UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 20162017
or
[ ] | Transition Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _____________ to _____________.
Commission file number 000-53988
DSG GLOBAL, INC.
(Exact name of registrant as specified in its charter)
Nevada | 26-1134956 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
214 - 5455 152nd Street
Surrey, British Columbia V3S 5A5, Canada
(Address of principal executive offices, zip code)
(604) 575-3848
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer | [ ] | Accelerated filer | [ ] | |
Non-accelerated filer | [ ] | (Do not check if smaller reporting company) | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As December 1, 2016,August 21, 2017, the issuer had 30,291,18738,640,656 shares of common stock issued and outstanding.
DSG GLOBAL, INC.
TABLE OF CONTENTS
2 |
ITEM 1: Financial Statements (unaudited)
The accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at SeptemberJune 30, 2016,2017, 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 nine monthsix-month period ended SeptemberJune 30, 20162017 are not necessarily indicative of the results that can be expected for the year ending December 31, 2016.2017.
3 |
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2016 | December 31, 2015 | June 30, 2017 | December 31, 2016 | |||||||||||||
(UNAUDITED) | (UNAUDITED) | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash | $ | - | $ | - | $ | - | $ | - | ||||||||
Trade receivables, net | 81,675 | 73,212 | 145,258 | 90,038 | ||||||||||||
Inventories | 98,453 | 306,648 | 72,121 | 80,573 | ||||||||||||
Funds held in trust | - | 3,414 | - | - | ||||||||||||
Prepaid expenses and deposits | 67,571 | 155,932 | 64,885 | 56,076 | ||||||||||||
Other current assets | - | 26,902 | ||||||||||||||
Receivable from related party | 16,663 | 91,727 | ||||||||||||||
TOTAL CURRENT ASSETS | 264,362 | 657,835 | 282,264 | 226,687 | ||||||||||||
NON-CURRENT ASSETS | ||||||||||||||||
Intangible assets, net | 16,876 | 16,984 | 15,988 | 16,580 | ||||||||||||
Fixed assets, net | 5,901 | 6,971 | 2,918 | 4,741 | ||||||||||||
Equipment on lease, net | 79,235 | 105,526 | 25,522 | 42,763 | ||||||||||||
TOTAL NON-CURRENT ASSETS | 102,012 | 129,481 | 44,428 | 64,084 | ||||||||||||
TOTAL ASSETS | $ | 366,374 | $ | 787,316 | $ | 326,692 | $ | 290,771 | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Bank overdraft | $ | 34,501 | $ | 25,269 | $ | 2,986 | $ | 5,316 | ||||||||
Trade and other payables | 2,004,247 | 1,428,509 | 2,954,662 | 2,568,792 | ||||||||||||
Payable to related party | - | 1,526 | ||||||||||||||
Deferred revenue | 161,486 | 99,739 | 158,117 | 149,147 | ||||||||||||
Warranty reserve | 114,355 | 108,381 | 115,589 | 111,715 | ||||||||||||
Convertible note payable to related party | 332,871 | 310,000 | 310,000 | 339,791 | ||||||||||||
Loans payable | 873,330 | 546,137 | 876,630 | 866,269 | ||||||||||||
Derivative liability | 568,449 | 365,944 | ||||||||||||||
Convertible loans payable | 1,338,574 | 1,139,543 | 1,596,538 | 1,398,961 | ||||||||||||
TOTAL CURRENT LIABILITIES | 4,859,364 | 3,657,579 | 6,582,971 | 5,807,461 | ||||||||||||
Commitments and contingencies | - | - | ||||||||||||||
MEZZANINE EQUITY | ||||||||||||||||
Redeemable Noncontrolling Interest - Preferred Shares | $ | 5,286,731 | $ | 5,286,731 | 5,286,731 | 5,286,731 | ||||||||||
STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Common stock, $0.001 par value, 125,000,000 shares authorized and 30,291,187 outstanding at September 30, 2016 and December 31, 2015. | 30,291 | 30,291 | ||||||||||||||
Common stock, $0.001 par value, 125,000,000 shares authorized 37,426,236 and 30,291,187 outstanding at June 30, 2017 and December 31, 2016, respectively. | 37,426 | 30,291 | ||||||||||||||
Additional paid in capital | 15,849,683 | 15,873,724 | 16,542,702 | 15,982,222 | ||||||||||||
Shares issued as deposit | (220,000 | ) | - | |||||||||||||
Other accumulated comprehensive income | 1,170,909 | 1,306,959 | 1,082,045 | 1,296,652 | ||||||||||||
Accumulated deficit | (25,955,168 | ) | (24,707,197 | ) | (27,776,111 | ) | (27,013,446 | ) | ||||||||
Total sharesholders’ deficit attributable to DSG Global | (8,904,285 | ) | (7,496,223 | ) | ||||||||||||
Total shareholders’ deficit attributable to DSG Global | (10,333,938 | ) | (9,704,281 | ) | ||||||||||||
Noncontrolling interest | (875,436 | ) | (660,771 | ) | (1,209,072 | ) | (1,099,140 | ) | ||||||||
TOTAL STOCKHOLDERS’ DEFICIT | (9,779,721 | ) | (8,156,994 | ) | (11,543,010 | ) | (10,803,421 | ) | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 366,374 | $ | 787,316 | $ | 326,692 | $ | 290,771 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
4 |
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(UNAUDITED)
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||||||||||
Revenue | $ | 243,469 | $ | 438,445 | $ | 980,714 | $ | 1,697,660 | $ | 434,202 | $ | 482,317 | $ | 682,472 | $ | 737,245 | ||||||||||||||||
Cost of revenue | 191,386 | 235,298 | 426,453 | 964,342 | 135,940 | 140,519 | 205,445 | 235,067 | ||||||||||||||||||||||||
Gross profit | 52,083 | 203,147 | 554,261 | 733,318 | 298,262 | 341,798 | 477,027 | 502,178 | ||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Compensation expense | 186,453 | 254,947 | 569,512 | 581,264 | 231,086 | 187,215 | 420,395 | 383,059 | ||||||||||||||||||||||||
Research and development expense | 18,088 | 6,835 | 54,436 | 41,684 | - | 19,311 | - | 36,348 | ||||||||||||||||||||||||
General and administration expense | 275,106 | 327,224 | 795,171 | 1,073,377 | 165,472 | 199,877 | 438,459 | 505,796 | ||||||||||||||||||||||||
Warranty expense | 49,390 | 42,663 | 161,762 | 148,000 | 4,738 | 67,155 | 7,362 | 112,372 | ||||||||||||||||||||||||
Bad debt | 2 | 1,160 | 4,285 | 10,021 | 45,377 | 1,178 | 45,377 | 4,283 | ||||||||||||||||||||||||
Depreciation and amortization expense | 11,755 | 6,924 | 39,692 | 25,377 | 7,686 | 22,353 | 15,510 | 27,937 | ||||||||||||||||||||||||
Total operating expense | 540,794 | 639,754 | 1,624,858 | 1,879,723 | ||||||||||||||||||||||||||||
Total operating expenses | 454,359 | 497,089 | 927,103 | 1,069,795 | ||||||||||||||||||||||||||||
Loss from operations | (488,711 | ) | (436,607 | ) | (1,070,597 | ) | (1,146,405 | ) | (156,097 | ) | (155,291 | ) | (450,076 | ) | (567,617 | ) | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||
Foreign currency exchange | (23,816 | ) | (27,174 | ) | 27,386 | (62,556 | ) | 149,943 | (20,938 | ) | 160,946 | 51,202 | ||||||||||||||||||||
Other (expenses) Income | (8,407 | ) | (10,300 | ) | (9,950 | ) | (17,430 | ) | ||||||||||||||||||||||||
Other (expenses) income | (1,401 | ) | (1,053 | ) | (5,419 | ) | (1,543 | ) | ||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net | 1,946,087 | - | 91,670 | - | ||||||||||||||||||||||||||||
Finance costs | (153,003 | ) | (47,804 | ) | (433,516 | ) | (189,512 | ) | (339,254 | ) | (173,477 | ) | (669,718 | ) | (294,782 | ) | ||||||||||||||||
Total Other Expense | (185,226 | ) | (85,278 | ) | (416,080 | ) | (269,498 | ) | ||||||||||||||||||||||||
Total other income (expense) | 1,755,375 | (195,468 | ) | (422,521 | ) | (245,123 | ) | |||||||||||||||||||||||||
Loss from continuing operations before income taxes | (673,937 | ) | (521,885 | ) | (1,486,677 | ) | (1,415,903 | ) | 1,599,278 | (350,759 | ) | (872,597 | ) | (812,740 | ) | |||||||||||||||||
Provision for income taxes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Net loss | (673,937 | ) | (521,885 | ) | (1,486,677 | ) | (1,415,903 | ) | ||||||||||||||||||||||||
Net income (loss) | 1,599,278 | (350,759 | ) | (872,597 | ) | (812,740 | ) | |||||||||||||||||||||||||
Less attributed to noncontolling interest | 108,559 | 82,886 | 238,706 | 229,857 | ||||||||||||||||||||||||||||
Less attributed to non-controlling interest | (267,926 | ) | 55,586 | 109,932 | 130,147 | |||||||||||||||||||||||||||
Net loss attributable to DSG Global | $ | (565,378 | ) | $ | (438,999 | ) | $ | (1,247,971 | ) | $ | (1,186,046 | ) | ||||||||||||||||||||
Net income (loss) attributable to DSG Global | $ | 1,331,352 | $ | (295,173 | ) | $ | (762,665 | ) | $ | (682,593 | ) | |||||||||||||||||||||
Net loss per share | ||||||||||||||||||||||||||||||||
Net income (loss) per share | ||||||||||||||||||||||||||||||||
Basic and Diluted: | ||||||||||||||||||||||||||||||||
Basic | $ | (0.019 | ) | $ | (0.015 | ) | $ | (0.041 | ) | $ | (0.050 | ) | $ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | |||||||||
Diluted | $ | (0.019 | ) | $ | (0.015 | ) | $ | (0.041 | ) | $ | (0.050 | ) | $ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | |||||||||
Weighted average number of shares used in computing basic and diluted net loss per share: | ||||||||||||||||||||||||||||||||
Basic | 30,291,187 | 30,121,003 | 30,291,187 | 23,702,297 | 37,430,450 | 30,291,187 | 33,428,275 | 27,103,068 | ||||||||||||||||||||||||
Diluted | 30,291,187 | 30,121,003 | 30,291,187 | 23,702,297 | 37,430,450 | 30,291,187 | 33,428,275 | 27,103,068 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
5 |
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(UNAUDITED)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||||
Net loss | $ | (673,937 | ) | $ | (521,885 | ) | $ | (1,486,677 | ) | $ | (1,415,903 | ) | ||||
Other comprehensive income | ||||||||||||||||
Change in foreign currency translation adjustments | 34,481 | 118,528 | (134,103 | ) | 165,037 | |||||||||||
Comprehensive loss | (639,456 | ) | (403,357 | ) | (1,620,780 | ) | (1,250,866 | ) | ||||||||
Less: Comprehensive loss attributable to noncontrolling interest | 107,670 | 77,674 | 236,759 | 243,525 | ||||||||||||
Total comprehensive loss attributable to DSG Global | $ | (531,786 | ) | $ | (325,684 | ) | $ | (1,384,021 | ) | $ | (1,007,341 | ) |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||
Net income (loss) | $ | 1,599,278 | $ | (350,759 | ) | $ | (872,597 | ) | $ | (812,740 | ) | |||||
Other comprehensive income (loss) | ||||||||||||||||
Change in foreign currency translation adjustments | (160,775 | ) | 33,130 | (210,649 | ) | (167,695 | ) | |||||||||
Comprehensive income (loss) | 1,438,503 | (317,630 | ) | (1,083,246 | ) | (980,435 | ) | |||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interest | (271,884 | ) | 54,264 | 105,974 | 127,115 | |||||||||||
Total comprehensive income (loss) attributable to DSG Global, Inc, | $ | 1,166,619 | $ | (263,365 | ) | $ | (977,272 | ) | $ | (853,320 | ) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
6 |
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
Equity Attributable to Common Shareholders | ||||||||||||||||||||||||||||||||
Common Stock | Additional Paid in | Accumulated | Accumulated Comprehensive | Total Deficit Attributable to Common | Noncontrolling | Total Stockholders’ | ||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income | Shareholders | Interest | Deficit | |||||||||||||||||||||||||
Balance December 31, 2015 | 30,291,187 | $ | 30,291 | $ | 15,873,724 | $ | (24,707,197 | ) | $ | 1,306,959 | $ | (7,496,223 | ) | $ | (660,771 | ) | $ | (8,156,994 | ) | |||||||||||||
Adjustment to paid in capital for minority interest | (24,041 | ) | (24,041 | ) | 24,041 | |||||||||||||||||||||||||||
Net loss for the nine months ended September 30, 2016 | (1,247,971 | ) | (136,050 | ) | (1,384,021 | ) | (238,706 | ) | (1,622,727 | ) | ||||||||||||||||||||||
Balance September 30, 2016 | 30,291,187 | $ | 30,291 | $ | 15,849,683 | $ | (25,955,168 | ) | $ | 1,170,909 | $ | (8,904,285 | ) | $ | (875,436 | ) | $ | (9,779,721 | ) |
Equity Attributable to Common Shareholders’ | ||||||||||||||||||||||||||||||||||||
Additional | Shares Issued | Accumulated | Total Deficit Attributable | Total | ||||||||||||||||||||||||||||||||
Common Stock | Paid in | As | Accumulated | Comprehensive | Common to | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||||
Shares | Amount | Capital | Deposit | Deficit | Income | Shareholders’ | Interest | Deficit | ||||||||||||||||||||||||||||
Balance December 31, 2016 | 30,291,187 | $ | 30,291 | $ | 15,982,222 | $ | - | $ | (27,013,446 | ) | $ | 1,296,652 | $ | (9,704,281 | ) | $ | (1,099,140 | ) | $ | (10,803,421 | ) | |||||||||||||||
Shares issued for services | 2,250,000 | 2,250 | 110,250 | - | - | - | 112,500 | - | 112,500 | |||||||||||||||||||||||||||
Shares issued for cash | 500,000 | 500 | 49,500 | - | - | - | 50,000 | - | 50,000 | |||||||||||||||||||||||||||
Redeemable shares issued for commitment fee | 550,000 | 550 | 219,450 | (220,000 | ) | - | - | - | - | - | ||||||||||||||||||||||||||
Shares issued on conversion of debt | 3,835,049 | 3,835 | 181,280 | - | - | - | 185,115 | - | 185,115 | |||||||||||||||||||||||||||
Net (loss) for 2017 | - | - | - | - | (762,665 | ) | (214,607 | ) | (977,272 | ) | (109,932 | ) | (1,087,204 | ) | ||||||||||||||||||||||
Balance June 30, 2017 | 37,426,236 | $ | 37,426 | $ | 16,542,702 | $ | (220,000 | ) | $ | (27,776,111 | ) | $ | 1,082,045 | $ | (10,333,938 | ) | $ | (1,209,072 | ) | $ | (11,543,010 | ) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
7 |
DSG GLOBAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | Six Months Ended | |||||||||||||||
September 30, 2016 | September 30, 2015 | June 30, 2017 | June 30, 2016 | |||||||||||||
Net loss attributable to the Company | $ | (1,486,677 | ) | $ | (1,186,046 | ) | $ | (872,597 | ) | $ | (812,740 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 39,692 | 25,377 | 15,510 | 27,937 | ||||||||||||
Inventory write-off | 109,170 | - | 1,580 | - | ||||||||||||
Non-cash financing costs | - | (85,127 | ) | |||||||||||||
Depreciation included in cost of goods sold | 5,216 | - | ||||||||||||||
Amortization on deferred financing fees | 10,015 | - | ||||||||||||||
Interest on discount of convertible debt | 328,690 | - | ||||||||||||||
Non-cash fair value adjustment on derivative | (91,670 | ) | - | |||||||||||||
Reserve for bad debt | 16,140 | - | ||||||||||||||
Shares issued for services | 112,500 | - | ||||||||||||||
Notes issued for services | - | 297,700 | - | (17,479 | ) | |||||||||||
Unrealized foreign exchange | (52,317 | ) | - | |||||||||||||
(Increase) decrease in assets: | ||||||||||||||||
Trade receivables, net | (4,393 | ) | (22,100 | ) | (71,360 | ) | (120,144 | ) | ||||||||
Inventories | 145,189 | (155,576 | ) | 6,872 | 115,044 | |||||||||||
Funds held in trust | 3,573 | - | - | 3,549 | ||||||||||||
Prepaid expense and deposits | 63,435 | 255,584 | (8,809 | ) | 69,008 | |||||||||||
Related party receivable | 79,471 | 3,415 | - | 33,964 | ||||||||||||
Other assets | 34,285 | 13,065 | - | 34,058 | ||||||||||||
Increase (decrease) in current liabilities: | ||||||||||||||||
Trade payables and accruals | 487,653 | 557,872 | 387,484 | 250,202 | ||||||||||||
Warranty reserve | - | - | 3,874 | - | ||||||||||||
Deferred revenue | 55,794 | 3,007 | 8,970 | 86,974 | ||||||||||||
Net cash used in operating activities | (472,808 | ) | (292,829 | ) | (199,902 | ) | (329,627 | ) | ||||||||
Cash flows from investing activities | ||||||||||||||||
Purchase of property and equipment | (6,925 | ) | (9,152 | ) | ||||||||||||
Return (purchase) of equipment on lease | 1,214 | 34,120 | ||||||||||||||
Purchase of property, plant, and equipment | - | (2,524 | ) | |||||||||||||
Return of equipment on lease | - | 1,173 | ||||||||||||||
Purchase of intangible assets | (1,002 | ) | (4,380 | ) | - | (823 | ) | |||||||||
Cash acquired from merger | - | 85,531 | ||||||||||||||
Net cash (used in) provided by investing activities | (6,713 | ) | 106,119 | |||||||||||||
Net cash used in investing activities | - | (2,174 | ) | |||||||||||||
Cash flows from financing activities | ||||||||||||||||
Bank overdraft | 4,003 | - | (2,986 | ) | (16,395 | ) | ||||||||||
Proceeds from issuing shares | 50,000 | - | ||||||||||||||
Payments on notes payable | (70,128 | ) | (123,729 | ) | - | (69,664 | ) | |||||||||
Proceeds from note payable | 551,028 | 265,802 | 338,000 | 387,264 | ||||||||||||
Related party loan payable, net | - | (164 | ) | |||||||||||||
Repayments on related party loans payable | (11,886 | ) | ||||||||||||||
Net cash provided by financing activities | 484,903 | 141,909 | 373,128 | 301,205 | ||||||||||||
Net increase in cash and cash equivalents | 5,382 | (44,801 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 173,226 | (30,596 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (5,382 | ) | (7,915 | ) | (173,226 | ) | 30,596 | |||||||||
Cash and cash equivalents at beginning of period | - | 91,840 | - | - | ||||||||||||
Cash and cash equivalents at the end of the period | $ | - | $ | 39,123 | $ | - | $ | - | ||||||||
Supplemental disclosures | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Income tax payments | $ | - | $ | - | $ | - | $ | - | ||||||||
Interest payments | $ | 4,066 | $ | 5,803 | $ | 22,110 | $ | 4,039 | ||||||||
Supplemental schedule of non-cash financing activities: | ||||||||||||||||
Issuance of stock for financing costs | $ | - | $ | (85,127 | ) | |||||||||||
Noncontrollling interest change to mezzanine equity | $ | - | $ | - | ||||||||||||
Shares issued for services | $ | 112,500 | $ | - | ||||||||||||
Shares issued for convertible notes payable | $ | 165,000 | $ | - | ||||||||||||
Shares issued for convertible related party note payable | $ | 19,615 | $ | - | ||||||||||||
Returnable shares issued for commitment fee | $ | 220,000 | $ | - | ||||||||||||
Noncontrolling interest change to mezzanine equity | $ | - | $ | - |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
8 |
DSG GLOBAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – ORGANIZATION
DSG Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007. We were formed to option feature films and TV projects to be packaged for sale to movie studios and production companies.
Previously, in anticipation of the share exchange agreement with DSG Tag Systems, Inc. (“DSG TAG”), we undertook to change our name and effect a reverse stock split of our authorized and issued common stock. Accordingly, on January 19, 2015, our board of directors approved an agreement and plan of merger to merge with our wholly-owned subsidiary DSG Global Inc., a Nevada corporation, to effectaffect a name change from Boreal Productions Inc. to DSG Global, Inc. Our company remains the surviving company. DSG Global, Inc. was formed solely for the change of our name.
Subsequent to the closing of the share exchange agreement with DSG TAG, we have adopted the business and operations of DSG TAG.
DSG TAG was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008. In March 2011, DSG TAG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of DSG TAG.
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“US GAAP”) and with the instructions to Form 10-Q.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore, the unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2015.2016. Current and future financial statements may not be directly comparable to the Company’s historical financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 20152016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three and ninesix months ended SeptemberJune 30, 20162017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.2017.
Principles of Consolidation
The consolidated financial statements include the accounts of DSG Global Inc. and its subsidiary DSG Tag Systems, Inc., and its wholly owned subsidiary DSG Tag Systems International, Ltd., collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined.
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Exchange (Loss) Gain
During the three and ninesix months ended SeptemberJune 30, 2016,2017, and 2015,2016, the transactions of the Company and its subsidiaries were denominated in foreign currencies and were recorded in Canadian dollar (CAD), or British Pounds (GBP), at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.
Foreign Currency Translation and Comprehensive (Loss) Income
The accounts of the Company and its subsidiaries were maintained, and its financial statements were expressed, in CAD and GBP. Such financial statements were translated into United States dollars (USD) with the CAD or GBP as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholders’ deficit is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.
Reportable Segment
The Company has one reportable segment. The Company’s activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. The Company accrues for warranty costs, sales returns, and other allowances based on its historical experience.
Research and Development
Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached. Research and development is expensed and is included in operating expenses.
Income Taxes
The Company utilizes the liability method of accounting for income tax. Under the liability method, deferred income tax assets and liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities measured by the current enacted tax rates in effect for the years in which these differences are expected to reverse.
The Company has adopted accounting standards for the accounting for uncertain income taxes. These standards provide guidance for the accounting and disclosure about uncertain tax positions taken. Management believes that all of the positions taken in its federal and states income tax returns are more likely than not to be sustained upon examination.
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Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in Canada, United States and the United Kingdom.Canada. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Risks and Uncertainties
The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Cash and Cash Equivalents
Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At SeptemberJune 30, 20162017 and December 31, 2015,2016, there were no uninsured balances for accounts in Canada, the United States, and the United Kingdom. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
Trade Receivable
All trade receivables are due thirty (30) days from the date billed. If the funds are not received within thirty (30) days the customer is contacted to arrange payment. The Company uses the allowance method to account for uncollectable trade receivables. The allowance for doubtful accounts as of SeptemberJune 30, 2016,2017, and December 31, 20152016 was $14,239$16,140 and $14,368,$47,289, respectively.
Financing Receivables and Guarantees
The Company provides financing arrangements, including operating leases, and financed service contracts for certain qualified customers. Lease receivables primarily represent sales-type and direct-financing leases. Leases typically have two- to three-year terms and are collateralized by a security interest in the underlying assets. The Company makes an allowance for uncollectible financing receivables based on a variety of factors, including the risk rating of the portfolio, macroeconomic conditions, historical experience, and other market factors. At SeptemberJune 30, 20162017 and December 31, 20152016 management determined that there was no allowance necessary. The Company also provides financing guarantees, which are generally for various third-party financing arrangements to channel partners and other customers. The Company could be called upon to make payment under these guarantees in the event of nonpayment to the third party.
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Advertising and Promotion Costs
The Company expenses all advertising costs as incurred. Advertising and promotion costs were $335,034$119,616 and $278,516$170,191 for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively.
Inventory
Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of SeptemberJune 30, 20162017, and December 31, 2015,2016, inventory only consisted of finished goods. During the third quarter, we determined that the touch tablets we ordered from our supplier in China in 2015 were no longer suitable for installations due to technical and quality issues that we discovered over the last year at various installation sites. An estimated value of $109,170 has been written off from inventory.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight linestraight-line method over the shorter of the estimated useful life of the asset or the lease term. The useful life for rental equipment was adjusted for the tag to 5 years from 10 years, and for the Touch/Text, the useful life was adjusted to 5 years from 8 years. The adjustment properly reflects the average lease term for the rental equipment and the average life of the product. The estimated useful lives of our property and equipment are generally as follows:
Rental equipment | |
Tag | |
Touch/Text | |
Office furniture and equipment | |
Computer equipment |
As of SeptemberJune 30, 20162017, and December 31, 2015,2016, fixed assets consisted of the following:
September 30, 2016 | December 31, 2015 | June 30, 2017 | December 31, 2016 | |||||||||||||
Furniture and equipment | $ | 21,330 | $ | 20,216 | $ | 21,560 | $ | 20,838 | ||||||||
Computer equipment | 28,049 | 24,695 | 28,352 | 23,317 | ||||||||||||
Accumulated Depreciation | (43,479 | ) | (37,940 | ) | (46,994 | ) | (39,414 | ) | ||||||||
$ | 5,900 | $ | 6,971 | $ | 2,918 | $ | 4,741 |
As of SeptemberJune 30, 20162017, and December 31, 2015,2016, leased equipment consisted of the following:
September 30, 2016 | December 31, 2015 | June 30, 2017 | December 31, 2016 | |||||||||||||
Tags | $ | 134,275 | $ | 141,400 | $ | 127,198 | $ | 122,935 | ||||||||
Text | 27,813 | 26,195 | 28,113 | 27,171 | ||||||||||||
Touch | 41,243 | 20,386 | 23,287 | 22,507 | ||||||||||||
Accumulated Depreciation | (124,096 | ) | (82,455 | ) | (153,078 | ) | (129,850 | ) | ||||||||
$ | 79,235 | $ | 105,526 | $ | 25,522 | $ | 42,763 |
For the three months ended SeptemberJune 30, 20162017 and 2015,2016, total depreciation expense was $11,755$7,390 and $6,924$23,057 for the fixed assets and leased equipment, respectively.
For the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, total depreciation expense was $39,692$14,918 and $25,377$27,345 for the fixed assets and leased equipment, respectively.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
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Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC Topic 815, “Derivatives and Hedging.”
AsThe Company’s financial instruments consist of Septembercash, trade receivables, trades payable, loans payable, and convertible notes payable. Other than convertible notes, the fair values of these financial instruments approximate their respective carrying values because of the short maturity of these instruments. The Company determined that the aggregate fair value of loans payable outstanding at June 30, 20162017 and December 31, 2015,2016, based on Level 2 inputs in the Company did not identify any assets and liabilities that are requiredfair value hierarchy, was equal to be presentedtheir aggregate book value based on the short maturities and current borrowing rates available to the Company.
The fair value of the Company’s convertible notes is based on Level 3 inputs in the fair value hierarchy. The Company calculated the fair value of the potential derivative liability on these notes by using the Binomial method to determine the fair value of the conversion feature (see Note 7).
Debt issuance costs
The Company incurs costs in connection with debt issuances, such as commissions and professional fees. Debt issuance costs are initially recorded as a reduction of the related debt on the consolidated balance sheet at fair value.sheets, and are amortized to financing expense over the term of the respective borrowings using the effective interest method.
Any costs incurred or paid to the lender in connection with the issuance of debt represent a reduction in the proceeds received by the Company. The resulting discount is amortized as accretion expense over the term of the debt using the effective interest method.
Basic and Diluted Net Loss per Common Share
Basic and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Our potentially dilutive shares, which include outstanding convertible loans and notes, have not been included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the results would be antidilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share.
The following table sets forth the computation of basic and diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 20162017 and 2015:2016:
Three Months Ended | Nine months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||||||||||
Net loss attributable to DSG Global | $ | (565,378 | ) | $ | (438,999 | ) | $ | (1,247,971 | ) | $ | (1,186,046 | ) | ||||||||||||||||||||
Net income (loss) attributable to DSG Global | $ | 1,331,352 | $ | (295,173 | ) | $ | (762,665 | ) | $ | (682,593 | ) | |||||||||||||||||||||
Net loss per share | ||||||||||||||||||||||||||||||||
Net income (loss) per share | ||||||||||||||||||||||||||||||||
Basic and Diluted: | ||||||||||||||||||||||||||||||||
Basic | $ | (0.019 | ) | $ | (0.015 | ) | $ | (0.041 | ) | $ | (0.050 | ) | $ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | |||||||||
Diluted | $ | (0.019 | ) | $ | (0.015 | ) | $ | (0.041 | ) | $ | (0.050 | ) | $ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | |||||||||
Weighted average number of shares used in computing basic and diluted net loss per share: | ||||||||||||||||||||||||||||||||
Weighted average number of shares used in computing basic and diluted net income (loss) per share: | ||||||||||||||||||||||||||||||||
Basic | 30,291,187 | 30,121,003 | 30,291,187 | 23,702,297 | 37,430,450 | 30,291,187 | 33,428,275 | 27,103,068 | ||||||||||||||||||||||||
Diluted | 30,291,187 | 30,121,003 | 30,291,187 | 23,702,297 | 37,430,450 | 30,291,187 | 33,428,275 | 27,103,068 |
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Intangible Assets
The Company records identifiable intangible assets at fair value on the date of acquisition and evaluates the useful life of each asset. Finite-lived intangible assets primarily consist of software development capitalized. Finite-lived intangible assets are amortized on a straight-line basis and are tested for recoverability if events or changes in circumstances indicate that their carrying amounts may not be recoverable. These intangibles have useful lives ranging from 1 to 20 years.
Stock-Based Compensation
We recognize all share-based payments to employees and to non-employee directors as compensation for service on our board of directors as compensation expense in the consolidated financial statements based on the fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
For share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.
Recently Issued Accounting Pronouncements
ThereFor fiscal years beginning after December 15, 2018:
In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-08 “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities” an amendment to shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount.
For fiscal years beginning after December 15, 2018:
In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-11 “Earnings Per Share (Topic 260), Distinguishing Liability from Equity (Topic 480), and Derivatives and Hedging (Topic 815) – (i) Accounting for Certain Financial Instruments with Down Round Features (ii) Replace of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments.” The amendments in (i) change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features and to help clarify existing disclosure requirements. The amendments in (ii) recharacterize the indefinite deferral of certain provisions and do not have been no newan accounting effect.
The Company is currently evaluating the impact of the above standards on their consolidated financial statements. Other recent accounting pronouncements duringissued by the nine months ended September 30, 2016 that we believe wouldFASB, 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 ourthe Company’s present or future consolidated financial position or results of operations.statements.
Going Concern
As reflected in the accompanying financial statements, the Company had an accumulated deficit of $25,955,168$27,776,111 as of SeptemberJune 30, 20162017 and had a net loss of $1,486,677$762,665 for the ninesix months ended SeptemberJune 30, 2016.2017.
While the Company is attempting to grow revenues, improve margins, and lower costs, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management is seeking to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.
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Note 3 – TRADE RECEIVABLES, NET
As of SeptemberJune 30, 20162017 and December 31, 2015,2016, trade receivables consist of the following:
September 30, 2016 | December 31, 2015 | |||||||
Trade receivables | $ | 95,914 | $ | 87,580 | ||||
Allowance for bad debt | (14,239 | ) | (14,368 | ) | ||||
Total trade receivables, net | $ | 81,675 | $ | 73,212 |
Note 4 – OTHER ASSETS
Other assets consist of the following as of September 30, 2016 and December 31, 2015:
September 30, 2016 | December 31, 2015 | |||||||
GST/VAT Receivable | $ | - | $ | 26,902 | ||||
$ | - | $ | 26,902 |
June 30, 2017 | December 31, 2016 | |||||||
Trade receivables | $ | 161,398 | $ | 137,327 | ||||
Allowance for bad debt | (16,140 | ) | (47,289 | ) | ||||
Total trade receivables, net | $ | 145,258 | $ | 90,038 |
Note 54 – INTANGIBLE ASSETS
Intangible assets consist of the following as of SeptemberJune 30, 20162017 and December 31, 2015:2016:
September 30, 2016 | December 31, 2015 | June 30, 2017 | December 31, 2016 | |||||||||||||
Intangible Asset - Patent | $ | 21,253 | $ | 20,473 | $ | 21,253 | $ | 21,253 | ||||||||
Accumulated Depreciation | (4,377 | ) | (3,489 | ) | (5,265 | ) | (4,673 | ) | ||||||||
$ | 16,876 | $ | 16,984 | $ | 15,988 | $ | 16,580 |
The estimated useful life of the Patent is 20 years. Patents are amortized on a straight-line basis. For the three months ended SeptemberJune 30, 20162017 and 2015,2016, total depreciation expense was $296 and $283,$296, respectively. For the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, total depreciation expense was $888$592 and $849,$592, respectively.
The following table summarizes our five yearfive-year estimated amortization of intangible assets as of SeptemberJune 30, 2016:2017:
September 30, | ||||||||
June 30, | ||||||||
2017 | $ | 1,184 | $ | 1,184 | ||||
2018 | 1,184 | 1,184 | ||||||
2019 | 1,184 | 1,184 | ||||||
2020 | 1,184 | 1,184 | ||||||
2021 | 1,184 | 1,184 | ||||||
2022 & Thereafter | 10,956 | 10,068 | ||||||
$ | 16,876 | $ | 15,988 |
Note 65 – TRADE AND OTHER PAYABLES
As of SeptemberJune 30, 20162017 and December 31, 2015,2016, trade and other payables consist of the following:
September 30, 2016 | December 31, 2015 | June 30, 2017 | December 31, 2016 | |||||||||||||
Accounts payable | $ | 825,694 | $ | 742,256 | ||||||||||||
Trade payables | $ | 981,744 | $ | 940,722 | ||||||||||||
Accrued expenses | 28,436 | 35,113 | 423,260 | 388,331 | ||||||||||||
Accrued interest | 1,088,872 | 622,902 | 1,545,315 | 1,222,151 | ||||||||||||
Other liabilities | 61,245 | 28,238 | 4,343 | 17,588 | ||||||||||||
Total payables | $ | 2,004,247 | $ | 1,428,509 | ||||||||||||
Total trade and other payables | $ | 2,954,662 | $ | 2,568,792 |
Note 6 – LOANS PAYABLE
As of June 30, 2017 and December 31, 2016, loans payable consisted of the following:
Loans Payable | June 30, 2017 | December 31, 2016 | ||||||
Unsecured, due on demand, interest 15% per annum | $ | 192,649 | $ | 186,192 | ||||
Unsecured, due on demand, interest 36% per annum | 47,128 | 45,548 | ||||||
Unsecured, loan payable, interest 18% per annum | 317,500 | 317,500 | ||||||
Unsecured, loan payable, fee for services payable on the original loan amount of 5% by May 6, 2016, 10% payable by June 5, 2016, or 20% payable by July 5, 2016 | 69,353 | 67,029 | ||||||
Unsecured, loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016. | 250,000 | 250,000 | ||||||
Total current portion | $ | 876,630 | $ | 866,269 |
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Note 7 – LOANS PAYABLECONVERTIBLE NOTES
Loans Payable | September 30, 2016 | December 31, 2015 | ||||||
Unsecured, due on demand, interest 15% per annum | $ | 190,592 | $ | 180,636 | ||||
Unsecured, due on demand, interest 36% per annum | 46,625 | 50,501 | ||||||
Unsecured, loan payable, interest 18% per annum | 317,500 | 315,000 | ||||||
Unsecured, loan payable, fee for services payable on the original loan amount of 5% by May 6, 2016, 10% payable by June 5, 2016, or 20% payable by July 5, 2016 | 68,613 | - | ||||||
Unsecured, loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016. | 250,000 | - | ||||||
Total current portion | $ | 873,330 | $ | 546,137 |
Note 8 – CONVERTIBLE LOANSAs of June 30, 2017 and December 31, 2016, convertible loans payable consisted of the following:
Convertible LoansNotes
June 30, 2017 | December 31, 2016 | |||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||
Unsecured, interest 15.2% per annum, mature from February 28, 2015 to December 31, 2015. Principal is repayable in cash or Tags units. Convertible at the average closing price of the 60 days period prior to conversion date | $ | 938,574 | $ | 889,543 | $ | 948,700 | $ | 916,905 | ||||||||
Unsecured, interest 10% per annum. Principal plus interest repayable in cash or common shares due on demand. Convertible at the average closing price of the 60 days period prior to conversion date | 250,000 | 250,000 | 250,000 | 250,000 | ||||||||||||
Unsecured, interest 2% per month. Principal plus interest repayable in cash or common shares. Due 45 days from August 5, 2016 or upon filing of registration statement, convertible at $0.27 per share | 150,000 | - | ||||||||||||||
Unsecured, interest 2% per month. Principal plus interest repayable in cash or common shares. Due 45 days from August 5 2016 or upon filing of registration statement, convertible at $0.27 per share(7) | - | 150,000 | ||||||||||||||
Senior secured, interest 8% per annum. Principal plus interest repayable in cash or common shares at the lower of (i) twelve cents ($0.12) and (ii) the closing sales price of the Common Stock on the date of conversion(1) | 245,889 | 261,389 | ||||||||||||||
Unsecured, interest 12% per annum. Matures 1 year from execution date. Principal plus interest is repayable in cash or common shares at the lower of current market price and 50% of the lowest trading price of Common Stock during the 25 Trading Days immediately preceding conversion(2) | 74,500 | - | ||||||||||||||
Unsecured, interest 12% per annum. Matures on October 18, 2017. Principal is repayable in cash or common shares at the lower of (i) three cents ($0.03) and (ii) 50% of the lowest trading price during the 25 Trading Days immediately preceding the date of conversion(3) | 75,000 | - | ||||||||||||||
Unsecured, interest 10% per annum. Matures on October 3, 2017. Principal is repayable in cash or common shares at the lower of (i) six cents ($0.06) (ii) 55% of the lowest trading price during the 25 Trading Days immediately preceding the date of conversion(4) | 110,000 | - | ||||||||||||||
Unsecured, interest 10% per annum. Matures on December 5, 2017. Principal is repayable in cash or common shares at the lower of (i) eight cents ($0.08) (ii) 55% of the lowest trading price during the 25 Trading Days immediately preceding the date of conversion(5) | 110,000 | - | ||||||||||||||
Less: debt discount(1-5) | (203,131 | ) | (179,333 | ) | ||||||||||||
Less: deferred financing fees(2-5) | (14,420 | ) | - | |||||||||||||
Total | $ | 1,338,574 | $ | 1,139,543 | $ | 1,596,538 | $ | 1,398,961 | ||||||||
Current portion | 1,338,5746 | 1,139,543 | 1,596,538 | 1,398,961 | ||||||||||||
Long term portion | $ | - | $ | - | $ | - | $ | - | ||||||||
Convertible Loans to Related Party | ||||||||||||||||
Unsecured, 8% annual rate for one month; if not paid by July 16, 2016, 4% per month thereafter; convertible at $0.08 per share | 22,871 | - | ||||||||||||||
Unsecured, interest 5% per annum, matures March 30, 2016, and is convertible at $1.25/per share | $ | 310,000 | $ | 310,000 | ||||||||||||
Total current portion | $ | 332,871 | $ | 310,000 |
Convertible Notes to Related Party | ||||||||
June 30, 2017 | December 31, 2016 | |||||||
Unsecured, 8% annual rate for one month; if not paid in one month, 4% per month thereafter; convertible at $0.05 per share(6) | - | 29,791 | ||||||
Unsecured, interest 5% per annum, matures March 30, 2016, and is convertible at $1.25/per share | $ | 310,000 | $ | 310,000 | ||||
Total current portion | $ | 310,000 | $ | 339,791 |
16 |
(1) | On November 7, 2016, we entered into a securities purchase agreement with Coastal Investment Partners (the “Lendor”). Pursuant to the agreement, the Lendor provided us with cash proceeds of $125,000 on November 10, 2016. In exchange, we issued a secured convertible promissory note in the principal amount of $138,888.89 (the “$138,888.89 Note”), inclusive of an 8% original issue discount, which bears interest at 8% per annum to the holder. The $138,888.89 Note matures six months from issuance and is convertible at the option of the holder into our common shares at a price per share that is the lower of $0.12 or the closing price of our common stock on the conversion date. In addition, under the same terms, the company also issued a secured convertible note of $50,000 in consideration of cash proceeds of $10,000 and another secured convertible note of $75,000 in consideration of cash proceeds of $10,000. Under the agreements, the Company has the right to redeem $62,500 and $40,000 of the notes in consideration of $1 each at any time prior to the maturity date in the event that the $138,888.89 Note is exchanged or converted into a revolving credit facility with Coastal Investment, whereupon the two $10,000 convertible note balances shall be rolled into such credit facility. Discount on the notes was $116,389 and is being amortized over life of the notes. On May 7, 2017, the Company triggered an event of default, under Section 6(a)(i) of the convertible note agreement with the Lendor dated November 7, 2016, by failing to repay the full principal amount and all accrued interest. The entire principal amount of the loan is due on demand and shall continue to accrue interest at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the note is repaid in full. On May 8, 2017, the Lendor provided conversion notice for $5,000 of the $72,500 convertible note dated November 7, 2016. The Company issued 100,000 common shares at a conversion price of $0.05 pursuant to this conversion. On May 24, 2017, the Lendor provided conversion notice for $10,500 of the $72,500 convertible note dated November 7, 2016. The Company issued 210,000 common shares at a conversion price of $0.05 pursuant to this conversion. On May 25, 2017, the Lendor provided conversion notice for the remaining principal $57,000 of the $72,500 convertible note dated November 7, 2016. This conversion was not processed by the Company’s transfer agent due to direction from the Company not to honor any further conversion notices from the Lendor. In response, the Company received legal notification pursuant to the refusal to process further conversion notices, see note 14. |
The fair market value of the potential derivative liability was $365,944, recorded as of December 31, 2016, and was calculated using the binomial method with a volatility rate of 171% and discount interest rate of 0.62%. Derivative liability applied as discount on the notes was $145,000 and is being amortized over the life of the notes. As at June 30, 2017, a derivative gain of $218,411 was recorded for the change in fair value.
(2) | On December 21, 2016, the Company entered into a convertible note agreement for the principal amount of $74,500 in consideration of cash proceeds of $72,250 received January 10, 2017. The terms are payable at the date of maturity, December 21, 2017, together with interest of 12% per annum. Interest will be accrued and payable at the time of promissory note repayment. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i) the closing sale price of the Common Stock on the Trading Day immediately preceding the Closing Date, and (ii) 50% of the lowest sale price for the Common Stock during the twenty-five (25) consecutive Trading Days immediately preceding the Conversion Date. Discounts and deferred financing fees on the note were $2,250 and $4,750, respectively, and are being amortized over life of the note. |
The fair market value of the potential derivative liability was $413,937 calculated using the binomial method with a volatility rate of 255% and discount interest rate of 0.82%. Derivative liability applied as discount on the notes was $72,250 and is being amortized over the life of the notes. As at June 30, 2017, a derivative gain of $399,022 was recorded for the change in fair value.
(3) | On January 18, 2017, the Company issued a convertible promissory note in the principal amount of $75,000. The terms are payable at the date of maturity, October 18, 2017, together with interest of 12% per annum. Interest will be accrued and payable at the time of promissory note repayment. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i) 60% multiplied by the lowest Trading Price (representing a discount rate of 40%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Variable Conversion Price which means 50% multiplied by the lowest Trading Price (representing a discount rate of 50%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Debt issuance costs and deferred financing fees on the note were $4,750 and $2,750, respectively, and are being amortized over life of the note. |
The fair market value of the potential derivative liability was $1,005,000 calculated using the binomial method with a volatility rate of 283% and discount interest rate of 0.73%. Derivative liability applied as discount on the notes was $75,000 and is being amortized over the life of the notes. As at June 30, 2017, a derivative gain of $949,250 was recorded for the change in fair value.
(4) | On April 3, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The terms are payable at the date of maturity, October 3, 2017, together with interest of 10% per annum. Interest will be accrued and payable at the time of promissory note repayment. In connection with the issuance of this convertible promissory note, the Borrower shall issue 550,000 shares of common stock as a commitment fee provided, however, these shares must be returned if the Note is fully repaid and satisfied prior to the date which is 180 days following the issuance. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i) 55% multiplied by the lowest Trading Price (representing a discount rate of 45%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Alternate Conversion Price which means 55% multiplied by the lowest Trading Price (representing a discount rate of 50%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Deferred financing fees on the note were $10,000 and are being amortized over the life of the note. |
The fair market value of the potential derivative liability was $653,200 calculated using the binomial method with a volatility rate of 372% and discount interest rate of 0.92%. Derivative liability applied as discount on the notes was $100,000 and is being amortized over the life of the notes. As at June 30, 2017, a derivative gain of $653,200 was recorded for the change in fair value.
(5) | On June 5, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The terms are payable at the date of maturity, December 5, 2017, together with interest of 10% per annum. Interest will be accrued and payable at the time of promissory note repayment. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price equal to the lessor of (i) 55% multiplied by the lowest Trading Price (representing a discount rate of 45%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Alternate Conversion Price which means 55% multiplied by the lowest Trading Price (representing a discount rate of 50%) during the previous twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Deferred financing fees on the note were $7,000 and are being amortized over the life of the note. |
The fair market value of the potential derivative liability was $118,600 calculated using the binomial method with a volatility rate of 362% and discount interest rate of 1.06%. Derivative liability applied as discount on the notes was $103,000 and is being amortized over the life of the notes. As at June 30, 2017, a derivative gain of $118,600 was recorded for the change in fair value.
(6) | On April 3, 2017, this related party convertible debenture and all unpaid interest and penalties was settled in cash of $45,500 CDN and the issuance of 525,049 shares of common stock pursuant to a debt settlement and subscription agreement as described in note 9. |
(7) | On May 17, 2017, this convertible debenture was settled in 3,000,000 shares of common stock pursuant to a debt settlement and subscription agreement as described in note 9. |
17 |
Note 98 – MEZZANINE EQUITY
DSG TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of SeptemberJune 30, 20162017 and December 31, 2015.2016. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014. The Series A Shares have no general voting rights and carry a 5% per annum interest rate. Series A Shares that are converted to common shares are entitled to the same voting rights as other common shareholders. At any time on or after the issuance date any holder of Series A Shares may convert to common stock based on predetermined conversion price of $1.25 per share. The preferred shares are recorded in the consolidated financial statements as Mezzanine Equity. The Series A Shares are subject to a redemption obligation pursuant to which the Company must redeem at a price of $1.25 per share the following amounts on the following dates if it is successful in raising financing capital of $2,500,000 as of August 1, 2016, $2,500,000 as of September 1, 2016 and $5,000,000 as of October 1, 2016; 900,000 Series A Shares ($1,250,000) by May 1, 2016, an additional 900,000 Series A Shares ($1,250,000) by June 1, 2016, and the remaining 2,429,384 Series A Shares ($3,136,730) by July 1, 2016.
As of December 31, 2015,June 30, 2017, 80,000 preferred shares werehave been purchased by an unrelated third-party and exchanged for 80,000 shares of common stock of DSG Global, Inc.
Note 109 – STOCKHOLDERS’ DEFICIT
Common Stock
The Company has 125,000,000 shares of common stock authorized, each having a par value of $0.001, as of SeptemberJune 30, 20162017 and December 31, 2015.2016. According to the Share Exchange Agreement dated April 13, 2015, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares of DSG TAG in exchange for the issuance to the subscribing shareholders of up to 20,000,000 shares of our common stock on the basis of 1 common share of DSG Global, Inc. for 5.4935 common shares of DSG TAG. The Company also issued an additional 179,823 common shares to a director of DSG TAG to meet debt agreement obligations.
On December 23, 2016, the Company entered into an investor relations agreement with Chesapeake Group Inc., to assist the Company in all phases of investor relations including broker/dealer relations. The contract commenced on January 3, 2017 and will end on July 2, 2017. In consideration for the agreement, the Company is committed to providing 1,800,000 restricted common shares within 10 days of the agreement, plus an additional 450,000 restricted common shares representing a monthly fee of $3,750. These restricted common shares are to be issued in monthly installments of 75,000 restricted common shares on the 2nd of each month beginning on February 2, 2017 and ending on July 2, 2017. On February 15, 2017, the Company has issued 2,250,000 shares of common stock at a purchase price of $0.051 per common stock satisfying the full terms of the agreement.
On April 3, 2017, the Company entered into an agreement to issue 481,836 shares of common stock pursuant to the conversion of a $24,092 CDN convertible note balance at a conversion price of $0.05 per share of common stock. The Company also agreed to issue 43,213 shares of common stock pursuant to the conversion of interest outstanding totaling $2,161 CDN at a conversion price of $0.05 per share of common stock.
On April 6, 2017, the Company issued 550,000 shares of common stock as a commitment fee, pursuant to the terms of the convertible promissory note issued on April 3, 2017, see note 7. These shares are contingently redeemable, at the issuers control, pursuant to the agreement that the shares must be returned if the Note is fully repaid and satisfied prior to the date which is 180 days following the issuance.
On April 7, 2017, the Company issued 500,000 shares of common stock pursuant to the Securities Purchase Agreement dated March 15, 2017 at $0.10 per common share for total consideration of $50,000.
On May 4, 2017, the Company approved the conversion of a $150,000 convertible note held by Gemini Holdings, Inc with the Company. Pursuant to this conversion, on May 17, 2017, the Company issued 3,000,000 free-trading shares of common stock to settle the note at a price of $0.05 per common share.
On May 8, 2017, the Company received a notice for the conversion of $5,000 of a $72,500 convertible note held with Coastal Investment Partners. The Company issued 100,000 restricted shares of common stock pursuant to this conversion notice at a price of $0.05 per common share.
On May 8, 2017, the Company received a notice for the conversion of $10,500 of a $72,500 convertible note held with Coastal Investment Partners. The Company issued 210,000 restricted shares of common stock pursuant to this conversion notice.
There were 37,426,236 and 30,291,187 shares of common stock of the Company issued and outstanding as of SeptemberJune 30, 20162017 and December 31, 2015.2016, respectively. Each share of common stock is entitled to one (1) vote.
Noncontrolling Interest
DSG TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of SeptemberJune 30, 20162017 and December 31, 2015.2016. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014. The Series A Shares were not exchanged for securities of DSG Global, Inc. as part of the Share Exchange Agreement. Noncontrolling interest as of SeptemberJune 30, 20162017 and December 31, 20152016 was $875,436$1,209,072 or 16.18% or $660,771$1,099,140 or 16.18%, respectively.
Note 11 – STOCK OPTIONS AND WARRANTS
Stock Compensation to employees and officers
On March 1, 2013, the Company extended warrants issued in 2008 to five employees and officers that were to expire on March 31, 2013 to December 31, 2016. The Company issued warrants to these individuals to purchase an aggregate of 7,006,098 shares of common stock. The warrants had an exercise price of $0.23 per share. The fair value of the warrants at the time they were extended was estimated at $769,760 using a Black-Scholes model with the following assumptions: expected volatility of 17%, risk free interest of 0.38%, expected life of 3 years and no dividends. The fair value of the warrants were recorded as equity and compensation expense. On January 18, 2015, DSG TAG cancelled 5,913,898 of the warrants. The remaining 1,092,200 of the warrants have not yet been exercised and are currently outstanding as of September 30, 2016. These warrants are exercisable into shares of common stock of DSG Global, Inc. at the rate of 1 share of DSG Global for each 5.4935 shares of DSG TAG.
Note 1210 – RELATED PARTY TRANSACTIONS
On March 31, 2015 the Company entered into an agreement with a marketing firm that is owned by one of the directors of the Company. The terms included cash payment of $17,500 and a note in the amount of $310,000, with 5% interest per annum, convertible at the election of the holder into 248,000 shares of Common Stock of DSG Global, Inc. at a price of $1.25 per share, maturing on March 30, 2016. As of September 30, 2016, it was estimated that approximately 90% of the marketing services related to the agreement have been providedexpensed in the amount of $280,000 and the remaining $30,000 is recorded as a prepaid deposit. As of SeptemberJune 30, 2016,2017, the Director of the Company has filed a notice of default on March 31, 2016 in regardsregard to the related party convertible note on the financial statements of DSG TAG. The note was issued in lieu of marketing services, the note maturity date is March 31, 2016. Adore and DSG TAG isare currently in arbitration in regardsregard to this matter. (See Note 16)13).
On JuneDecember 16, 2016, a convertible loan was received from a related party in the amount of $22,871.$30,053 ($40,000 CAD). Interest is 8% annual rate for one month and 4% monthly rate thereafter if not paid by July 16, 2016.in one month. The note is convertible at $0.08$0.05 per share. (SeeOn April 3, 2017, this Note 8).was settled in full, including all accrued interest and penalties, for cash of $45,500 CDN and the issuance of 525,049 shares of common stock pursuant to a debt settlement and subscription agreement as described in note 9.
AmountAmounts due from ato related partyparties at SeptemberJune 30, 20162017 and December 31, 20152016 was $16,663$0 and $91,727,$1,526, respectively. The amounts consist of advances to a director and officer of the Company. These amounts are unsecured, non-interest bearing and due on demand.
Note 1311 – INCOME TAX
The following is the income tax expense reflected in the Statement of Operations for the ninethree and six months ended SeptemberJune 30, 20162017 and 2015.2016.