DSG
GLOBAL, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
(UNAUDITED)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
-
|
|
Trade
receivables, net
|
|
|
145,258
|
|
|
|
90,038
|
|
Inventories
|
|
|
72,121
|
|
|
|
80,573
|
|
Funds
held in trust
|
|
|
-
|
|
|
|
-
|
|
Prepaid
expenses and deposits
|
|
|
64,885
|
|
|
|
56,076
|
|
TOTAL
CURRENT ASSETS
|
|
|
282,264
|
|
|
|
226,687
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
15,988
|
|
|
|
16,580
|
|
Fixed
assets, net
|
|
|
2,918
|
|
|
|
4,741
|
|
Equipment
on lease, net
|
|
|
25,522
|
|
|
|
42,763
|
|
TOTAL
NON-CURRENT ASSETS
|
|
|
44,428
|
|
|
|
64,084
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
326,692
|
|
|
$
|
290,771
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$
|
2,986
|
|
|
$
|
5,316
|
|
Trade
and other payables
|
|
|
2,954,662
|
|
|
|
2,568,792
|
|
Payable
to related party
|
|
|
-
|
|
|
|
1,526
|
|
Deferred
revenue
|
|
|
158,117
|
|
|
|
149,147
|
|
Warranty
reserve
|
|
|
115,589
|
|
|
|
111,715
|
|
Convertible
note payable to related party
|
|
|
310,000
|
|
|
|
339,791
|
|
Loans
payable
|
|
|
876,630
|
|
|
|
866,269
|
|
Derivative
liability
|
|
|
568,449
|
|
|
|
365,944
|
|
Convertible
loans payable
|
|
|
1,596,538
|
|
|
|
1,398,961
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
6,582,971
|
|
|
|
5,807,461
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE
EQUITY
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling Interest - Preferred Shares
|
|
|
5,286,731
|
|
|
|
5,286,731
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 125,000,000 shares authorized 37,426,236 and 30,291,187 outstanding at June 30, 2017 and December
31, 2016, respectively.
|
|
|
37,426
|
|
|
|
30,291
|
|
Additional
paid in capital
|
|
|
16,542,702
|
|
|
|
15,982,222
|
|
Shares
issued as deposit
|
|
|
(220,000
|
)
|
|
|
-
|
|
Other
accumulated comprehensive income
|
|
|
1,082,045
|
|
|
|
1,296,652
|
|
Accumulated
deficit
|
|
|
(27,776,111
|
)
|
|
|
(27,013,446
|
)
|
Total
shareholders’ deficit attributable to DSG Global
|
|
|
(10,333,938
|
)
|
|
|
(9,704,281
|
)
|
Noncontrolling
interest
|
|
|
(1,209,072
|
)
|
|
|
(1,099,140
|
)
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
(11,543,010
|
)
|
|
|
(10,803,421
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
326,692
|
|
|
$
|
290,771
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
434,202
|
|
|
$
|
482,317
|
|
|
$
|
682,472
|
|
|
$
|
737,245
|
|
Cost
of revenue
|
|
|
135,940
|
|
|
|
140,519
|
|
|
|
205,445
|
|
|
|
235,067
|
|
Gross
profit
|
|
|
298,262
|
|
|
|
341,798
|
|
|
|
477,027
|
|
|
|
502,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense
|
|
|
231,086
|
|
|
|
187,215
|
|
|
|
420,395
|
|
|
|
383,059
|
|
Research
and development expense
|
|
|
-
|
|
|
|
19,311
|
|
|
|
-
|
|
|
|
36,348
|
|
General
and administration expense
|
|
|
165,472
|
|
|
|
199,877
|
|
|
|
438,459
|
|
|
|
505,796
|
|
Warranty
expense
|
|
|
4,738
|
|
|
|
67,155
|
|
|
|
7,362
|
|
|
|
112,372
|
|
Bad
debt
|
|
|
45,377
|
|
|
|
1,178
|
|
|
|
45,377
|
|
|
|
4,283
|
|
Depreciation
and amortization expense
|
|
|
7,686
|
|
|
|
22,353
|
|
|
|
15,510
|
|
|
|
27,937
|
|
Total
operating expenses
|
|
|
454,359
|
|
|
|
497,089
|
|
|
|
927,103
|
|
|
|
1,069,795
|
|
Loss
from operations
|
|
|
(156,097
|
)
|
|
|
(155,291
|
)
|
|
|
(450,076
|
)
|
|
|
(567,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange
|
|
|
149,943
|
|
|
|
(20,938
|
)
|
|
|
160,946
|
|
|
|
51,202
|
|
Other
(expenses) income
|
|
|
(1,401
|
)
|
|
|
(1,053
|
)
|
|
|
(5,419
|
)
|
|
|
(1,543
|
)
|
Unrealized
gains (losses) on derivative instruments, net
|
|
|
1,946,087
|
|
|
|
-
|
|
|
|
91,670
|
|
|
|
-
|
|
Finance
costs
|
|
|
(339,254
|
)
|
|
|
(173,477
|
)
|
|
|
(669,718
|
)
|
|
|
(294,782
|
)
|
Total
other income (expense)
|
|
|
1,755,375
|
|
|
|
(195,468
|
)
|
|
|
(422,521
|
)
|
|
|
(245,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
1,599,278
|
|
|
|
(350,759
|
)
|
|
|
(872,597
|
)
|
|
|
(812,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
1,599,278
|
|
|
|
(350,759
|
)
|
|
|
(872,597
|
)
|
|
|
(812,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
attributed to non-controlling interest
|
|
|
(267,926
|
)
|
|
|
55,586
|
|
|
|
109,932
|
|
|
|
130,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to DSG Global
|
|
$
|
1,331,352
|
|
|
$
|
(295,173
|
)
|
|
$
|
(762,665
|
)
|
|
$
|
(682,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used in computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
37,430,450
|
|
|
|
30,291,187
|
|
|
|
33,428,275
|
|
|
|
27,103,068
|
|
Diluted
|
|
|
37,430,450
|
|
|
|
30,291,187
|
|
|
|
33,428,275
|
|
|
|
27,103,068
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,599,278
|
|
|
$
|
(350,759
|
)
|
|
$
|
(872,597
|
)
|
|
$
|
(812,740
|
)
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in foreign currency translation adjustments
|
|
|
(160,775
|
)
|
|
|
33,130
|
|
|
|
(210,649
|
)
|
|
|
(167,695
|
)
|
Comprehensive
income (loss)
|
|
|
1,438,503
|
|
|
|
(317,630
|
)
|
|
|
(1,083,246
|
)
|
|
|
(980,435
|
)
|
Less:
Comprehensive income (loss) attributable to noncontrolling interest
|
|
|
(271,884
|
)
|
|
|
54,264
|
|
|
|
105,974
|
|
|
|
127,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) attributable to DSG Global, Inc,
|
|
$
|
1,166,619
|
|
|
$
|
(263,365
|
)
|
|
$
|
(977,272
|
)
|
|
$
|
(853,320
|
)
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Equity
Attributable to Common Shareholders’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Shares
Issued
|
|
|
|
|
|
Accumulated
|
|
|
Total
Deficit Attributable
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid
in
|
|
|
As
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Common
to
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deposit
|
|
|
Deficit
|
|
|
Income
|
|
|
Shareholders’
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2016
|
|
|
30,291,187
|
|
|
$
|
30,291
|
|
|
$
|
15,982,222
|
|
|
$
|
-
|
|
|
$
|
(27,013,446
|
)
|
|
$
|
1,296,652
|
|
|
$
|
(9,704,281
|
)
|
|
$
|
(1,099,140
|
)
|
|
$
|
(10,803,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
2,250,000
|
|
|
|
2,250
|
|
|
|
110,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112,500
|
|
|
|
-
|
|
|
|
112,500
|
|
Shares issued for cash
|
|
|
500,000
|
|
|
|
500
|
|
|
|
49,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Redeemable shares issued for commitment
fee
|
|
|
550,000
|
|
|
|
550
|
|
|
|
219,450
|
|
|
|
(220,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares issued on conversion of debt
|
|
|
3,835,049
|
|
|
|
3,835
|
|
|
|
181,280
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
185,115
|
|
|
|
-
|
|
|
|
185,115
|
|
Net (loss) for 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(762,665
|
)
|
|
|
(214,607
|
)
|
|
|
(977,272
|
)
|
|
|
(109,932
|
)
|
|
|
(1,087,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2017
|
|
|
37,426,236
|
|
|
$
|
37,426
|
|
|
$
|
16,542,702
|
|
|
$
|
(220,000
|
)
|
|
$
|
(27,776,111
|
)
|
|
$
|
1,082,045
|
|
|
$
|
(10,333,938
|
)
|
|
$
|
(1,209,072
|
)
|
|
$
|
(11,543,010
|
)
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six
Months Ended
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
Net
loss attributable to the Company
|
|
$
|
(872,597
|
)
|
|
$
|
(812,740
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
15,510
|
|
|
|
27,937
|
|
Inventory
write-off
|
|
|
1,580
|
|
|
|
-
|
|
Depreciation
included in cost of goods sold
|
|
|
5,216
|
|
|
|
-
|
|
Amortization
on deferred financing fees
|
|
|
10,015
|
|
|
|
-
|
|
Interest
on discount of convertible debt
|
|
|
328,690
|
|
|
|
-
|
|
Non-cash
fair value adjustment on derivative
|
|
|
(91,670
|
)
|
|
|
-
|
|
Reserve
for bad debt
|
|
|
16,140
|
|
|
|
-
|
|
Shares
issued for services
|
|
|
112,500
|
|
|
|
-
|
|
Notes
issued for services
|
|
|
-
|
|
|
|
(17,479
|
)
|
Unrealized
foreign exchange
|
|
|
(52,317
|
)
|
|
|
-
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
|
Trade
receivables, net
|
|
|
(71,360
|
)
|
|
|
(120,144
|
)
|
Inventories
|
|
|
6,872
|
|
|
|
115,044
|
|
Funds
held in trust
|
|
|
-
|
|
|
|
3,549
|
|
Prepaid
expense and deposits
|
|
|
(8,809
|
)
|
|
|
69,008
|
|
Related
party receivable
|
|
|
-
|
|
|
|
33,964
|
|
Other
assets
|
|
|
-
|
|
|
|
34,058
|
|
Increase
(decrease) in current liabilities:
|
|
|
|
|
|
|
|
|
Trade
payables and accruals
|
|
|
387,484
|
|
|
|
250,202
|
|
Warranty
reserve
|
|
|
3,874
|
|
|
|
-
|
|
Deferred
revenue
|
|
|
8,970
|
|
|
|
86,974
|
|
Net
cash used in operating activities
|
|
|
(199,902
|
)
|
|
|
(329,627
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of property, plant, and equipment
|
|
|
-
|
|
|
|
(2,524
|
)
|
Return
of equipment on lease
|
|
|
-
|
|
|
|
1,173
|
|
Purchase
of intangible assets
|
|
|
-
|
|
|
|
(823
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
|
(2,174
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
|
(2,986
|
)
|
|
|
(16,395
|
)
|
Proceeds
from issuing shares
|
|
|
50,000
|
|
|
|
-
|
|
Payments
on notes payable
|
|
|
-
|
|
|
|
(69,664
|
)
|
Proceeds
from note payable
|
|
|
338,000
|
|
|
|
387,264
|
|
Repayments
on related party loans payable
|
|
|
(11,886
|
)
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
373,128
|
|
|
|
301,205
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
173,226
|
|
|
|
(30,596
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(173,226
|
)
|
|
|
30,596
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Income
tax payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
payments
|
|
$
|
22,110
|
|
|
$
|
4,039
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
$
|
112,500
|
|
|
$
|
-
|
|
Shares
issued for convertible notes payable
|
|
$
|
165,000
|
|
|
$
|
-
|
|
Shares
issued for convertible related party note payable
|
|
$
|
19,615
|
|
|
$
|
-
|
|
Returnable
shares issued for commitment fee
|
|
$
|
220,000
|
|
|
$
|
-
|
|
Noncontrolling
interest change to mezzanine equity
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – ORGANIZATION
DSG
Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007.
We were formed to option feature films and TV projects to be packaged for sale to movie studios and production companies.
Previously,
in anticipation of the share exchange agreement with DSG Tag Systems, Inc. (“DSG TAG”), we undertook to change our
name and effect a reverse stock split of our authorized and issued common stock. Accordingly, on January 19, 2015, our board of
directors approved an agreement and plan of merger to merge with our wholly-owned subsidiary DSG Global Inc., a Nevada corporation,
to affect a name change from Boreal Productions Inc. to DSG Global, Inc. Our company remains the surviving company. DSG Global,
Inc. was formed solely for the change of our name.
Subsequent
to the closing of the share exchange agreement with DSG TAG, we have adopted the business and operations of DSG TAG.
DSG
TAG was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia,
Canada in 2008. In March 2011, DSG TAG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”).
DSG UK is a wholly owned subsidiary of DSG TAG.
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles
in the United States (“US GAAP”) and with the instructions to Form 10-Q.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore,
the unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements
and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2016. Current
and future financial statements may not be directly comparable to the Company’s historical financial statements. However,
except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements
for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the six months ended June 30, 2017 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2017.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DSG Global Inc. and its subsidiary DSG Tag 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 six months ended June 30, 2017, and 2016, the transactions of the Company and its subsidiaries were denominated in foreign
currencies and were recorded in Canadian dollar (CAD), or British Pounds (GBP), at the rates of exchange in effect when the transactions
occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency
assets and liabilities are settled.
Foreign
Currency Translation and Comprehensive (Loss) Income
The
accounts of the Company and its subsidiaries were maintained, and its financial statements were expressed, in CAD and GBP. Such
financial statements were translated into United States dollars (USD) with the CAD or GBP as the functional currency. All assets
and liabilities were translated at the exchange rate at the balance sheet date, stockholders’ deficit is translated at the
historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign
currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the
initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated
statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of
shareholders’ equity.
Reportable
Segment
The
Company has one reportable segment. The Company’s activities are interrelated and each activity is dependent upon and supportive
of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single
global business.
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue
is deferred until all acceptance criteria have been met. The Company accrues for warranty costs, sales returns, and other allowances
based on its historical experience.
Research
and Development
Research
and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development.
Research and development expenses also include third-party development and programming costs, localization costs incurred to translate
software for international markets, and the amortization of purchased software code and services content. Such costs related to
software development are included in research and development expense until the point that technological feasibility is reached.
Research and development is expensed and is included in operating expenses.
Income
Taxes
The
Company utilizes the liability method of accounting for income tax. Under the liability method, deferred income tax assets and
liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities measured
by the current enacted tax rates in effect for the years in which these differences are expected to reverse.
The
Company has adopted accounting standards for the accounting for uncertain income taxes. These standards provide guidance for the
accounting and disclosure about uncertain tax positions taken. Management believes that all of the positions taken in its federal
and states income tax returns are more likely than not to be sustained upon examination.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables
arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions.
The Company has a diversified customer base, most of which are in Canada. 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, 2017 and December 31, 2016, there were no uninsured balances for
accounts in Canada, the United States, and the United Kingdom. The Company has not experienced any losses in such accounts and
believes it is not exposed to any risks on its cash in bank accounts.
Trade
Receivable
All
trade receivables are due thirty (30) days from the date billed. If the funds are not received within thirty (30) days the customer
is contacted to arrange payment. The Company uses the allowance method to account for uncollectable trade receivables. The allowance
for doubtful accounts as of June 30, 2017, and December 31, 2016 was $16,140 and $47,289, respectively.
Financing
Receivables and Guarantees
The
Company provides financing arrangements, including operating leases, and financed service contracts for certain qualified customers.
Lease receivables primarily represent sales-type and direct-financing leases. Leases typically have two- to three-year terms and
are collateralized by a security interest in the underlying assets. The Company makes an allowance for uncollectible financing
receivables based on a variety of factors, including the risk rating of the portfolio, macroeconomic conditions, historical experience,
and other market factors. At June 30, 2017 and December 31, 2016 management determined that there was no allowance necessary.
The Company also provides financing guarantees, which are generally for various third-party financing arrangements to channel
partners and other customers. The Company could be called upon to make payment under these guarantees in the event of nonpayment
to the third party.
Advertising
and Promotion Costs
The
Company expenses all advertising costs as incurred. Advertising and promotion costs were $119,616 and $170,191 for the six months
ended June 30, 2017 and 2016, respectively.
Inventory
Inventories
are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories
with the market value and allowance is made to write down inventories to market value, if lower. As of June 30, 2017, and December
31, 2016, inventory only consisted of finished goods.
Fixed
Assets
Fixed
assets are stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the
asset or the lease term. The useful life for rental equipment was adjusted for the tag to 5 years from 10 years, and for the Touch/Text,
the useful life was adjusted to 5 years from 8 years. The adjustment properly reflects the average lease term for the rental equipment
and the average life of the product. The estimated useful lives of our property and equipment are generally as follows:
Rental
equipment
|
|
Tag
|
5-year
useful life
|
Touch/Text
|
5-year
useful life
|
Office
furniture and equipment
|
5-year
useful life
|
Computer
equipment
|
3-year
useful life
|
As
of June 30, 2017, and December 31, 2016, fixed assets consisted of the following:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Furniture
and equipment
|
|
$
|
21,560
|
|
|
$
|
20,838
|
|
Computer
equipment
|
|
|
28,352
|
|
|
|
23,317
|
|
Accumulated
Depreciation
|
|
|
(46,994
|
)
|
|
|
(39,414
|
)
|
|
|
$
|
2,918
|
|
|
$
|
4,741
|
|
As
of June 30, 2017, and December 31, 2016, leased equipment consisted of the following:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Tags
|
|
$
|
127,198
|
|
|
$
|
122,935
|
|
Text
|
|
|
28,113
|
|
|
|
27,171
|
|
Touch
|
|
|
23,287
|
|
|
|
22,507
|
|
Accumulated
Depreciation
|
|
|
(153,078
|
)
|
|
|
(129,850
|
)
|
|
|
$
|
25,522
|
|
|
$
|
42,763
|
|
For
the three months ended June 30, 2017 and 2016, total depreciation expense was $7,390 and $23,057 for the fixed assets and leased
equipment, respectively.
For
the six months ended June 30, 2017 and 2016, total depreciation expense was $14,918 and $27,345 for the fixed assets and leased
equipment, respectively.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
ASC Topic 820, “
Fair Value Measurements and Disclosures
,” requires disclosure of the fair value of financial
instruments held by the Company. ASC Topic 825, “
Financial Instruments
,” defines fair value, and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value
measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination
of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy
are defined as follows:
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “
Distinguishing
Liabilities from Equity
,” and ASC Topic 815, “
Derivatives and Hedging
.”
The
Company’s financial instruments consist of cash, trade receivables, trades payable, loans payable, and convertible notes
payable. Other than convertible notes, the fair values of these financial instruments approximate their respective carrying values
because of the short maturity of these instruments. The Company determined that the aggregate fair value of loans payable outstanding
at June 30, 2017 and December 31, 2016, based on Level 2 inputs in the fair value hierarchy, was equal to their aggregate book
value based on the short maturities and current borrowing rates available to the Company.
The
fair value of the Company’s convertible notes is based on Level 3 inputs in the fair value hierarchy. The Company calculated
the fair value of the potential derivative liability on these notes by using the Binomial method to determine the fair value of
the conversion feature (see Note 7).
Debt
issuance costs
The
Company incurs costs in connection with debt issuances, such as commissions and professional fees. Debt issuance costs are initially
recorded as a reduction of the related debt on the consolidated balance sheets, and are amortized to financing expense over the
term of the respective borrowings using the effective interest method.
Any
costs incurred or paid to the lender in connection with the issuance of debt represent a reduction in the proceeds received by
the Company. The resulting discount is amortized as accretion expense over the term of the debt using the effective interest method.
Basic
and Diluted Net Loss per Common Share
Basic
and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders
by the weighted average number of common shares outstanding during the period. Our potentially dilutive shares, which include
outstanding convertible loans and notes, have not been included in the computation of diluted net loss per share attributable
to common stockholders for all periods presented, as the results would be antidilutive. Such potentially dilutive shares are excluded
when the effect would be to reduce net loss per share.
The
following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30,
2017 and 2016:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable to DSG Global
|
|
$
|
1,331,352
|
|
|
$
|
(295,173
|
)
|
|
$
|
(762,665
|
)
|
|
$
|
(682,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares used in computing basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
37,430,450
|
|
|
|
30,291,187
|
|
|
|
33,428,275
|
|
|
|
27,103,068
|
|
Diluted
|
|
|
37,430,450
|
|
|
|
30,291,187
|
|
|
|
33,428,275
|
|
|
|
27,103,068
|
|
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
For
fiscal years beginning after December 15, 2018:
In
March 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-08 “
Receivables – Nonrefundable
Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities”
an amendment
to shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments
do not require an accounting change for securities held at a discount.
For
fiscal years beginning after December 15, 2018:
In
July 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-11 “
Earnings Per Share (Topic
260), Distinguishing Liability from Equity (Topic 480), and Derivatives and Hedging (Topic 815) – (i) Accounting for Certain
Financial Instruments with Down Round Features (ii) Replace of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments.
”
The amendments in (i) change the classification analysis of certain equity-linked financial instruments (or embedded features)
with down round features and to help clarify existing disclosure requirements. The amendments in (ii) recharacterize the indefinite
deferral of certain provisions and do not have an accounting effect.
The
Company is currently evaluating the impact of the above standards on their consolidated financial statements. Other recent accounting
pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
Going
Concern
As
reflected in the accompanying financial statements, the Company had an accumulated deficit of $27,776,111 as of June 30, 2017
and had a net loss of $762,665 for the six months ended June 30, 2017.
While
the Company is attempting to grow revenues, improve margins, and lower costs, the Company’s cash position may not be sufficient
to support the Company’s daily operations. Management is seeking to raise additional funds by way of a public or private
offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues
provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy
to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and
generate revenues.
The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Reclassification
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations or cash flow.
Note
3 – TRADE RECEIVABLES, NET
As
of June 30, 2017 and December 31, 2016, trade receivables consist of the following:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Trade
receivables
|
|
$
|
161,398
|
|
|
$
|
137,327
|
|
Allowance
for bad debt
|
|
|
(16,140
|
)
|
|
|
(47,289
|
)
|
Total
trade receivables, net
|
|
$
|
145,258
|
|
|
$
|
90,038
|
|
Note
4 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of June 30, 2017 and December 31, 2016:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Intangible
Asset - Patent
|
|
$
|
21,253
|
|
|
$
|
21,253
|
|
Accumulated
Depreciation
|
|
|
(5,265
|
)
|
|
|
(4,673
|
)
|
|
|
$
|
15,988
|
|
|
$
|
16,580
|
|
The
estimated useful life of the Patent is 20 years. Patents are amortized on a straight-line basis. For the three months ended June
30, 2017 and 2016, total depreciation expense was $296 and $296, respectively. For the six months ended June 30, 2017 and 2016,
total depreciation expense was $592 and $592, respectively.
The
following table summarizes our five-year estimated amortization of intangible assets as of June 30, 2017:
June
30,
|
|
|
|
2017
|
|
$
|
1,184
|
|
2018
|
|
|
1,184
|
|
2019
|
|
|
1,184
|
|
2020
|
|
|
1,184
|
|
2021
|
|
|
1,184
|
|
2022
& Thereafter
|
|
|
10,068
|
|
|
|
$
|
15,988
|
|
Note
5 – TRADE AND OTHER PAYABLES
As
of June 30, 2017 and December 31, 2016, trade and other payables consist of the following:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Trade
payables
|
|
$
|
981,744
|
|
|
$
|
940,722
|
|
Accrued
expenses
|
|
|
423,260
|
|
|
|
388,331
|
|
Accrued
interest
|
|
|
1,545,315
|
|
|
|
1,222,151
|
|
Other
liabilities
|
|
|
4,343
|
|
|
|
17,588
|
|
Total
trade and other payables
|
|
$
|
2,954,662
|
|
|
$
|
2,568,792
|
|
Note
6 – LOANS PAYABLE
As
of June 30, 2017 and December 31, 2016, loans payable consisted of the following:
Loans
Payable
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Unsecured,
due on demand, interest 15% per annum
|
|
$
|
192,649
|
|
|
$
|
186,192
|
|
Unsecured,
due on demand, interest 36% per annum
|
|
|
47,128
|
|
|
|
45,548
|
|
Unsecured,
loan payable, interest 18% per annum
|
|
|
317,500
|
|
|
|
317,500
|
|
Unsecured,
loan payable, fee for services payable on the original loan amount of 5% by May 6, 2016, 10% payable by June 5, 2016, or 20%
payable by July 5, 2016
|
|
|
69,353
|
|
|
|
67,029
|
|
Unsecured,
loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016.
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Total
current portion
|
|
$
|
876,630
|
|
|
$
|
866,269
|
|
Note
7 – CONVERTIBLE NOTES
As
of June 30, 2017 and December 31, 2016, convertible loans payable consisted of the following:
Convertible
Notes
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Unsecured,
interest 15.2% per annum, mature from February 28, 2015 to December 31, 2015. Principal is repayable in cash or Tags units.
Convertible at the average closing price of the 60 days period prior to conversion date
|
|
$
|
948,700
|
|
|
$
|
916,905
|
|
|
|
|
|
|
|
|
|
|
Unsecured,
interest 10% per annum. Principal plus interest repayable in cash or common shares due on demand. Convertible at the average
closing price of the 60 days period prior to conversion date
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Unsecured,
interest 2% per month. Principal plus interest repayable in cash or common shares. Due 45 days from August 5 2016 or upon
filing of registration statement, convertible at $0.27 per share
(7)
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Senior
secured, interest 8% per annum. Principal plus interest repayable in cash or common shares at the lower of (i) twelve cents
($0.12) and (ii) the closing sales price of the Common Stock on the date of conversion
(1)
|
|
|
245,889
|
|
|
|
261,389
|
|
|
|
|
|
|
|
|
|
|
Unsecured,
interest 12% per annum. Matures 1 year from execution date. Principal plus interest is repayable in cash or common shares
at the lower of current market price and 50% of the lowest trading price of Common Stock during the 25 Trading Days immediately
preceding conversion
(2)
|
|
|
74,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unsecured,
interest 12% per annum. Matures on October 18, 2017. Principal is repayable in cash or common shares at the lower of (i) three
cents ($0.03) and (ii) 50% of the lowest trading price during the 25 Trading Days immediately preceding the date of conversion
(3)
|
|
|
75,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unsecured,
interest 10% per annum. Matures on October 3, 2017. Principal is repayable in cash or common shares at the lower of (i) six
cents ($0.06) (ii) 55% of the lowest trading price during the 25 Trading Days immediately preceding the date of conversion
(4)
|
|
|
110,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unsecured,
interest 10% per annum. Matures on December 5, 2017. Principal is repayable in cash or common shares at the lower of (i) eight
cents ($0.08) (ii) 55% of the lowest trading price during the 25 Trading Days immediately preceding the date of conversion
(5)
|
|
|
110,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less:
debt discount
(1-5)
|
|
|
(203,131
|
)
|
|
|
(179,333
|
)
|
Less:
deferred financing fees
(2-5)
|
|
|
(14,420
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,596,538
|
|
|
$
|
1,398,961
|
|
Current
portion
|
|
|
1,596,538
|
|
|
|
1,398,961
|
|
Long
term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Convertible
Notes to Related Party
|
|
|
|
|
|
|
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Unsecured,
8% annual rate for one month; if not paid in one month, 4% per month thereafter; convertible at $0.05 per share
(6)
|
|
|
-
|
|
|
|
29,791
|
|
|
|
|
|
|
|
|
|
|
Unsecured,
interest 5% per annum, matures March 30, 2016, and is convertible at $1.25/per share
|
|
$
|
310,000
|
|
|
$
|
310,000
|
|
|
|
|
|
|
|
|
|
|
Total
current portion
|
|
$
|
310,000
|
|
|
$
|
339,791
|
|
(1)
|
On
November 7, 2016, we entered into a securities purchase agreement with Coastal Investment
Partners (the “Lendor”). Pursuant to the agreement, the Lendor provided us
with cash proceeds of $125,000 on November 10, 2016. In exchange, we issued a secured
convertible promissory note in the principal amount of $138,888.89 (the “$138,888.89
Note”), inclusive of an 8% original issue discount, which bears interest at 8%
per annum to the holder. The $138,888.89 Note matures six months from issuance and is
convertible at the option of the holder into our common shares at a price per share that
is the lower of $0.12 or the closing price of our common stock on the conversion date.
In addition, under the same terms, the company also issued a secured convertible note
of $50,000 in consideration of cash proceeds of $10,000 and another secured convertible
note of $75,000 in consideration of cash proceeds of $10,000. Under the agreements, the
Company has the right to redeem $62,500 and $40,000 of the notes in consideration of
$1 each at any time prior to the maturity date in the event that the $138,888.89 Note
is exchanged or converted into a revolving credit facility with Coastal Investment, whereupon
the two $10,000 convertible note balances shall be rolled into such credit facility.
Discount on the notes was $116,389 and is being amortized over life of the notes.
On
May 7, 2017, the Company triggered an event of default, under Section 6(a)(i) of the convertible note agreement with the
Lendor dated November 7, 2016, by failing to repay the full principal amount and all accrued interest. The entire principal
amount of the loan is due on demand and shall continue to accrue interest at an increased rate of 1.5% per month (18%
per annum) or the maximum rate permitted under applicable law until the note is repaid in full.
On
May 8, 2017, the Lendor provided conversion notice for $5,000 of the $72,500 convertible note dated November 7, 2016.
The Company issued 100,000 common shares at a conversion price of $0.05 pursuant to this conversion.
On
May 24, 2017, the Lendor provided conversion notice for $10,500 of the $72,500 convertible note dated November 7, 2016.
The Company issued 210,000 common shares at a conversion price of $0.05 pursuant to this conversion.
On
May 25, 2017, the Lendor provided conversion notice for the remaining principal $57,000 of the $72,500 convertible note
dated November 7, 2016. This conversion was not processed by the Company’s transfer agent due to direction from
the Company not to honor any further conversion notices from the Lendor. In response, the Company received legal notification
pursuant to the refusal to process further conversion notices, see note 14.
|
The
fair market value of the potential derivative liability was $365,944, recorded as of December 31, 2016, and was calculated using
the binomial method with a volatility rate of 171% and discount interest rate of 0.62%. Derivative liability applied as discount
on the notes was $145,000 and is being amortized over the life of the notes. As at June 30, 2017, a derivative gain of $218,411
was recorded for the change in fair value.
(2)
|
On
December 21, 2016, the Company entered into a convertible note agreement for the principal amount of $74,500 in consideration
of cash proceeds of $72,250 received January 10, 2017. The terms are payable at the date of maturity, December 21, 2017, together
with interest of 12% per annum. Interest will be accrued and payable at the time of promissory note repayment. The Holder
shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable
shares of Common Stock at a conversion price equal to the lessor of (i) the closing sale price of the Common Stock on the
Trading Day immediately preceding the Closing Date, and (ii) 50% of the lowest sale price for the Common Stock during the
twenty-five (25) consecutive Trading Days immediately preceding the Conversion Date. Discounts and deferred financing fees
on the note were $2,250 and $4,750, respectively, and are being amortized over life of the note.
|
The
fair market value of the potential derivative liability was $413,937 calculated using the binomial method with a volatility rate
of 255% and discount interest rate of 0.82%. Derivative liability applied as discount on the notes was $72,250 and is being amortized
over the life of the notes. As at June 30, 2017, a derivative gain of $399,022 was recorded for the change in fair value.
(3)
|
On
January 18, 2017, the Company issued a convertible promissory note in the principal amount of $75,000. The terms are payable
at the date of maturity, October 18, 2017, together with interest of 12% per annum. Interest will be accrued and payable at
the time of promissory note repayment. The Holder shall have the right to convert all or any part of the outstanding and unpaid
principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i)
60% multiplied by the lowest Trading Price (representing a discount rate of 40%) during the previous twenty five (25) Trading
Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Variable Conversion Price
which means 50% multiplied by the lowest Trading Price (representing a discount rate of 50%) during the previous twenty five
(25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Debt issuance costs and deferred
financing fees on the note were $4,750 and $2,750, respectively, and are being amortized over life of the note.
|
The
fair market value of the potential derivative liability was $1,005,000 calculated using the binomial method with a volatility
rate of 283% and discount interest rate of 0.73%. Derivative liability applied as discount on the notes was $75,000 and is being
amortized over the life of the notes. As at June 30, 2017, a derivative gain of $949,250 was recorded for the change in fair value.
(4)
|
On
April 3, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The terms are payable
at the date of maturity, October 3, 2017, together with interest of 10% per annum. Interest will be accrued and payable at
the time of promissory note repayment. In connection with the issuance of this convertible promissory note, the Borrower shall
issue 550,000 shares of common stock as a commitment fee provided, however, these shares must be returned if the Note is fully
repaid and satisfied prior to the date which is 180 days following the issuance. The Holder shall have the right to convert
all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at
a conversion price equal to the lessor of (i) 55% multiplied by the lowest Trading Price (representing a discount rate of
45%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the date of
this Note and (ii) the Alternate Conversion Price which means 55% multiplied by the lowest Trading Price (representing a discount
rate of 50%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the
Conversion Date. Deferred financing fees on the note were $10,000 and are being amortized over the life of the note.
|
The
fair market value of the potential derivative liability was $653,200 calculated using the binomial method with a volatility rate
of 372% and discount interest rate of 0.92%. Derivative liability applied as discount on the notes was $100,000 and is being amortized
over the life of the notes. As at June 30, 2017, a derivative gain of $653,200 was recorded for the change in fair value.
(5)
|
On
June 5, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The terms are payable
at the date of maturity, December 5, 2017, together with interest of 10% per annum. Interest will be accrued and payable at
the time of promissory note repayment. The Holder shall have the right to convert all or any part of the outstanding and unpaid
principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i)
55% multiplied by the lowest Trading Price (representing a discount rate of 45%) during the previous twenty five (25) Trading
Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Alternate Conversion Price
which means 55% multiplied by the lowest Trading Price (representing a discount rate of 50%) during the previous twenty five
(25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Deferred financing fees on
the note were $7,000 and are being amortized over the life of the note.
|
The
fair market value of the potential derivative liability was $118,600 calculated using the binomial method with a volatility rate
of 362% and discount interest rate of 1.06%. Derivative liability applied as discount on the notes was $103,000 and is being amortized
over the life of the notes. As at June 30, 2017, a derivative gain of $118,600 was recorded for the change in fair value.
(6)
|
On
April 3, 2017, this related party convertible debenture and all unpaid interest and penalties was settled in cash of $45,500
CDN and the issuance of 525,049 shares of common stock pursuant to a debt settlement and subscription agreement as described
in note 9.
|
|
|
(7)
|
On
May 17, 2017, this convertible debenture was settled in 3,000,000 shares of common stock pursuant to a debt settlement and
subscription agreement as described in note 9.
|
Note
8 – MEZZANINE EQUITY
DSG
TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of June 30, 2017 and
December 31, 2016. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”)
and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731
on October 24, 2014. The Series A Shares have no general voting rights and carry a 5% per annum interest rate. Series A Shares
that are converted to common shares are entitled to the same voting rights as other common shareholders. At any time on or after
the issuance date any holder of Series A Shares may convert to common stock based on predetermined conversion price of $1.25 per
share. The preferred shares are recorded in the consolidated financial statements as Mezzanine Equity. The Series A Shares are
subject to a redemption obligation 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 June 30, 2017, 80,000 preferred shares have been purchased by an unrelated third-party and exchanged for 80,000 shares of common
stock of DSG Global, Inc.
Note
9 – STOCKHOLDERS’ DEFICIT
Common
Stock
The
Company has 125,000,000 shares of common stock authorized, each having a par value of $0.001, as of June 30, 2017 and December
31, 2016. According to the Share Exchange Agreement dated April 13, 2015, we agreed to acquire not less than 75% and up to 100%
of the issued and outstanding common shares of DSG TAG in exchange for the issuance to the subscribing shareholders of up to 20,000,000
shares of our common stock on the basis of 1 common share of DSG Global, Inc. for 5.4935 common shares of DSG TAG. The Company
also issued an additional 179,823 common shares to a director of DSG TAG to meet debt agreement obligations.
On
December 23, 2016, the Company entered into an investor relations agreement with Chesapeake Group Inc., to assist the Company
in all phases of investor relations including broker/dealer relations. The contract commenced on January 3, 2017 and will end
on July 2, 2017. In consideration for the agreement, the Company is committed to providing 1,800,000 restricted common shares
within 10 days of the agreement, plus an additional 450,000 restricted common shares representing a monthly fee of $3,750. These
restricted common shares are to be issued in monthly installments of 75,000 restricted common shares on the 2nd of each month
beginning on February 2, 2017 and ending on July 2, 2017. On February 15, 2017, the Company has issued 2,250,000 shares of common
stock at a purchase price of $0.051 per common stock satisfying the full terms of the agreement.
On
April 3, 2017, the Company entered into an agreement to issue 481,836 shares of common stock pursuant to the conversion of a $24,092
CDN convertible note balance at a conversion price of $0.05 per share of common stock. The Company also agreed to issue 43,213
shares of common stock pursuant to the conversion of interest outstanding totaling $2,161 CDN at a conversion price of $0.05 per
share of common stock.
On
April 6, 2017, the Company issued 550,000 shares of common stock as a commitment fee, pursuant to the terms of the convertible
promissory note issued on April 3, 2017, see note 7. These shares are contingently redeemable, at the issuers control, pursuant
to the agreement that the shares must be returned if the Note is fully repaid and satisfied prior to the date which is 180 days
following the issuance.
On
April 7, 2017, the Company issued 500,000 shares of common stock pursuant to the Securities Purchase Agreement dated March 15,
2017 at $0.10 per common share for total consideration of $50,000.
On
May 4, 2017, the Company approved the conversion of a $150,000 convertible note held by Gemini Holdings, Inc with the Company.
Pursuant to this conversion, on May 17, 2017, the Company issued 3,000,000 free-trading shares of common stock to settle the note
at a price of $0.05 per common share.
On
May 8, 2017, the Company received a notice for the conversion of $5,000 of a $72,500 convertible note held with Coastal Investment
Partners. The Company issued 100,000 restricted shares of common stock pursuant to this conversion notice at a price of $0.05
per common share.
On
May 8, 2017, the Company received a notice for the conversion of $10,500 of a $72,500 convertible note held with Coastal Investment
Partners. The Company issued 210,000 restricted shares of common stock pursuant to this conversion notice.
There
were 37,426,236 and 30,291,187 shares of common stock of the Company issued and outstanding as of June 30, 2017 and December 31,
2016, respectively. 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, 2017 and
December 31, 2016. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”)
and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731
on October 24, 2014. The Series A Shares were not exchanged for securities of DSG Global, Inc. as part of the Share Exchange Agreement.
Noncontrolling interest as of June 30, 2017 and December 31, 2016 was $1,209,072 or 16.18% or $1,099,140 or 16.18%, respectively.
Note
10 – RELATED PARTY TRANSACTIONS
On
March 31, 2015 the Company entered into an agreement with a marketing firm that is owned by one of the directors of the Company.
The terms included cash payment of $17,500 and a note in the amount of $310,000, with 5% interest per annum, convertible at the
election of the holder into 248,000 shares of Common Stock of DSG Global, Inc. at a price of $1.25 per share, maturing on March
30, 2016. As of September 30, 2016, it was estimated that approximately 90% of the marketing services related to the agreement
have been expensed in the amount of $280,000 and the remaining $30,000 is recorded as a prepaid deposit. As of June 30, 2017,
the Director of the Company has filed a notice of default in regard to the related party convertible note on the financial statements
of DSG TAG. The note was issued in lieu of marketing services, the note maturity date is March 31, 2016. Adore and DSG TAG are
currently in arbitration in regard to this matter. (See Note 13).
On
December 16, 2016, a convertible loan was received from a related party in the amount of $30,053 ($40,000 CAD). Interest is 8%
annual rate for one month and 4% monthly rate thereafter if not paid in one month. The note is convertible at $0.05 per share.
On April 3, 2017, this Note was settled in full, including all accrued interest and penalties, for cash of $45,500 CDN and the
issuance of 525,049 shares of common stock pursuant to a debt settlement and subscription agreement as described in note 9.
Amounts
due to related parties at June 30, 2017 and December 31, 2016 was $0 and $1,526, respectively. The amounts consist of advances
to a director and officer of the Company. These amounts are unsecured, non-interest bearing and due on demand.
Note
11 – INCOME TAX
The
following is the income tax expense reflected in the Statement of Operations for the three and six months ended June 30, 2017
and 2016.
Income
Tax Expense
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following are the components of income (loss) before income tax reflected in the Statement of Operations for the three and six
months ended June 30, 2017 and 2016:
Component
of Income (Loss) Before Income Tax and Noncontrolling Interest
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Income
(loss) before income tax and noncontrolling Interest
|
|
$
|
1,599,278
|
|
|
$
|
(350,759
|
)
|
|
$
|
(872,597
|
)
|
|
$
|
(812,740
|
)
|
Income
Tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Effective
tax rate
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
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, 2017, the Company had net operating losses, or NOLs, of approximately $28.0 million to offset future taxable income
in Canada and the United Kingdom. The deferred tax assets at June 30, 2017 were fully reserved. Management believes it is more
likely than not that these assets will not be realized in the near future.
Note
12 – COMMITMENTS AND CONTINGENCIES
Lease
Obligations
The
Company leases offices in Canada under a renewable operating lease which originally expired on April 30, 2016, following which
the term of the lease is month to month, with 30 days’ notice to terminate. If no agreement is signed, the Landlord reserves
the right to terminate the Lease on March 31, 2016.
On
April 7, 2016, the Company signed an additional two-month extension on the current lease with a term of May 1, 2016 to July 31,
2016. During the year ended December 31, 2016, the lease was extended and will expire on January 31, 2017.
On
February 15, 2017, an additional six-month extension on the lease was signed with the term beginning on February 1, 2017 and ending
on July 31, 2017.
The
annual rent for the premises in Canada is approximately $66,000 CDN or $5,500 CDN a month. For the six months ended June 30, 2017
and 2016, the aggregate rental expense was $34,971 and $35,670, respectively. Rent expense included other amounts paid in Canada
for warehouse storage and offices on a month-to-month or as-needed basis.
The
Company signed an operating lease agreement through National Leasing for a photocopier. The lease terms are for 60 months commencing
on May 22, 2015 and ending April 22, 2020 with a monthly lease payment of approximately $183.
The
following table summarizes our future minimum payments under these arrangements as of June 30, 2017:
June
30:
|
|
|
|
2017
|
|
$
|
11,731
|
|
2018
|
|
|
2,200
|
|
2019
|
|
|
2,200
|
|
2020
|
|
|
917
|
|
|
|
$
|
17,048
|
|
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 June 30, 2017, the Company has set up a reserve for future warranty costs of $115,589. 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 $7,362 and $112,372 for the six months ended June 30, 2017 and 2016, respectively.
In
the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions
with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising
from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain
parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In
addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws
contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential
amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and
the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these
agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.
Note
13 – LEGAL MATTERS
On
December 30, 2012, a corporation filed an action against the Company in the United States courts claiming patent infringement.
On March 8, 2013, the parties agreed to a settlement, with the Company admitting no wrongdoing, in the amount of $125,000. The
settlement is to be paid over an 18-month period in equal installments of $7,500 with annual interest at a rate of 8%. The Company
has accrued all liabilities related to this matter in the financial statements.
On
June 4, 2015, a shareholder of the Company’s subsidiary filed a lawsuit to recover a loan of CAD$100,000 which was made
on October 16, 2012 and was due on July 16, 2013 with accrued interest. A response to the claim was submitted on June 29, 2015.
On August 13, 2015, a settlement was reached between both parties to pay the loan amount remaining plus interest, for a total
of $119,700. In addition, the shareholder’s outstanding shares of DSG TAG were converted into 18,422 shares of common stock
of DSG Global, Inc. on October 22, 2015. On February 16, 2016, a new agreement was reached after a breach of the settlement agreement
dated August 13, 2015. DSG TAG defaulted on the settlement agreement and both parties agreed to new terms. DSG TAG Systems agreed
to pay the plaintiff $86,780 CDN in monthly installations of $5,423.75 CDN over a period of sixteen consecutive months, the first
payment commencing April 20, 2016. DSG TAG failed to make further payments after 2 scheduled payments in May and June 2016. On
September 27, the shareholder filed a Subpoena to Debtor at the Supreme Court of British Columbia for a hearing on October 17,
2016.
On
October 17, 2016, the Supreme Court of British Columbia made an order in relating to the above discussed lawsuit from a shareholder
to recover a loan of CAD$100,000. DSG TAG was ordered to repay the remaining loan plus costs in the amount of $77,589 to the shareholder
in 14 monthly payments of $5,500 each plus $589 at the 15th month, starting February 15, 2017. The Company has accrued liabilities
related to this matter in the financial statements. As of June 30, 2017, the Company has not yet made any payments.
A
Director of the Company, representing their company Adore Creative Agency Inc. (Adore) has filed a notice of default in regards
to the related party convertible note on the financial statements of DSG TAG. The note was issued in lieu of marketing services,
the note maturity date is March 31, 2016. Adore and DSG TAG are currently in arbitration in regards to this matter.
On
September 7, 2016, a vendor has filed a Complaint for Damage in Florida (Case Number: CACE-16-016663) to recover unpaid invoice
amount of $27,335 plus interest. The invoice was not paid due to a dispute that DSG TAG did not think that vendor had delivered
the service according to the agreement between the two parties. On May 31, 2017, the Company was ordered to repay the total invoice
amount of $22,396 plus interest of $7,722 as well as costs and reasonable attorney fees incurred in this action totaling $9,971.
The Company has accrued liabilities related to this matter in the financial statements. As of June 30, 2017, the Company not yet
made any payments.
On
May 31, 2017, in response to the Company’s refusal to process further conversion notices, the Company received legal notice
that a lendor of the Company would be commencing all collection efforts to recover convertible loans of $245,889. The letter also
served as notice of an obligation to maintain all documents and records, including electronic information.
Note
14 – SUBSEQUENT EVENTS
Management
has evaluated events subsequent through August 21, 2017, for transactions and other events that may require adjustment of and/or
disclosure in such financial statements.
On
July 17, 2017, the Company issued a convertible promissory note in the principal amount of $135,000. The terms are payable on
demand of the Holder at any time on or after the date of maturity July 17, 2018, together with interest of 10% per annum accruing
daily and, after maturity, compound quarterly. The Holder shall have the right to convert all or any part of the outstanding and
unpaid principal and accrued interest into fully paid and non-assessable shares of Common Stock at a conversion price equal to
the lessor of (i) 55% multiplied by the lowest trading price (representing a discount rate of 45%) during the previous twenty
(20) trading days to the date of a Conversion Notice; or (ii) six point one cents ($0.061). In the event that the number of shares
reserved with the Transfer Agent in consideration for this note is not increased to 22,000,000 shares by November 1, 2017, the
conversion price shall change ot the lower of (i) 45% multiplied by the lowest trading price (representing a discount rate of
55%) during the period thirty (30) days to the date of a conversion Notice; or (ii) six point one cents ($0.061).
On
August 16, 2017, the Company issued a Convertible note in the principal amount of $110,250. Interest is accrued at 8% per annum
and the note is due on August 16, 2018. The holder of the note is entitled at any time after the six month anniversary of the
note to convert into shares of the Company’s common stock at a price for reach share of common stock equal to 58% of the
lowest trading price of the common stock for the ten prior trading days. The Company may pay back the principle at anytime, but
will incur certain premiums.