ITEM
1: Financial Statements (unaudited)
The
accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at March 31, 2018, have been prepared by
our management in conformity with accounting principles generally accepted in the United States of America and in accordance with
the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and, therefore, do not include all information and footnotes necessary
for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity
with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation
of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
Operating
results for the three-month period ended March 31, 2018 are not necessarily indicative of the results that can be expected for
the year ending December 31, 2018.
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
(unaudited)
|
|
|
(revised
–Note 15)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
147,343
|
|
|
$
|
5,488
|
|
Accounts receivable
|
|
|
67,277
|
|
|
|
23,736
|
|
Inventories
|
|
|
38,182
|
|
|
|
8,929
|
|
Prepaid expenses and deposits
|
|
|
63,427
|
|
|
|
20,355
|
|
Receivable from
related party
|
|
|
-
|
|
|
|
1,034
|
|
TOTAL
CURRENT ASSETS
|
|
|
316,229
|
|
|
|
59,542
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
16,195
|
|
|
|
15,395
|
|
Equipment
|
|
|
736
|
|
|
|
964
|
|
Equipment on
lease
|
|
|
8,333
|
|
|
|
14,814
|
|
TOTAL
NON-CURRENT ASSETS
|
|
|
25,264
|
|
|
|
31,173
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
341,493
|
|
|
$
|
90,715
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
3,460,091
|
|
|
$
|
3,328,851
|
|
Deferred revenue
|
|
|
242,312
|
|
|
|
159,665
|
|
Warranty reserve
|
|
|
137,701
|
|
|
|
165,523
|
|
Convertible note payable to related
party
|
|
|
310,000
|
|
|
|
310,000
|
|
Loans payable
|
|
|
878,378
|
|
|
|
887,275
|
|
Derivative liabilities
|
|
|
8,124,723
|
|
|
|
1,676,155
|
|
Convertible notes
payable, net of unamortized discount of $751,558 and $301,360, respectively
|
|
|
1,940,700
|
|
|
|
2,019,132
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
15,093,905
|
|
|
|
8,546,601
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling
Interest - Preferred Shares
|
|
$
|
5,286,731
|
|
|
$
|
5,286,731
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 2,000,000,000
shares authorized 894,974,839 and 101,877,495 outstanding at March 31, 2018 and December 31, 2017, respectively.
|
|
|
894,975
|
|
|
|
101,877
|
|
Additional paid in capital
|
|
|
18,603,375
|
|
|
|
17,511,673
|
|
Other accumulated comprehensive income
|
|
|
1,514,341
|
|
|
|
873,250
|
|
Deficit
|
|
|
(39,613,724
|
)
|
|
|
(30,894,612
|
)
|
Total shareholders’ deficit attributable
to DSG Global, Inc.
|
|
|
(18,601,033
|
)
|
|
|
(12,407,812
|
)
|
Noncontrolling
interest
|
|
|
(1,438,110
|
)
|
|
|
(1,334,805
|
)
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
(20,039,143
|
)
|
|
|
(13,742,617
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
341,493
|
|
|
$
|
90,715
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
110,896
|
|
|
$
|
248,270
|
|
Cost of revenue
|
|
|
18,329
|
|
|
|
69,505
|
|
Gross
profit
|
|
|
92,567
|
|
|
|
178,765
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Bad debts
|
|
|
28,893
|
|
|
|
-
|
|
Depreciation and amortization
|
|
|
6,694
|
|
|
|
7,824
|
|
General and administration
|
|
|
358,013
|
|
|
|
277,005
|
|
Salaries and benefits
|
|
|
208,628
|
|
|
|
189,309
|
|
Warranty
|
|
|
-
|
|
|
|
2,624
|
|
Total
operating expenses
|
|
|
602,228
|
|
|
|
476,762
|
|
Loss
from operations
|
|
|
(509,661
|
)
|
|
|
(297,997
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
(5,616,261
|
)
|
|
|
(1,854,417
|
)
|
Finance costs
|
|
|
(740,562
|
)
|
|
|
(330,464
|
)
|
Foreign currency exchange gain (loss)
|
|
|
(560,666
|
)
|
|
|
11,003
|
|
Loss on extinguishment of debt
|
|
|
(1,395,267
|
)
|
|
|
-
|
|
Total
other income (expense)
|
|
|
(8,312,756
|
)
|
|
|
(2,173,878
|
)
|
Net loss
|
|
|
(8,822,417
|
)
|
|
|
(2,471,875
|
)
|
|
|
|
|
|
|
|
|
|
Less attributed
to non-controlling interest
|
|
|
103,305
|
|
|
|
377,858
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to DSG Global, Inc.
|
|
|
(8,719,112
|
)
|
|
|
(2,094,017
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
|
641,091
|
|
|
|
(49,874
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss attributable to DSG Global, Inc.
|
|
$
|
(8,078,021
|
)
|
|
$
|
(2,141,730
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share attributable to DSG Global, Inc.
|
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used in computing basic and diluted net loss per share attributable to DSG Global, Inc.
|
|
|
419,863,236
|
|
|
|
31,391,187
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,822,417
|
)
|
|
$
|
(2,471,875
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Bad debts
|
|
|
28,893
|
|
|
|
47,428
|
|
Change in fair value
of derivative liabilities
|
|
|
5,616,261
|
|
|
|
1,854,417
|
|
Depreciation and
amortization
|
|
|
6,694
|
|
|
|
7,824
|
|
Financing fees
|
|
|
229,134
|
|
|
|
2,281
|
|
Interest on discount
of convertible debt
|
|
|
382,109
|
|
|
|
176,654
|
|
Loss on extinguishment
of debt
|
|
|
1,395,267
|
|
|
|
-
|
|
Shares issued for
services
|
|
|
-
|
|
|
|
112,500
|
|
Unrealized foreign
exchange
|
|
|
579,080
|
|
|
|
5,614
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivables,
net
|
|
|
(72,434
|
)
|
|
|
(120,021
|
)
|
Inventory
|
|
|
(29,253
|
)
|
|
|
(350
|
)
|
Prepaid expense
and deposits
|
|
|
(43,072
|
)
|
|
|
(1,163
|
)
|
Related party receivable
|
|
|
1,034
|
|
|
|
-
|
|
Accounts payable
and accrued liabilities
|
|
|
118,575
|
|
|
|
221,332
|
|
Deferred revenue
|
|
|
82,647
|
|
|
|
1,573
|
|
Warranty reserve
|
|
|
(27,822
|
)
|
|
|
982
|
|
Net
cash used in operating activities
|
|
|
(555,304
|
)
|
|
|
(162,804
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
|
-
|
|
|
|
12,990
|
|
Proceeds from issuance of shares
|
|
|
81,659
|
|
|
|
50,000
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
615,500
|
|
|
|
135,000
|
|
Net
cash provided by financing activities
|
|
|
697,159
|
|
|
|
197,990
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
|
|
-
|
|
|
|
(35,186
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
141,855
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash , beginning of period
|
|
|
5,488
|
|
|
|
-
|
|
Cash, end of
the period
|
|
$
|
147,343
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Income
tax payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
payments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Convertible
debenture issued for financing fees
|
|
$
|
15,000
|
|
|
|
-
|
|
Shares
issued for convertible notes payable
|
|
$
|
1,803,141
|
|
|
|
-
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 – ORGANIZATION
DSG
Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007.
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, a supplier
to the golf industry.
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 interim 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, 2017. 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, 2017 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 months ended March 31, 2018 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2018.
Principles
of Consolidation
The
condensed 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 these condensed consolidated 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 interim condensed consolidated financial statements in the period they are determined.
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) characterize the indefinite
deferral of certain provisions and do not have an accounting effect.
The
Company is currently evaluating the impact of the above standards on their consolidated financial statements. Other recent accounting
pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
Going
Concern
As
reflected in the accompanying financial statements, the Company incurred a net loss of $8,822,417 for the period ended March 31,
2018 and had a working capital deficit of $14,777,676 and an accumulated deficit of $39,613,724 as of March 31, 2018.
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 – ACCOUNTS RECEIVABLE
As
of March 31, 2018 and December 31, 2017, trade receivables consist of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Trade receivables
|
|
$
|
95,403
|
|
|
$
|
52,373
|
|
Allowance for
bad debts
|
|
|
(28,126
|
)
|
|
|
(28,637
|
)
|
Total trade receivables,
net
|
|
$
|
67,277
|
|
|
$
|
23,736
|
|
Note
4 – EQUIPMENT AND EQUIPMENT ON LEASE
As
of March 31, 2018, and December 31, 2017, equipment consisted of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Furniture and equipment
|
|
$
|
16,492
|
|
|
$
|
17,914
|
|
Computer equipment
|
|
|
24,263
|
|
|
|
26,453
|
|
Accumulated depreciation
|
|
|
(40,019
|
)
|
|
|
(43,385
|
)
|
|
|
$
|
736
|
|
|
$
|
964
|
|
As
of March 31, 2018, and December 31, 2017, equipment on lease consisted of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Tags
|
|
$
|
124,314
|
|
|
$
|
124,314
|
|
Text
|
|
|
27,475
|
|
|
|
27,475
|
|
Touch
|
|
|
22,759
|
|
|
|
22,759
|
|
Accumulated
depreciation
|
|
|
(166,215)
|
|
|
|
(159,734)
|
|
|
|
$
|
8,333
|
|
|
$
|
14,814
|
|
Note
5 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of March 31, 2018 and December 31, 2017:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Patent
|
|
$
|
22,336
|
|
|
$
|
21,253
|
|
Accumulated depreciation
|
|
|
(6,141
|
)
|
|
|
(5,858
|
)
|
|
|
$
|
16,195
|
|
|
$
|
15,395
|
|
Note
6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of March 31, 2018 and December 31, 2017, accounts payable and accrued liabilities consist of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Trade payables
|
|
$
|
1,146,721
|
|
|
$
|
1,121,841
|
|
Accrued expenses
|
|
|
239,060
|
|
|
|
255,542
|
|
Accrued interest
|
|
|
2,034,620
|
|
|
|
1,889,537
|
|
Other liabilities
|
|
|
39,690
|
|
|
|
61,931
|
|
Total
|
|
$
|
3,460,091
|
|
|
$
|
3,328,851
|
|
Note
7 – LOANS PAYABLE
As
of March 31, 2018 and December 31, 2017, loans payable consisted of the following:
Loans
Payable
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Unsecured, due on demand,
interest 15% per annum
|
|
$
|
193,738
|
|
|
$
|
199,283
|
|
Unsecured, due on demand, interest 36%
per annum
|
|
|
47,394
|
|
|
|
48,750
|
|
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
|
|
|
69,746
|
|
|
|
71,742
|
|
Unsecured, loan
payable, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016.
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
878,378
|
|
|
$
|
887,275
|
|
Note
8 – CONVERTIBLE NOTES PAYABLE
Related
Party Notes
(a)
|
On
March 31, 2015, the Company issued a convertible promissory note in the principal amount of $310,000 to a company owned by
a director of the Company for marketing services. The convertible promissory note is unsecured, bears interest at 5% per annum,
is convertible at $1.25 per share, and is due on demand. As at March 31, 2018, the carrying value of the debenture was $310,000
(December 31, 2017 - $310,000).
|
Third
Party Notes
(b)
|
On
August 25, 2015, the Company issued a convertible promissory note in the principal amount of $250,000. The convertible promissory
note is unsecured, bears interest at 10% per annum, is due on demand, and is convertible at $1.75 per share.
|
|
|
(c)
|
On
November 7, 2016, the Company entered into a securities purchase agreement with a non-related party. Pursuant to the agreement,
the Company was provided with proceeds of $125,000 on November 10, 2016 in exchange for the issuance of a secured convertible
promissory note in the principal amount of $138,889, which was inclusive of an 8% original issue discount and bears interest
at 8% per annum to the holder. The convertible promissory note matures six months from the date of issuance and is convertible
at the option of the holder into our common shares at a price per share that is the lower of $0.12 or the closing price of
the Company’s common stock on the conversion date. In addition, under the same terms, the Company also issued a secured
convertible note of $50,000 in consideration for proceeds of $10,000 and another secured convertible note of $75,000 in consideration
for proceeds of $10,000. Under the agreements, the Company has the right to redeem $62,500 and $40,000 of the notes for consideration
of $1 each at any time prior to the maturity date in the event that the convertible promissory note is exchanged or converted
into a revolving credit facility with the lender, whereupon the two $10,000 convertible note balances shall be rolled into
such credit facility.
|
|
|
|
On
May 7, 2017, the Company triggered an event of default in the convertible note by failing to repay the full principal amount
and all accrued interest on the due date. The entire convertible note payable became due on demand and would accrue interest
at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the convertible
note payable was repaid in full.
|
|
|
|
On
May 8, 2017, the Company issued 100,000 common shares for the conversion of $5,000 of the $72,500 convertible note dated November
7, 2016. On May 24, 2017, the Company issued 210,000 common shares for the conversion of $10,500 of the $72,500 convertible
note dated November 7, 2016. Refer to Note 12.
|
|
|
|
On
May 25, 2017, the lender provided conversion notice for the remaining principal $57,000 of the $72,500 convertible note dated
November 7, 2016. This conversion was not processed by the Company’s transfer agent due to direction from the Company
not to honor any further conversion notices from the lender. In response, the Company received legal notification pursuant
to the refusal to process further conversion notices. Refer to Note 18.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $245,889 (December 31, 2017 - $245,889) and the fair value of the derivative
liability was $3,205,230 (December 31, 2017 - $629,759). During the three months ended March 31, 2018, the Company accreted
$nil (2017 - $72,099) of the debt discount to finance costs.
|
|
|
(d)
|
On
December 21, 2016, the Company entered into a convertible note agreement for the principal amount of $74,500 for consideration
of proceeds of $72,250, which was received on January 10, 2017. The note is unsecured, bears interest at 12% per annum, was
due on December 21, 2017, and is convertible into common shares at a conversion price equal to the lessor of: (i) the closing
sale price of the common stock on the trading day immediately preceding the closing date, and (ii) 50% of the lowest sale
price for the common stock during the twenty-five consecutive trading days immediately preceding the conversion date. Interest
will be accrued and payable at the time of repayment of the note. Financing fees on the note were $4,750. The derivative liability
applied as a discount on the note was $72,250 and is being accreted over the life of the note.
|
|
On
July 24, 2017, the Company issued 800,000 common shares for the conversion of $26,850 of principal and a $750 finance fee.
On October 10, 2017, the Company issued 1,000,000 common shares for the conversion of $705 of principal, $3,200 of penalty
interest, and a $750 finance fee. On October 19, 2017, the Company issued 4,400,000 common shares for the conversion of $4,814
of principal and a $1,500 finance fee. On October 25, 2017, the Company issued 2,700,000 common shares for the conversion
of $3,030 of principal and a $750 finance fee. On October 27, 2017, the Company issued 3,000,000 common shares for the conversion
of $3,450 of principal and a $750 finance fee. On October 31, 2017, the Company issued 3,000,000 common shares for the conversion
of $3,450 of principal and a $750 finance fee. On December 27, 2017, the Company issued 4,200,000 common shares for the conversion
of $1,182 of principal and a $750 finance fee. On December 29, 2017, the Company issued 4,600,000 common shares for the conversion
of $1,132 of principal and a $750 conversion fee. During the three months ended March 31, 2018, the Company incurred a default
fee of $36,000 for failure to honour the conversion notice in a timely manner, and issued 56,200,000 common shares with a
fair value of $129,676 for the conversion of $13,461 of principal, $37,491 of default fees and finance costs, $5,250 for conversion
fees resulting in a loss on settlement of debt of $73,474.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $52,426 (December 31, 2017 - $65,887) and the fair value of the derivative
liability was $526,350 (December 31, 2017 - $31,431). During the three months ended March 31, 2018, the Company accreted $nil
(2017 - $587) of the debt discount and $nil (2017 - $18,848) of the financing fees to finance costs.
|
|
|
(e)
|
On
January 18, 2017, the Company issued a convertible promissory note in the principal amount of $75,000. The note is unsecured,
bears interest at 12% per annum, was due on October 18, 2017, and is convertible into common shares at a conversion price
equal to the lessor of (i) 60% multiplied by the lowest trading price (representing a discount rate of 40%) during the previous
twenty-five trading day period ending on the latest complete trading day prior to the date of the note; and (ii) the variable
conversion price which means 50% multiplied by the lowest trading price (representing a discount rate of 50%) during the previous
twenty five trading day period ending on the latest complete trading day prior to the conversion date. Interest will be accrued
and payable at the time of promissory note repayment. Financing fees on the note were $2,750. The derivative liability applied
as a discount on the note was $75,000 and is being accreted over the life of the note.
|
|
|
|
On
July 28, 2017, the Company issued 500,000 common shares for the conversion of $4,474 of principal and $4,586 of accrued interest.
On September 7, 2017, the Company issued 750,000 common shares for the conversion of $12,549 of principal and $951 of accrued
interest. On October 11, 2017, the Company issued 750,000 common shares for the conversion of $3,342 of principal and $648
of accrued interest. On October 20, 2017, the Company issued 2,229,400 common shares for the conversion of $3,369 of principal
and $198 of accrued interest. On October 27, 2017, the Company issued 3,017,400 common shares for the conversion of $4,592
of principal and $236 of accrued interest. On November 7, 2017, the Company issued 3,667,000 common shares for the conversion
of $5,530 of principal and $337 of accrued interest.
|
|
|
|
On
November 7, 2017, the Company incurred a loan penalty of $15,000 for the conversion price being below the Company’s
par value.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $56,144 (December 31, 2017 - $56,144) and the fair value of the derivative
liability was $376,967 (December 31, 2017 - $70,818). During the three months ended March 31, 2018, the Company accreted $nil
(2017 - $1,566) of the debt discount and $nil (2017 - $24,725) of the financing fees to finance costs.
|
|
|
(f)
|
On
April 3, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The note is unsecured,
bears interest at 10% per annum, was due on October 3, 2017, and is convertible into common shares at a conversion price equal
to the lessor of: (i) 55% multiplied by the lowest trading price during the previous twenty-five trading day period ending
on the latest complete trading day prior to the date of this note and (ii) the alternate conversion price which means 55%
multiplied by the lowest trading price during the previous twenty-five trading day period ending on the latest complete trading
day prior to the conversion date. Interest will be accrued and payable at the time of promissory note repayment. In connection
with the issuance, the Company issued 550,000 common shares as a commitment fee, however, these common shares must be returned
if the note is fully repaid and satisfied prior to the maturity date. Financing fees on the note were $10,000. The derivative
liability applied as a discount on the note was $100,000 and is being accreted over the life of the note.
|
|
On
October 11, 2017, the Company issued 1,415,205 common shares for the conversion of $2,590 of principal and $5,880 of accrued
interest. On October 18, 2017, the Company issued 2,123,434 common shares for the conversion of $5,430 of principal and $494
of accrued interest. On October 19, 2017, the Company issued 2,229,450 common shares for the conversion of $3,879 of principal
and $134 of accrued interest. On October 23, 2017, the Company issued 2,440,467 common shares for the conversion of $4,134
of principal and $258 of accrued interest. On October 26, 2017, the Company issued 1,791,445 common shares for the conversion
of $3,107 of principal and $118 of accrued interest. On October 31, 2017, the Company issued 2,500,728 common shares for the
conversion of $4,262 of principal and $239 of accrued interest. On November 2, 2017, the Company issued 1,499,272 common shares
for the conversion of $2,528 of principal and $171 of accrued interest. On November 13, 2017, the Company issued 3,017,333
common shares for the conversion of $4,823 of principal and $608 of accrued interest. On November 22, 2017, the Company issued
4,000,565 common shares for the conversion of $4,292 of principal and $469 of accrued interest. On December 27, 2017, the
Company issued 4,200,200 common shares for the conversion of $1,656 of principal and $1,725 of accrued interest. On December
29, 2017, the Company issued 4,619,360 common shares for the conversion of $3,347 of principal and $48 of accrued interest.
During the three months ended March 31, 2018, the Company issued 247.495.414 common shares with a fair value of $571,886 for
the conversion of $69,952 of principal and $56,227 of default fees and finance costs resulting in a loss on settlement of
debt of $445,707.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $nil (December 31, 2017 - $69,952) and the derivative liability was
$nil (December 31, 2017 - $108,326).
|
|
|
(g)
|
On
June 5, 2017, the Company issued a convertible promissory note in the principal amount
of $110,000. The note is unsecured, bears interest at 10% per annum, was due on December
5, 2017, and is convertible into common shares at a conversion price equal to the lessor
of (i) 55% multiplied by the lowest trading price during the previous twenty-five trading
day period ending on the latest complete trading day prior to the date of this note and
(ii) the alternate conversion price which means 55% multiplied by the lowest trading
price during the previous twenty-five trading day period ending on the latest complete
trading day prior to the conversion date. Interest will be accrued and payable at the
time of promissory note repayment. Financing fees on the note were $7,000. The derivative
liability applied as a discount on the note was $103,000 and is being accreted over the
life of the note.
On
January 19, 2018, $50,000 of the note was reassigned to another unrelated note holder and the note was treated as an extinguishment.
There were no material changes to the note upon reassignment. Refer to Note 8(o).
On
March 2, 2018, $25,000 of the note was reassigned to another unrelated note holder and the note was treated as an extinguishment.
There were no material changes to the note upon reassignment. Refer to Note 8(r).
During
the three months ended March 31, 2018, the Company issued 206,994,645 common shares with a fair value of $524,487 for
the conversion of the remaining principal balance of $35,000, and default penalties and finance costs of $37,448 resulting
in a loss on settlement of debt of $452,039.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $9,487 (December 31, 2017 - $110,000) and the fair value of the derivative
liability was $66,070 (December 31, 2017 - $188,798).
|
|
|
(h)
|
On
July 17, 2017, the Company issued a convertible promissory note in the principal amount of $135,000. The note is unsecured,
bears interest at 10% per annum, is due on July 17, 2018, and is convertible into common shares at a conversion price equal
to the lessor of (i) 55% multiplied by the lowest trading price during the previous twenty trading day period ending on the
latest complete trading day prior to the date of this note and (ii) $0.061. Interest will be accrued and payable at the time
of promissory note repayment. Financing fees on the note were $16,500. Derivative liability applied as discount on the note
was $118,500 and is being accreted over the life of the note. During the three months ended March 31, 2018, the Company issued
91,242,858 common shares with a fair value of $206,341 for the conversion of $49,589 of principal balance resulting in a loss
on settlement of debt of $156,752.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $66,855 (December 31, 2017 - $70,718) and the fair value of the derivative
liability was $299,874 (December 31, 2017 - $205,563). During the three months ended March 31, 2018, the Company accreted
$45,726 (2017 - $nil) of the debt discount to interest expense.
|
(i)
|
On
August 17, 2017, the Company issued a convertible promissory note in the principal amount of $110,250. The note is unsecured,
bears interest at 8% per annum, is due on August 16, 2018, and is convertible at 58% of to the lowest trading price during
the previous ten trading days to the date of a conversion notice. Interest will be accrued and payable at the time of promissory
note repayment. Deferred financing fees on the note were $5,250. The derivative liability applied as a discount on the note
was $105,000 and is being accreted over the life of the note. On March 6, 2018, the Company issued 13,902,810 common shares
with a fair value of $40,318 for the conversion of $8,063 of principal and interest resulting in a loss on settlement of debt
of $32,255.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $66,812 (December 31, 2017 - $44,661) and the fair value of the derivative
liability was $322,323 (December 31, 2017 - $166,460). During the three months ended March 31, 2018, the Company accreted
$29,876 (2017 - $nil) of the debt discount to finance costs.
|
|
|
(j)
|
On
September 6, 2017, the Company issued a convertible promissory note in the principal
amount of $107,000. The note is unsecured, bears interest at 10% per annum, is due on
March 6, 2018, and is convertible into common shares at a conversion price equal to the
lessor of the lowest trading price during the previous twenty-five trading days prior
to: (i) the date of the promissory note; or (ii) the latest complete trading day prior
to the conversion date. Interest will be accrued and payable at the time of promissory
note repayment. Deferred financing fees on the note were $7,000. The derivative liability
applied as a discount on the note was $100,000 and is being accreted over the life of
the note.
On
March 2, 2018, $111,808 of the note was reassigned to another unrelated note holder and the note was treated as an extinguishment.
There were no material changes to the terms of the note upon reassignment. Refer to Note 8(s).
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $nil (December 31, 2017 - $71,088) and the fair value of the derivative
liability was $nil (December 31, 2017 - $100,000). During the three months ended March 31, 2018, the Company accreted $35,912
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(k)
|
On
October 30, 2017, the Company issued a convertible promissory note in the principal amount of $107,000. The note is unsecured,
bears interest at 10% per annum, is due on April 30, 2018, and is convertible into common shares at a conversion price equal
to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. Deferred financing fees on the note were $7,000. The derivative liability applied as a discount
on the note was $100,000 and is being accreted over the life of the note.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $90,516 (December 31, 2017 - $41,066) and the fair value of the derivative
liability was $340,053 (December 31, 2017 - $100,000). During the three months ended March 31, 2018, the Company accreted
$49,450 (2017 - $nil) of the debt discount to finance costs.
|
|
|
(l)
|
On
December 18, 2017, the Company issued a convertible promissory note in the principal amount of $82,000. The note is unsecured,
bears interest at 10% per annum, is due on June 18, 2018, and is convertible into common shares at a conversion price equal
to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. Deferred financing fees on the note were $7,000. The derivative liability applied as a discount
on the note was $75,000 and is being accreted over the life of the note.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $49,445 (December 31, 2017 - $12,357) and the fair value of the derivative
liability was $294,153 (December 31, 2017 - $75,000). During the three months ended March 31, 2018, the Company accreted $37,088
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(m)
|
On
January 18, 2018, the Company issued a convertible promissory note in the principal amount of $55,000. The note is unsecured,
bears interest at 10% per annum, is due on July 18, 2018, and is convertible into common shares at a conversion price equal
to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. The derivative liability applied as a discount on the note was $55,000 and is being accreted
over the life of the note.
|
|
As
at March 31, 2018, the carrying value of the note was $21,758 (December 31, 2017 - $nil) and the fair value of the derivative
liability was $197,665 (December 31, 2017 - $nil). During the three months ended March 31, 2018, the Company accreted $21,758
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(n)
|
On
January 19, 2018, the Company issued a convertible promissory note in the principal amount of $55,000. The note is unsecured,
bears interest at 10% per annum, is due on January 19, 2019, and is convertible into common shares at a conversion price equal
to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion
date. Interest will be accrued and payable at the time of promissory note repayment. The derivative liability applied as a
discount on the note was $55,000 and is being accreted over the life of the note.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $10,699 (December 31, 2017 - $nil) and the fair value of the derivative
liability was $199,038 (December 31, 2017 - $nil). During the three months ended March 31, 2018, the Company accreted $10,699
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(o)
|
On
January 19, 2018, the Company issued a convertible promissory note in the principal amount of $50,000, as partial replacement
for a convertible promissory note originally issued on June 5, 2017 in the amount of $110,000. Refer to Note 8(g). The note
is unsecured, bears interest at 10% per annum, is due on January 19, 2019, and is convertible into common shares at a conversion
price equal to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including
the conversion date. Interest will be accrued and payable at the time of promissory note repayment. The derivative liability
applied as a discount on the note was $50,000 and is being accreted over the life of the note. During the three months ended
March 31, 2018, the Company issued 57,244,977 common shares with a fair value of $137,143 to convert principal balance of
$50,000 and accrued interest of $309 resulting in a loss on settlement of debt of $86,834.
|
|
|
|
During
the three months ended March 31, 2018, the Company accreted $50,000 (2017 - $nil) of the debt discount to finance costs.
|
|
|
(p)
|
On
February 2, 2018, the Company issued a convertible promissory note in the principal amount of $107,500. The note is unsecured,
bears interest at 10% per annum, is due on August 2, 2018, and is convertible into common shares at a conversion price equal
to the lesser of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. The derivative liability applied as a discount on the note was $107,500 and is being accreted
over the life of the note.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $33,668 (December 31, 2017 - $nil) and the fair value of the derivative
liability was $384,495 (December 31, 2017 - $nil). During the three months ended March 31, 2018, the Company accreted $33,668
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(q)
|
On
March 2, 2018, the Company issued a convertible promissory note in the principal amount of $128,000. The note is unsecured,
bears interest at 10% per annum, is due on March 2, 2019, and is convertible into common shares at a conversion price equal
to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion
date. Interest will be accrued and payable at the time of promissory note repayment. The derivative liability applied as a
discount on the note was $128,000 and is being accreted over the life of the note.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $10,170 (December 31, 2017 - $nil) and the fair value of the derivative
liability was $443,917 (December 31, 2017 - $nil). During the three months ended March 31, 2018, the Company accreted $10,170
(2017 - $nil) of the debt discount to finance costs.
|
(r)
|
On
March 2, 2018, the Company issued a convertible promissory note in the principal amount of $25,000, as partial replacement
for a convertible promissory note originally issued on June 5, 2017 in the amount of $110,000. Refer to Note 8(g). The note
is unsecured, bears interest at 10% per annum, is due on March 2, 2019, and is convertible into common shares at a conversion
price equal to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including
the conversion date. Interest will be accrued and payable at the time of promissory note repayment. The derivative liability
applied as a discount on the note was $25,000 and is being accreted over the life of the note. During the three months ended
March 31, 2018, the Company issued 45,518,437 common shares with a fair value of $131,335 for the conversion of $25,000 of
principal and accrued interest of $35 resulting in a loss on settlement of debt of $106,300.
|
|
|
|
During
the three months ended March 31, 2018, the Company accreted $25,000 (2017 - $nil) of the debt discount to finance costs.
|
|
|
(s)
|
On
March 2, 2018, the Company issued a convertible promissory note in the principal amount of $111,808, as partial replacement
for a convertible promissory note originally issued on September 6, 2017 in the amount of $107,000 plus accrued interest.
Refer to Note 8(j). The note is unsecured, bears interest at 10% per annum, is due on March 2, 2019, and is convertible into
common shares at a conversion price equal to 55% of the lowest trading price during the previous fifteen trading days prior
to the conversion date, including the conversion date. Interest will be accrued and payable at the time of promissory note
repayment. The derivative liability applied as a discount on the note was $25,000 and is being accreted over the life of the
note. On March 27, 2018, the Company issued 18,267,673 common shares with a fair value of $42,016 for the conversion of $10,000
of principal and $47 of accrued interest resulting in a loss on settlement of debt of $31,969.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $8,089 (December 31, 2017 - $nil) and the fair value of the derivative
liability was $350,296 (December 31, 2017 - $nil). During the three months ended March 31, 2018, the Company accreted $8,088
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(t)
|
On
March 19, 2018, the Company issued a convertible promissory note in the principal amount
of up to $900,000. The note is unsecured, bears interest at 12% per annum, is due on
September 19, 2018, and is convertible into common shares after 180 days from issuance
date at a conversion price equal to the lessor of: (i) the lowest trading price during
the previous fifteen trading days prior to the date of the promissory note; or (ii) 55%
of the lowest trading price during the previous fifteen days prior to the latest complete
trading day prior to the conversion date. Interest will be accrued and payable at the
time of promissory note repayment.
On
March 19, 2018, the Company received $270,000 pursuant to the first tranche of the agreement, which is $300,000 in the
principal amount, net of the original issuance discount of $30,000. The derivative liability applied as a discount on
the note was $300,000 and is being accreted over the life of the note.
|
|
|
|
As
at March 31, 2018, the carrying value of the note was $14,674 (December 31, 2017 - $nil) and the fair value of the derivative
liability was $1,111,812 (December 31, 2017 - $nil). During the three months ended March 31, 2018, the Company accreted $14,674
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(u)
|
In
January 2018, the Company issued a convertible promissory note in the principal amount
of $15,000 as commitment fee. The note is unsecured, non-interest bearing until default,
is due on August 16, 2018, and is convertible into common shares at a conversion price
equal to 75% of the average closing trading price during the previous five trading days
prior to conversion date, with a minimum of $0.00005. On March 28, 2018, the Company
issued 6,230,530 common shares with a fair value of $19,937 for the conversion of $10,000
of principal resulting in a loss on settlement of debt of $9,937.
As
at March 31, 2018, the carrying value of the note was $5,000 (December 31, 2017 - $nil) and the fair value of the derivative
liability was $6,480 (December 31, 2017 - $nil).
|
|
|
(v)
|
As
at March 31, 2018, the Company owed a convertible promissory note in the principal amount of $949,068 (Cdn$1,231,128) (December
31, 2017 - $981,370 (Cdn$1,231,128)). The convertible promissory note is unsecured, bears interest at 17.2% per annum, is
due on demand, and is convertible into Tags units at the average closing price of the 120 days period prior to conversion
date. As at March 31, 2018, accrued interest of $575,744 (Cdn$742,896) (December 31, 2017 – $549,886(Cdn$689,832)) was
recorded in accounts payable and accrued liabilities.
|
Note
9 – DERIVATIVE LIABILITIES
The
Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 8 in accordance
with ASC 815, “Derivatives and Hedging”. The fair values of the derivative liabilities were calculated using a multi-nominal
lattice model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and
losses recorded in the consolidated statement of operations. For the three months ended March 31, 2018, the Company recorded a
loss on the change in fair value of derivative liabilities of $5,616,261 (2017 – $1,854,417). As at March 31, 2018, the
Company recorded a derivative liability of $8,124,723 (December 31, 2017 - $1,676,155).
The
following inputs and assumptions were used to value the derivative liabilities outstanding during the period ended March 31, 2018
and 2017, assuming no dividend yield:
|
|
2018
|
|
|
2017
|
|
Expected
volatility
|
|
|
306-462
|
%
|
|
|
96
– 533
|
%
|
Risk
free interest rate
|
|
|
1.19-2.09
|
%
|
|
|
0.11
- 1.76
|
%
|
Expected
life (in years)
|
|
|
0.08-1.00
|
|
|
|
0.1
– 1.0
|
|
A
summary of the activity of the derivative liabilities is shown below:
|
|
$
|
|
Balance, December 31, 2017
|
|
|
1,676,155
|
|
Derivative loss due to new issuances
|
|
|
832,307
|
|
Mark to market
adjustment
|
|
|
5,616,261
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
8,124,723
|
|
Note
10 – MEZZANINE EQUITY
DSG
TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of December 31, 2017
and 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. The Series A Shares are subject to a redemption
obligation at $1.25 per share pursuant to the following terms:
|
●
|
On
or before August 1, 2016, we must complete a financing for gross proceeds of at least $2.5 million and use at least $1.125
million to redeem a minimum of 900,000 Series A Shares;
|
|
|
|
|
●
|
On
or before September 1, 2016, we must complete an additional financing for gross proceeds of at least $2.5 million and use
at least $1.125 million to redeem a minimum of 900,000 additional Series A Shares; and
|
|
|
|
|
●
|
On
or before October 1, 2016, we must complete an additional financing for gross proceeds of at least $5.0 million and use at
least $3.14 million to redeem the remaining 2,509,384 Series A Shares.
|
The
preferred shares are recorded in the consolidated financial statements as Mezzanine Equity.
During
the year ended December 31, 2015, 80,000 Series A Shares with a value of $100,000 was purchased by an unrelated third-party and
exchanged for 80,000 shares of common stock of the Company. The Series A Shares were not exchanged for securities of DSG Global,
Inc. as part of the Share Exchange Agreement. As of March 31, 2018, the non-controlling interest was $1,438,110 (December 31,
2017 - $1,334,805).
Note
11 – COMMON STOCK
During
the three months ended March 31, 2018, the Company issued an aggregate of 743,097,344 common shares with a fair value of $1,803,141
upon the conversion of $399,297 of convertible debentures and $8,577 of accrued interest, as noted in Note 8. The Company recorded
a loss on extinguishment of debt of $1,395,267 in connection with the conversions.
On
February 7, 2018, the Company issued 20,742,000 common shares for proceeds of $34,846.
On
March 19, 2018, the Company issued 29,258,000 common shares for proceeds of $46,813.
Note
12 – RELATED PARTY TRANSACTIONS
(a)
|
As
at March 31, 2018, the Company owes $154,143 (Cdn$198,715) (December 31, 2017 - $205,963 (Cdn$258,381)) to the President,
CEO, and CFO of the Company for management fees, which has been recorded in accounts payable and accrued liabilities. The
amounts owed and owing are unsecured, non-interest bearing, and due on demand.
|
|
|
(b)
|
As
at March 31, 2018, the Company owes $21,681 (Cdn$27,950) (December 31, 2017 - $4,273 (Cdn$27,950)) to a Company controlled
by the son of the President, CEO, and CFO of the Company, which has been recorded in accounts payable and accrued liabilities.
The amount owing is unsecured, non-interest bearing, and due on demand.
|
Note
13 – COMMITMENTS
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 March 31, 2018, the Company has set up a reserve for future warranty costs of $137,701 (December 31, 2017 - $165,523). The
Company’s past experience with warranty related costs was used as a basis for the reserve. During the three months ended
March 31, 2018, the Company recorded warranty expense of $nil (2016 - $2,624).
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
14 – LEGAL MATTERS
A
director of the Company, representing his company, Adore Creative Agency Inc. (“Adore”), has filed a notice of default
on March 31, 2016, in regard to the related party convertible note on the Company’s. The note was issued in lieu of marketing
services and has a maturity date of March 31, 2016. The Company has countersued Adore for failure to provide services as obligated
under the terms and agreement of the convertible note, and in addition for damages as a result.
On
September 7, 2016, Chetu Inc. has filed a Complaint for Damage in Florida to recover an unpaid invoice amount of $27,335 plus
interest of $4,939. The invoice was not paid due to a dispute that DSG TAG did not think that vendor had delivered the service
according to the agreement between the two parties.
On
May 24, 2017, the Company received a notice of default from Coastal Investment Partners LLC (“Coastal”), on three
8% convertible promissory notes issued to the Company in aggregate principal amount of $261,389 and commenced a lawsuit on June
12, 2017 in the United States District Court, Southern District of New York. Coastal alleges that the Company failed to deliver
shares of common stock underlying the Coastal notes, and thus giving rise to an event of default. Coastal seeks damages in excess
of $250,000 for breach of contact damages, and legal fees incurred by Coastal with respects to the lawsuit. This action is still
pending.
On
October 10, 2017, a vendor filed a complaint for Breach of Contract with Superior Court of the State of California. The Complainant
is alleging that it is contractually owed 1,848,130 of DSG’s common stock and has asked for damages of $270,000. In addition,
a related vendor filed in the same filing a complaint for $72,000 as part of consulting agreement the Company executed. The Company
believes the vendors have not performed duties required on the contractual relationships and that obligations exist, so no obligation
has been recorded.
On
February 9, 2017, the Company received a notice of default from Auctus Fund LLC (“Auctus”), on a 12% convertible promissory
note issued to the Company in the principal amount of $75,000 and commenced a lawsuit on February 2, 2018 in the United States
District Court, District of Massachusetts. Auctus alleges that the Company failed to honor a conversion notice under the terms
of the note, and thus giving rise to an event of default. Auctus seeks damages in excess of $306,681, which consists of the principal
amount of the note, liquidated damages, and default interest, and legal fees incurred by Auctus with respects to the lawsuit.
This action is still pending.
Note
15 – REVISION OF PRIOR YEAR FINANCIAL STATEMENTS
While
preparing the interim condensed consolidated financial statements for the period ending March 31, 2018, the Company noted that
there was a revision of the fair value of the derivative liabilities and accordingly, has revised its consolidated financial statements
as at and for the year ended December 31, 2017 to reflect the change in fair value of derivative liabilities during the period
and the fair value of the derivative liabilities as at December 31, 2017. This revision resulted in an increase to net loss of
$484,759 and an increase to net loss per share of $0.01. There was no impact on the consolidated statement of cash flows. In accordance
with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality and Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
,
the Company has determined that the impact of adjustments relating to the correction of this accounting error are not material
to previously issued annual audited consolidated financial statements as the amount was derived from an estimate, has no impact
on compliance with regulatory requirements or loan covenants, and has no impact on the Company’s cash flows.. Accordingly,
these changes are disclosed herein and will be disclosed prospectively.
The
impact of the revision as at December 31, 2017 and for the year then ended is summarized below:
Consolidated
Balance Sheet
|
|
As
at December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
|
1,191,396
|
|
|
|
484,759
|
|
|
|
1,676,155
|
|
Total Current Liabilities
|
|
|
8,061,842
|
|
|
|
484,759
|
|
|
|
8,546,601
|
|
Total Liabilities
|
|
|
8,061,842
|
|
|
|
484,759
|
|
|
|
8,546,601
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
(30,409,853
|
)
|
|
|
(484,759
|
)
|
|
|
(30,894,612
|
)
|
Total stockholders’ deficit attributable
to DSG Global, Inc.
|
|
|
(11,923,053
|
)
|
|
|
(484,759
|
)
|
|
|
(12,407,812
|
)
|
Total Stockholders’
Equity
|
|
|
(13,257,858
|
)
|
|
|
(484,759
|
)
|
|
|
(13,742,617
|
)
|
Consolidated
Statement of Operations and Comprehensive Loss
|
|
Year
ended December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liabilities
|
|
|
(340,227
|
)
|
|
|
(484,759
|
)
|
|
|
(824,986
|
)
|
Total other income (expense)
|
|
|
(1,987,202
|
)
|
|
|
(484,759
|
)
|
|
|
(2,471,961
|
)
|
Net loss for the year
|
|
|
(3,632,072
|
)
|
|
|
(484,759
|
)
|
|
|
(4,116,831
|
)
|
Net loss attributable to DSG Global,
Inc.
|
|
|
(3,396,407
|
)
|
|
|
(484,759
|
)
|
|
|
(3,881,166
|
)
|
Comprehensive
loss attributable to DSG Global, Inc.
|
|
|
(3,819,809
|
)
|
|
|
(484,759
|
)
|
|
|
(4,304,568
|
)
|
Consolidated
Statement of Stockholders’ Equity
|
|
Year
ended December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
Deficit
|
|
|
(30,409,853
|
)
|
|
|
(484,759
|
)
|
|
|
(30,894,612
|
)
|
Stockholders’
Equity
|
|
|
(13,257,858
|
)
|
|
|
(484,759
|
)
|
|
|
(13,742,617
|
)
|
Consolidated
Statement of Cash Flows
|
|
Year
ended December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to DSG Global, Inc.
|
|
|
(3,396,407
|
)
|
|
|
(484,759
|
)
|
|
|
(3,881,166
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liabilities
|
|
|
(340,227
|
)
|
|
|
(484,759
|
)
|
|
|
(824,986
|
)
|
Note
16 – SUBSEQUENT EVENTS
On
May 3, 2018, the Company amended the convertible promissory note dated March 19, 2018, to include that at any time after the 100th
calendar day after the fund are issued, and at the option of the holder in addition to the right to conversion, the holder may
deduct daily payments from the Company’s bank account in the amount of $5,562.30 per calendar day or $27,811.50 per week
until the Company has paid or the holder has converted an amount equal to the principal balance, interest, accrued interest, and
default amount.
On
May 3, 2018, the Company received $146,500, net of $3,500 in legal fees, pursuant to the second tranche of the convertible promissory
note dated March 19, 2018.
On
May 8, 2018 the Company issued a convertible note to GHS Investments, LLC for $51,500, which is unsecured, bears interest at 10%
per annum, and is due on May 8, 2019. GHS has the right to convert the loan at a 32% discount off of the lowest intra-day trading
price for the Company’s common stock during the ten trading days immediately preceding a conversion date.
On
May 8, 2018, the Company paid $45,000 to EMA Financial, LLC, to settle the balance of the $74,500 convertible note issued on December
21, 2016.
Subsequent
to the quarter ended March 31, 2018, the Company issued 191,888,201 common shares for the conversion of $221,470 of convertible
notes payable and accrued interest payable.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD
LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,”
“potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,”
“would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty
of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but
are not limited to, statements concerning the following:
|
●
|
our
future financial and operating results;
|
|
|
|
|
●
|
our
intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
|
|
|
|
|
●
|
the
timing and success of our business plan;
|
|
|
|
|
●
|
our
plans regarding future financings;
|
|
|
|
|
●
|
our
ability to attract and retain customers;
|
|
|
|
|
●
|
our
dependence on growth in our customers’ businesses;
|
|
|
|
|
●
|
the
effects of market conditions on our stock price and operating results;
|
|
|
|
|
●
|
our
ability to maintain our competitive technological advantages against competitors in our industry;
|
|
|
|
|
●
|
the
expansion of our business in our core golf market as well as in new markets like commercial fleet management and agriculture;
|
|
|
|
|
●
|
our
ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance;
|
|
|
|
|
●
|
our
ability to introduce new offerings and bring them to market in a timely manner;
|
|
|
|
|
●
|
our
ability to maintain, protect and enhance our intellectual property;
|
|
|
|
|
●
|
the
effects of increased competition in our market and our ability to compete effectively;
|
|
|
|
|
●
|
the
attraction and retention of qualified employees and key personnel;
|
|
|
|
|
●
|
future
acquisitions of or investments in complementary companies or technologies; and
|
|
|
|
|
●
|
our
ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company.
|
These
forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business
and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements
as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with
the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks
emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events
and circumstances discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those
anticipated or implied in our forward-looking statements.
You
should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected
in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance
or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation
to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements
to actual results or to changes in our expectations, except as required by law.
Our
unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States
Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited interim
condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the
understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different
from what we expect.
Corporate
History
DSG
Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007.
We were formed to option feature films and TV projects to be packaged and sold to movie studios and production companies.
In
January 2015, we changed our name to DSG Global, Inc. and effected a one-for-three reverse stock split of our issued and outstanding
common stock in anticipation of entering in a share exchange agreement with DSG TAG Systems, Inc., a corporation incorporated
under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008.
On
April 13, 2015, we entered into a share exchange agreement with DSG TAG Systems Inc. and the shareholders of DSG TAG Systems who
become parties to the agreement. Pursuant to the terms of the share exchange agreement, we agreed to acquire not less than 75%
and up to 100% of the issued and outstanding common shares in the capital stock of DSG TAG Systems in exchange for the issuance
to the selling shareholders of up to 20,000,000 shares of our common stock on the basis of 1 common share for 5.4935 common shares
of DSG TAG Systems.
On
May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common
shares of DSG TAG Systems as contemplated by the share exchange agreement by issuing 15,185,875 shares of our common stock to
shareholders of DSG TAG Systems who became parties to the agreement. In addition, concurrent with the closing of the share exchange
agreement, we issued an additional 179,823 shares of our common stock to Westergaard Holdings Ltd. in partial settlement of accrued
interest on outstanding indebtedness of DSG TAG Systems.
Following
the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of
common stock of DSG TAG Systems from shareholders who became parties to the share exchange agreement and issued to these shareholders
an aggregate of 18,422 shares of our common stock. Following completion of these additional purchases, DSG Global owns approximately
100% of the issued and outstanding shares of common stock of DSG TAG Systems. An aggregate of 4,229,384 shares of Series A Convertible
Preferred Stock of DSG TAG Systems continues to be held by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a former
member of our board of directors.
The
reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG Systems is considered
the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought
forward at their book value and no goodwill has been recognized. We adopted the business and operations of DSG TAG Systems upon
the closing of the share exchange agreement.
Overview
of Our Business
DSG
Global, Inc. is a technology development company based in Surrey, British Columbia, Canada, engaged in the design, manufacture,
and marketing of fleet management solutions for the golf industry, as well as commercial, government and military applications.
Our principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support
services. We were founded by a group of individuals who have dedicated their careers to fleet management technologies and have
been at the forefront of the industry’s most innovative developments, and our executive team has over 50 years of experience
in the design and manufacture of wireless, GPS, and fleet tracking solutions. We have developed the TAG suite of products that
we believe is the first completely modular fleet management solution for the golf industry. The TAG suite of products is currently
sold and installed around the world in golf facilities and as commercial applications through a network of established distributors
and partnerships with some of the most notable brands in fleet and equipment manufacture.
DSG
stands for “Digital Security Guard”, which is our primary value statement giving fleet operator’s new capabilities
to track and control their vehicles. We have developed a proprietary combination of hardware and software that is marketed around
the world as the TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course
operators manage their fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management
in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of
the National Golf Course Owners Association. To date the TAG system is installed on over 8,000 vehicles and has been used to monitor
over 6,000,000 rounds of golf.
The
TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system
to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which
can operate independently, we offer two golfer information display systems — the alphanumeric TEXT and high definition TOUCH
— providing the operator with two display options which is unique in the industry.
The
primary market for our TAG system is the 40,000 golf operations worldwide. While the golf industry remains the primary focus of
our sales and marketing efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture
and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new
markets.
We
have a direct sales force in North America, which comprises the most significant portion of the golf fleet market and have developed
key relationships with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive
sales for the North American and worldwide markets.
In
order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier
of our hardware units and components at competitive prices. Presently, we source our TOUCH units from one supplier in China and
our TAG units from one supplier in the United Kingdom. We have recently established a new relationship with a supplier for our
TOUCH units in China to provide us with higher quality, newer technology at competitive pricing. We are also exploring the opportunity
of a partnership with a US manufacturer.
In
addition, DSG is currently in negotiations with a telecommunications provider to provide new technology in hardware and wireless
access.
Our
Revenue Model
We
derive revenue from four different sources, as follows:
|
●
|
Systems
Sales Revenue
, which consists of the sales price paid by those customers who purchase or lease our TAG system hardware.
|
|
|
|
|
●
|
Monthly
Service Fees
are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the
TAG systems.
|
|
|
|
|
●
|
Monthly
Rental Fees
are paid by those customers that rent the TAG system hardware. The amount of a customer’s monthly
payment varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and TOUCH).
|
|
|
|
|
●
|
Advertising
Revenue
is a new source of revenue that we believe has the potential to be strategic for us in the future. We are
in the process of implementing and designing software to provide advertising and other media functionality on our TOUCH units.
|
We
recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue
is deferred until all acceptance criteria have been met. We accrue for warranty costs, sales returns, and other allowances based
on its historical experience.
Our
revenue recognition policies are discussed in more detail under “
Note 2 – Summary of Significant Accounting Policies
”
in the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Cost
of Revenue
Our
cost of revenue consists primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and
inventory adjustments.
|
●
|
Hardware
purchases.
Our equipment purchases consist primarily of TAG system control units, TEXT display, and TOUCH display
tablets. The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or
TOUCH high definition “touch activated” display. Hardware purchases also include costs of components used during
installations, such as cables, mounting solutions, and other miscellaneous equipment.
|
|
|
|
|
●
|
Wireless
data fees.
Our wireless data fees consist primarily of the data fees charged by outside providers of GPS tracking
used in all of our TAG system control units.
|
|
|
|
|
●
|
Mapping.
Our mapping costs consist of aerial mapping, course map, geofencing, and 3D flyovers for golf courses. This cost is
incurred at the time of hardware installation.
|
|
|
|
|
●
|
Installation.
Our installation costs consist primarily of costs incurred by our employed service technicians for the cost of travel,
meals, and miscellaneous components required during installations. In addition, these costs also include fees paid to external
contractors for installations on a project by project basis.
|
|
|
|
|
●
|
Freight
expenses and Inventory adjustments.
Our freight expenses consist primarily of costs to ship hardware to courses for
installations. Our inventory adjustments include inventory write offs, write downs, and other adjustments to the cost of inventory.
|
|
|
|
|
●
|
Operating
Expenses & Other Income (Expenses)
We classify our operating expenses and other income (expenses) into six categories:
compensation, research and development, general and administrative, warranty, foreign currency exchange, and finance costs.
Our operating expenses consist primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade
shows, software development, and allocated costs. Allocated costs include charges for facilities, office expenses, telephones
and other miscellaneous expenses. Our other income (expenses) primarily consists of financing costs and foreign exchange gains
or losses.
|
|
|
|
|
●
|
Compensation
expense.
Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses,
and employee benefits. This includes salaries for management, administration, engineering, sales and marketing, and service
support technicians. Salaries and wages directly related to projects or research and development are expensed as incurred
to their operating expense category.
|
|
●
|
General
and administrative
. Our general and administrative expenses consist primarily of sales and marketing, commissions,
travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting
and legal professional services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing,
marketing materials, and media management.
|
|
●
|
Warranty
expense.
Our warranty expenses consist primarily of associated material product costs, labor costs for technical support
staff, and other associated overhead. Warranty costs are expensed as they are incurred.
|
|
|
|
|
●
|
Foreign
currency exchange.
Our foreign currency exchange consists primarily of foreign exchange fluctuations recorded in Canadian
dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
|
|
|
|
|
●
|
Finance
costs.
Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing
charges for obtaining debt financing.
|
We
expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company,
including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated
with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute
dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings
in new markets like commercial fleet management and agriculture.
Additional
Capital
We
require additional capital to continue to develop software and products, meet our contractual obligations, and execute our business
plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely
affect our ability to achieve our business objectives.
Results
of Operations
We
had a net loss of $8,822,417 for the three-month period ended March 31, 2018, which was $6,350,542 more than the net loss
of $2,471,875 for the three-month period ended March 31, 2017. The primary reason is attributable to the derivative gain
recorded in the current quarter end relating to the change in fair value on convertible notes.
The
following table summarizes key items of comparison and their related increase (decrease) for the three month periods March 31,
2018 and 2017:
|
|
Three
Months ended
|
|
|
Three
Months ended
|
|
|
Increase (Decrease)
2018 from
|
|
|
|
Mar 31, 2018
|
|
|
Mar 31, 2017
|
|
|
2017
|
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
Revenues
|
|
$
|
110,896
|
|
|
$
|
248,270
|
|
|
|
(55
|
)%
|
Cost of revenue
|
|
|
18,329
|
|
|
|
69,505
|
|
|
|
(74
|
)%
|
Gross profit
|
|
|
92,567
|
|
|
|
178,765
|
|
|
|
(48
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad Debt
|
|
|
28,893
|
|
|
|
-
|
|
|
|
100
|
%
|
Compensation expense
|
|
|
208,628
|
|
|
|
189,309
|
|
|
|
10
|
%
|
Depreciation and amortization expense
|
|
|
6,694
|
|
|
|
7,824
|
|
|
|
(14
|
)%
|
General and administrative expense
|
|
|
358,013
|
|
|
|
277,005
|
|
|
|
29
|
%
|
Warranty expense
|
|
|
-
|
|
|
|
2,624
|
|
|
|
(100
|
)%
|
Total Operating Expenses
|
|
|
602,228
|
|
|
|
476,762
|
|
|
|
26
|
%
|
Loss from operations
|
|
|
(509,661
|
)
|
|
|
(297,997
|
)
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
(5,616,261
|
)
|
|
|
(1,854,417
|
)
|
|
|
203
|
%
|
Finance costs
|
|
|
(740,562
|
)
|
|
|
(330,464
|
)
|
|
|
124
|
%
|
Foreign currency exchange
|
|
|
(560,666
|
)
|
|
|
11,003
|
|
|
|
(5,196
|
)%
|
Loss on extinguishment of debt
|
|
|
(1,395,267
|
)
|
|
|
-
|
|
|
|
(100
|
)%
|
Total Other Income (Expense)
|
|
|
(8,312,756
|
)
|
|
|
(2,173,878
|
)
|
|
|
282
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Net loss
|
|
|
(8,822,417
|
)
|
|
|
(2,471,875
|
)
|
|
|
257
|
%
|
Less attributed to non-controlling interest
|
|
|
103,305
|
|
|
|
377,858
|
|
|
|
(73
|
)%
|
Net income (loss) attributable to DSG Global
|
|
$
|
(8,719,112
|
)
|
|
$
|
(2,094,017
|
)
|
|
|
317.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (basic and diluted)
|
|
|
(0.021
|
)
|
|
|
(0.067
|
)
|
|
|
(72.37
|
)%
|
Comparison
of the three months ended March 31, 2018 and 2017:
Revenue
|
|
For the Three Months Ended Mar 31
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Revenue
|
|
|
110,896
|
|
|
|
248,270
|
|
|
|
(55
|
)
|
Revenue
decreased by $137,374 or 55.3%, for the three months ended March 31, 2018 as compared to the three months ended March 31,
2017.
Due
to the redevelopment of our product line, it has created lower sales overall than anticipated. We have 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. Our company along with the new sales
team is aggressively building its pipeline for the prospective periods.
Cost
of Revenue
|
|
For the Three Months Ended March 31
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Cost of Revenue
|
|
|
18,329
|
|
|
|
69,505
|
|
|
|
(74
|
)
|
Cost
of revenue decreased by $51,176, or 73.6%, for the three months ended March 31, 2018 as compared to the three months ended
March 31, 2017. The table below outlines the differences in detail:
|
|
For the Three Months Ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
Difference
|
|
|
% Difference
|
|
Cost of Goods
|
|
$
|
-
|
|
|
$
|
3,664
|
|
|
$
|
(3,664
|
)
|
|
|
(100
|
)%
|
Labour
|
|
|
-
|
|
|
|
81
|
|
|
|
(81).
|
|
|
|
(100.0
|
)%
|
Mapping & Freight Costs
|
|
|
660
|
|
|
|
1,717
|
|
|
|
(1,057
|
)
|
|
|
(62
|
)%
|
Wireless Fees
|
|
|
17,669
|
|
|
|
63,911
|
|
|
|
(46,242
|
)
|
|
|
(72
|
)%
|
Inventory Write-off/Adjustments
|
|
|
-
|
|
|
|
132
|
|
|
|
(132
|
)
|
|
|
(100
|
)%
|
|
|
$
|
18,329
|
|
|
$
|
69,505
|
|
|
$
|
(51,176
|
)
|
|
|
(74
|
)%
|
For
the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, the overall decrease was due to the
decrease in inventory adjustments.
Compensation
Expense
|
|
For the Three Months Ended March 31
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Compensation
|
|
|
208,628
|
|
|
|
189,309
|
|
|
|
10
|
|
Compensation
expense increased by $19,319, or 10.2%, for the three months ended March 31, 2018 as compared to the three months ended March
31, 2017.
General
and Administration Expense
General
& administration expense increased by $81,008 or 29% for the three months ended March 31, 2018 compared to the three months
ended March 31, 2017. The table below outlines the differences in detail:
|
|
For the Three Months Ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
Difference
|
|
|
% Difference
|
|
Accounting & Legal
|
|
$
|
47,786
|
|
|
$
|
11,870
|
|
|
$
|
35,916
|
|
|
|
303
|
%
|
Marketing & Advertising
|
|
|
12,683
|
|
|
|
112,311
|
|
|
|
(99,628
|
)
|
|
|
(89
|
)%
|
Subcontractor & Commissions
|
|
|
56,308
|
|
|
|
43,708
|
|
|
|
12,600
|
|
|
|
29
|
%
|
Hardware
|
|
|
15,608
|
|
|
|
803
|
|
|
|
14,805
|
|
|
|
1,844
|
%
|
Office Expense, Rent, Software, Bank & Credit Card Charges, Telephone, Travel, & Meals
|
|
|
225,628
|
|
|
|
108,313
|
|
|
|
117,315
|
|
|
|
108
|
%
|
|
|
$
|
358,013
|
|
|
$
|
277,005
|
|
|
$
|
81,008
|
|
|
|
29
|
%
|
For
the three months ended March 31, 2018 as compared to the three months ended March, 2017, the overall increase in general and
administrative expense is primary related to increase in accounting and legal of $35,916 or 303%. Subcontractors and commissions
increased by $31,717 due to the hiring of more contract workers. Office expense, travel, and other miscellaneous operational expenses
also increased by $117,315 or 108%.
Warranty
Expense
|
|
For the Three Months Ended March 31
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Warranty Expense
|
|
|
0
|
|
|
|
2,624
|
|
|
|
(100
|
)
|
Warranty
expense decreased by $2,624, or100% for the three months ended March 31, 2018 as compared to the three months ended March 31,
2017.
As
of March 31, 2018, our balance sheet included a reserve of $137,701 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 March 31
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Foreign Exchange
|
|
|
(506,666
|
)
|
|
|
11,003
|
|
|
|
(5,196
|
)
|
For
the three months ended March 31, 2018, we recognized a $506,666 loss in foreign currency transaction as compared to $11,003
in foreign currency transaction gain for the three months ended March 30, 2017. The increase in loss was primarily due to changes
in unrealized exchange losses between intercompany balances for the three months ending March 31, 2018 due to exchange rate fluctuations
on payables, receivables, and other foreign exchange transactions denominated in currencies other than the functional currencies
of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar,
Euro and British pound.
Finance
Costs
|
|
For the Three Months Ended March 31
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Finance Cost
|
|
|
(740,562
|
)
|
|
|
(330,464
|
)
|
|
|
124
|
|
Finance
costs increased by $410,098 or 124%, for the three months ended March 31, 2018 as compared to the three months ended March 31,
2017. Finance costs increased due to an increase in the number of conversions of our convertible debentures as well as incurring
default and interest penalties for non-payment of our convertible notes payable.
Derivative
Expense
|
|
For the Three Months Ended March 31
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Derivative Expense
|
|
|
(5,616,261
|
)
|
|
|
(1,854,417
|
)
|
|
|
203
|
|
Derivative
expense increased by $3,761,844 or 203%, for the three months ended March 31, 2018 as compared to the three months ended March
31, 2017 due to the change in fair value of the beneficial conversion features on our convertible notes payable. The change
in fair value was impacted heavily due to the volatility in the Company’s stock price.
Net
Loss Attributable to DSG Global
|
|
For
the Three Months Ended March 31
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
DSG Net
Loss
|
|
|
(8,719,112
|
)
|
|
|
(2,094,017
|
)
|
|
|
316
|
|
As
a result of the above factors, the net loss attributable to DSG Global increased by $6,625,095 or 316% for the three
months ended March 31, 2018 as compared to the three months ended March 31, 2017. The overall increase was due primarily due
to change in the fair value of the derivative liabilities given the increase in the amount of convertible notes issued and the
discount-to-market for conversion of the principal and accrued interest portions of the convertible notes.
Liquidity
and Capital Resources
From
our incorporation in April 17, 2008 through March 31, 2018, 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 March 31, 2018, we had $7,583,038 in outstanding indebtedness, which
all matures within the next twelve months.
We
had cash in the amount of 147,343 as of March 31, 2018, as compared to $5,488 as of December 31, 2017. We had a working
capital deficit of $14,777,676 as of March 31, 2018 compared to working capital deficit of $8,487,059 as of December
31, 2017.
During
the three months ended March 31, 2018, the Company issued an aggregate of 743,097,344 common shares with a fair value of $1,803,141
upon the conversion of $399,297 of convertible debentures and $8,577 of accrued interest, as noted in Note 8. The Company recorded
a loss on extinguishment of debt of $1,395,267 in connection with the conversions.
On
February 7, 2018, the Company issued 20,742,000 common shares for proceeds of $34,846.
On
March 19, 2018, the Company issued 29,258,000 common shares for proceeds of $46,813.
Liquidity
and Financial Condition
Our
financial position as of March 31, 2018 and 2017, and the changes for the periods then ended are as follows:
Working
Capital
|
|
At March 31,
2018
|
|
|
At December 31,
2017
|
|
Current Assets
|
|
$
|
316,229
|
|
|
$
|
59,542
|
|
Current Liabilities
|
|
$
|
15,093,905
|
|
|
$
|
8,546,601
|
|
Working Capital
|
|
$
|
(14,777,676
|
)
|
|
$
|
(8,487,059
|
)
|
Cash
Flow Analysis
Our
cash flows from operating, investing, and financing activities are summarized as follows:
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(555,304
|
)
|
|
$
|
(162,804
|
)
|
Net cash (used in) provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
697,159
|
|
|
|
197,990
|
|
Net (decrease) increase in cash
|
|
|
141,855
|
|
|
|
35,186
|
|
Effect of exchange rate changes on cash
|
|
|
-
|
|
|
|
(35,186
|
)
|
Cash at beginning of period
|
|
|
5,488
|
|
|
|
-
|
|
Cash at end of period
|
|
$
|
147,343
|
|
|
$
|
-
|
|
Net
Cash (Used in) Provided by Operating Activities
. During the three months ended March 31, 2018, cash used in operations
totaled $555,304. This reflects the net loss of $8,822,417 less $8,280,378 provided by changes in operating assets and liabilities
and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by non-cash adjustments from
fair valuing finance costs of $611,243, a loss on extinguishment of debt of $1,395,267 and a fair market value increase
to derivatives of $5,616,261.
Net
Cash (Used in) Provided by Investing Activities
. There were no investing activities for the three months ended
March 31, 2018 and March 31, 2017.
Net
Cash (Used in) Provided by Financing Activities
. Net cash from financing activities during the three months ended March
31, 2018 totaled $697,159, from the issuance of $81,659 in proceeds from share issuances and $615,500 in notes payable.
Outstanding
Indebtedness
Our
current indebtedness as of March 31, 2018 is comprised of the following. For loans that have expired terms, we are in talks with
the lenders to extend them. The company must increase revenue or raise more equity capital to meet the payment obligations.
Our
current indebtedness as of March 31, 2018 is comprised of the following:
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Unsecured
loan payable in the amount of $193,739 bearing interest at 15% per annum and due on demand;
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Unsecured
loan payable in the amount of $317,500 bearing interest at 18% per annum;
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Unsecured
note payable in the amount of $47,394, bearing interest at 36% per annum, due on demand, and in default.
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Unsecured
loan payable in the amount of $69,746, due on demand, and is in default
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Unsecured
loan payable in the amount of $250,000, bearing interest at 10% per annum, with a minimum interest amount of $25,000, due
on demand, and is in default.
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Unsecured loan payment in the amount of $250,000,
bearing interest at 10% per annum, is due on demand, and convertible into common shares at $1.75 per share.
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Secured
convertible loan payable in the amount of $949,068, bearing interest at 17.2% per annum, due on demand,
and in default.
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Unsecured,
convertible note payable to related party in the amount of $310,000, bearing interest at 5% per annum, due on demand, and
in default.
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Senior
secured, convertible note payable in the amount of $245,889, bearing interest at 8% per annum, due on demand
and convertible into common shares at the lower of: (i) $0.12 per share; or (ii) the closing sales price of the Company’s
common stock on the date of conversion.
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Unsecured,
convertible note payable in the amount of $52,426, bearing interest at 12% per annum, due on demand and in
default, and convertible into common shares at the lower of: (i) closing sale price of the Company’s common stock
on the trading day immediately preceding the closing date; or (ii) 50% of the lowest sale price of the Company’s common
stock during the twenty-five consecutive trading days immediately preceding the conversion date.
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Unsecured,
convertible note payable in the amount of $56,144, bearing interest at 12% per annum, due on demand and in
default, and convertible into common shares at the lower of: (i) $0.03; or (ii) 50% of the lowest trading price during the
previous twenty-five trading days ending on the latest complete trading day prior to the conversion date.
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Unsecured,
convertible note payable in the amount of $80,823, bearing interest at 10% per annum, due on July 17, 2018,
and is convertible into common shares at the lower of: (i) $0.06 per share; or (ii) 55% of the lowest trading price during
the twenty trading days prior to the date of conversion.
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Unsecured,
convertible note payable in the amount of $102,525, bearing interest at 8% per annum, due on August 16, 2018
and is convertible into common shares at a conversion price equal to 58% of the lowest trading price on the previous ten trading
days ending on the last trading day before the date of conversion.
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Unsecured,
convertible note payable in the amount of $107,000, bearing interest at 10% per annum, due on April 30, 2018,
and is convertible into common shares at the lower of: (i) $0.004 per share; or (ii) the lowest trading price on the previous
twenty-five trading days ending on the last trading day before the date of conversion.
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Unsecured,
convertible note payable in the amount of $82,000, bearing interest at 10% per annum, due on June 8, 2018,
and is convertible into common shares at the lower of: (i) $0.003 per share; or (ii) lowest trading price on the previous
twenty-five trading days ending on the last trading day before the date of conversion.
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On
January 18, 2018, the Company issued a convertible promissory note in the principal amount of $55,000. The note is
unsecured, bears interest at 10% per annum, is due on July 18, 2018, and is convertible into common shares at a conversion
price equal to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date
of the note; or (ii) the latest complete trading day prior to the date of conversion.
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On
February 2, 2018, the Company issued a convertible promissory note in the principal amount of $107,500. The note is unsecured,
bears interest at 10% per annum, is due on August 2, 2018, and is convertible into common shares at a conversion price equal
to the lesser of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment.
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On March
19, 2018, the Company issued a convertible promissory note in the principal amount of up to $900,000. As at March 31, 2018,
the Company has received $300,000 from the note. The note is unsecured, bears interest at 12% per annum, is due
on September 19, 2018, and is convertible into common shares after 180 days from issuance date at a conversion price equal
to the lessor of (i) the lowest trading price during the previous fifteen trading days prior to the date of the promissory
note; or (ii) 55% of the lowest trading price during the previous fifteen days prior to the latest complete trading day prior
to the conversion date.
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On
January 19, 2018, the Company issued a convertible promissory note in the principal amount of $55,000. The note is unsecured,
bears interest at 10% per annum, is due on January 19, 2019, and is convertible into common shares at a conversion price equal
to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion
date. Interest will be accrued and payable at the time of promissory note repayment.
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Unsecured, convertible
note payable in the amount of $101,807, bearing interest at 10% per annum, due on March 2, 2019, and is convertible
into common shares at the lower of: (i) $0.03 per share; or (ii) lowest trading price during the previous twenty-five trading
days prior to the last complete trading day prior to the date of conversion.
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Unsecured, convertible note payable in the amount of $5,000, non-interest bearing, due
on August 16, 2018, and is convertible into common shares at a conversion price equal to 75% of the average closing trading
price during the previous five trading days prior to the date of conversion.
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On
March 2, 2018, the Company issued a convertible promissory note in the principal amount of $128,000. The note is unsecured,
bears interest at 10% per annum, is due on March 2, 2019, and is convertible into common shares at a conversion price equal
to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion
date. Interest will be accrued and payable at the time of promissory note repayment.
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Preferred
Stock Redemption Obligations
Westergaard
Holdings Ltd., an affiliate of Keith Westergaard, a former member of our board of directors, owns 4,229,384 shares (the “Series
A Shares”) of Series A Convertible Preferred Stock of DSG TAG Systems. Pursuant to a Subscription / Debt Settlement Agreement
dated September 26, 2014 between DSG TAG Systems and Westergaard Holdings, as amended on April 29, 2016, DSG TAG Systems has agreed
that DSG Global, Inc. will complete financings for gross proceeds of at least $10 million and use a portion of the proceeds to
redeem all of the Series A Shares at a price of $1.25 per share, as follows:
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●
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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;
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●
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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
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●
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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.
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If
we fail to satisfy the above described financing and share redemption schedule, we will be in default of the subscription and
Debt Settlement Agreement which would entitle the holder of the Preferred Shares to convert the Series A Convertible Preferred
Shares into common shares in the capital of DSG Global at the price of $1.25 per share. As of the date of this report, these commitments
have not been satisfied and we are currently negotiating an extension on the terms of this agreement.
If
we fail to satisfy the above described financing and share redemption schedule, we will be in default of the Subscription and
Debt Settlement Agreement which would entitle the holder of the Preferred Shares to convert the Series A Convertible Preferred
Shares into common shares in the capital of DSG Global at the price of $1.25 per share.
Related
party transactions
As
at March 31, 2018, the Company owes $154,143 (Cdn$198,715) (December 31, 2017 - $205,963 (Cdn$258,381)) to the President, CEO,
and CFO of the Company for management fees, which has been recorded in accounts payable and accrued liabilities. The amounts owed,
and owing are unsecured, non-interest bearing, and due on demand.
As
at March 31, 2018, the Company owes $21,681 (Cdn$27,950) (December 31, 2017 - $4,273 (Cdn$27,950)) to a Company controlled by
the son of the President, CEO, and CFO of the Company, which has been recorded in accounts payable and accrued liabilities. The
amount owing is unsecured, non-interest bearing, and due on demand.
Prospective
Capital Needs
We
estimate our operating expenses and working capital requirements for the twelve-month period to be as follows:
Estimated Expenses for the Twelve-Month Period ending March 31, 2018
|
Management compensation
|
|
$
|
500,000
|
|
Professional fees
|
|
$
|
150,000
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|
General and administrative
|
|
$
|
1,900,000
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|
Total
|
|
$
|
2,550,000
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|
As
noted earlier, during the three months ended March 31, 2018, cash used in operations totaled $555,304. The relatively low
level of cash used compared to our estimated working capital needs in the future was the result of an accumulation of vendor payables,
customer receivables, and an increasing loan payable balance. We need to reduce the current level of payables in the near future
to keep a good relationship with our vendors and expand our sales and service team to achieve our operational objectives. At present,
our cash requirements for the next 12 months outweigh the funds available. Of the $2,550,000 that we require for the next 12 months,
we had $147,343 in cash as of March 31, 2018, and a working capital deficit of $14,639,975. Our principal sources of liquidity
are cash generated from product sales. In order to achieve sustained profitability and positive cash flows from operations, we
will need to increase revenue and/or reduce operating expenses. Our ability to maintain, or increase, current revenue levels to
achieve and sustain profitability will depend, in part, on demand for our products.
In
order to improve our liquidity, we also plan to pursue additional equity financing from private investors or possibly a registered
public offering. We do not currently have any definitive arrangements in place for the completion of any further private placement
financings and there is no assurance that we will be successful in completing any further private placement financings. 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.
Fair
value
The
Company records its cash and derivative liability at fair value.
The
fair values of the derivative liabilities were calculated using a multi-nominal lattice model. The fair value of the derivative
liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement
of operations. For the three months ended March 31, 2018, the Company recorded a loss on the change in fair value of derivative
liabilities of $5,616,261 (2017 – $1,854,417). As at March 31, 2018, the Company recorded a derivative liability of $8,124,723
(December 31, 2017 - $1,676,155).
The
following inputs and assumptions were used to value the derivative liabilities outstanding during the period ended March 31, 2018
and 2017, assuming no dividend yield:
|
|
|
2018
|
|
|
|
2017
|
|
Expected
volatility
|
|
|
306-462
|
%
|
|
|
96
– 533
|
%
|
Risk
free interest rate
|
|
|
1.19-2.09
|
%
|
|
|
0.11
- 1.76
|
%
|
Expected
life (in years)
|
|
|
0.08-1.00
|
|
|
|
0.1
– 1.0
|
|