ITEM
1: Financial Statements (unaudited)
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(UNAUDITED)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
-
|
|
Trade receivables, net
|
|
|
200,831
|
|
|
|
73,212
|
|
Inventories
|
|
|
240,110
|
|
|
|
306,648
|
|
Funds held in trust
|
|
|
-
|
|
|
|
3,414
|
|
Prepaid expenses and deposits
|
|
|
61,728
|
|
|
|
155,932
|
|
Other current assets
|
|
|
-
|
|
|
|
26,902
|
|
Receivable from related party
|
|
|
62,831
|
|
|
|
91,727
|
|
TOTAL CURRENT ASSETS
|
|
|
565,500
|
|
|
|
657,835
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
17,172
|
|
|
|
16,984
|
|
Fixed assets, net
|
|
|
7,257
|
|
|
|
6,971
|
|
Equipment on lease, net
|
|
|
85,591
|
|
|
|
105,526
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
110,020
|
|
|
|
129,481
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
675,520
|
|
|
$
|
787,316
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
$
|
9,399
|
|
|
$
|
25,269
|
|
Trade and other payables
|
|
|
1,781,079
|
|
|
|
1,428,509
|
|
Deferred revenue
|
|
|
195,110
|
|
|
|
99,739
|
|
Warranty reserve
|
|
|
115,305
|
|
|
|
108,381
|
|
Loan payable to related party
|
|
|
23,061
|
|
|
|
-
|
|
Convertible note payable to related party
|
|
|
310,000
|
|
|
|
310,000
|
|
Loans payable
|
|
|
898,930
|
|
|
|
546,137
|
|
Convertible loans payable
|
|
|
1,196,366
|
|
|
|
1,139,543
|
|
TOTAL CURRENT LIABILITIES
|
|
|
4,529,250
|
|
|
|
3,657,579
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interest - Preferred Shares
|
|
$
|
5,286,731
|
|
|
$
|
5,286,731
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 125,000,000 shares authorized and 30,291,187 outstanding at June 30, 2016 and December 31, 2015.
|
|
|
30,291
|
|
|
|
30,291
|
|
Additional paid in capital
|
|
|
15,849,683
|
|
|
|
15,873,724
|
|
Other accumulated comprehensive income
|
|
|
1,136,232
|
|
|
|
1,306,959
|
|
Accumulated deficit
|
|
|
(25,389,790
|
)
|
|
|
(24,707,197
|
)
|
Total sharesholders’ deficit attributable to DSG Global
|
|
|
(8,373,584
|
)
|
|
|
(7,496,223
|
)
|
Noncontrolling interest
|
|
|
(766,877
|
)
|
|
|
(660,771
|
)
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(9,140,461
|
)
|
|
|
(8,156,994
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
675,520
|
|
|
$
|
787,316
|
|
The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements
DSG GLOBAL, INC. AND
SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
482,317
|
|
|
$
|
469,035
|
|
|
$
|
737,245
|
|
|
$
|
1,259,215
|
|
Cost of revenue
|
|
|
140,519
|
|
|
|
240,997
|
|
|
|
235,067
|
|
|
|
729,044
|
|
Gross profit
|
|
|
341,798
|
|
|
|
228,038
|
|
|
|
502,178
|
|
|
|
530,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
187,215
|
|
|
|
173,397
|
|
|
|
383,059
|
|
|
|
326,317
|
|
Research and development expense
|
|
|
19,311
|
|
|
|
15,416
|
|
|
|
36,348
|
|
|
|
34,849
|
|
General and administration expense
|
|
|
201,401
|
|
|
|
414,925
|
|
|
|
520,065
|
|
|
|
746,153
|
|
Warranty expense
|
|
|
67,155
|
|
|
|
46,494
|
|
|
|
112,372
|
|
|
|
105,337
|
|
Bad debt
|
|
|
1,178
|
|
|
|
8,861
|
|
|
|
4,283
|
|
|
|
8,861
|
|
Depreciation and amortization expense
|
|
|
22,353
|
|
|
|
9,749
|
|
|
|
27,937
|
|
|
|
18,453
|
|
Total operating expense
|
|
|
498,613
|
|
|
|
668,841
|
|
|
|
1,084,064
|
|
|
|
1,239,969
|
|
Loss from operations
|
|
|
(156,815
|
)
|
|
|
(440,803
|
)
|
|
|
(581,886
|
)
|
|
|
(709,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange
|
|
|
(20,938
|
)
|
|
|
(14,387
|
)
|
|
|
51,202
|
|
|
|
(35,382
|
)
|
Other (expenses) Income
|
|
|
(1,053
|
)
|
|
|
(4,677
|
)
|
|
|
(1,543
|
)
|
|
|
(7,130
|
)
|
Finance costs
|
|
|
(171,953
|
)
|
|
|
(93,910
|
)
|
|
|
(280,513
|
)
|
|
|
(141,708
|
)
|
Total Other Expense
|
|
|
(193,944
|
)
|
|
|
(112,974
|
)
|
|
|
(230,854
|
)
|
|
|
(184,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(350,759
|
)
|
|
|
(553,777
|
)
|
|
|
(812,740
|
)
|
|
|
(894,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(350,759
|
)
|
|
|
(553,777
|
)
|
|
|
(812,740
|
)
|
|
|
(894,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less attributed to noncontolling interest
|
|
|
55,586
|
|
|
|
90,150
|
|
|
|
130,147
|
|
|
|
146,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to DSG Global
|
|
$
|
(295,173
|
)
|
|
$
|
(463,627
|
)
|
|
$
|
(682,593
|
)
|
|
$
|
(747,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.010
|
)
|
|
$
|
(0.020
|
)
|
|
$
|
(0.025
|
)
|
|
$
|
(0.034
|
)
|
Diluted
|
|
$
|
(0.010
|
)
|
|
$
|
(0.020
|
)
|
|
$
|
(0.025
|
)
|
|
$
|
(0.034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,291,187
|
|
|
|
23,265,074
|
|
|
|
27,103,068
|
|
|
|
21,990,586
|
|
Diluted
|
|
|
30,291,187
|
|
|
|
23,265,074
|
|
|
|
27,103,068
|
|
|
|
21,990,586
|
|
The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements
DSG GLOBAL, INC. AND
SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(350,759
|
)
|
|
$
|
(553,777
|
)
|
|
$
|
(812,740
|
)
|
|
$
|
(894,018
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
|
|
33,130
|
|
|
|
(12,888
|
)
|
|
|
(167,695
|
)
|
|
|
53,531
|
|
Comprehensive loss
|
|
|
(317,630
|
)
|
|
|
(566,665
|
)
|
|
|
(980,435
|
)
|
|
|
(840,487
|
)
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
|
54,264
|
|
|
|
89,265
|
|
|
|
127,115
|
|
|
|
148,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss attributable to DSG
Global
|
|
$
|
(263,365
|
)
|
|
$
|
(477,399
|
)
|
|
$
|
(853,320
|
)
|
|
$
|
(692,082
|
)
|
The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
(UNAUDITED)
|
|
Equity
Attributable to Common Shareholders’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Deficit
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid in
|
|
|
Accumulated
|
|
|
Accumulated
Comprehensive
|
|
|
Attributable
to Common
|
|
|
Noncontrolling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Shareholders’
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2015
|
|
|
30,291,187
|
|
|
$
|
30,291
|
|
|
$
|
15,873,724
|
|
|
$
|
(24,707,197
|
)
|
|
$
|
1,306,959
|
|
|
$
|
(7,496,223
|
)
|
|
$
|
(660,771
|
)
|
|
$
|
(8,156,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to paid
in capital for minority interest
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,041
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,041
|
)
|
|
|
24,041
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income for the six months ended June 30, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(682,593
|
)
|
|
|
(170,727
|
)
|
|
|
(853,320
|
)
|
|
|
(130,147
|
)
|
|
|
(983,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2016
|
|
|
30,291,187
|
|
|
$
|
30,291
|
|
|
$
|
15,849,683
|
|
|
$
|
(25,389,790
|
)
|
|
$
|
1,136,232
|
|
|
$
|
(8,373,584
|
)
|
|
$
|
(766,877
|
)
|
|
$
|
(9,140,461
|
)
|
The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements
DSG GLOBAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(812,740
|
)
|
|
|
(894,018
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
27,937
|
|
|
|
18,453
|
|
Notes issued for services
|
|
|
(17,479
|
)
|
|
|
234,791
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(120,144
|
)
|
|
|
43,306
|
|
Inventories
|
|
|
115,044
|
|
|
|
96,647
|
|
Funds held in trust
|
|
|
3,549
|
|
|
|
-
|
|
Prepaid expense and deposits
|
|
|
69,008
|
|
|
|
210,068
|
|
Related party receivable
|
|
|
33,964
|
|
|
|
(4,054
|
)
|
Other assets
|
|
|
34,058
|
|
|
|
3,212
|
|
Increase (decrease) in current liabilities:
|
|
|
|
|
|
|
|
|
Trade payables and accruals
|
|
|
250,202
|
|
|
|
374,066
|
|
Deferred revenue
|
|
|
86,974
|
|
|
|
15,214
|
|
Net cash (used in) provided by operating activities
|
|
|
(329,627
|
)
|
|
|
97,685
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(2,524
|
)
|
|
|
(7,605
|
)
|
Return (purchase) of equipment on lease
|
|
|
1,173
|
|
|
|
17,153
|
|
Purchase of intangible assets
|
|
|
(823
|
)
|
|
|
(2,943
|
)
|
Cash acquired from merger
|
|
|
-
|
|
|
|
81,420
|
|
Net cash (used in) provided by investing activities
|
|
|
(2,174
|
)
|
|
|
88,025
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
|
(16,395
|
)
|
|
|
-
|
|
Proceeds from issuance of shares
|
|
|
-
|
|
|
|
126,695
|
|
Payments on notes payable
|
|
|
(69,664
|
)
|
|
|
(126,192
|
)
|
Proceeds from note payable
|
|
|
387,264
|
|
|
|
-
|
|
Related party loan payable, net
|
|
|
-
|
|
|
|
(164
|
)
|
Net cash provided by financing activities
|
|
|
301,205
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(30,596
|
)
|
|
|
186,049
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
30,596
|
|
|
|
(11,064
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
91,840
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
-
|
|
|
$
|
266,825
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Income tax payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest payments
|
|
$
|
4,039
|
|
|
$
|
5,803
|
|
The accompanying notes are an integral part
of the unaudited consolidated financial statements
DSG
GLOBAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – ORGANIZATION
DSG
Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007.
We were formed to option feature films and TV projects to be packaged for sale to movie studios and production companies.
Previously,
in anticipation of the share exchange agreement with DSG Tag Systems, Inc. (“DSG TAG”), we undertook to change our
name and effect a reverse stock split of our authorized and issued common stock. Accordingly, on January 19, 2015, our board of
directors approved an agreement and plan of merger to merge with our wholly-owned subsidiary DSG Global Inc., a Nevada corporation,
to effect a name change from Boreal Productions Inc. to DSG Global, Inc. Our company remains the surviving company. DSG Global,
Inc. was formed solely for the change of our name.
Subsequent
to the closing of the share exchange agreement with DSG TAG, we have adopted the business and operations of DSG TAG.
DSG
TAG was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia,
Canada in 2008. In March 2011, DSG TAG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”).
DSG UK is a wholly owned subsidiary of DSG TAG.
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles
in the United States (“US GAAP”) and with the instructions to Form 10-Q.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore,
the unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements
and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2015. 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, 2015 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 six months ended June 30, 2016 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2016.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DSG Global Inc. and its subsidiary DSG Tag Systems, Inc. and its wholly
owned subsidiary DSG Tag Systems International, Ltd., collectively referred to as the Company. All material intercompany accounts,
transactions and profits were eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are
reflected in the condensed consolidated financial statements in the period they are determined.
Exchange
(Loss) Gain
During
the three and six months ended June 30, 2016, and 2015, the transactions of the Company and its subsidiaries were denominated
in foreign currencies and were recorded in Canadian dollar (CAD), or British Pounds (GBP), at the rates of exchange in effect
when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when
the foreign currency assets and liabilities are settled.
Foreign
Currency Translation and Comprehensive (Loss) Income
The
accounts of the Company and its subsidiaries were maintained, and its financial statements were expressed, in CAD and GBP. Such
financial statements were translated into United States dollars (USD) with the CAD or GBP as the functional currency. All assets
and liabilities were translated at the exchange rate at the balance sheet date, stockholders’ deficit is translated at the
historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign
currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the
initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated
statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of
shareholders’ equity.
Reportable
Segment
The
Company has one reportable segment. The Company’s activities are interrelated and each activity is dependent upon and supportive
of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single
global business.
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue
is deferred until all acceptance criteria have been met. The Company accrues for warranty costs, sales returns, and other allowances
based on its historical experience.
Research
and Development
Research
and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development.
Research and development expenses also include third-party development and programming costs, localization costs incurred to translate
software for international markets, and the amortization of purchased software code and services content. Such costs related to
software development are included in research and development expense until the point that technological feasibility is reached.
Research and development is expensed and is included in operating expenses.
Income
Taxes
The
Company utilizes the liability method of accounting for income tax. Under the liability method, deferred income tax assets and
liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities measured
by the current enacted tax rates in effect for the years in which these differences are expected to reverse.
The
Company has adopted accounting standards for the accounting for uncertain income taxes. These standards provide guidance for the
accounting and disclosure about uncertain tax positions taken. Management believes that all of the positions taken in its federal
and states income tax returns are more likely than not to be sustained upon examination.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables
arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions.
The Company has a diversified customer base, most of which are in Canada, United States and the United Kingdom. The Company controls
credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely
assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance,
if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond
such allowance is limited.
Risks
and Uncertainties
The
Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated
with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange
rates and the volatility of public markets.
Contingencies
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess
such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of
the amount of relief sought or expected to be sought.
If
the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they
involve guarantees, in which case the guarantee would be disclosed.
Cash
and Cash Equivalents
Cash
and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less. At June 30, 2016 and December 31, 2015, there were no uninsured balances for
accounts in Canada, the United States and the United Kingdom. The Company has not experienced any losses in such accounts and
believes it is not exposed to any risks on its cash in bank accounts.
Trade
Receivable
All
trade receivables are due thirty (30) days from the date billed. If the funds are not received within thirty (30) days the customer
is contacted to arrange payment. The Company uses the allowance method to account for uncollectable trade receivables. The allowance
for doubtful accounts as of June 30, 2016 and December 31, 2015 was $14,401 and $14,368, respectively.
Financing
Receivables and Guarantees
The
Company provides financing arrangements, including operating leases and financed service contracts for certain qualified customers.
Lease receivables primarily represent sales-type and direct-financing leases. Leases typically have two- to three-year terms and
are collateralized by a security interest in the underlying assets. The Company makes an allowance for uncollectible financing
receivables based on a variety of factors, including the risk rating of the portfolio, macroeconomic conditions, historical experience,
and other market factors. At June 30, 2016 and December 31, 2015 management determined that there was no allowance necessary.
The Company also provides financing guarantees, which are generally for various third-party financing arrangements to channel
partners and other customers. The Company could be called upon to make payment under these guarantees in the event of nonpayment
to the third party.
Advertising
Costs
The
Company expenses all advertising costs as incurred. Advertising costs were $170,191 and $278,516 for the six months ended June
30, 2016 and 2015, respectively.
Inventory
Inventories
are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories
with the market value and allowance is made to write down inventories to market value, if lower. As of June 30, 2016 and December
31, 2015, inventory only consisted of finished goods.
Fixed
Assets
Fixed
assets are stated at cost and depreciated using the straight line method over the shorter of the estimated useful life of the
asset or the lease term. The useful life for rental equipment was adjusted for the tag to 5 years from 10 years, and for the Touch/Text,
the useful life was adjusted to 5 years from 8 years. The adjustment properly reflects the average lease term for the rental equipment
and the average life of the product. The estimated useful lives of our property and equipment are generally as follows:
Rental
equipment
|
|
Tag
|
5
year useful life
|
Touch/Text
|
5
year useful life
|
Office
furniture and equipment
|
5
year useful life
|
Computer
equipment
|
3
year useful life
|
As
of June 30, 2016 and December 31, 2015, fixed assets consisted of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Furniture and equipment
|
|
$
|
21,507
|
|
|
$
|
20,216
|
|
Computer equipment
|
|
|
28,282
|
|
|
|
24,695
|
|
Accumulated Depreciation
|
|
|
(42,532
|
)
|
|
|
(37,940
|
)
|
|
|
$
|
7,257
|
|
|
$
|
6,971
|
|
As
of June 30, 2016 and December 31, 2015, leased equipment consisted of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Tags
|
|
$
|
135,390
|
|
|
$
|
141,400
|
|
Text
|
|
|
23,587
|
|
|
|
26,195
|
|
Touch
|
|
|
41,586
|
|
|
|
20,386
|
|
Accumulated Depreciation
|
|
|
(114,972
|
)
|
|
|
(82,455
|
)
|
|
|
$
|
85,591
|
|
|
$
|
105,526
|
|
For
the three months ended June 30, 2016 and 2015, total depreciation expense was $22,353 and $9,749 for the fixed assets and leased
equipment, respectively.
For
the six months ended June 30, 2016 and 2015, total depreciation expense was $27,937 and $18,453 for the fixed assets and leased
equipment, respectively.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
ASC Topic 820, “
Fair Value Measurements and Disclosures
,” requires disclosure of the fair value of financial
instruments held by the Company. ASC Topic 825, “
Financial Instruments
,” defines fair value, and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value
measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination
of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy
are defined as follows:
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “
Distinguishing
Liabilities from Equity
,” and ASC Topic 815, “
Derivatives and Hedging
.”
As
of June 30, 2016 and December 31, 2015, the Company did not identify any assets and liabilities that are required to be presented
on the balance sheet at fair value.
Basic
and Diluted Net Loss per Common Share
Basic
and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders
by the weighted average number of common shares outstanding during the period. Our potentially dilutive shares, which include
outstanding convertible loans and notes, have not been included in the computation of diluted net loss per share attributable
to common stockholders for all periods presented, as the results would be antidilutive. Such potentially dilutive shares are excluded
when the effect would be to reduce net loss per share.
The
following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30,
2016 and 2015:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to DSG Global
|
|
$
|
(295,173
|
)
|
|
$
|
(463,627
|
)
|
|
$
|
(682,593
|
)
|
|
$
|
(747,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.010
|
)
|
|
$
|
(0.020
|
)
|
|
$
|
(0.025
|
)
|
|
$
|
(0.034
|
)
|
Diluted
|
|
$
|
(0.010
|
)
|
|
$
|
(0.020
|
)
|
|
$
|
(0.025
|
)
|
|
$
|
(0.034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,291,187
|
|
|
|
23,265,074
|
|
|
|
27,103,068
|
|
|
|
21,990,586
|
|
Diluted
|
|
|
30,291,187
|
|
|
|
23,265,074
|
|
|
|
27,103,068
|
|
|
|
21,990,586
|
|
Intangible
Assets
The
Company records identifiable intangible assets at fair value on the date of acquisition and evaluates the useful life of each
asset. Finite-lived intangible assets primarily consist of software development capitalized. Finite-lived intangible assets are
amortized on a straight-line basis and are tested for recoverability if events or changes in circumstances indicate that their
carrying amounts may not be recoverable. These intangibles have useful lives ranging from 1 to 20 years.
Stock-Based
Compensation
We
recognize all share-based payments to employees and to non-employee directors as compensation for service on our board of directors
as compensation expense in the consolidated financial statements based on the fair values of such payments. Stock-based compensation
expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected
to vest during the period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates.
For
share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.”
The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation
expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards
to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current
fair value, at each subsequent reporting date.
Recently
Issued Accounting Pronouncements
There
have been no new accounting pronouncements during the six months ended June 30, 2016 that we believe would have a material impact
on our financial position or results of operations.
Going
Concern
As
reflected in the accompanying financial statements, the Company had an accumulated deficit of $25,389,790 as of June 30, 2016
and had a net loss of $812,740 for the six months ended June 30, 2016.
While
the Company is attempting to grow revenues, improve margins and lower costs, the Company’s cash position may not be sufficient
to support the Company’s daily operations. Management is seeking to raise additional funds by way of a public or private
offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues
provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy
to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and
generate revenues.
The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Reclassification
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations or cash flow.
Note
3 – TRADE RECEIVABLES, NET
As
of June 30, 2016 and December 31, 2015, trade receivables consist of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Trade receivables
|
|
$
|
215,232
|
|
|
$
|
87,580
|
|
Allowance for bad debt
|
|
|
(14,401
|
)
|
|
|
(14,368
|
)
|
Total trade receivables, net
|
|
$
|
200,831
|
|
|
$
|
73,212
|
|
Note
4 – OTHER ASSETS
Other
assets consist of the following as of June 30, 2016 and December 31, 2015:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
GST/VAT Receivable
|
|
$
|
-
|
|
|
$
|
26,902
|
|
|
|
$
|
-
|
|
|
$
|
26,902
|
|
Note
5 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of June 30, 2016 and December 31, 2015:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Intangible Asset - Patent
|
|
$
|
21,253
|
|
|
$
|
20,473
|
|
Accumulated Depreciation
|
|
|
(4,081
|
)
|
|
|
(3,489
|
)
|
|
|
$
|
17,172
|
|
|
$
|
16,984
|
|
The
estimated useful life of the Patent is 20 years. Patents are amortized on a straight-line basis. For the three months ended June
30, 2016 and 2015, total depreciation expense was $296 and $283, respectively. For the six months ended June 30, 2016 and 2015,
total depreciation expense was $592 and $566, respectively.
The
following table summarizes our five year estimated amortization of intangible assets as of June 30, 2016:
June 30:
|
|
|
|
|
|
2017
|
|
|
$
|
887
|
|
|
2018
|
|
|
|
1,184
|
|
|
2019
|
|
|
|
1,184
|
|
|
2020
|
|
|
|
1,184
|
|
|
2021
|
|
|
|
1,184
|
|
|
2022 & Thereafter
|
|
|
|
11,549
|
|
|
|
|
|
$
|
17,172
|
|
Note
6 – TRADE AND OTHER PAYABLES
As
of June 30, 2016 and December 31, 2015, trade and other payables consist of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Accounts payable
|
|
$
|
779,991
|
|
|
$
|
742,256
|
|
Accrued expenses
|
|
|
24,316
|
|
|
|
35,113
|
|
Accrued interest
|
|
|
939,631
|
|
|
|
622,902
|
|
Other liabilities
|
|
|
37,141
|
|
|
|
28,238
|
|
Total payables
|
|
$
|
1,781,079
|
|
|
$
|
1,428,509
|
|
Note
7 – LOANS PAYABLE
Loans Payable
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Unsecured, due on demand, interest 15% per annum
|
|
$
|
192,175
|
|
|
$
|
180,636
|
|
|
|
|
|
|
|
|
|
|
Unsecured, due on demand, interest 36% per annum
|
|
|
47,012
|
|
|
|
50,501
|
|
|
|
|
|
|
|
|
|
|
Unsecured, loan payable, interest 18% per annum
|
|
|
317,500
|
|
|
|
315,000
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
92,243
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unsecured, loan payable, interest 10% per annum,
with a minimum interest amount of $25,000, due
July 22, 2016.
|
|
|
250,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current portion
|
|
$
|
898,930
|
|
|
$
|
546,137
|
|
|
|
|
|
|
|
|
|
|
Loans Payable to Related Party
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Unsecured, due on demand, interest 20% per annum
|
|
|
23,061
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current portion
|
|
$
|
23,061
|
|
|
$
|
-
|
|
Note
8 – CONVERTIBLE LOAN
Convertible Loans
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Unsecured, interest 15.2% per annum, mature from February 28, 2015 to December 31, 2015. Principal is repayable in cash or Tags units. Repayment can also be requested to be converted to shares of the company
|
|
$
|
946,366
|
|
|
$
|
889,543
|
|
|
|
|
|
|
|
|
|
|
Unsecured, interest 10% per annum. Principal plus interest repayable in cash or common
shares due on demand
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,196,366
|
|
|
$
|
1,139,543
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
1,196,366
|
|
|
|
1,139,543
|
|
|
|
|
|
|
|
|
|
|
Long term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible Loans to Related Party
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Unsecured, interest 5% per annum, matures March 30, 2016, and is convertible at $1.25/per share
|
|
$
|
310,000
|
|
|
$
|
310,000
|
|
|
|
|
|
|
|
|
|
|
Total current portion
|
|
$
|
310,000
|
|
|
$
|
310,000
|
|
Note
9 – MEZZANINE EQUITY
DSG
TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of June 30, 2016 and
December 31, 2015. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”)
and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731
on October 24, 2014. The Series A Shares have no general voting rights and carry a 5% per annum interest rate. Series A Shares
that are converted to common shares are entitled to the same voting rights as other common shareholders. At any time on or after
the issuance date any holder of Series A Shares may convert to common stock based on predetermined conversion price of $1.25 per
share. The preferred shares are recorded in the consolidated financial statements as Mezzanine Equity. The Series A Shares are
subject to a redemption obligation pursuant to which the Company must redeem at a price of $1.25 per share the following amounts
on the following dates if it is successful in raising financing capital of $2,500,000 as of August 1, 2016, $2,500,000 as of September
1, 2016 and $5,000,000 as of October 1, 2016; 900,000 Series A Shares ($1,250,000) by May 1, 2016, an additional 900,000 Series
A Shares ($1,250,000) by June 1, 2016, and the remaining 2,429,384 Series A Shares ($3,136,730) by July 1, 2016. As of December
31, 2015, 80,000 preferred shares were purchased by an unrelated third-party and exchanged for 80,000 shares of common stock of
DSG Global, Inc.
Note
10 – STOCKHOLDERS’ DEFICIT
Common
Stock
The
Company has 125,000,000 shares of common stock authorized, each having a par value of $0.001, as of June 30, 2016 and December
31, 2015. According to the Share Exchange Agreement dated April 13, 2015, we agreed to acquire not less than 75% and up to 100%
of the issued and outstanding common shares of DSG TAG in exchange for the issuance to the subscribing shareholders of up to 20,000,000
shares of our common stock on the basis of 1 common share of DSG Global, Inc. for 5.4935 common shares of DSG TAG. The Company
also issued an additional 179,823 common shares to a director of DSG TAG to meet debt agreement obligations. There were 30,291,187
shares of common stock of the Company issued and outstanding as of June 30, 2016 and December 31, 2015. Each share of common stock
is entitled to one (1) vote.
Noncontrolling
Interest
DSG
TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of June 30, 2016 and
December 31, 2015. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”)
and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731
on October 24, 2014. The Series A Shares were not exchanged for securities of DSG Global, Inc. as part of the Share Exchange Agreement.
Noncontrolling interest as of June 30, 2016 and December 31, 2015 was $766,877 or 16.18% or $660,771 or 16.18%, respectively.
Note
11 – STOCK OPTIONS AND WARRANTS
Stock
Compensation to employees and officers
On
March 1, 2013, the Company extended warrants issued in 2008 to five employees and officers that were to expire on March 31, 2013
to December 31, 2016. The Company issued warrants to these individuals to purchase an aggregate of 7,006,098 shares of common
stock. The warrants had an exercise price of $0.23 per share. The fair value of the warrants at the time they were extended was
estimated at $769,760 using a Black-Scholes model with the following assumptions: expected volatility of 17%, risk free interest
of 0.38%, expected life of 3 years and no dividends. The fair value of the warrants were recorded as equity and compensation expense.
On January 18, 2015, DSG TAG cancelled 5,913,898 of the warrants. The remaining 1,092,200 of the warrants have not yet been exercised
and are currently outstanding as of June 30, 2016. These warrants are exercisable into shares of common stock of DSG Global, Inc.
at the rate of 1 share of DSG Global for each 5.4935 shares of DSG TAG.
Note
12 – RELATED PARTY TRANSACTIONS
On
March 31, 2015 the Company entered into an agreement with a marketing firm that is owned by one of the directors of the Company.
The terms included cash payment of $17,500 and a note in the amount of $310,000, with 5% interest per annum, convertible at the
election of the holder into 248,000 shares of Common Stock of DSG Global, Inc. at a price of $1.25 per share, maturing on March
30, 2016. As of June 30, 2016, it was estimated that approximately 90% of the marketing services related to the agreement have
been expensed in the amount of $280,000 and the remaining $30,000 is recorded as a prepaid deposit. As of June 30, 2016, the Director
of the Company has filed a notice of default on March 31, 2016 in regards to the related party convertible note on the financial
statements of DSG TAG. The note was issued in lieu of marketing services, the note maturity date is March 31, 2016. Adore and
DSG TAG are currently in arbitration in regards to this matter. (See Note 16).
On
June 16, 2016, a loan was received from a related party in the amount of $23,061, the loan is payable on demand. (See Note 7).
Amount
due from related party at June 30, 2016 and December 31, 2015 was $62,831 and $91,727, respectively. The amounts consist of advances
to a director and officer of the Company. These amounts are unsecured, non-interest bearing and due on demand.
Note
13 – INCOME TAX
The
following is the income tax expense reflected in the Statement of Operations for the six months ended June 30, 2016 and 2015.
Income Tax Expense
|
|
|
Three month ended
|
|
|
|
Six month ended
|
|
|
|
|
June 30, 2016
|
|
|
|
June 30, 2015
|
|
|
|
June 30, 2016
|
|
|
|
June 30, 2015
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following are the components of income before income tax reflected in the Statement of Operations for the six months ended June
30, 2016 and 2015:
Component of Loss Before Income Tax and Noncontrolling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month ended
|
|
|
Six month ended
|
|
|
|
|
June 30, 2016
|
|
|
|
June 30, 2015
|
|
|
|
June 30, 2016
|
|
|
|
June 30, 2015
|
|
Loss before income tax and
noncontrolling Interest
|
|
$
|
(350,759
|
)
|
|
$
|
(553,777
|
)
|
|
$
|
(812,740
|
)
|
|
$
|
(894,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Deferred
income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating
the ability to recover the deferred tax assets within the jurisdiction from which they arise, the Company considered all available
positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax
planning strategies and recent financial operations. In projecting future taxable income, the Company began with historical results
adjusted for changes in accounting policies and incorporates assumptions including the amount of future pretax operating income,
the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions
require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimate the Company
are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company
consider three years of cumulative operating income (loss).
As
of June 30, 2016, the Company had net operating losses, or NOLs, of approximately $25.4 million to offset future taxable income
in Canada and the United Kingdom. The deferred tax assets at June 30, 2016 were fully reserved. Management believes it is more
likely than not that these assets will not be realized in the near future.
Note
14 – GEOGRAPHIC SEGMENT INFORMATION
As
a result of the reverse merger on May 6, 2015, the Company operates in three regions: Canada, United Kingdom and the United States
of America. All inter-company transactions are eliminated in consolidation. Prior to the merger, the Company operated in two regions.
For
the six months ended June 30, 2016 and 2015, geographic segment information is as follows:
For the Six Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
United Kingdom
|
|
|
United States
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
576,076
|
|
|
$
|
168,050
|
|
|
|
-
|
|
|
$
|
(6,881
|
)
|
|
$
|
737,245
|
|
Cost of Revenue
|
|
|
180,109
|
|
|
|
61,839
|
|
|
|
-
|
|
|
|
(6,881
|
)
|
|
|
235,067
|
|
Total Expenses
|
|
|
876,603
|
|
|
|
201,044
|
|
|
|
6,417
|
|
|
|
-
|
|
|
|
1,084,064
|
|
Other Income (Expenses)
|
|
|
(207,318
|
)
|
|
|
(21,715
|
)
|
|
|
(1,823
|
)
|
|
|
-
|
|
|
|
(230,856
|
)
|
Noncontrolling Interest
|
|
|
130,147
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,147
|
|
Net (Loss) Income
|
|
|
(557,807
|
)
|
|
|
(116,548
|
)
|
|
|
(8,240
|
)
|
|
|
-
|
|
|
|
(682,595
|
)
|
Assets
|
|
|
800,783
|
|
|
|
114,140
|
|
|
|
62,243
|
|
|
|
(301,646
|
)
|
|
|
675,520
|
|
Liabilities
|
|
|
4,468,228
|
|
|
|
348,108
|
|
|
|
14,560
|
|
|
|
(301,646
|
)
|
|
|
4,529,250
|
|
For the Six Months Ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
United Kingdom
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,027,177
|
|
|
$
|
470,639
|
|
|
$
|
(238,601
|
)
|
|
$
|
1,259,215
|
|
Cost of Revenue
|
|
|
660,964
|
|
|
|
306,681
|
|
|
|
(238,601
|
)
|
|
|
729,044
|
|
Total Expenses
|
|
|
1,098,327
|
|
|
|
141,642
|
|
|
|
-
|
|
|
|
1,239,969
|
|
Other Income (Expenses)
|
|
|
(166,342
|
)
|
|
|
(17,878
|
)
|
|
|
-
|
|
|
|
(184,220
|
)
|
Non-controlling Interest
|
|
|
146,971
|
|
|
|
-
|
|
|
|
-
|
|
|
|
146,971
|
|
Net (Loss) Income
|
|
|
(751,485
|
)
|
|
|
4,438
|
|
|
|
-
|
|
|
|
(747,047
|
)
|
Assets
|
|
|
1,179,457
|
|
|
|
107,501
|
|
|
|
(97,977
|
)
|
|
|
1,188,981
|
|
Liabilities
|
|
|
2,837,365
|
|
|
|
132,641
|
|
|
|
(97,977
|
)
|
|
|
2,872,029
|
|
Note
15 – COMMITMENTS AND CONTINGENCIES
Lease
Obligations
The
Company leases offices in Canada under a renewable operating lease which will expire on January 31, 2017, following which the
term of the lease is month to month, with 30 days’ notice to terminate. The lease term was extended by an additional six
months subject to leasing our current space or another office in the building. The annual rent for the premises in Canada is approximately
$66,000. For the six months ended June 30, 2016 and 2015, the aggregate rental expense was $35,670 and $40,066, respectively.
Rent expense included other amounts paid in Canada and the United Kingdom for warehouse storage and offices on a month-to-month
or as-needed basis.
The
Company signed an operating lease agreement through National Leasing for a photocopier. The lease terms are for 60 months commencing
on May 22, 2015 and ending April 22, 2020 with a monthly lease payment of approximately $183.
The
following table summarizes our future minimum payments under these arrangements as of June 30, 2016:
|
June 30:
|
|
|
|
|
|
|
2017
|
|
|
$
|
1,651
|
|
|
2018
|
|
|
|
2,200
|
|
|
2019
|
|
|
|
2,200
|
|
|
2020
|
|
|
|
2,567
|
|
|
|
|
|
$
|
8,618
|
|
Product
Warranties
The
Company’s product warranty costs are part of its cost of sales based on associated material product costs, labor costs for
technical support staff, and associated overhead. The products sold are generally covered by a warranty for a period of one year.
As of December 31, 2015 the Company has set up a reserve for future warranty costs, at June 30, 2016 the recorded reserve was
$115,305. The Company’s past experience with warranty related costs was used as a basis for the reserve. Prior to December
31, 2015 the Company expensed warranty costs as incurred. The warranty expense incurred was $112,372 and $105,337 for the six
months ended June 30, 2016 and 2015, respectively.
In
the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions
with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising
from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain
parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In
addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws
contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential
amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and
the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these
agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.
Note
16 – LEGAL MATTERS
On
December 30, 2012 a corporation filed an action against the Company in the United States courts claiming patent infringement.
On March 8, 2013 the parties agreed to a settlement, with the Company admitting no wrongdoing, in the amount of $125,000. The
settlement is to be paid over an 18 month period in equal installments of $7,500 with annual interest at a rate of 8%. The Company
has accrued all liabilities related to this matter in the financial statements.
On
June 4, 2015, a shareholder of the Company’s subsidiary filed a lawsuit to recover a loan of CAD$100,000 which was made
on October 16, 2012 and was due on July 16, 2013 with accrued interest. A response to the claim was submitted on June 29, 2015.
On August 13, 2015 a settlement was reached between both parties to pay the loan amount remaining plus interest, for a total of
$119,700. In addition, the shareholder’s outstanding shares of DSG TAG were converted into 18,422 shares of common stock
of DSG Global, Inc. on October 22, 2015. On February 16, 2016, a new agreement was reached after a breach of the settlement agreement
dated August 13, 2015. DSG TAG defaulted on the settlement agreement and both parties agreed to new terms. The balance owing on
February 16, 2106 was CAD$86,780 payable ratably over 16 months. The shareholder’s loan and accrued interest is appropriately
recorded in these financial statements.
A
Director of the Company, representing their company Adore Creative Agency Inc. (Adore) has filed a notice of default in regards
to the related party convertible note on the financial statements of DSG TAG. The note was issued in lieu of marketing services,
the note maturity date is March 31, 2016. Adore and DSG TAG are currently in arbitration in regards to this matter.
Note
17 – SUBSEQUENT EVENTS
Management has evaluated events subsequent
through August 22, 2016 for transactions and other events that may require adjustment of and/or disclosure in such financial
statements.
On July 26, 2016, DSG TAG has signed an additional
six month extension on the current lease. The term will begin on August 1, 2016 and end on January 31, 2017.
On August 5, 2016, DSG Global signed
a convertible note agreement for $150,000 USD. The term of the note is 45 days from the date of contract with interest accrued
at 2% per month. The principal and interest will be repaid in full by way of cash repayment or Class A common shares.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This Quarterly Report on
Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “potentially,”
“estimate,” “continue,” “anticipate,” “intend,” “could,” “would,”
“project,” “plan,” “expect” and similar expressions that convey uncertainty of future events
or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited
to, statements concerning the following:
|
●
|
our future financial and operating results;
|
|
|
|
|
●
|
our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
|
|
|
|
|
●
|
the timing and success of our business plan;
|
|
|
|
|
●
|
our plans regarding future financings;
|
|
|
|
|
●
|
our ability to attract and retain customers;
|
|
|
|
|
●
|
our dependence on growth in our customers’ businesses;
|
|
|
|
|
●
|
the effects of market conditions on our stock price and operating results;
|
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●
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our ability to maintain our competitive technological advantages against competitors in our industry;
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●
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the expansion of our business in our core golf market as well as in new markets like commercial fleet management and agriculture;
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●
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our ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance;
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●
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our ability to introduce new offerings and bring them to market in a timely manner;
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●
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our ability to maintain, protect and enhance our intellectual property;
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●
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the effects of increased competition in our market and our ability to compete effectively;
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●
|
the attraction and retention of qualified employees and key personnel;
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●
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future acquisitions of or investments in complementary companies or technologies; and
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●
|
our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company.
|
These forward-looking statements
speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business and economic risks. As such,
our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set
forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission.
Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not
possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements
we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in
this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in our
forward-looking statements.
You should not rely upon
forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances
described in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations,
except as required by law.
Our unaudited financial
statements are state in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Principles.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes
thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels
of activity, performance and events and circumstances may be materially different from what we expect.
Corporate History
DSG Global, Inc. (formerly
Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007. We were formed to option
feature films and TV projects to be packaged and sold to movie studios and production companies.
In January 2015, we changed
our name to DSG Global, Inc. and effected a one-for-three reverse stock split of our issued and outstanding common stock in anticipation
of entering in a share exchange agreement with DSG TAG Systems, Inc., a corporation incorporated under the laws of the State of
Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008.
On April 13, 2015, we entered
into a share exchange agreement with DSG TAG Systems Inc. and the shareholders of DSG TAG Systems who become parties to the agreement.
Pursuant to the terms of the share exchange agreement, we agreed to acquire not less than 75% and up to 100% of the issued and
outstanding common shares in the capital stock of DSG TAG Systems in exchange for the issuance to the selling shareholders of up
to 20,000,000 shares of our common stock on the basis of 1 common share for 5.4935 common shares of DSG TAG Systems.
On May 6, 2015, we completed
the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common shares of DSG TAG Systems
as contemplated by the share exchange agreement by issuing 15,185,875 shares of our common stock to shareholders of DSG TAG Systems
who became parties to the agreement. In addition, concurrent with the closing of the share exchange agreement, we issued an additional
179,823 shares of our common stock to Westergaard Holdings Ltd. in partial settlement of accrued interest on outstanding indebtedness
of DSG TAG Systems.
Following the initial closing
of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of common stock of DSG TAG
Systems from shareholders who became parties to the share exchange agreement, and issued to these shareholders an aggregate of
18,422 shares of our common stock. Following completion of these additional purchases, DSG Global owns approximately 100% of the
issued and outstanding shares of common stock of DSG TAG Systems. An aggregate of 4,229,384 shares of Series A Convertible Preferred
Stock of DSG TAG Systems continues to be held by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a member of our
board of directors.
The reverse acquisition
was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG Systems is considered the acquirer for accounting
and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value
and no goodwill has been recognized. We adopted the business and operations of DSG TAG Systems upon the closing of the share exchange
agreement.
Overview of Our Business
DSG Global, Inc. is a
technology development company based in Surrey, British Columbia, Canada, engaged in the design, manufacture, and marketing of
fleet management solutions for the golf industry, as well as commercial, government and military applications. Our principal activities
are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support services. We were founded
by a group of individuals who have dedicated their careers to fleet management technologies and have been at the forefront of the
industry’s most innovative developments, and our executive team has over 50 years of experience in the design and manufacture
of wireless, GPS, and fleet tracking solutions. We have developed the TAG suite of products that we believe is the first completely
modular fleet management solution for the golf industry. The TAG suite of products is currently sold and installed around the world
in golf facilities and as commercial applications through a network of established distributors and partnerships with some of the
most notable brands in fleet and equipment manufacture.
DSG stands for “Digital
Security Guard”, which is our primary value statement giving fleet operator’s new capabilities to track and control
their vehicles. We have developed a proprietary combination of hardware and software that is marketed around the world as the TAG
system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course operators manage their
fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management in the golf industry
and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of the National Golf Course
Owners Association. To date the TAG system is installed on over 8,000 vehicles and has been used to monitor over 6,000,000 rounds
of golf.
The TAG system fills
a void in the marketplace by offering a modular structure that allows the customer to customize their system to meet desired functionality
and budget constraints. In addition to the core TAG system vehicle control functionality, which can operate independently, we offer
two golfer information display systems — the alphanumeric TEXT and high definition TOUCH — providing the operator with
two display options which is unique in the industry.
The primary market for
our TAG system is the 40,000 golf operations worldwide. While the golf industry remains the primary focus of our sales and marketing
efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture and commercial fleet
operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new markets.
We have a direct sales
force in North America, which comprises the most significant portion of the golf fleet market, and have developed key relationships
with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive sales for the North
American and worldwide markets.
In order to successfully
deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier of our hardware units
and components at competitive prices. Presently, we source our TOUCH units from one supplier in China and our TAG units from one
supplier in the United Kingdom. We have recently established a new relationship with a supplier for our TOUCH units in China to
provide us with higher quality, newer technology at competitive pricing.
In addition, DSG is currently
in negotiations with a telecommunications provider to provide new technology in hardware and wireless access.
Our Revenue Model
We derive revenue from four
different sources, as follows:
|
●
|
Systems Sales Revenue
, which consists of the sales price paid by those customers who purchase or lease our TAG system hardware.
|
|
|
|
|
●
|
Monthly Service Fees
are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG systems.
|
|
|
|
|
●
|
Monthly Rental Fees
are paid by those customers that rent the TAG system hardware. The amount of a customer’s monthly payment varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and TOUCH).
|
|
|
|
|
●
|
Advertising Revenue
is a new source of revenue that we believe has the potential to be strategic for us in the future. We are in the process of implementing and designing software to provide advertising and other media functionality on our TOUCH units.
|
We recognize revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably
assured. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance
criteria have been met. We accrue for warranty costs, sales returns, and other allowances based on its historical experience.
Our revenue recognition
policies are discussed in more detail under “
Note 2 – Summary of Significant Accounting Policies
” in the
notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Cost of Revenue
Our cost of revenue consists
primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and inventory adjustments.
|
●
|
Hardware purchases.
Our equipment purchases consist primarily of TAG system control units, TEXT display, and TOUCH display tablets. The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or TOUCH high definition “touch activated” display. Hardware purchases also include costs of components used during installations, such as cables, mounting solutions, and other miscellaneous equipment.
|
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|
|
●
|
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.
|
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|
●
|
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.
|
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|
●
|
Operating Expenses & Other Income (Expenses)
We classify our operating expenses and other income (expenses) into six categories: compensation, research and development, general and administrative, warranty, foreign currency exchange, and finance costs. Our operating expenses consist primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade shows, software development, and allocated costs. Allocated costs include charges for facilities, office expenses, telephones and other miscellaneous expenses. Our other income (expenses) primarily consists of financing costs and foreign exchange gains or losses.
|
|
|
|
|
●
|
Compensation expense.
Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses, and employee benefits. This includes salaries for management, administration, engineering, sales and marketing, and service support technicians. Salaries and wages directly related to projects or research and development are expensed as incurred to their operating expense category.
|
|
●
|
Research and development
. Our research and development expenses consist primarily of personnel costs and professional services associated with the ongoing development and maintenance of our technology.
|
|
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|
|
●
|
Research and development
expenses include payroll, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached. Research and development is expensed and is included in operating expenses.
|
|
|
|
|
●
|
General and administrative
. Our general and administrative expenses consist primarily of sales and marketing, commissions, travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting and legal professional services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing, marketing materials, and media management.
|
|
|
|
|
●
|
Warranty expense.
Our warranty expenses consist primarily of associated material product costs, labor costs for technical support staff, and other associated overhead. Warranty costs are expensed as they are incurred.
|
|
|
|
|
●
|
Foreign currency exchange.
Our foreign currency exchange consist primarily of foreign exchange fluctuations recorded in Canadian dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
|
|
|
|
|
●
|
Finance costs.
Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing charges for obtaining debt financing.
|
We expect to continue to
invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal
and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the
Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute dollars in future periods.
In particular, we expect to incur additional marketing costs to support the expansion of our offerings in new markets like commercial
fleet management and agriculture.
Additional Capital
We require additional
capital to continue to develop software and products, meet our contractual obligations, and execute our business plan. There can
be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our
ability to achieve our business objectives.
Results of Operations
We had a net loss of $295,173
for the three month period ended June 30, 2016, which was $168,454 less than the net loss of $463,627 for the three month period
ended June 30, 2015.
We had a net loss of $682,593
for the six month period ended June 30, 2016, which was $64,454 less than the net loss of $747,047 for the six month period ended
June 30, 2015.
The following table summarizes
key items of comparison and their related increase (decrease) for the three and six month periods ended June 30, 2016 and 2015:
|
|
Three Months ended
|
|
|
Three Months ended
|
|
|
Increase (Decrease)
2016 from
|
|
|
Six Months ended
|
|
|
Six Months ended
|
|
|
Increase (Decrease) 2016 from
|
|
|
|
30-Jun-16
|
|
|
30-Jun-15
|
|
|
2015
|
|
|
30-Jun-16
|
|
|
30-Jun-15
|
|
|
2015
|
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
($)
|
|
|
|
(%)
|
|
Revenues
|
|
$
|
482,317
|
|
|
$
|
469,035
|
|
|
|
2.8
|
%
|
|
$
|
737,245
|
|
|
$
|
1,259,215
|
|
|
|
-41.5
|
%
|
Cost of revenue
|
|
|
140,519
|
|
|
|
240,997
|
|
|
|
-41.7
|
%
|
|
|
235,067
|
|
|
|
729,044
|
|
|
|
-67.8
|
%
|
Gross profit
|
|
|
341,798
|
|
|
|
228,038
|
|
|
|
49.9
|
%
|
|
|
502,178
|
|
|
|
530,171
|
|
|
|
-5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
187,215
|
|
|
|
173,397
|
|
|
|
8.0
|
%
|
|
|
383,059
|
|
|
|
326,317
|
|
|
|
17.4
|
%
|
Research and development expense
|
|
|
19,311
|
|
|
|
15,416
|
|
|
|
25.3
|
%
|
|
|
36,348
|
|
|
|
34,849
|
|
|
|
4.3
|
%
|
General and administrative expense
|
|
|
201,401
|
|
|
|
414,925
|
|
|
|
-51.5
|
%
|
|
|
520,065
|
|
|
|
746,153
|
|
|
|
-30.3
|
%
|
Warranty expense
|
|
|
67,155
|
|
|
|
46,494
|
|
|
|
44.4
|
%
|
|
|
112,372
|
|
|
|
105,337
|
|
|
|
6.7
|
%
|
Bad Debt
|
|
|
1,178
|
|
|
|
8,861
|
|
|
|
-86.7
|
%
|
|
|
4,283
|
|
|
|
8,861
|
|
|
|
-51.7
|
%
|
Depreciation and amortization expense
|
|
|
22,353
|
|
|
|
9,749
|
|
|
|
129.3
|
%
|
|
|
27,937
|
|
|
|
18,453
|
|
|
|
51.4
|
%
|
Total Operating Expenses
|
|
|
498,613
|
|
|
|
668,841
|
|
|
|
-25.5
|
%
|
|
|
1,084,064
|
|
|
|
1,239,969
|
|
|
|
-12.6
|
%
|
Loss from operations
|
|
|
(156,815
|
)
|
|
|
(440,803
|
)
|
|
|
-64.4
|
%
|
|
|
(581,886
|
)
|
|
|
(709,798
|
)
|
|
|
-18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange
|
|
|
(20,938
|
)
|
|
|
(14,387
|
)
|
|
|
45.5
|
%
|
|
|
51,202
|
|
|
|
(35,382
|
)
|
|
|
-244.7
|
%
|
Other (expenses) income
|
|
|
(1,053
|
)
|
|
|
(4,677
|
)
|
|
|
-77.5
|
%
|
|
|
(1,543
|
)
|
|
|
(7,130
|
)
|
|
|
-78.4
|
%
|
Finance costs
|
|
|
(171,953
|
)
|
|
|
(93,910
|
)
|
|
|
83.1
|
%
|
|
|
(280,513
|
)
|
|
|
(141,708
|
)
|
|
|
98.0
|
%
|
Total Other Expense
|
|
|
(193,944
|
)
|
|
|
(112,974
|
)
|
|
|
71.7
|
%
|
|
|
(230,854
|
)
|
|
|
(184,220
|
)
|
|
|
25.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
(350,759
|
)
|
|
|
(553,777
|
)
|
|
|
-36.7
|
%
|
|
|
(812,740
|
)
|
|
|
(894,018
|
)
|
|
|
-9.1
|
%
|
Net loss attributable to noncontrolling interest
|
|
|
55,586
|
|
|
|
90,150
|
|
|
|
-38.3
|
%
|
|
|
130,147
|
|
|
|
146,971
|
|
|
|
-11.4
|
%
|
Net loss attributable to DSG Global
|
|
$
|
(295,173
|
)
|
|
$
|
(463,627
|
)
|
|
|
-36.3
|
%
|
|
$
|
(682,593
|
)
|
|
$
|
(747,047
|
)
|
|
|
-8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
|
(0.010
|
)
|
|
|
(0.020
|
)
|
|
|
-50.0
|
%
|
|
|
(0.025
|
)
|
|
|
(0.034
|
)
|
|
|
-26.5
|
%
|
Comparison of the three and six months ended June 30, 2016 and
2015:
Revenue
|
|
For the Three Months Ended June 30,
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
482,317
|
|
|
$
|
469,035
|
|
|
2.8
|
%
|
|
$
|
737,245
|
|
|
$
|
1,259,215
|
|
|
(41.5
|
)%
|
Revenue increased by
$13,282, or 2.8%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 and decreased by
$521,970, or 41.5% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The increase for the
three months ended for June 30, 2016 in comparison to June 30, 2015 was primarily due to the increase in hardware sales and the
return of TOUCHs from our Asian Distributor in the June 30, 2015 quarter. The decrease for the six months ended for June 30, 2016
in comparison to June 30, 2015 was primarily due to lower sales in the first quarter of 2016 and continued design and redevelopment
of our product line.
In addition, 30% of sales
included for the six months ended June 30, 2015 were from a product return from our distributor that is currently recognized on
the financial statements as a deferred revenue. The revenue on the return will be recognized each quarter towards monthly service
fees and new inventory purchases made. As well, some of the sales in the second quarter of 2016 included the monthly system access
fees to be prepaid in full, this has been recorded in the deferred revenue, and will be recognized each quarter towards monthly
service fees.
In addition, DSG sales
in the second quarter of 2016 increased by 89.2% in comparison to the first quarter of 2016. DSG increased sales in the second
quarter of 2016 was due to increased efforts from DSG’s sales team, contract renewals, new software updates, and obtaining
new distributors in the European market. However, due to the redevelopment of our product line, it has created lower sales overall
than anticipated. The company has been forced to move to a 3G/4G GPS cellular device, require redevelopment of our advertising,
and also software development delays in integrating the tournament software onto the TOUCH screen, all of which that has caused
delays in sales. The company along with the new sales team is aggressively building its pipeline for next two quarters.
Cost of Revenue
|
|
For the Three Months Ended June 30,
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
140,519
|
|
|
$
|
240,997
|
|
|
(41.7
|
)%
|
|
$
|
|
235,067
|
|
|
$
|
729,044
|
|
|
(67.8
|
)%
|
Cost of revenue decreased
by $100,478, or 41.7%, for the three months ended June 30, 2016 as compared to the three months June 30, 2015 and decreased by
$493,977 or 67.8% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The table below outlines
the differences in detail:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June30,
2016
|
|
|
June30,
2015
|
|
|
Difference
|
|
|
%
Difference
|
|
|
June30,
2016
|
|
|
June30,
2015
|
|
|
Difference
|
|
|
%
Difference
|
|
Cost of Goods
|
|
$
|
26,312
|
|
|
$
|
107,611
|
|
|
$
|
(81,299
|
)
|
|
|
(75.5
|
)%
|
|
$
|
48,979
|
|
|
$
|
444,757
|
|
|
$
|
(395,778
|
)
|
|
|
(89.0
|
)%
|
Labour
|
|
|
-
|
|
|
|
12,270
|
|
|
|
(12,270
|
)
|
|
|
(100.0
|
)%
|
|
|
-
|
|
|
|
28,639
|
|
|
|
(28,639
|
)
|
|
|
(100.0
|
)%
|
Mapping & Freight Costs
|
|
|
6,797
|
|
|
|
16,217
|
|
|
|
(9,420
|
)
|
|
|
(58.1
|
)%
|
|
|
10,352
|
|
|
|
41,081
|
|
|
|
(30,729
|
)
|
|
|
(74.8
|
)%
|
Wireless Fees
|
|
|
83,366
|
|
|
|
108,409
|
|
|
|
(25,043
|
)
|
|
|
(23.1
|
)%
|
|
|
149,750
|
|
|
|
198,870
|
|
|
|
(49,120
|
)
|
|
|
(24.7
|
)%
|
Inventory Write-off/Adjustments
|
|
|
24,044
|
|
|
|
(3,510
|
)
|
|
|
27,554
|
|
|
|
(785.0
|
)%
|
|
|
25,986
|
|
|
|
15,697
|
|
|
|
10,289
|
|
|
|
65.5
|
%
|
|
|
$
|
140,519
|
|
|
$
|
240,997
|
|
|
$
|
(100,478
|
)
|
|
|
(41.7
|
)%
|
|
$
|
235,067
|
|
|
$
|
729,044
|
|
|
$
|
(493,977
|
)
|
|
|
(67.8
|
)%
|
For the three months
ended June 30, 2016 as compared to the three months ended June 30, 2015, the decrease was primarily due to a contract lease renewal
which resulted in no new hardware costs, only the system access fee and the leased equipment amount which was financed over the
term of the contract. The system access fees have been recorded in the deferred revenue and will be recognized each quarter towards
monthly service fees. As well, DSG had a new customer lease contract, in which the customer leases our hardware for a monthly payment
consisting of hardware and a monthly service fee. This hardware is recorded on our balance sheet, under equipment on lease since
the hardware is owned by DSG. As a result, cost of goods decreased by $81,299 for the three months ended June 30, 2016 in comparison
to the three months ended June 30, 2015. Installation costs, such as direct labor decreased by $12,270, mapping and freight costs
decreased by $9,420, and wireless fees also decreased by $25,043. There was also an increase of $27,554 for inventory adjustments
which was primarily due to write-off of obsolete inventory from customer lease returns.
For the six months ended
June 30, 2016 as comparted to the six months ended June 30, 2015, the overall decrease of 67.8% was due to the decrease in hardware
leases and sales. Lower costs of revenue as mentioned above was also due to a contract lease renewal that had no hardware costs
associated. Lower sales also resulted in lower installation costs, freight charges, mapping, and direct labor costs in the six
months ended in June 30, 2016 in comparison to the six months ended June 30, 2015. Installation costs, such as direct labor decreased
by $28,639, cost of goods decreased by $395,778, mapping and freight costs decreased by $30,729, and inventory adjustments increased
by $10,289. Wireless fees also decreased by $49,120 which was also due to new lower negotiated wireless fee rates.
Compensation Expense
|
|
For
the Three Months Ended June 30,
|
|
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
$
|
187,215
|
|
|
$
|
173,397
|
|
8.0
|
%
|
|
$
|
383,059
|
|
|
$
|
326,317
|
|
17.4
|
%
|
Compensation expense
increased by $13,818, or 8.0%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 and
increased by $56,742, or 17.4% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The increase
was primarily due to the increase in hiring of employees and contractors to meet projected growth obligations in engineering for
software and hardware development.
Research and Development
|
|
For
the Three Months Ended
June
30,
|
|
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
2016
|
|
2015
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
$
|
19,311
|
|
|
$
|
15,416
|
|
|
25.3
|
%
|
|
$
|
36,348
|
|
$
|
34,849
|
|
|
4.3
|
%
|
Research and development
expense increased by $3,895, or 25.3% for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015
and increased by $1,449, or 4.3% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The
overall increase of 4.3 % over the six months was minimal, however we expect research and development expenses to increase as we
enter new markets like commercial fleet management, agriculture, and advertising. In addition, the hiring of additional engineers
in the third and last quarter of 2016 will result in even higher research and development costs in future periods. These increase
in costs will be required to develop the new 3G/4G GPS cellular device.
General and Administration Expense
|
|
For
the Three Months Ended June 30,
|
|
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administration expense
|
|
$
|
201,401
|
|
|
$
|
414,925
|
|
|
(51.5
|
)%
|
|
$
|
520,065
|
|
|
$
|
746,153
|
|
|
(30.3
|
)%
|
General & administration
expense decreased by $213,524, or 51.5% for the three months ended June 30, 2016 compared to the three months ended June 30,
2015 and decreased 226,088, or 30.3% for the six months ended June 30, 2016 compared to the three months ended June 30, 2015.
The table below outlines the differences in detail:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
Difference
|
|
|
%
Difference
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
Difference
|
|
|
%
Difference
|
|
Accounting & Legal
|
|
$
|
28,738
|
|
|
$
|
91,002
|
|
|
$
|
(62,264
|
)
|
|
|
(68.4
|
)%
|
|
$
|
47,772
|
|
|
$
|
125,047
|
|
|
$
|
(77,275
|
)
|
|
|
(61.8
|
)%
|
Marketing & Advertising
|
|
|
24,713
|
|
|
|
90,737
|
|
|
|
(66,024
|
)
|
|
|
(72.8
|
)%
|
|
|
170,191
|
|
|
|
278,516
|
|
|
|
(108,325
|
)
|
|
|
(38.9
|
)%
|
Subcontractor & Commissions
|
|
|
20,041
|
|
|
|
102,218
|
|
|
|
(82,177
|
)
|
|
|
(80.4
|
)%
|
|
|
44,513
|
|
|
|
108,753
|
|
|
|
(64,240
|
)
|
|
|
(59.1
|
)%
|
Interest Expense
|
|
|
1,524
|
|
|
|
9,904
|
|
|
|
(8,380
|
)
|
|
|
(84.6
|
)%
|
|
|
14,269
|
|
|
|
17,541
|
|
|
|
(3,272
|
)
|
|
|
(18.7
|
)%
|
Hardware Design
|
|
|
412
|
|
|
|
1,032
|
|
|
|
(620
|
)
|
|
|
(60.1
|
)%
|
|
|
13,157
|
|
|
|
1,811
|
|
|
|
11,346
|
|
|
|
626.5
|
%
|
Office Expense, Rent, Software,
Bank & Credit Card Charges,
Telephone, Travel, & Meals
|
|
|
125,973
|
|
|
|
120,032
|
|
|
|
5,941
|
|
|
|
4.9
|
%
|
|
|
230,163
|
|
|
|
214,485
|
|
|
|
15,678
|
|
|
|
7.3
|
%
|
|
|
$
|
201,401
|
|
|
$
|
414,925
|
|
|
$
|
(213,524
|
)
|
|
|
(51.5
|
)%
|
|
$
|
520,065
|
|
|
$
|
746,153
|
|
|
$
|
(226,088
|
)
|
|
|
(30.3
|
)%
|
For the three months
ended June 30, 2016 as compared to the three months ended June 30, 2015, the decrease of $62,264 in accounting and legal fees was
due to the costs associated with the merger in May 6, 2015, in the three months ended June 30, 2016, the costs primarily consisted
of regular fees associated with the filing requirements. Marketing and advertising decreased by $66,024, this was a result of additional
marketing costs expensed from the note convertible issued in March 31, 2015 for marketing and advertising services and the majority
of the note being expensed in 2015. Subcontractors and commissions also decreased by $82,177, this was due to the hiring of more
employees instead of contract workers. Overall, there was also a decrease of $3,059 in interest expense, hardware design, office
expense, rent, software, bank & credit card charges, telephone, and travel and meals, this was due to the increased efforts
to minimize costs.
For the six months ended
June 30, 2016 as compared to the six months ended June 30, 2015, the decrease of $77,275 in accounting and legal fees was overall
due to the higher costs associated with the merger in May 2015, as well the decrease was also due to efforts in decreasing legal
costs for public filing requirements. There was a decrease of $108,325 in marketing and advertising costs, this was due to the
convertible note issued in March 31, 2015 as mentioned above. For the six months ended June 30, 2016 marketing and advertising
mainly consisted of tradeshow costs, which provides us with brand recognition and awareness, in order to help generate sales. Tradeshow
costs include tradeshow rental space, booth design, travel, meals and entertainment costs, and hiring of additional staff. There
was a decrease of $64,240 in subcontractor and commissions due to the hiring of more employees instead of contract workers and
lower sales resulting in less commissions being paid. There was an increase of $11,346 in hardware design for the development of
the new hardware prototype for the tradeshow. Overall, there was an increase of $15,678 in office and computer expense, rent, operations
software, bank and interest charges, travel, and meals for the six months ended June 30, 2016 compared to the six months ended
June 30, 2015, this was due to higher warranty shipping and travel costs in the first quarter of 2016.
Warranty Expense
|
|
For
the Three Months Ended June 30,
|
|
|
|
|
|
For
the Six Months Ended
June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty Expense
|
|
$
|
67,155
|
|
|
$
|
46,494
|
|
|
|
44.4
|
%
|
|
$
|
112,372
|
|
|
$
|
105,337
|
|
|
6.7
|
%
|
Warranty expense increased
by $20,661, or 44.4% for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 and increased
by $7,035, or 6.7% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The increase in warranty
expense over the three months ended June 30, 2016 compared to the three months ended June 30, 2015 was due to the repairing costs
of the hardware units that were received back from our customers. These units will be used to replace other defective or broken
units in the future, we anticipate that this will help lower warranty costs. Overall, the increase in warranty expense for the
six months ended June 30, 2016 compared to the six months ended June 30, 2016 is primarily due to the combination of costs associated
with repairing units and replacing older units with new units. In addition, the warranty amount for the six months ended June 30,
2016 includes a reserve of $115,305 on the balance sheet for future warranty costs, no reserve was used in prior periods, and warranty
costs were expensed as incurred.
Foreign Currency Exchange
|
|
For
the Three Months Ended June 30,
|
|
|
|
|
|
For
the Six Months Ended
June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
exchange
|
|
$
|
20,938
|
|
|
$
|
14,387
|
|
|
|
45.5
|
%
|
|
$
|
(51,202
|
)
|
|
$
|
35,382
|
|
|
(244.7
|
)%
|
For the three months
ended June 30, 2016, we recognized a $20,938 loss in foreign currency transaction as compared to $14,387 in foreign currency transaction
losses for the three months ended June 30, 2015. For the six months ended June 30, 2016, we recognized $51,202 gain in foreign
currency transactions losses as compared to $35,382 in foreign exchange losses for the six months ended June 30, 2016. The decrease
and increase was primarily due to the gains or losses arising from exchange rate fluctuations on payables, receivables, and other
foreign exchange transactions denominated in currencies other than the functional currencies of the legal entities in which the
transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar, Euro and British pound.
Finance Costs
|
|
For
the Three Months Ended June 30,
|
|
|
|
|
|
For
the Six Months Ended
June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
$
|
171,953
|
|
|
$
|
93,910
|
|
|
|
83.1
|
%
|
|
$
|
280,513
|
|
|
$
|
141,708
|
|
|
98.0
|
%
|
Finance costs increased
by $78,043 or 83.1%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 and increased
$138,805, or 98.0% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase overall
was primarily due to accrued interest expensed from additional loans and note convertible loans obtained after the six months ended
June 30, 2015.
Net Loss Attributable to DSG Global
|
|
For
the Three Months Ended June 30,
|
|
|
|
|
|
For
the Six Months Ended
June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to DSG Global
|
|
$
|
295,173
|
|
|
$
|
463,627
|
|
|
|
(36.3
|
)%
|
|
$
|
682,593
|
|
|
$
|
747,047
|
|
|
(8.6
|
)%
|
As a result of the above
factors, net loss after noncontrolling interest attributable to DSG Global decrease $168,454, or
As a result of the above factors, net loss
after noncontrolling interest attributable to DSG Global decrease $168,454, or 36.3% for the three months ended June 30, 2016 as
compared to the three months ended June 30, 2015 and decreased $64,454, or 8.6% for the six months ended June 30, 2016 as compared
to the six months ended June 30, 2015. The overall decrease was primarily due to increased efforts to lower operating costs in
general and administrative expenses, and the low cost of revenue from new leased hardware and lease renewal contracts that resulted
in no costs for hardware in cost of goods sold.
In addition, for the months
ended June 30, 2016, Total Other Expenses represented 65.7% of the net loss, and for the six months ended June 30, 2016, Total
Other Expenses represented 33.8% of the net loss. These expenses include foreign exchange differences and fluctuations, and accrued
interest on loans payable and other convertible notes.
Liquidity and Capital Resources
From our incorporation
in April 17, 2008 through June 30, 2016, 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 June 30, 2016, we had $2,428,357 in outstanding indebtedness, which all matures within the next
twelve months.
We had cash in the amount
of $0 as of June 30, 2016 as compared to $266,825 as of June 30, 2015. We had a working capital deficit of $3,963,750 as of June
30, 2016 compared to working capital deficit of 1,929,263 as of June 30, 2015.
Liquidity and Financial Condition
Our financial position
as of June 30, 2016 and 2015, and the changes for the periods then ended are as follows:
Working Capital
|
|
At June 30,
|
|
|
At June 30,
|
|
|
Percentage
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
Current Assets
|
|
$
|
565,500
|
|
|
$
|
942,766
|
|
|
|
(40.0
|
)%
|
Current Liabilities
|
|
$
|
4,529,250
|
|
|
$
|
2,872,029
|
|
|
|
57.7
|
%
|
Working Capital
|
|
$
|
(3,963,750
|
)
|
|
$
|
(1,929,263
|
)
|
|
|
105.5
|
%
|
Cash Flow Analysis
Our cash flows from operating, investing and
financing activities are summarized as follows:
|
|
June 30
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(329,627
|
)
|
|
$
|
97,685
|
|
Net cash (used in) provided by investing activities
|
|
|
(2,174
|
)
|
|
|
88,025
|
|
Net cash provided by financing activities
|
|
|
301,205
|
|
|
|
339
|
|
Net (decrease) increase in cash
|
|
|
(30,596
|
)
|
|
|
186,049
|
|
Cash at beginning of period
|
|
|
0.00
|
|
|
|
91,840
|
|
Cash at end of period
|
|
$
|
0.00
|
|
|
$
|
266,825
|
|
Net Cash (Used
in) Provided by Operating Activities
.
During the six months ended June 30, 2016, cash used in operations totaled $329,627. This reflects the net loss of $812,740 less
$483,113 provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working
capital items was primarily impacted by a decrease in prepaid expense and deposits of $69,008, a decrease in related party receivable
of $33,964, an increase in trade receivables of $120,144, a decrease of $115,044 in inventories, an increase in trade payables
of $250,202, and an increase in deferred revenue of $86,974.
During the six months ended
June 30, 2015, cash used in operations totaled $97,685. This reflects a net loss of $894,018 less $991,703 provided by changes
in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items was primarily impacted
by $234,791 for non-cash financing costs for notes issued for services, a decrease of prepaid expense and deposits of $210,068,
a decrease of inventory of $96,647, a decrease of $43,306 in trade receivables, an increase in trade payables of $374,066, and
an increase in deferred revenue of $15,214.
Net Cash (Used
in) Provided by Investing Activities
. Investing activities provided $2,174 of cash in the six months ended June 30,
2016, and $88,025 for the six months ended June 30, 2015 for TAG system units leased to customers. Of which in June 30, 2015,
$81,420 was acquired as part of our reverse acquisition transaction.
Net Cash Provided
by Financing Activities
. Net cash used in financing activities during the six months ended June 30, 2016 totaled $301,205,
of which $387,264 was from various note and loan facilities entered into during the period. Net cash provided by financing activities
during the six months ended June 30, 2015 was $339, of which was from various note and loan facilities entered into during the
period.
Outstanding Indebtedness
Our current indebtedness as of June 30, 2016
is comprised of the following:
|
●
|
Unsecured loan payable in the amount of $192,175 bearing interest at 15% per annum and due on demand;
|
|
|
|
|
●
|
Unsecured loan payable in the amount of $317,500 bearing interest at 18% per annum;
|
|
|
|
|
●
|
Unsecured note payable in the amount of $47,012, bearing interest at 36% per annum and due on July 20, 2017;
|
|
|
|
|
●
|
Secured convertible loan payable in the amount of $946,366, bearing interest at 15.2% per annum and due on December 31, 2015;
|
|
|
|
|
●
|
Unsecured, convertible note payable to related party in the amount of $310,000, bearing interest at 5% per annum and due on March 30, 2016;
|
|
|
|
|
●
|
Unsecured, convertible note payable in the amount of $250,000, bearing interest at 10% per annum and due on demand;
|
|
|
|
|
●
|
Unsecured, loan payable in the amount of $250,000, bearing interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016.
|
|
|
|
|
●
|
Unsecured, loan payable in the amount of $92,243, interest payable of 5% if paid by May 6, 2016, interest payable of 10% by June 6, 2016, or interest payable of 20% payable by July 5, 2016.
|
|
|
|
|
●
|
Unsecured, loan payable in the amount of $23,061, bearing interest at 20% per annum and due on demand.
|
Preferred Stock Redemption Obligations
Westergaard
Holdings Ltd., an affiliate of Keith Westergaard, a member of our board of directors, owns 4,229,384 shares (the “Series
A Shares”) of Series A Convertible Preferred Stock of DSG TAG Systems. Pursuant to a Subscription / Debt Settlement Agreement
dated September 26, 2014 between DSG TAG Systems and Westergaard Holdings, as amended on April 29, 2016, DSG TAG Systems has agreed
that DSG Global, Inc. will complete financings for gross proceeds of at least $10 million and use a portion of the proceeds to
redeem all of the Series A Shares at a price of $1.25 per share, as follows:
|
●
|
On or before August 1, 2016, we must complete a financing for gross proceeds of at least $2.5 million and use at least $1.125 million to redeem a minimum of 900,000 Series A Shares;
|
|
|
|
|
●
|
On or before September 1, 2016, we must complete an additional financing for gross proceeds of at least $2.5 million and use at least $1.125 million to redeem a minimum of 900,000 additional Series A Shares; and
|
|
|
|
|
●
|
On or before October 1, 2016, we must complete an additional financing for gross proceeds of at least $5.0 million and use at least $3.14 million to redeem the remaining 2,509,384 Series A Shares.
|
If we fail to satisfy
the above described financing and share redemption schedule, we will be in default of the Subscription and Debt Settlement Agreement
which would entitle the holder of the Preferred Shares to convert the Series A Convertible Preferred Shares into common shares
in the capital of DSG Global at the price of $1.25 per share.
Prospective Capital Needs
We estimate our operating
expenses and working capital requirements for the twelve month period beginning July 1, 2016 to be as follows:
Estimated Expenses for the Twelve Month Period Beginning April 1, 2016
|
Management compensation
|
|
$
|
600,000
|
|
Professional fees
|
|
$
|
120,000
|
|
General and administrative
|
|
$
|
2,200,000
|
|
Total
|
|
$
|
2,920,000
|
|
At present, our cash requirements
for the next 12 months outweigh the funds available to maintain our operations or development of any future properties. Of the
$2,920,000 that we require for the next 12 months, we had $8,500 in cash as of August 18, 2016, and a working capital deficit of
$3,963,750. Our principal sources of liquidity are our existing cash and cash generated from product sales. In order to achieve
sustained profitability and positive cash flows from operations, we will need to increase revenue and/or reduce operating expenses.
Our ability to maintain, or increase, current revenue levels to achieve and sustain profitability will depend, in part, on demand
for our products.
In order to improve our
liquidity, we also plan to pursue additional equity financing from private investors or possibly a registered public offering.
We do not currently have any definitive arrangements in place for the completion of any further private placement financings and
there is no assurance that we will be successful in completing any further private placement financings. 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.