $677,157 for the conversion of $163,000 of principal resulting in a loss on settlement of debt of $509,157. | |
| As at June 30, 2020, the carrying value of the note was $38,917 (December 31, 2019 - $92,219) and the fair value of the derivative liability was $195,521 (December 31, 2019 - $284,734). During the six months ended June 30, 2020, the Company accreted $109,699 (2019 - $Nil) of the debt discount to finance costs. | |
| (m) | On September 4, 2019, the Company issued a convertible promissory note in the principal amount of $137,500. The note is unsecured, bears interest at 10% per annum, is due on June 3, 2020, and is convertible during the first 180 calendar days from the issuance date at a price of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before conversion. Deferred financing fees and original issuance discount on the note were $16,000. The derivative liability applied as a discount on the note was $121,500 and is accreted over the life of the note. |
| 15 |
| In connection with the note, the Company granted 100,000 warrants to the lender. Each warrant can be exercised to purchase shares of common stock of the Company at a price of $0.75 per warrant for a period of five years. As the entire net proceeds of $121,500 were first allocated to the derivative liability which is measured at fair value on a recurring basis, the residual value of $Nil was allocated to the equity-classified warrants. | |
| During the six months ended June 30, 2020, the Company issued 611,111 common shares with a fair value of $116,111 for the conversion of $27,000 of principal and accrued interest resulting in a loss on settlement of debt of $89,111. | |
| As at June 30, 2020, the carrying value of the note was $117,500 (December 31, 2019 - $43,322) and the fair value of the derivative liability was $327,527 (December 31, 2019 - $173,596). During the six months ended June 30, 2020, the Company accreted $94,178 (2019 - $Nil), of the debt discount to finance costs. | |
| (n) | On September 19, 2019, the Company issued a convertible promissory note in the principal amount of $55,000. The note is unsecured, bears interest at 10% per annum, is due on September 19, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before conversion. Deferred financing fees and original issuance discount on the note were $7,000. The derivative liability applied as a discount on the note was $48,000 and is accreted over the life of the note. |
| During the six months ended June 30, 2020, the Company issued 570,000 common shares with a fair value of $48,650 for the conversion of $18,371 of principal resulting in a loss on settlement of debt of $30,279. | |
| As at June 30, 2020, the carrying value of the note was $24,423 (December 31, 2019 - $15,370) and the fair value of the derivative liability was $109,338 (December 31, 2019 - $70,052). During the six months ended June 30, 2020, the Company accreted $27,425 (2019 - $Nil), of the debt discount to finance costs. | |
| (o) | On September 19, 2019, the Company issued a convertible promissory note in the principal amount of $141,900. The note is unsecured, bears interest at 10% per annum, is due on September 19, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before conversion. Deferred financing fees and original issuance discount on the note were $16,400. The derivative liability applied as a discount on the note was $125,500 and is accreted over the life of the note. |
| In connection with the note, the Company granted 113,250 warrants to the lender. Each warrant can be exercised to purchase shares of common stock of the Company at a price of $0.75 per warrant for a period of five years. As the entire net proceeds of $125,500 were first allocated to the derivative liability which is measured at fair value on a recurring basis, the residual value of $Nil was allocated to the equity-classified warrants. | |
| During the six months ended June 30, 2020, the Company issued 298,606 common shares with a fair value of $56,735 for the conversion of $12,653 of principal and accrued interest resulting in a loss on settlement of debt of $44,082. | |
| As at June 30, 2020, the carrying value of the note was $98,899 (December 31, 2019 - $40,043) and the fair value of the derivative liability was $377,929 (December 31, 2019 - $190,246). During the six months ended June 30, 2020, the Company accreted $70,756 (2019 - $Nil), of the debt discount to finance costs. | |
| (p) | On October 2, 2019, the Company issued a convertible promissory note in the principal amount of $82,500. The note is unsecured, bears interest at 10% per annum, is due on September 30, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before conversion. Deferred financing fees and original issuance discount on the note were $9,500. The derivative liability applied as a discount on the note was $73,000 and is accreted over the life of the note. |
| In connection with the note, the Company granted 83,333 warrants to the lender. Each warrant can be exercised to purchase shares of common stock of the Company at a price of $0.75 per warrant for a period of five years. As the entire net proceeds of $73,000 were first allocated to the derivative liability which is measured at fair value on a recurring basis, the residual value of $Nil was allocated to the equity-classified warrants. |
| 16 |
| As at June 30, 2020, the carrying value of the note was $61,931 (December 31, 2019 - $20,795) and the fair value of the derivative liability was $239,109 (December 31, 2019 - $105,790). During the six months ended June 30, 2020, the Company accreted $41,137 (2019 - $Nil), of the debt discount to finance costs. | |
| (q) | During the year ended December 31, 2019, a convertible promissory note with an outstanding principal balance of $226,000 was assigned to another unrelated party with no changes to the terms of the note upon assignment. The note is unsecured, bears interest at 12% per annum, was 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. |
| As at June 30, 2020, the carrying value of the note was $226,000 (December 31, 2019 - $226,000) and the fair value of the derivative liability was $383,346 (December 31, 2019 - $289,462). | |
| (r) | During the year ended December 31, 2019, a convertible promissory note with an outstanding principal balance of $258,736 was assigned to another unrelated party with no changes to the terms of the note upon assignment. The note is unsecured, bears interest at 12% per annum, was due on September 19, 2018 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. |
| As at June 30, 2020, the carrying value of the note was $258,736 (December 31, 2019 - $258,736) and the fair value of the derivative liability was $463,421 (December 31, 2019 - $351,774). | |
| (s) | During the year ended December 31, 2019, a convertible promissory note with an outstanding principal balance of $137,500 was assigned to another unrelated party with no changes to the terms of the note upon assignment. The note is unsecured, bears interest at 12% per annum, was 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. |
| As at June 30, 2020, the carrying value of the note was $137,500 (December 31, 2019 - $137,500) and the fair value of the derivative liability was $226,113 (December 31, 2019 - $170,201). | |
| (t) | On February 10, 2020, the Company issued a convertible promissory note in the principal amount of $119,600. The note is unsecured, bears interest at 10% per annum, is due on February 10, 2021, and is convertible into common shares of the Company, beginning 180 days from the date of the note up to maturity or repayment, at a price equal to 80% of the average of the lowest two trading prices for the common stock during the fifteen trading days before conversion. Deferred financing fees and original issuance discount on the note were $22,135. The derivative liability applied as a discount on the note was $97,465 and is accreted over the life of the note. |
| As at June 30, 2020, the carrying value of the note was $46,202 (December 31, 2019 - $Nil) and the fair value of the derivative liability was $241,820 (December 31, 2019 - $Nil). During the six months ended June 30, 2020, the Company accreted $46,202 (2019 - $Nil), of the debt discount to finance costs. | |
| (u) | On March 2, 2020, the Company issued a convertible promissory note in the principal amount of $60,950. The note is unsecured, bears interest at 10% per annum, is due on March 2, 2021, and is convertible into common shares of the Company, beginning 180 days from the date of the note up to maturity or repayment, at a price equal to 80% of the average of the lowest two trading prices for the common stock during the fifteen trading days before conversion. Deferred financing fees and original issuance discount on the note were $10,950. The derivative liability applied as a discount on the note was $50,000 and is accreted over the life of the note. |
| As at June 30, 2020, the carrying value of the note was $20,039 (December 31, 2019 - $Nil) and the fair value of the derivative liability was $119,108 (December 31, 2019 - $Nil). During the six months ended June 30, 2020, the Company accreted $20,038 (2019 - $Nil), of the debt discount to finance costs. | |
| (v) | On April 15, 2020, the Company issued a convertible promissory note in the principal amount of $60,950. The note is unsecured, bears interest at 10% per annum, is due on April 15, 2021, and is convertible into common shares of the Company, beginning 180 days from the date of the note up to maturity or repayment, at a price equal to 80% of the average of the lowest two trading prices for the common stock during the fifteen trading days before conversion. Deferred financing fees and original issuance discount on the note were $10,950. The derivative liability applied as a discount on the note was $50,000 and is accreted over the life of the note. |
| As at June 30, 2020, the carrying value of the note was $12,691 (December 31, 2019 - $Nil) and the fair value of the derivative liability was $128,868 (December 31, 2019 - $Nil). During the six months ended June 30, 2020, the Company accreted $12,691 (2019 - $Nil), of the debt discount to finance costs. |
| 17 |
Note 10 – DERIVATIVE LIABILITIES
The following range of inputs and assumptions were used to value the derivative liabilities outstanding during the six months ended June 30, 2020 and year ended December 31, 2019, assuming no dividend yield:
| June 30, 2020 | December 31, 2019 | |||||||
| Expected volatility | 243 - 298 | % | 176 - 374 | % | ||||
| Risk free interest rate | 0.1 - 0.2 | % | 1.6 - 2.6 | % | ||||
| Expected life (years) | 0.25 - 0.92 | 0.25 - 2.0 |
A summary of the activity of the derivative liabilities is shown below:
| Balance, December 31, 2018 | $ | 2,188,354 | ||
| New issuances | 939,919 | |||
| Change in fair value | (271,704 | ) | ||
| Balance, December 31, 2019 | 2,856,569 | |||
| New issuances | 197,465 | |||
| Change in fair value | 2,172,309 | |||
| Balance, June 30, 2020 | $ | 5,226,343 |
Note 11 - LEASES
The Company leases certain assets under lease agreements. On April 1, 2020, the Company terminated its showroom space lease, resulting in a gain of $11,294 which is included in general and administrative expense. On May 31, 2020, the Company’s office leases expired.
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 consolidated balance sheet.
| Right-of-use assets | June 30, 2020 | December 31, 2019 | ||||||
| Cost | $ | - | $ | 178,202 | ||||
| Accumulated depreciation | - | (39,671 | ) | |||||
| $ | - | $ | 138,531 | |||||
As of June 30, 2020, the Company has no future minimum lease payments
Operating lease expense for the three and six months ended June 30, 2020 was $6,115 and $27,360, respectively (2019 - $8,317 and $18,741, respectively) and is recorded in general and administration expense.
| 18 |
Note 812 – MEZZANINE EQUITY
DSG TAG has 150,000,000Authorized
5,000,000 shares of undesignatedredeemable Series C preferred stockshares, authorized, each having a par value of $0.001 asper share. Each share of SeptemberSeries C preferred shares is convertible into 10 shares of common stock.
1,000,000 shares of 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 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.
Mezzanine Preferred Equity Transactions
During the six months ended June 30, 2017 and2020, the Company did not have any mezzanine equity transactions.
During the year ended December 31, 2016. DSG TAG designated 5,000,0002019:
| ● | The Company settled various accounts payable balances, debt and preferred shares in exchange for shares of common stock to be issued and warrants. Included in these settlements were 100,500 and 4,649,908 shares of Series D and Series E preferred shares, respectively, with an aggregate carrying value of $6,668,643. |
Note 13 – PREFERRED STOCK
Authorized
3,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014. The Series A Shares have no general voting rights and carry a 5% per annum interest rate. Series A Shares that are converted to common shares are entitled to the same voting rights as other common shareholders. At any time on or after the issuance date any holder of Series A Shares may convert to common stock based on predetermined conversion pricepreferred shares authorized, each having a par value of $1.25$0.001 per share.
10,000 shares of Series B convertible preferred shares authorized, each having a par value of $0.001 per share. TheEach share of Series B convertible preferred shares are recorded inis convertible into 100,000 shares of common stock.
Preferred Stock Transactions
During the consolidated financial statements as Mezzanine Equity. The Series A Shares are subject to a redemption obligation at $1.25 per share pursuant to the following terms:six months ended June 30, 2020:
| ● | On |
During the year ended December 31, 2019:
| ● | The Company settled various accounts payable balances, debt and preferred shares in exchange for shares of common stock to be issued and warrants. Included in these settlements were 132 shares of Series B Preferred Stock with a | |
| ● | On |
| 19 |
Note 14 – COMMON STOCK AND ADDITIONAL PAID IN CAPITAL
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. Each share of common stock is entitled to one (1) vote.
Common Stock Transactions
During the six months ended June 30, 2020:
| ● | The Company issued an aggregate of 191,865 shares of common stock for | |
| ● | ||
| ● | The Company issued an aggregate of | |
| ● | The Company issued 612,244 shares of common stock with a value of $42,857 for share-settled debt. | |
| ● | The Company issued an aggregate of 4,978,451 shares of common stock with a fair value of $1,100,779 upon the conversion of $282,506 of convertible debentures and |
| Date issued | Common shares issued (#) | Fair value(1) | Converted balance(2) | Loss on conversion | ||||||||||||
| January 7, 2020 | 53,764 | $ | 53,226 | $ | 20,000 | $ | (33,226 | ) | ||||||||
| February 4, 2020 | 135,802 | 127,654 | 19,500 | (108,154 | ) | |||||||||||
| February 7, 2020 | 151,234 | 142,160 | 24,000 | (118,160 | ) | |||||||||||
| February 26, 2020 | 151,515 | 45,455 | 19,500 | (25,955 | ) | |||||||||||
| February 26, 2020 | 140,151 | 39,242 | 18,000 | (21,242 | ) | |||||||||||
| March 9, 2020 | 170,000 | 27,200 | 13,090 | (14,110 | ) | |||||||||||
| March 9, 2020 | 195,547 | 68,441 | 12,500 | (55,941 | ) | |||||||||||
| March 11, 2020 | 180,505 | 63,177 | 11,500 | (51,677 | ) | |||||||||||
| April 1, 2020 | 140,000 | 9,800 | 3,889 | (5,911 | ) | |||||||||||
| April 1, 2020 | 220,000 | 15,400 | 6,166 | (9,234 | ) | |||||||||||
| April 2, 2020 | 218,678 | 16,379 | 6,500 | (9,879 | ) | |||||||||||
| April 21, 2020 | 264,026 | 24,649 | 7,500 | (17,149 | ) | |||||||||||
| May 15, 2020 | 258,000 | 30,960 | 7,166 | (23,794 | ) | |||||||||||
| May 19, 2020 | 426,000 | 80,940 | 17,338 | (63,602 | ) | |||||||||||
| May 19, 2020 | 675,675 | 100,000 | 29,500 | (70,500 | ) | |||||||||||
| May 19, 2020 | 350,000 | 33,250 | 12,205 | (21,045 | ) | |||||||||||
| May 19, 2020 | 337,837 | 50,000 | 14,500 | (35,500 | ) | |||||||||||
| May 21, 2020 | 298,606 | 56,735 | 12,653 | (44,082 | ) | |||||||||||
| May 21, 2020 | 611,111 | 116,111 | 27,000 | (89,111 | ) | |||||||||||
| Total | 4,978,451 | $ | 1,100,779 | $ | 282,507 | $ | (818,272 | ) | ||||||||
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.
| (1) | Fair values are derived based on the closing price of the Company’s common stock on the date of the conversion notice. | |
| (2) | Converted balance includes portions of principal, accrued interest, financing fees, interest penalties and other fees converted upon the issuance of shares of common stock. |
DSG GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)During the year ended December 31, 2019:
Note 9 – COMMON STOCK
| ● | The Company issued an aggregate of 72,295 shares of common stock with a fair value of $63,437 in exchange for services. | |
| ● | The Company issued an aggregate of 32,000 shares of common stock with a fair value of $37,760 as partial settlement for accounts payable. | |
| ● | The Company issued an aggregate of 407,536 shares of common stock with a fair value of $506,468 upon the conversion of $180,642 of convertible debentures, accrued interest and accounts payable per the table below: |
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.
| Date issued | Common shares issued (#) | Fair value(1) | Converted balance(2) | Loss on conversion | ||||||||||||
| January 22, 2019 | 10,189 | $ | 28,527 | $ | 15,690 | $ | (12,837 | ) | ||||||||
| March 11, 2019 | 18,606 | 37,211 | 12,280 | (24,931 | ) | |||||||||||
| March 15, 2019 | 27,137 | 54,238 | 17,899 | (36,339 | ) | |||||||||||
| June 17, 2019 | 45,216 | 58,781 | 31,651 | (27,130 | ) | |||||||||||
| June 20, 2019 | 34,450 | 36,517 | 19,895 | (16,622 | ) | |||||||||||
| July 17, 2019 | 37,900 | 33,352 | 5,628 | (27,724 | ) | |||||||||||
| August 26, 2019 | 40,000 | 27,020 | 6,620 | (20,400 | ) | |||||||||||
| September 18, 2019 | 39,500 | 49,376 | 8,255 | (41,121 | ) | |||||||||||
| October 11, 2019 | 35,000 | 44,450 | 13,475 | (30,975 | ) | |||||||||||
| November 13, 2019 | 47,500 | 77,899 | 18,810 | (59,089 | ) | |||||||||||
| November 7, 2019 | 23,149 | 18,519 | 10,000 | (8,519 | ) | |||||||||||
| December 19, 2019 | 48,889 | 40,578 | 22,000 | (18,578 | ) | |||||||||||
| Total | 407,536 | $ | 506,468 | $ | 182,203 | $ | (324,265 | ) | ||||||||
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.
| (1) | Fair values are derived based on the closing price of the Company’s common stock on the date of the conversion notice. | |
| (2) | Converted balance includes portions of principal, accrued interest, accounts payable, financing fees and interest penalties converted upon the issuance of shares of common stock. |
Non-controllingInterestCommon stock to be issued
DSG TAG has 150,000,000Common stock to be issued as at June 30, 2020 consists of:
| ● | 2,448,980 shares valued at $171,429 to be issued pursuant to settlement of share-settled debt. |
Warrants
During the six months ended June 30, 2020, the Company granted 2,829,859 warrants with a contractual live of undesignated preferredfive years and exercise price of $0.25 per share in exchange for strategic advisory services. Warrants were valued at $465,248 using the Black Scholes Option Pricing Model with the assumptions outlined below. Expected life was determined based on historical exercise data of the Company.
| June 30, 2020 | ||||
| Risk-free interest rate | 0.88 | % | ||
| Expected life | 5.0 years | |||
| Expected dividend rate | 0 | % | ||
| Expected volatility | 266 | % | ||
Continuity of the Company’s common stock authorized, each having a parpurchase warrants issued and outstanding is as follows:
| Warrants | Weighted average exercise price | ||||||||
| Outstanding at year December 31, 2019 | 6,859,954 | $ | 0.77 | ||||||
| Granted | 2,829,859 | 0.25 | |||||||
| Exercised | - | - | |||||||
| Expired | - | - | |||||||
| Outstanding as at June 30, 2020 | 9,689,813 | $ | 0.62 | ||||||
As at June 30, 2020, the weighted average remaining contractual life of warrants outstanding was 3.19 years with an intrinsic 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 - $1,099,140).$Nil.
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, 2020, 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 $279,009 (December 31, 2019 - $263,409) 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, 2020 the Company incurred $100,000 (2019 - $100,000) in salaries to the President, CEO, and CFO of the Company.
As of Septemberat June 30, 2017,2020, the Company owes $nilowed $6,928 (CDN$9,450) (December 31, 20162019 - $1,526)$7,260 (CDN$9,450)) 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 11 – SUPPLEMENTAL INFORMATIONOn May 21, 2020, the Company issued an aggregate of 136 shares of Series B convertible preferred shares to various parties for past services to the Company, which included 122 issued to related parties and 2 issued to a former director of the Company. These preferred shares were valued at $767,040, based on the fair value of the underlying common stock, discounted for the six month hold period before the preferred shares can be converted. The issuance is recorded under compensation expense.
| 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 1216 – WARRANTY RESERVECOMMITMENTS
Product Warranties
The Company’s product warranty costs are part of its cost of sales based on associated material product costs, labor costs for technical support staff, and associated overhead. The products sold arepolicy generally covered by a warranty forcovers a period of one year. As of September 30, 2017,two years which is also covered by the manufacturer warranty. Thus, any warranty costs incurred by 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).are immaterial.
Indemnifications
In the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.
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, 2020, included in trade and other payables is $47,023 (December 31, 2019 - $40,227) 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. Coastal alleges that the Company failed to recoverdeliver 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. As at June 30, 2020 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 Breach of Contract with Superior Court of the State of California. The Complainant is alleging that it is contractually owed 1,848,130 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. The Company believesis currently in the vendors haveprocess of negotiating a settlement and no accrual has been recorded to date due to the uncertainty of the settlement amount.
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 performed duties requiredmore 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, 2020, JSJ has negotiated a reduced amount with a private investor. As at June 30, 2020, 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 18 – SUPPLEMENTAL CASH FLOW INFORMATION
| Six-months ended | ||||||||
| June 30, 2020 | June 30, 2019 | |||||||
| Cash paid during the period for: | ||||||||
| Income tax payments | $ | — | $ | — | ||||
| Interest payments | $ | — | $ | 2,513 | ||||
| Non-cash investing and financing transactions: | ||||||||
| Shares issued for convertible notes payable and accrued interest | $ | 1,100,779 | $ | 215,275 | ||||
| Shares issued and to be issued for share-settled debt | $ | 214,286 | $ | |||||
| Initial recognition of lease assets | $ | — | $51,203 | |||||
| Initial recognition of lease liabilities | $ | — | $47,118 | |||||
Note 1419 – SUBSEQUENT EVENTS
On November 16, 2017Management has evaluated events subsequent to the DSG Global Inc. Shareholder Report indicatedyear ended for transactions and other events that 60,727,920 shares had been issuedmay require adjustment of and/or disclosure in such consolidated financial statements.
The recent outbreak of the coronavirus, also known as “COVID-19”, has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to Cede & Co duringrapidly evolve and government authorities have implemented emergency measures to mitigate the monthsspread of Octoberthe virus. The outbreak and November 2017.the related mitigation measures may have an adverse impact on global economic conditions as well as on the Company’s business activities. The extent to which the coronavirus may impact the Company’s business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time.
Subsequent to June 30, 2020, the Company issued:
| ● | 500,000 shares of common stock for services provided by consultants; | |
| ● | 12,929,813 shares of common stock for conversion of debt and outstanding interest; |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based on, and should be read in conjunction with, the condensed, consolidated interim financial statements and the related notes thereto of DSG Global, Inc. contained in this Quarterly Report on Form 10-Q (this “Report”).
As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to DSG Global, Inc. a Nevada corporation, together with our consolidated subsidiaries,
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. 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 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 TAGTag Systems Inc. (“DSG”) and the shareholders of DSG TAG Systems who become parties to the agreement. Pursuant to the terms of the share exchange agreement, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares in the capital stock of DSG TAG Systems in exchange for the issuance to the selling shareholders of up to 20,000,000 pre-reverse split shares of our common stock on the basis of 1 common share for 5.4935 common shares of DSG TAG Systems.DSG.
On May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common shares of DSG TAG Systems as contemplated by the share exchange agreement by issuing 15,185,875 pre-reverse split shares of our common stock to shareholders of DSG TAG Systems who became parties to the agreement. In addition, concurrent with the closing of the share exchange agreement, we issued an additional 179,823 pre-reverse split shares of our common stock to Westergaard Holdings Ltd. in partial settlement of accrued interest on outstanding indebtedness of DSG TAG Systems.DSG.
Following the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of common stock of DSG TAG Systems from shareholders who became parties to the share exchange agreement and issued to these shareholders an aggregate of 18,422 pre-reverse split shares of our common stock. Following completion of these additional purchases, DSG Global Inc. owns approximately 100% of the issued and outstanding shares of common stock of DSG TAG Systems.DSG. An aggregate of 4,229,384 shares of Series A Convertible Preferred Stock of DSG TAG Systems continues to be heldwere exchanged for 51 Series B and 3,000,000 Series E preferred shares during the year ended December 31, 2018 by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a formerprevious member of our board of directors.directors which have not been issued as of June 30, 2020.
The reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG Systems is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized. We adopted the business and operations of DSG TAG Systems upon the closing of the share exchange agreement.
Overview of Our Business
DSG Global, Inc. is a technology development company based in Surrey, British Columbia, Canada, engaged in, under the design, manufacture,brand name Vantage Tag Systems Inc. (“VTS”) provides patented electronic tracking systems and marketing of fleet management solutions to golf courses and other avenues that allow 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 fleetremote management technologies and have been at the forefront of the industry’s most innovative developments, and our executive team has over 50 years of experience in the design and manufacture of wireless, GPS, and fleet tracking solutions. We have developed the TAG suite of products that we believe is the first completely modular fleet management solution for the golf industry. The TAG suite of products is currently sold and installed around the world in golf facilities and as commercial applications through a network of established distributors and partnerships with some of the most notable brands in fleet and equipment manufacture.
DSG stands for “Digital Security Guard”, which is our primary value statement giving fleet operator’s new capabilities to track and control their vehicles. We have developed a proprietary combination of hardware and software that is marketed around the world as the TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course operators manage theircourse’s fleet of golf carts, turf equipment and utility vehicles. We areTheir clients use VTS’s unique technology to significantly reduce operational costs, improve the efficiency plus profitability of their fleet operations, increase safety, and enhance customer satisfaction. VTS has grown to become a leader in the category of fleet managementFleet Management in the golf industry, with its technology installed in vehicles worldwide. VTS is now aggressively branching into several new streams of revenue, through programmatic advertising, licensing and were awarded “Best Technology ofdistribution, as well as expanding into Commercial Fleet Management, PACER a single rider golf cart and Agricultural applications. Additional information is available at http://vantage-tag.com/
Ready Golf Ready: Our roots as a company are in golf, and our technology is changing the Year” in 2010 by Boardroom magazine, a publication of the Nationalway golf is being played and driving new revenue for courses.
| ● | Vantage TAG equipped golf carts enhance fleet management. |
| ● | Single rider carts speed up pace of play and drive rental revenue. |
| ● | Onboard touchscreens drive revenue and offer an enhanced course experience. |
| ● | Combination of technology and single rider carts has the ability to decrease average play time to 2:20 and drive numerous extra plays per hour. |
| ● | Our “Pennies A Day, Pennies A Round” model provides easy entry to leasing single-rider vehicles. |
In Development: DSG’s Infinity On-Board Screen Offers Gaming Revenue Potential
| ● | In the next 2 years, sports betting will generate $10B / licensed in 20+ States. |
| ● | In negotiations with leading mobile gaming developers. |
| ● | DSG’s existing infinity screens work with current gaming technology. |
Business Unit Overview: On Board Media
| ● | 38,000 courses globally. |
| ● | 26,000 courses capable of installing the DSG TAG SYSTEM with the TAG and INFINITIY. |
| ● | Courses with INFINITY screens in carts can generate $90,000 - $110,000 in additional revenue. |
| 25 |
| ● | Screens for free and own revenue generated by 250 golf courses. |
| ● | DSG single-rider golf cars are available in any quantity for most courses on a revenue share basis with no upfront cost to the golf course. |
| ● | Programmatic Advertising has the ability to increase revenue 4x more than standard advertising, an average increase of $200,000 - $300,000 per course. |
Business Unit Overview: TAG / Fleet Management Vantage Golf Course Owners Association. To date the TAG systemPotential:
| ● | 38,000 courses globally. |
| ● | 4 Million golf carts in the world market. |
| ● | DSG Tech on 300 courses now, with an additional 500 courses added in 2020 driving $15 million in sales. |
| ● | Key component of our “Pennies A Day, Pennies A Round” program. |
Vantage e-Rickshaw Potential:
| ● | Global three-wheelers market is projected to reach $39.9 billion by 2024. |
| ● | 11,000 new e-Rickshaws hit the streets every month, with annual sales expected to increase about 9 percent by 2021. |
| ● | Research on car-data-monetization trends and characteristics suggests that this value pool could be as large as $750 billion by 2030. |
| ● | DSG Global, Inc. has a strategic partnership in China to integrate Vantage TAG Systems with EVs, incorporating the Company’s advanced fleet management capabilities. |
Our most recent product that is installed on over 8,000 vehicles and has been used to monitor over 6,000,000 roundsincrease the Pace of golf.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.
| 26 |
The TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which can operate independently, we offer two golfer information display systems — the alphanumeric TEXT and high definition TOUCH — providing the operator with two display options which is unique in the industry.
The primary market for our TAG system is the 40,000 golf operations worldwide. While the golf industry remains the primary focusComponents of our sales and marketing efforts, we have completed several successful pilotsOur Results of the TAG system in other markets such as agriculture and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new markets.
We have a direct sales force in North America, which comprises the most significant portion of the golf fleet market, and have developed key relationships with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive sales for the North American and worldwide markets.
In order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier of our hardware units and components at competitive prices. Presently, we source our TOUCH units from one supplier in China and our TAG units from one supplier in the United Kingdom. We have recently established a new relationship with a supplier for our TOUCH units in China to provide us with higher quality, newer technology at competitive pricing. We are also exploring the opportunity of a partnership with a US manufacturer.
In addition, DSG is currently in negotiations with a telecommunications provider to provide new technology in hardware and wireless access.Operations
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 INFINITY).
Programmatic advertising revenue is a new source of revenue that we believe has the potential to be strategic for us in the future. We are in the process of implementing and designing software to provide advertising and other media functionality on our INFINITY units.
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred,it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the fee is fixed or determinable, and collectability is reasonably assured.consideration the Company expects to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. We accrue for warranty costs, sales returns, and other allowances based on its historical experience.
Our revenue recognition policies are discussed in more detail under “Note 23 – 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.10-K.
Cost of Revenue
Our cost of revenue consists primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and inventory adjustments.
Hardware purchases. Our equipment purchases consist primarily of TAG system control units, TEXT display, and INFINITY displays. The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or INFINITY high definition “touch activated” display. Hardware purchases also include costs of components used during installations, such as cables, mounting solutions, and other miscellaneous equipment.
Wireless data fees. Our wireless data fees consist primarily of the data fees charged by outside providers of GPS tracking used in all of our TAG system control units.
Mapping. Our mapping costs consist of aerial mapping, course map, geofencing, and 3D flyovers for golf courses. This cost is incurred at the time of hardware installation.
Installation. Our installation costs consist primarily of costs incurred by our employed service technicians for the cost of travel, meals, and miscellaneous components required during installations. In addition, these costs also include fees paid to external contractors for installations on a project by project basis.
Freight expenses and Inventory adjustments. Our freight expenses consist primarily of costs to ship hardware to courses for installations. Our inventory adjustments include inventory write offs, write downs, and other adjustments to the cost of inventory.
Operating expenses & other income (expenses) We classify our operating expenses and other income (expenses) into six categories: compensation, general and administrative, warranty, foreign currency exchange, and finance costs. Our operating expenses consist primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade shows, software development, and allocated costs. Allocated costs include charges for facilities, office expenses, telephones and other miscellaneous expenses. Our other income (expenses) primarily consists of financing costs and foreign exchange gains or losses.
Compensation expense. Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses, employee benefits and share-based payments to employees. This includes salaries for management, administration, engineering, sales and marketing, and service support technicians. Salaries and wages directly related to projects or research and development are expensed as incurred to their operating expense category.
General and administrative. Our general and administrative expenses consist primarily of sales and marketing, commissions, travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting and legal professional services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing, marketing materials, and media management.
Warranty expense (recovery). Our warranty expenses consist primarily of associated material product costs, 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.
Depreciation and amortization. Our depreciation and amortization costs consist primarily of depreciation and amortization on fixed assets, equipment on lease and intangible assets.
Foreign currency exchange. Our foreign currency exchange consists primarily of foreign exchange fluctuations recorded in Canadian dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
Finance costs. Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing charges for obtaining debt financing.
We expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings in new markets like commercial fleet management and agriculture.
Additional Capital
We require additional capital to continue to develop software and products, meet our contractual obligations, and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.
Results of Operations
Three Months Ended September 30, 2017
Revenues and Gross Profit
We recorded revenues of $303,151 and a gross profit of $182,079 during the three months ended September 30, 2017 compared to revenues of $243,469 and gross profit of $52,083 during the three months ended September 30, 2016. The increase is due to the fact that we recorded a one-time charge on impairment of inventory of $83,184 during fiscal 2016. Overall, our revenues are comparable to the prior year despite the fact that we have been forced to move to a 3G/4G GPS cellular device, require redevelopment of our advertising, and integrating our tournament software onto the TOUCH screen. Our company, along with the new sales team, is aggressively building its pipeline for continued growth into fiscal 2018.
Operating Expenses
For the three months ended September 30, 2017, we recorded operating expenses of $499,563 compared to operating expenses of $540,794 during the three months ended September 30, 2016. The decrease in operating expenses was attributed to the following:
Net LossResults of Operations
DuringThe following table summarizes key items of comparison and their related increase (decrease) for the three and six months ended June 30, 2020 and 2019:
| Three months ended | Increase (Decrease) | Six months ended | Increase (Decrease) | |||||||||||||||||||||
| 30-Jun-20 | 30-Jun-19 | 2020 – 2019 | 30-Jun-20 | 30-Jun-19 | 2020 – 2019 | |||||||||||||||||||
| ($) | ($) | (%) | ($) | ($) | (%) | |||||||||||||||||||
| Revenues | $ | 123,955 | 284,646 | -56.5 | % | $ | 274,167 | $ | 786,070 | -65.1 | % | |||||||||||||
| Cost of revenue | 50,085 | 32,886 | 52.3 | % | 78,651 | 338,954 | -76.8 | % | ||||||||||||||||
| Gross profit | 73,870 | 251,760 | -70.7 | % | 195,516 | 447,116 | -56.3 | % | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Compensation expense | 1,023,836 | 144,673 | 607.7 | % | 1,666,372 | 279,756 | 495.7 | % | ||||||||||||||||
| General and administrative expense | 191,962 | 212,974 | -9.9 | % | 716,709 | 449,766 | 59.4 | % | ||||||||||||||||
| Bad debt expense | 5,872 | (3,290 | ) | -278.5 | % | 15,220 | (1,866 | ) | -915.6 | % | ||||||||||||||
| Depreciation and amortization expense | 646 | 1,864 | -65.3 | % | 1,302 | 2,749 | -52.6 | % | ||||||||||||||||
| Total operating expenses | 1,222,316 | 356,221 | 243.1 | % | 2,399,603 | 730,405 | 228.5 | % | ||||||||||||||||
| Loss from operations | (1,148,446 | ) | (104,461 | ) | 999.4 | % | (2,204,087 | ) | (283,289 | ) | 678.0 | % | ||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Foreign currency exchange | 54,534 | 13,526 | 303.2 | % | (66,147 | ) | 31,163 | -312.3 | % | |||||||||||||||
| Change in fair value of derivative instruments | (1,226,715 | ) | 7,356,541 | -116.7 | % | (2,172,309 | ) | 720,624 | -401.4 | % | ||||||||||||||
| Loss on extinguishment of debt | (389,428 | ) | (54,145 | ) | 619.2 | % | (817,893 | ) | (128,254 | ) | 537.7 | % | ||||||||||||
| Finance costs | (456,840 | ) | (318,274 | ) | 43.5 | % | (864,418 | ) | (620,030 | ) | 39.4 | % | ||||||||||||
| Total other expense | (2,018,449 | ) | 6,997,648 | -128.8 | % | (3,920,767 | ) | 3,503 | 112026.0 | % | ||||||||||||||
| Net loss | (3,166,895 | ) | 6,893,187 | -145.9 | % | (6,124,854 | ) | (279,786 | ) | 2089.1 | % | |||||||||||||
Comparison of the three and six months ended June 30, 2020 and 2019:
Revenue
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| Revenue | $ | 123,955 | $ | 284,646 | (56.5 | ) | $ | 274,167 | 786,070 | (65.1 | ) | |||||||||||||
Revenue decrease by $160,691 or 56.5%, for the three months ended SeptemberJune 30, 2017, we incurred a net loss of $661,850 or $0.02 loss per share2020 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 ninesix months ended SeptemberJune 30, 20172020 as compared to revenues of $980,714 and gross profit of $554,261 during the ninesix months ended SeptemberJune 30, 2016. The increase is due to the fact that we recorded a one-time charge on impairment of inventory of $107,193 during fiscal 2016. Overall, our revenues are comparable to the prior year despite the fact that we have been forced to move to a 3G/4G GPS cellular device, require redevelopment of our advertising, and integrating our tournament software onto the TOUCH screen. Our company, along with the new sales team, is aggressively building its pipeline for continued growth into fiscal 2018.
Operating Expenses
For the nine months ended September 30, 2017, we recorded operating expenses of $1,905,902 compared to operating expenses of $1,624,858 during the nine months ended September 30, 2016. The increase in operating expenses was attributed to the following:
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:2019.
Sales decreased for the three and six months ended, year over year, as the result of challenges related to COVID-19 and normal customer attrition. This compares to the comparative period in which the Company experienced growth as a result of aggressive marketing and installation of the new Infinity suite of products.
Cost of Revenue
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| Cost of revenue | $ | 50,085 | $ | 32,886 | 52.3 | $ | 78,651 | $ | 338,954 | (76.8 | ) | |||||||||||||
Cost of revenue increased by $17,199, or 52.3%, for the three months ended June 30, 2020 as compared to the three months June 30, 2019. The table below outlines the differences in detail:
| For the Three Months Ended | ||||||||||||||||
June 30, 2020 | June 30, 2019 | Difference | % Difference | |||||||||||||
| Cost of goods | $ | 18,231 | $ | 8,576 | $ | 9,655 | 112.6 | |||||||||
| Labour | - | (28 | ) | 28 | (100.0 | ) | ||||||||||
| Mapping & freight costs | 14,200 | (38 | ) | 14,238 | (37,468.4 | ) | ||||||||||
| Wireless fees | 17,654 | 24,368 | (6,714 | ) | (27.6 | ) | ||||||||||
| Inventory adjustments & write offs | - | 8 | (8 | ) | (100.0 | ) | ||||||||||
| $ | 50,085 | $ | 32,886 | $ | 17,199 | 52.3 | ||||||||||
Cost of sales increased for the three months ended, year over year, primarily due to timing of certain mapping, freight and other cost of goods charges, partially offset by challenges related to COVID-19 and normal customer attrition.
Cost of revenue decreased by $260,303, or 76.8%, for the six months ended June 30, 2020 as compared to the three months June 30, 2019. The table below outlines the differences in detail:
| For the Six Months Ended | ||||||||||||||||
June 30, 2020 | June 30, 2019 | Difference | % Difference | |||||||||||||
| Cost of goods | $ | 33,748 | $ | 296,270 | $ | (262,522 | ) | (88.6 | ) | |||||||
| Labour | - | 8,967 | (8,967 | ) | (100.0 | ) | ||||||||||
| Mapping & freight costs | 17,375 | 12,112 | 5,263 | 43.5 | ||||||||||||
| Wireless fees | 27,528 | 24,368 | 3,160 | 13.0 | ||||||||||||
| Inventory adjustments & write offs | - | (2,763 | ) | 2,763 | (100.0 | ) | ||||||||||
| $ | 78,651 | $ | 338,954 | $ | (260,303 | ) | (76.8 | ) | ||||||||
Cost of sales decreased for the six months ended, year over year, primarily due to challenges related to COVID-19 and normal customer attrition. This decrease was consistent with the decrease in revenue for the same period.
Compensation Expense
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| Compensation expense | $ | 1,023,836 | $ | 144,673 | 607.7 | $ | 1,666,372 | $ | 279,756 | 495.7 | ||||||||||||||
Compensation expense increased by $879,163, or 607.7%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 primarily as a result of non-cash shares issued for consulting services during the period. Compensation expense increased by $1,386,616, or 495.7%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 primarily as a result of non-cash warrants and shares issued for consulting services during the period.
General and Administration Expense
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| General & administration expense | $ | 191,962 | $ | 212,974 | (9.9 | ) | $ | 716,709 | $ | 449,766 | 59.4 | |||||||||||||
General & administration expense decreased by $21,012 or 9.9% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The table below outlines the differences in detail:
| For the Three Months Ended | ||||||||||||||||
| June 30, 2020 | June 30, 2019 | Difference | % Difference | |||||||||||||
| Accounting & legal | $ | 44,841 | $ | 75,534 | $ | (30,693 | ) | (40.6 | ) | |||||||
| Marketing & advertising | 1,584 | 24,887 | (23,303 | ) | (93.6 | ) | ||||||||||
| Subcontractor & commissions | 73,021 | 36,435 | 36,586 | 100.4 | ||||||||||||
| Hardware | 680 | 1,091 | (411 | ) | (37.7 | ) | ||||||||||
| Office expense, rent, software, bank & credit card charges, telephone & meals | 71,836 | 75,027 | (3,191 | ) | (4.3 | ) | ||||||||||
| $ | 191,962 | $ | 212,974 | $ | (21,012 | ) | (9.9 | ) | ||||||||
The overall decrease general and admin expenses was primarily due to decreases in accounting and legal expenses and marketing and advertising expenses, partially offset by an increase in subcontractor expenses.
General & administration expense increased by $266,943 or 59.4% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The table below outlines the differences in detail:
| For the Six Months Ended | ||||||||||||||||
| June 30, 2020 | June 30, 2019 | Difference | % Difference | |||||||||||||
| Accounting & legal | $ | 132,089 | $ | 84,855 | $ | 47,234 | 55.7 | |||||||||
| Marketing & advertising | 175,019 | 45,793 | 129,226 | 282.2 | ||||||||||||
| Subcontractor & commissions | 170,089 | 127,311 | 42,778 | 33.6 | ||||||||||||
| Hardware | 849 | 3,814 | (2,965 | ) | (77.7 | ) | ||||||||||
| Office expense, rent, software, bank & credit card charges, telephone & meals | 238,663 | 187,993 | 50,670 | 27.0 | ||||||||||||
| $ | 716,709 | $ | 449,766 | $ | 266,943 | 59.4 | ||||||||||
The overall increase general and admin expenses was primarily due to increases in marketing and advertising, general office expenses and accounting and legal expenses. Marketing and advertising increased as a result of non-cash shares issued for investor relations services. General office expenses increased as a result of greater trade show and operating lease expenses in the current period. Accounting and legal expenses increased as a result of lower expenses in the prior period from delays in preparing and issuing financial statements for the prior period.
Foreign Currency Exchange
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| Foreign currency exchange (gain) loss | $ | (54,534 | ) | $ | (13,526 | ) | 303.2 | $ | 66,147 | $ | (31,163 | ) | (312.3 | ) | ||||||||||
For the three months ended June 30, 2020, we recognized a $54,534 foreign exchange gain as compared to a $13,526 foreign exchange gain for the three months ended June 30, 2019. For the six months ended June 30, 2020, we recognized a $66,147 foreign exchange loss as compared to a $31,163 foreign exchange gain for the six months ended June 30, 2019. The changes was primarily due to unfavorable changes in foreign currency rates on payables, receivables, loans and other foreign balances denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the United States dollar, Canadian dollar, Euro and British pound.
Change in Fair Value of Derivative Instruments
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| Change in fair value of derivative instruments | $ | 1,226,715 | $ | (7,356,541 | ) | (116.7 | ) | $ | 2,172,309 | $ | (720,624 | ) | (401.4 | ) | ||||||||||
Derivative loss increased by $8,583,256 or 116.7%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. The Company had a loss on derivatives of $1,226,715 in the current period due to the Company’s stock price movement near period end, partially offset by settlement of derivative instruments and decreases in the volatility of the Company’s stock price. The Company had a gain on derivatives of $7,356,541 in the prior period due to significant decreases in the volatility of the Company’s common stock price during the period.
Derivative loss increased by $2,892,933 or 401.4%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The Company had a loss on derivatives of $2,172,309 in the current period due to the Company’s stock price movement near period end and increases in the volatility of the Company’s stock price, partially offset by settlement of derivative instruments. The Company had a gain on derivatives of $720,624 in the prior period due to significant decreases in the volatility of the Company’s common stock price during the period.
Loss on Extinguishment of Debt
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| Loss on extinguishment of debt | $ | 389,428 | $ | 54,145 | 619.2 | $ | 817,893 | $ | 128,254 | 537.7 | ||||||||||||||
Loss on extinguishment of debt increased by $335,283 or 619.2% to a loss of $389,428, for the three months ended June 30, 2020 as compared to a loss of $54,145 for the three months ended June 30, 2019. Loss on extinguishment of debt increased by $689,639 or 537.7% to a loss of $817,893, for the six months ended June 30, 2020 as compared to a loss of $128,254 for the six months ended June 30, 2019. These increases were primarily a result of more conversions of convertible debt and accrued interest in the current period.
Finance Costs
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
| Finance costs | $ | 456,840 | $ | 318,274 | 43.5 | $ | 864,418 | $ | 620,030 | 39.4 | ||||||||||||||
Finance costs increased by $138,566 or 43.5%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Finance costs increased by $244,388 or 39.4%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Finance costs increased due to greater debt outstanding during the current period in addition to elevated penalty interest rates on debt in default.
Net Loss
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||
Net income (loss) | $ | (3,166,895 | ) | $ | 6,893,187 | (145.9 | ) | $ | (6,124,854 | ) | $ | (279,786 | ) | 2,089.1 | ||||||||||
As a result of the above factors, net loss increased by $10,060,082 or 145.9% for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 and increased by $5,845,068 or 2,089.1% for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.
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 inon April 17, 2008 through SeptemberJune 30, 2017,2020, 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, 2017,2020, we had $7,178,280$11,774,549 in outstanding indebtedness,total liabilities, the majority of which all matures within the next twelve months.
As of September 30, 2017, weWe had cash of $8,968 as$112,628 at June 30, 2020, compared to $nil$25,494 at December 31, 2019. We had a working capital deficit of $11,180,837 as of June 30, 2020 compared to working capital deficit of $8,376,433 as of December 31, 2016. 2019.
Liquidity and Financial Condition
Our working capital deficit as at September 30, 2017 was $6,976,250 compared to $5,580,774financial position as of June 30, 2020 and December 31, 2016. The increase in our working capital deficit was due to2019, and the fact that wechanges for the periods then ended are still incurring negative cash flows from operating activities and require the use of debt financing to support our on-going operations.as follows:
Working Capital
At June 30, 2020 | At December 31, 2019 | |||||||
| Current assets | $ | 365,022 | $ | 250,800 | ||||
| Current liabilities | $ | 11,545,859 | $ | 8,627,233 | ||||
| Working capital | $ | (11,180,837 | ) | $ | (8,376,433 | ) | ||
| 33 |
Cash Flow Analysis
Our cash flows from operating, investing, and financing activities are summarized as follows:
| September 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| Net cash (used in) provided by operating activities | $ | (344,342 | ) | $ | (472,808 | ) | ||||||||||
| Net cash (used in) provided by investing activities | - | (6,713 | ) | |||||||||||||
| Net cash used in by operating activities | $ | (439,361 | ) | $ | (248,239 | ) | ||||||||||
| Net cash used in investing activities | - | - | ||||||||||||||
| Net cash provided by financing activities | 766,434 | 484,903 | 526,702 | 275,000 | ||||||||||||
| Net (decrease) increase in cash | 422,092 | 5,382 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (413,124 | ) | (5,382 | ) | (207 | ) | - | |||||||||
| Net increase in cash | 87,134 | 26,761 | ||||||||||||||
| Cash at beginning of period | 0.00 | 0.00 | 25,494 | 5,059 | ||||||||||||
| Cash at end of period | $ | 8,969 | $ | 0.00 | $ | 112,628 | $ | 31,820 | ||||||||
Net Cash Flows Used in Operating Activities. During the six months ended June 30, 2020, cash used in operations totaled $439,361. This reflects the net loss of $6,124,854 adjusted for $5,685,493 changes in non-cash working capital items and adjustments for non-cash items. Non-cash and working capital adjustments consisted primarily of non-cash change in fair value of derivative liabilities of $2,172,309, non-cash shares and warrants issued for services of $1,513,439, loss on extinguishment of debt of $817,893, non-cash accretion of discounts on debt of $537,385 and increase in trade payables and accruals of $536,454.
Net Cash (Used in) Provided by Investing Activities. The Company had no investing activities in the six months ended June 30, 2020.
During the nine months ended September 30, 2017, we used cash of $344,342 for operating activities compared to $472,808 used for operating activities during the nine months ended September 30, 2016. The majority of cash available to our company is used for operating activities net of any impacts relating to exchange rate changes.
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 related primarily to $721,750 receivedduring the six months ended June 30, 2020 totaled $526,702, from various note and loan facilities entered into during the period and issuance of debtcommon shares, partially offset by repayments of notes payable. Net cash provided by financing and $50,000 of proceeds fromactivities during the issuance of shares of common stock. During the ninesix months ended SeptemberJune 30, 2016, we received $484,903 from financing activities which2020 was $275,000 primarily from receipts of $551,028 from issuance of notes payable less $70,128 of repayments on outstanding notes payable.various note and loan facilities entered during the period.
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, 20172020 is comprised of the following:
| ● | Unsecured loan payable | |
| ● | Unsecured loan payable | |
| ● | ||
| ● | Unsecured, convertible note payable to a former related party | |
| ● | Senior secured, | |
| ● | Unsecured, convertible note payable | |
|
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 with an outstanding principal amount of $180,000, bears interest at 10% per annum, is due on February 28, 2019, and is convertible into common shares at a conversion price equal to the lower of (i) 32% discount off of the lowest intra-day trading price during previous (15) trading days immediately preceding a conversion date; |
| 34 |
| ● | Unsecured, convertible note payable with an outstanding principal amount of $33,582, 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 (ii) lowest trading price during previous (25) trading days prior to the date of conversion; | |
| ● | Unsecured, convertible promissory note in the principal amount of $226,000, 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 $258,736, bears interest 12% per annum, is due on September 19, 2018, 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 trading day prior to the conversion date; | |
| ● | Unsecured, convertible promissory note with an outstanding 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 promissory note with an outstanding principal amount of $413,590, bears interest at 12% per annum, is convertible into common shares after 180 days from issuance date 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; | |
| ● | Secured, convertible promissory note, bears interest at 10% per annum with four tranches of $62,605, totaling $250,420, due on May 7, 2020, June 28, 2020, July 8, 2020 and August 8, 2020 and is convertible into common shares at a conversion price equal to 62% of the lowest trading price of the Company’s common stock during the 10 trading days immediately preceding the conversion of the note. Interest will be accrued and payable at the time of promissory note repayment; | |
| ● | Unsecured, convertible promissory note with an outstanding principal amount of $57,000, bears interest at 10% per annum, is due on July 30, 2020, and is convertible into common shares at a conversion price equal to the lesser of (i) 60% of the lowest trading price during the previous twenty trading days prior to the issuance date, or (ii) the lowest trading price for the Common Stock during the twenty day period ending one trading day prior to conversion of the note; | |
| ● | Unsecured, convertible promissory note with an outstanding principal amount of $117,500, bears interest at 10% per annum, is due on June 3, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before conversion; |
| 35 |
| ● | Unsecured, convertible promissory note with an outstanding principal amount of $36,629, bears interest at 10% per annum, is due on September | |
| ● | Unsecured, convertible promissory note with an | |
| ● | Unsecured, convertible promissory note with an outstanding principal amount of $82,500, bears interest at | |
| ● | Unsecured, convertible promissory note with an outstanding principal amount of $119,600, bears interest at 8% per annum and is due on February 10, 2021. The note is convertible into common shares of the Company, beginning 180 days from the date of the note up to | |
| ● | Unsecured, convertible promissory note with an outstanding principal amount of $60,950, bears interest at 8% per annum and is due on March 2, 2021. The note is convertible into common shares of the Company, beginning 180 days from the date of the note up to maturity or repayment, at a price equal to 80% of the average of the lowest two trading prices for the common stock during the fifteen trading days before conversion; | |
| ● | Unsecured, convertible promissory note with an outstanding principal amount of $60,950, bears interest at 8% per annum and is due on April 15, 2021. The note is convertible into common shares of the Company, beginning 180 days from the date of the note up to maturity or repayment, at a price equal to 80% of the average of the lowest two trading prices for the common stock during the fifteen trading days before conversion; | |
| ● | Unsecured loan payable with an outstanding principal amount of CDN$40,000. The loan is non-interest bearing and eligible for CDN$10,000 forgiveness if repaid paid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest at 5% per annum and is due on December 31, 2025; | |
| ● | Unsecured loan payable with an outstanding principal amount of CDN$40,000. The loan is non-interest bearing and eligible for CDN$10,000 forgiveness if repaid paid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest at 5% per annum and is due on December 31, 2025; | |
| ● | Unsecured loan payable with an outstanding principal amount of $30,065. The loan bears interest at 1% per annum and is due on May 21, 2022 with payments deferred for the first six months of the term; and | |
| ● | ||
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, 2021 | ||||
| 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, 2017,2020, cash used in operations totaled $308,206.$439,361. 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$112,628 in cash as of SeptemberJune 30, 2017,2020 and a working capital deficit of $7,010,466.$11,180,837. 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.
| 36 |
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, 2017,2020, 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.
| 37 |
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,April 9, 2018, we received a lawsuit was commenced against DSG TAG Systemsshare-reserve increase letter from JSJ Investments Inc. in(“JSJ”) pursuant to the Supreme Courtterms of British Columbia, captioned Amanda McGuire v. DSG TAG Systems Inc., No. S-154634, Vancouver Registry. The plaintiff alleges that a 10% convertible promissory note issued to the Company in the principal amount of $100,000 CDN issued$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 alleged 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 sought damages in excess of $200,000 but not more than $1,000,000, consisting of the principal amount of the note, default interest, and legal fees incurred by JSJ with respect to the lawsuit. On August 31, 2018 final judgement was entered against DSG TAG Systems was not converted into common shares of DSG TAG Systems, as asserted by DSG TAG Systems, and the plaintiff seeks repayment of indebtednessGlobal in the amount of $100,000 CDN plus$187,908, which includes $172,846 in damages, $2,450 in legal fees, $1,982 in pre-judgement interest and costs. An agreement was reached$10,631 in post-judgment interest. The appeal period expired on August 13, 2015 between DSG TAG Systems andSeptember 30, 2018. As at the date of this Annual Report, the plaintiff pursuantis seeking to which DSG TAG Systems agreed to payenforce the plaintiff $119,700 CDN in monthly installations of $17,100 CDN, the first payment commencing on October 1, 2015, and the plaintiff agreed to exchange 101,200 shares of common stock of DSG Tag Systems for 18,422 shares of common stock ofTexas judgement against DSG Global which exchange occurredin British Columbia, Canada. As at June 30, 2020, the principal balance and accrued interest on October 22, 2015.this convertible note is included on the consolidated balance sheet under convertible notes payable.
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.
| 38 |
On October 17, 2016, the Supreme Court of British Columbia made a new order after we did not make the above-mentioned payments on schedule to the shareholder per the settlement agreement. DSG TAG was ordered to repay the remaining loan plus costs in the amount of $77,589 to the shareholder in 14 monthly payments of $5,500 each plus $589 at the 15th month starting February 15, 2017.
On September 7, 2016, a vendor has filed a Complaint for Damage in Florida (Case Number: CACE-16-016663) to recover unpaid invoice amount of $27,335 plus interest of $4,939. The invoice was not paid due to a dispute that DSG TAG did not think that vendor had delivered the service according to the agreement between the two parties. On May 31, 2017, the Company was ordered to repay the total invoice amount of $22,396 plus interest of $7,722 as well as costs and reasonable attorney fees incurred in this action totaling $9,971. The Company has accrued liabilities related to this matter in the financial statements. As of September 30, 2017, the Company not yet made any payments.
On May 31, 2017, in response to the Company’s refusal to process further conversion notices, the Company received legal notice that a lendor of the Company would be commencing all collection efforts to recover convertible loans of $245,889. The letter also served as notice of an obligation to maintain all documents and records, including electronic information.
On October 10, 2017, a vendor filed a complaint for Breach of Contract with Superior Court of the State of California. The Complainant is alleging that it is contractually owed 1,848,130 of DSG’s common stock and has asked for a cash reward $270,000. In addition, a related vendor filed in the same filing a complaint for $72,000 as part of consulting agreement DSG executed. The Company believes the vendors have not performed duties required on the contractual relationships and that obligations exist.
We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future financial position, results of operations or cash flows.
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.
| 39 |
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) | ||