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 March 31, 2016
 
or
 
o
 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 o
 
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 o
 
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 o
Accelerated filer o
Non-accelerated filer    o (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  o    No x
 
As May 16, 2016, the issuer had 30,205,607 shares of common stock issued and outstanding.


 
 

 

DSG GLOBAL, INC.
TABLE OF CONTENTS
 
 
 
Page No.
PART I -- FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (unaudited)
3
     
 
Condensed Consolidated Balance Sheets
3
     
 
Condensed Consolidated Statements of Operations
4
     
 
Condensed Statements of Comprehensive Loss
5
     
 
Condensed Consolidated Statements of Stockholders’ Deficit
6
     
 
Condensed Consolidated Statements of Cash Flows
7
     
 
Notes to Consolidated Financial Statements
8
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
     
Item 4.
Controls and Procedures
31
     
PART II -- OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
31
     
Item 1A.
Risk Factors
32
     
Item 6.
Exhibits
37
     
Signatures
 
39
 

 
2

 


DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
   
March 31, 2016
   
December 31, 2015
 
   
(UNAUDITED)
       
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ -     $ -  
Trade receivables, net
    142,866       73,212  
Inventories
    289,521       306,648  
Funds held in trust
    3,642       3,414  
Prepaid expenses and deposits
    82,232       155,932  
Other current assets
    22,895       26,902  
Receivable from related party
    87,127       91,727  
TOTAL CURRENT ASSETS
    628,283       657,835  
                 
NON-CURRENT ASSETS
               
Intangible assets, net
    17,468       16,984  
Fixed assets, net
    8,366       6,971  
Equipment on lease, net
    104,571       105,526  
TOTAL NON-CURRENT ASSETS
    130,405       129,481  
                 
TOTAL ASSETS
  $ 758,688     $ 787,316  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
Bank overdraft
  $ 31,590     $ 25,269  
Trade and other payables
    1,646,401       1,428,509  
Deferred revenue
    138,853       99,739  
Warranty reserve
    115,643       108,381  
Convertible note payable to related party
    310,000       310,000  
Loans payable
    853,254       546,137  
Convertible loans payable
    1,199,139       1,139,543  
TOTAL CURRENT LIABILITIES
    4,294,880       3,657,579  
                 
MEZZANINE EQUITY
               
Redeemable Noncontrolling Interest - Preferred Shares
  $ 5,286,731     $ 5,286,731  
                 
STOCKHOLDERS' DEFICIT
               
Common stock, $0.001 par value, 125,000,000 shares authorized and 30,291,187 outstanding at March 31, 2016 and December 31, 2015.
    30,291       30,291  
Additional paid in capital
    15,873,724       15,873,724  
Other accumulated comprehensive income
    1,103,011       1,306,959  
Accumulated deficit
    (25,094,617 )     (24,707,197 )
Total sharesholders' deficit attributable to DSG Global
    (8,087,591 )     (7,496,223 )
Noncontrolling interest
    (735,332 )     (660,771 )
TOTAL STOCKHOLDERS' DEFICIT
    (8,822,923 )     (8,156,994 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 758,688     $ 787,316  
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
 
 
3

 
 
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
   
Three Months Ended
 
   
March 31, 2016
   
March 31, 2015
 
             
Revenue
  $ 254,928     $ 790,180  
Cost of revenue
    94,548       488,047  
Gross profit
    160,380       302,133  
                 
Operating Expenses
               
Compensation expense
    195,844       152,920  
Research and development expense
    17,037       19,433  
General and administration expense
    318,664       331,228  
Warranty expense
    45,217       58,843  
Bad debt
    3,105       -  
Depreciation and amortization expense
    5,584       8,704  
Total operating expense
    585,451       571,128  
Loss from operations
    (425,071 )     (268,995 )
                 
Other Income (Expense)
               
Foreign currency exchange
    72,140       (20,995 )
Other (expenses) Income
    (490 )     (2,453 )
Finance costs
    (108,560 )     (47,798 )
Total Other Expense
    (36,910 )     (71,246 )
                 
Loss from continuing operations before income taxes
    (461,981 )     (340,241 )
                 
Provision for income taxes
    -       -  
                 
Net loss
    (461,981 )     (340,241 )
                 
Less attributed to noncontolling interest
    74,561       55,912  
                 
Net loss attributable to DSG Global
  $ (387,420 )   $ (284,329 )
                 
Net loss per share
               
                 
Basic and Diluted:
               
Basic
  $ (0.013 )   $ (0.014 )
Diluted
  $ (0.013 )   $ (0.014 )
                 
Weighted average number of shares used in computing basic and diluted net loss per share:
 
Basic
    30,291,187       20,179,823  
Diluted
    30,291,187       20,179,823  
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
 
 
4

 
 
DSG GLOBAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
 
 
   
Three Months Ended
 
   
March 31, 2016
   
March 31, 2015
 
             
Net loss
  $ (461,981 )   $ (340,241 )
                 
Other comprehensive income
               
Change in foreign currency translation adjustments
    (199,503 )     65,774  
Comprehensive loss
    (661,484 )     (274,467 )
Less: Comprehensive loss attributable to noncontrolling interest
    70,116       57,106  
                 
Total comprehensive loss attibutable to DSG Global
  $ (591,368 )   $ (217,361 )
 
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
 
 
5

 
 
DSG GLOBAL, INC.  AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
 
 
       Equity Attributable to Common Shareholders'              
         
Total Deficit
         
 
 
   
Common Stock
   
Additional
   
 
   
Accumulated
   
Attributable
   
 
   
Total
 
   
Shares
   
Amount
   
Paid in
Capital
   
Accumulated
Deficit
   
Comprehensive
Income
   
to Common Shareholders'
   
Noncontrolling
Interest
   
Stockholders'
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 )
                                                                 
Net (loss) income for the three months ended March 31, 2016
                            (387,420 )     (203,948 )     (591,368 )     (74,561 )     (665,929 )
                                                                 
 Balance March 31, 2016
    30,291,187     $ 30,291     $ 15,873,724     $ (25,094,617 )   $ 1,103,011     $ (8,087,591 )   $ (735,332 )   $ (8,822,923 )
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
 
 
6

 
 
DSG GLOBAL INC.  AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
   
Three Months Ended
 
   
March 31, 2016
   
March 31, 2015
 
             
Net loss attributable to the Company
  $ (461,981 )   $ (340,241 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
 Depreciation and amortization
    5,584       8,704  
Notes issusd for services
    (17,706 )     158,381  
(Increase) decrease in assets:
               
Trade receivables, net
    (61,117 )     (513,911 )
Inventories
    37,436       (23,684 )
Prepaid expense and deposits
    75,651       311,993  
Related party receivable
    10,142       -  
Other assets
    4,218       (1,439 )
Increase (decrease) in current liabilities:
               
Trade payables and accruals
    117,343       166,600  
Deferred revenue
    30,613       16,630  
Net cash used in operating activities
    (259,817 )     (216,967 )
                 
Cash flows from investing activities
               
Purchase of property, plant and equipment
    (1,902 )     -  
Return (purchase) of equipment on lease
    3,077       15,428  
Purchase of intangible assets
    (797 )     (3,273 )
Net cash provided by investing activities
    378       12,155  
                 
Cash flows from financing activities
               
Bank overdraft
    4,377       -  
Proceeds from note payable
    239,542       127,735  
Net cash provided by financing activities
    243,919       127,735  
                 
Net decrease in cash and cash equivalents
    (15,520 )     (77,077 )
                 
Effect of exchange rate changes on cash and cash equivalents
    15,520       (3,088 )
                 
Cash and cash equivalents at beginning of period
    -       91,840  
Cash and cash equivalents at the end of the period
  $ -     $ 11,675  
                 
Supplemental disclosures
               
Cash paid during the period for:
               
Income tax payments
  $ -     $ -  
Interest payments
  $ -     $ -  
                 
Supplemental schedule of non-cash financing activities:
               
Issuance of stock for financing costs
  $ -     $ 310,000  
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 
7

 
 
DSG GLOBAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
Note 1 –ORGANIZATION
 
DSG Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007. We were formed to option feature films and TV projects to be packaged for sale to movie studios and production companies.
 
Previously, in anticipation of the share exchange agreement with DSG Tag Systems, Inc. (“DSG TAG”), we undertook to change our name and effect a reverse stock split of our authorized and issued common stock. Accordingly, on January 19, 2015, our board of directors approved an agreement and plan of merger to merge with our wholly-owned subsidiary DSG Global Inc., a Nevada corporation, to effect a name change from Boreal Productions Inc. to DSG Global, Inc. Our company remains the surviving company. DSG Global, Inc. was formed solely for the change of our name.
 
Subsequent to the closing of the share exchange agreement with DSG TAG, we have adopted the business and operations of DSG TAG.
 
DSG TAG was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008.  In March 2011, DSG TAG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of DSG TAG.
 
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“US GAAP”) and with the instructions to Form 10-Q.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore, the unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2015. Current and future financial statements may not be directly comparable to the Company’s historical financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of DSG Global Inc. and its subsidiary DSG Tag Systems, Inc. and its wholly owned subsidiary DSG Tag Systems International, Ltd., collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined.
 
 
8

 
 
Exchange (Loss) Gain
 
During the three months ended March 31, 2016, and 2015, the transactions of the Company and its subsidiaries were denominated in foreign currencies and were recorded in Canadian dollar (CAD), or British Pounds (GBP), at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.
 
Foreign Currency Translation and Comprehensive (Loss) Income
 
The accounts of the Company and its subsidiaries were maintained, and its financial statements were expressed, in CAD and GBP. Such financial statements were translated into United States dollars (USD) with the CAD or GBP as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholders’ deficit is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.
 
Reportable Segment
 
The Company has one reportable segment. The Company’s activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.
 
Revenue Recognition
 
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. The Company accrues for warranty costs, sales returns, and other allowances based on its historical experience.
 
Research and Development
 
Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached.   Research and development is expensed and is included in operating expenses.
 
Income Taxes
 
The Company utilizes the liability method of accounting for income tax.  Under the liability method, deferred income tax assets and liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities measured by the current enacted tax rates in effect for the years in which these differences are expected to reverse.
 
The Company has adopted accounting standards for the accounting for uncertain income taxes.  These standards provide guidance for the accounting and disclosure about uncertain tax positions taken.  Management believes that all of the positions taken in its federal and states income tax returns are more likely than not to be sustained upon examination.
 
 
9

 

Concentration of Credit Risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in Canada, United States and the United Kingdom. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
 
Risks and Uncertainties
 
The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
 
Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
 
If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
 
Cash and Cash Equivalents
 
Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At March 31, 2016 and December 31, 2015, there were no uninsured balances for accounts in Canada, the United States and the United Kingdom. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts .
 
Trade Receivable
 
All trade receivables are due thirty (30) days from the date billed. If the funds are not received within thirty (30) days the customer is contacted to arrange payment. The Company uses the allowance method to account for uncollectable trade receivables. The allowance for doubtful accounts as of March 31, 2016 and December 31, 2015 was $14,841 and $14,368, respectively.
 
Financing Receivables and Guarantees
 
The Company provides financing arrangements, including operating leases and financed service contracts for certain qualified customers. Lease receivables primarily represent sales-type and direct-financing leases. Leases typically have two- to three-year terms and are collateralized by a security interest in the underlying assets. The Company makes an allowance for uncollectible financing receivables based on a variety of factors, including the risk rating of the portfolio, macroeconomic conditions, historical experience, and other market factors. At March 31, 2016 and December 31, 2015 management determined that there was no allowance necessary. The Company also provides financing guarantees, which are generally for various third-party financing arrangements to channel partners and other customers. The Company could be called upon to make payment under these guarantees in the event of nonpayment to the third party.
 
 
10

 
 
Advertising Costs
 
The Company expenses all advertising costs as incurred. Advertising costs were $142,634 and $187,779 for the three months ended March 31, 2016 and 2015, respectively.
 
Inventory
 
Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of March 31, 2016 and December 31, 2015, inventory only consisted of finished goods.
 
Fixed Assets
 
Fixed assets are stated at cost and depreciated using the straight line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows:
 
Rental equipment
Tag                                                  10 year useful life
Touch/Text                                        8 year useful life
Office furniture and equipment                  5 year useful life
Computer equipment                                 3 year useful life
 
As of March 31, 2016 and December 31, 2015, fixed assets consisted of the following:
 
   
March 31, 2016
   
December 31, 2015
 
             
Furniture and equipment
  $ 21,570     $ 20,216  
Computer equipment
    28,365       24,695  
Accumulated Depreciation
    (41,569 )     (37,940 )
    $ 8,366     $ 6,971  
 
As of March 31, 2016 and December 31, 2015, leased equipment consisted of the following:
 
   
March 31, 2016
   
December 31, 2015
 
             
Tags
  $ 149,164     $ 141,400  
Text
    27,648       26,195  
Touch
    21,697       20,386  
Accumulated Depreciation
    (93,938 )     (82,455 )
    $ 104,571     $ 105,526  
 
For the three months ended March 31, 2016 and 2015, total depreciation expense was $5,288 and $8,421 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:
 
 
11

 
 
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
 
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
 
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “ Distinguishing Liabilities   from Equity ,” and ASC Topic 815, “ Derivatives and Hedging .”
 
As of March 31, 2016 and December 31, 2015, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
 
Basic and Diluted Net Loss per Common Share
 
Basic and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Our potentially dilutive shares, which include outstanding convertible loans and notes, have not been included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the results would be antidilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share.
 
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2016 and 2015:
 
   
March 31, 2016
   
March 31, 2015
 
             
Net loss attributable to DSG Global Inc.
  $ (387,420 )   $ (284,329 )
                 
Net loss per share Basic and Diluted:
               
Basic
  $ (0.013 )   $ (0.014 )
Diluted
  $ (0.013 )   $ (0.014 )
                 
Weighted average number of shares used in computing basic and diluted net loss per share:
 
Basic
  $ 30,291,187     $ 20,179,823  
Diluted
  $ 30,291,187     $ 20,179,823  
 
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.
 
 
12

 
 
Stock-Based Compensation
 
We recognize all share-based payments to employees and to non-employee directors as compensation for service on our board of directors as compensation expense in the consolidated financial statements based on the fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
 
For share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.
 
Recently Issued Accounting Pronouncements
 
There have been no new accounting pronouncements during the three months ended March 31, 2016 that we believe would have a material impact on our financial position or results of operations.
 
Going Concern
 
As reflected in the accompanying financial statements, the Company had an accumulated deficit of $25,094,617 as of March 31, 2016 and had a net loss of $387,420 for the three months ended March 31, 2016.
 
While the Company is attempting to grow revenues, improve margins and lower costs, the Company’s cash position may not be sufficient to support the Company’s daily operations.  Management is seeking to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
 
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.
 
Note 3 – TRADE RECEIVABLES, NET
 
As of March 31, 2016 and December 31, 2015, trade receivables consist of the following:
 
   
March 31, 2016
   
December 31, 2015
 
             
Trade receivables
  $ 157,707     $ 87,580  
Allowance for bad debt
    (14,841 )     (14,368 )
Total trade receivables, net
  $ 142,866     $ 73,212  
 
 
 
13

 
 
Note 4 – OTHER ASSETS
 
Other assets consist of the following as of March 31, 2016 and December 31, 2015:
 
   
March 31, 2016
   
December 31, 2015
 
             
GST/VAT Receivable
  $ 22,895     $ 26,902  
    $ 22,895     $ 26,902  
 
Note 5 – INTANGIBLE ASSETS
 
Intangible assets consist of the following as of March 31, 2016 and December 31, 2015:
 
   
March 31, 2016
   
December 31, 2015
 
             
Intangible Asset - Patent
  $ 21,253     $ 20,473  
Accumulated Depreciation
    (3,785 )     (3,489 )
    $ 17,468     $ 16,984  
 
The estimated useful life of the Patent is 20 years. Patents are amortized on a straight-line basis.  For the three months ended March 31, 2016 and 2015, total depreciation expense was $296 and $283, respectively.
 
The following table summarizes our five year estimated amortization of intangible assets as of March 31, 2016:
 
March 31:
     
2017
  $ 1,184  
2018
    1,184  
2019
    1,184  
2020
    1,184  
2021
    1,184  
2022 & Thereafter
    11,549  
    $ 17,469  
 
Note 6 – TRADE AND OTHER PAYABLES
 
As of March 31, 2016 and December 31, 2015, trade and other payables consist of the following:
 
   
March 31, 2016
   
December 31, 2015
 
             
Accounts payable
  $ 793,152     $ 742,256  
Accrued expenses
    43,855       35,113  
Accrued interest
    779,375       622,902  
Other liabilities
    30,017       28,236  
Total payables
  $ 1,646,401     $ 1,428,509  
 
Note 7 – LOANS PAYABLE
 
Loans Payable
 
March 31, 2016
   
December 31, 2015
 
             
Unsecured, due on demand, interest 15% per annum
  $ 192,738     $ 180,636  
Unsecured, due on demand, interest 36% per annum
    53,885       50,502  
Unsecured, loan payable, interest 18% per annum
    315,000       315,000  
Unsecured, loan payable, interest 6% per annum, due April 30, 2016
    41,631       -  
Unsecured, loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016.
    250,000       -  
Total current portion
  $ 853,254     $ 546,137  
 

 
14

 
 
Note 8 – CONVERTIBLE LOAN
 
Convertible Loans
 
   
March 31, 2016
   
December 31, 2015
 
             
Unsecured, interest 15.2% per annum, mature from February 28, 2015 to December 31, 2015. Principal is repayable in cash or Tags units. Repayment can also be requested to be converted to shares of the company
  $ 949,139     $ 889,543  
Unsecured, interest 10% per annum. Principal plus interest repayable in cash or common shares due on demand
    250,000       250,000  
Total
  $ 1,199,139     $ 1,139,543  
                 
Current portion
    1,199,139       1,139,543  
Long term portion
  $ -     $ -  
 
Convertible Loans to Related Party
 
   
March 31, 2016
   
December 31, 2015
 
             
Unsecured, interest 5% per annum, matures March 30, 2016, and is convertible at $1.25/per share
  $ 310,000     $ 310,000  
Total current portion
  $ 310,000     $ 310,000  
 
Note 9 – MEZZANINE EQUITY
 
DSG TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of March 31, 2016 and December 31, 2015. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014.  The Series A Shares have no general voting rights and carry a 5% per annum interest rate. Series A Shares that are converted to common shares are entitled to the same voting rights as other common shareholders.  At any time on or after the issuance date any holder of Series A Shares may convert to common stock based on predetermined conversion price of $1.25 per share.  The preferred shares are recorded in the consolidated financial statements as Mezzanine Equity.  The Series A Shares are subject to a redemption obligation pursuant to which the Company must redeem at a price of $1.25 per share the following amounts on the following dates if it is successful in raising financing capital of $2,500,000 as of August 1, 2016, $2,500,000 as of September 1, 2016 and $5,000,000 as of October 1, 2016; 900,000 Series A Shares ($1,250,000) by May 1, 2016, an additional 900,000 Series A Shares ($1,250,000) by June 1, 2016, and the remaining 2,429,384 Series A Shares ($3,136,730) by July 1, 2016. As of December 31, 2015, 80,000 preferred shares were purchased by an unrelated third-party and exchanged for 80,000 shares of common stock of DSG Global, Inc.
 
Note 10 – STOCKHOLDERS’ DEFICIT
 
Common Stock
 
The Company has 125,000,000 shares of common stock authorized, each having a par value of $0.001, as of March 31, 2016 and December 31, 2015. According to the Share Exchange Agreement dated April 13, 2015, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares of DSG TAG in exchange for the issuance to the subscribing shareholders of up to 20,000,000 shares of our common stock on the basis of 1 common share of DSG Global, Inc. for 5.4935 common shares of DSG TAG.  The Company also issued an additional 179,823 common shares to a director of DSG TAG to meet debt agreement obligations. There were 30,291,187 shares of common stock of the Company issued and outstanding as of March 31, 2016 and December 31, 2015. Each share of common stock is entitled to one (1) vote.
 
 
15

 
 
Noncontrolling Interest
 
DSG TAG has 150,000,000 shares of undesignated preferred stock authorized, each having a par value of $0.001 as of March 31, 2016 and December 31, 2015. DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014. The Series A Shares were not exchanged for securities of DSG Global, Inc. as part of the Share Exchange Agreement.  Noncontrolling interest as of March 31, 2016 and December 31, 2015 was $735,332 or 16.18% or $660,771 or 16.18%, respectively.
 
Note 11 – STOCK OPTIONS AND WARRANTS
 
Stock Compensation to employees and officers
 
On March 1, 2013, the Company extended warrants issued in 2008 to five employees and officers that were to expire on March 31, 2013 to December 31, 2016.  The Company issued warrants to these individuals to purchase an aggregate of 7,006,098 shares of common stock.  The warrants had an exercise price of $0.23 per share. The fair value of the warrants at the time they were extended was estimated at $769,760 using a Black-Scholes model with the following assumptions:  expected volatility of 17%, risk free interest of 0.38%, expected life of 3 years and no dividends.  The fair value of the warrants were recorded as equity and compensation expense.   On January 18, 2015, DSG TAG cancelled 5,913,898 of the warrants. The remaining 1,092,200 of the warrants have not yet been exercised and are currently outstanding as of March 31, 2016.  These warrants are exercisable into shares of common stock of DSG Global, Inc. at the rate of 1 share of DSG Global for each 5.4935 shares of DSG TAG.
 
Note 12 – RELATED PARTY TRANSACTIONS
 
On March 31, 2015 the Company entered into an agreement with a marketing firm that is owned by one of the directors of the Company.  The terms included cash payment of $17,500 and a note in the amount of $310,000, with 5% interest per annum, convertible at the election of the holder into 248,000 shares of Common Stock of DSG Global, Inc. at a price of $1.25 per share, maturing on March 30, 2016. As of March 31, 2016, it was estimated that approximately 90% of the marketing services related to the agreement have been expensed in the amount of $280,000 and the remaining $30,000 is recorded as a prepaid deposit. As of March 31, 2016, the Director of the Company has filed a notice of default on March 31, 2016 in regards to the related party convertible note on the financial statements of DSG TAG. The note was issued in lieu of marketing services, the note maturity date is March 31, 2016. Adore and DSG TAG are currently in arbitration in regards to this matter.   (See Note 16).
 
Amount due from related party at March 31, 2016 and December 31, 2015 was $87,127 and $91,727, respectively. The amounts consist of advances to a director and officer of the Company. These amounts are unsecured, non-interest bearing and due on demand.
 
Note 13 – INCOME TAX
 
The following is the income tax expense reflected in the Statement of Operations for the three months ended March 31, 2016 and 2015.
 
Income Tax Expense
 
   
March 31, 2016
   
March 31, 2015
 
             
Current
  $ -     $ -  
Deferred
    -          
Total
  $ -     $ -  
 
 
 
16

 
 
Component of Loss Before Income Tax and Noncontrolling Interest
 
The following are the components of income before income tax reflected in the Statement of Operations for the three months ended March 31, 2016 and 2015:
 
Component of Loss Before Income Tax and Non-controlling Interest
 
   
March 31, 2016
   
March 31, 2015
 
             
Loss before income tax and noncontrolling interest
  $ (461,981 )   $ (340,241 )
Income Tax
  $ -     $ -  
Effective tax rate
    0 %     0 %
 
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the ability to recover the deferred tax assets within the jurisdiction from which they arise, the Company considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company began with historical results adjusted for changes in accounting policies and incorporates assumptions including the amount of future pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimate the Company are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company consider three years of cumulative operating income (loss).
 
As of March 31, 2016, the Company had net operating losses, or NOLs, of approximately $25.1 million to offset future taxable income in Canada and the United Kingdom. The deferred tax assets at March 31, 2016 were fully reserved. Management believes it is more likely than not that these assets will not be realized in the near future.
 
Note 14 – GEOGRAPHIC SEGMENT INFORMATION
 
As a result of the reverse merger on May 6, 2015, the Company operates in three regions: Canada, United Kingdom and the United States of America. All inter-company transactions are eliminated in consolidation.  Prior to the merger, the Company operated in two regions.

For the three months ended March 31, 2016 and 2015, geographic segment information is as follows:
 
For the Three Months Ended March 31, 2016
 
   
Canada
   
United Kingdom
   
United States
   
Elimination
   
Consolidated
 
                               
Revenue
  $ 210,848     $ 50,745       -     $ (6,666 )   $ 254,928  
Cost of Revenue
    67,077       34,137       -       (6,666 )     94,548  
Total Expenses
    462,840       124,297       (1,686 )     -       585,451  
Other Income (Expenses)
    (22,159 )     (13,383 )     (1,368 )     -       (36,910 )
Noncontrolling Interest
    74,561       -       -       -       74,561  
Net (Loss) Income
    (266,667 )     (121,071 )     319       -       (387,420 )
Assets
    882,634       64,272       67,594       (255,813 )     758,688  
Liabilities
    4,230,811       308,528       11,354       (255,813 )     4,294,880  
 
For the Three Months Ended March 31, 2015
 
   
Canada
   
United Kingdom
   
Elimination
   
Consolidated
 
                         
Revenue
  $ 637,825     $ 372,781     $ (220,426 )   $ 790,180  
Cost of Revenue
    467,098       241,375       (220,426 )     488,047  
Total Expenses
    481,940       89,188       -       571,128  
Other Income (Expenses)
    (59,785 )     (11,461 )     -       (71,246 )
Non-controlling Interest
    55,912       -       -       55,912  
Net (Loss) Income
    (315,086 )     30,757       -       (284,329 )
Assets
    1,529,024       364,584       (329,777 )     1,563,831  
Liabilities
    2,549,340       360,252       (329,777 )     2,579,815  
 
 
 
17

 

Note 15 – COMMITMENTS AND CONTINGENCIES
 
Lease Obligations
 
The Company leases offices in Canada under a renewable operating lease which will expire on July 31, 2016, following which the term of the lease is month to month, with 30 days’ notice to terminate. The lease term was extended by an additional two months subject to leasing our current space or another office in the building. The annual rent for the premises in Canada is approximately $66,000. For the three months ended March 31, 2016 and 2015, the aggregate rental expense was $17,660 and $18,799, respectively. Rent expense included other amounts paid in Canada and the United Kingdom for warehouse storage and offices on a month-to-month or as-needed basis.
 
The Company signed an operating lease agreement through National Leasing for a photocopier. The lease terms are for 60 months commencing on May 22, 2015 and ending April 22, 2020 with a monthly lease payment of approximately $183.
 
The following table summarizes our future minimum payments under these arrangements as of March 31, 2016:
 
March 31:
     
2017
    2,200  
2018
    2,200  
2019
    2,200  
2020
    2,567  
    $ 9,167  
 
Product Warranties
 
The Company’s product warranty costs are part of its cost of sales based on associated material product costs, labor costs for technical support staff, and associated overhead. The products sold are generally covered by a warranty for a period of one year.  As of December 31, 2015 the Company has set up a reserve for future warranty costs, at March 31, 2016 the recorded reserve was $115,643. The Company’s past experience with warranty related costs was used as a basis for the reserve. Prior to December 31, 2015 the Company expensed warranty costs as incurred. The warranty expense incurred was $45,217 and $58,843 for the three months ended March 31, 2016 and 2015, respectively.
 
In the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.
 
Note 16 – LEGAL MATTERS
 
On December 30, 2012 a corporation filed an action against the Company in the United States courts claiming patent infringement. On March 8, 2013 the parties agreed to a settlement, with the Company admitting no wrongdoing, in the amount of $125,000. The settlement is to be paid over an 18 month period in equal installments of $7,500 with annual interest at a rate of 8%. The Company has accrued all liabilities related to this matter in the financial statements.
 
On June 4, 2015, a shareholder of the Company’s subsidiary filed a lawsuit to recover a loan of CAD$100,000 which was made on October 16, 2012 and was due on July 16, 2013 with accrued interest. A response to the claim was submitted on June 29, 2015. On August 13, 2015 a settlement was reached between both parties to pay the loan amount remaining plus interest, for a total of $119,700. In addition, the shareholder’s outstanding shares of DSG TAG were converted into 18,422 shares of common stock of DSG Global, Inc. on October 22, 2015. On February 16, 2016, a new agreement was reached after a breach of the settlement agreement dated August 13, 2015. DSG TAG defaulted on the settlement agreement and both parties agreed to new terms. The balance owing on February 16, 2106 was CAD$86,780 payable ratably over 16 months. The shareholder’s loan and accrued interest is appropriately recorded in these financial statements.
 
A  Director of the Company, representing their company Adore Creative Agency Inc. (Adore) has filed a notice of default in regards to the related party convertible note on the financial statements of DSG TAG. The note was issued in lieu of marketing services, the note maturity date is March 31, 2016. Adore and DSG TAG are currently in arbitration in regards to this matter.
 
 
18

 
 
Note 17 – SUBSEQUENT EVENTS
 
Management has evaluated events subsequent to the three months ended March 31, 2016 through May 16, 2016 for transactions and other events that may require adjustment of and/or disclosure in such financial statements.
 
On April 6, 2016, DSG TAG entered into a loan agreement with Westergaard Holdings Ltd, a Board of Director at DSG TAG for $120,000 CAD. DSG TAG agrees to pay the loan plus fees no later than the final due date of July 6, 2016. The fees for service are as follows: (a) DSG TAG agrees to pay a fee for service equal to 5% of the amount of the loan or $6,000 CAD if the loan is paid in full, including fees on or before May 6, 2016; (b) DSG TAG agrees to pay a fee for service equal to 10% of the amount of the original loan, or $12,000 CAD if the loan is paid in full, including fees, between May 7, 2016 and June 5, 2016; and (c) DSG TAG agrees to pay a fee for service equal to 20% of the amount of the original loan, or $24,000 CAD if the loan is paid full, including fees, between June 6, 2016 and July 5, 2016. DSG TAG agrees to pay partial payments towards the principal amount of the loan and fees. DSG TAG agrees that fees will be charged on the initial amount of the loan.
 
On April 7, 2016, DSG TAG has signed an additional two month extension on the current lease at 214-5455 152 nd Avenue, Surrey, BC, V3S 5A5. The term will begin on May 1, 2016 and end on July 31, 2016.
 
On April 29, 2016 Westergaard Holdings Ltd., an affiliate of a member of our board of directors and a shareholder of the Company, amended the Subscription / Debt Settlement Agreement dated September 26, 2014 between DSG TAG and Westergaard Holdings, as previously amended.  Westergaard Holdings owns 4,229,384 Series A Shares. Pursuant to the settlement agreement, DSG TAG 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.  The letter agreement modifies the redemption provisions, which now obligate the Company to raise capital and redeem the Series A Shares at a price of $1.25 per share as follows: (i) on or before August 1, 2016, the Company 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; (ii) on or before September 1, 2016, the Company 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 (iii) on or before October 1, 2016, the Company 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 2,429,384 Series A Shares.

 
19

 
 
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.
 
 
20

 

Our unaudited financial statements are state in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
 
Corporate History
 
DSG Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007.  We were formed to option feature films and TV projects to be packaged and sold to movie studios and production companies.
 
In January 2015, we changed our name to DSG Global, Inc. and effected a one-for-three reverse stock split of our issued and outstanding common stock in anticipation of entering in a share exchange agreement with DSG TAG Systems, Inc., a corporation incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008.
 
On April 13, 2015, we entered into a share exchange agreement with DSG TAG Systems Inc. and the shareholders of DSG TAG Systems who become parties to the agreement.  Pursuant to the terms of the share exchange agreement, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares in the capital stock of DSG TAG Systems in exchange for the issuance to the selling shareholders of up to 20,000,000 shares of our common stock on the basis of 1 common share for 5.4935 common shares of DSG TAG Systems.
 
On May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common shares of DSG TAG Systems as contemplated by the share exchange agreement by issuing 15,185,875 shares of our common stock to shareholders of DSG TAG Systems who became parties to the agreement.  In addition, concurrent with the closing of the share exchange agreement, we issued an additional 179,823 shares of our common stock to Westergaard Holdings Ltd. in partial settlement of accrued interest on outstanding indebtedness of DSG TAG Systems.
 
Following the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of common stock of DSG TAG Systems from shareholders who became parties to the share exchange agreement, and issued to these shareholders an aggregate of 18,422 shares of our common stock.  Following completion of these additional purchases, DSG Global owns approximately 100% of the issued and outstanding shares of common stock of DSG TAG Systems.  An aggregate of 4,229,384 shares of Series A Convertible Preferred Stock of DSG TAG Systems continues to be held by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a member of our board of directors.
 
The reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG Systems is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized. We adopted the business and operations of DSG TAG Systems upon the closing of the share exchange agreement.
 
Overview of Our Business
 
DSG Global, Inc. is a technology development company based in Surrey, British Columbia, Canada, engaged in the design, manufacture, and marketing of fleet management solutions for the golf industry, as well as commercial, government and military applications. Our principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support services. We were founded by a group of individuals who have dedicated their careers to fleet management technologies and have been at the forefront of the industry's most innovative developments, and our executive team has over 50 years of experience in the design and manufacture of wireless, GPS, and fleet tracking solutions. We have developed the TAG suite of products that we believe is the first completely modular fleet management solution for the golf industry. The TAG suite of products is currently sold and installed around the world in golf facilities and as commercial applications through a network of established distributors and partnerships with some of the most notable brands in fleet and equipment manufacture.
 
 
21

 

DSG stands for “Digital Security Guard”, which is our primary value statement giving fleet operator’s new capabilities to track and control their vehicles. We have developed a proprietary combination of hardware and software that is marketed around the world as the TAG system.  We have primarily focused on the golf industry where the TAG system is deployed to help golf course operators manage their fleet of golf carts, turf equipment, and utility vehicles.  We are a leader in the category of fleet management in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of the National Golf Course Owners Association. To date the TAG system is installed on over 8,000 vehicles and has been used to monitor over 6,000,000 rounds of golf.
 
The TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which can operate independently, we offer two golfer information display systems -- the alphanumeric TEXT and high definition TOUCH -- providing the operator with two display options which is unique in the industry.
 
The primary market for our TAG system is the 40,000 golf operations worldwide.  While the golf industry remains the primary focus of our sales and marketing efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new markets.
 
We have a direct sales force in North America, which comprises the most significant portion of the golf fleet market, and have developed key relationships with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive sales for the North American and worldwide markets.
 
In order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier of our hardware units and components at competitive prices.  Presently, we source our TOUCH units from one supplier in China and our TAG units from one supplier in the United Kingdom.  We have recently established a new relationship with a supplier for our TOUCH units in China to provide us with higher quality, newer technology at competitive pricing.
 
In addition, DSG is currently in negotiations with a telecommunications provider to provide new technology in hardware and wireless access.
 
Our Revenue Model
 
We derive revenue from four different sources, as follows:
 
·  
Systems Sales Revenue , which consists of the sales price paid by those customers who purchase 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.

 
22

 

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.
 
·  
Research and development . Our research and development expenses consist primarily of personnel costs and professional services associated with the ongoing development and maintenance of our technology.
 
·  
Research and development   expenses include payroll, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached.   Research and development is expensed and is included in operating expenses.
 
·  
General and administrative . Our general and administrative expenses consist primarily of sales and marketing, commissions, travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting and legal professional services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing, marketing materials, and media management.
 
·  
Warranty expense. Our warranty expenses consist primarily of associated material product costs, labor costs for technical support staff, and other associated overhead. Warranty costs are expensed as they are incurred.

 
23

 

 
·  
Foreign currency exchange. Our foreign currency exchange consist primarily of foreign exchange fluctuations recorded in Canadian dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
 
·  
Finance costs. Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing charges for obtaining debt financing.

We expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings in new markets like commercial fleet management and agriculture.

Additional Capital
 
We require additional capital to continue to develop software and products, meet our contractual obligations, and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.
 
Results of Operations
 
We had a net loss of $387,420 for the three month period ended March 31, 2016, which was $103,091 more than the net loss of $284,329 for the three month period ended March 31, 2015.
 
The following table summarizes key items of comparison and their related increase (decrease) for the three month periods ended March 31, 2016 and 2015:
 
   
Three Months
ended
   
Three Months
ended
   
Increase
(Decrease)
 
   
31-Mar-16
   
31-Mar-15
   
2016 from 2015
 
   
($)
   
($)
   
(%)
 
                   
Revenues
  $ 254,928     $ 790,180       -67.7 %
Cost of revenue
    94,548       488,047       -80.6 %
Gross profit
    160,380       302,133       -46.9 %
                         
Operating Expenses:
                       
Compensation expense
    195,844       152,920       28.1 %
Research and development expense
    17,037       19,433       -12.3 %
General and administrative expense
    318,664       331,228       -3.8 %
Warranty expense
    45,217       58,843       -23.2 %
Bad Debt
    3,105       -       100.0 %
Depreciation and amortization expense
    5,584       8,704       -35.8 %
Total Operating Expenses
    585,451       571,128       2.5 %
Loss from operations
    (425,071 )     (268,995 )     58.0 %
                         
Other Income (Expense):
                       
Foreign currency exchange
    72,140       (20,995 )     -443.6 %
Other (expenses) income
    (490 )     (2,453 )     100.0 %
Finance costs
    (108,560 )     (47,798 )     127.1 %
Total Other Expense
    (36,910 )     (71,246 )     -48.2 %
                         
Provision for income taxes expense (benefit)
    -       -       -  
Net loss
    (461,981 )     (340,241 )     35.8 %
Net loss attributable to noncontrolling interest
    74,561       55,912       33.4 %
Net loss attributable to DSG Global
  $ (387,420 )   $ (284,329 )     36.3 %
                         
Net loss per share (basic and diluted)
    (0.013 )     (0.014 )     -7.1 %
 
 
 
24

 
 
Comparison of the three months ended March 31, 2016 and 2015:
 
Revenue
 
   
For the Three Months Ended March 31,
       
   
2016
   
2015
   
% Change
 
                   
Revenue
  $ 254,928     $ 790,180       (67.7 ) % 
 
Revenue decreased by $535,252, or 67.7%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The decrease was primarily due to DSG focusing on providing support to existing customers and ensuring that all our customers’ service needs were being met. In addition, 30% of sales included for the three months ended March 31, 2015 were from a product return from our distributor that is currently recognized on the financial statements as a deferred revenue. The revenue on the return will be recognized each quarter towards monthly service fees and new inventory purchases made.

In addition, DSG anticipates increased sales in the second quarter of 2016 due to hiring of contract commission based sales agents to sell DSG products, negotiations with a telecommunications provider to provide new technology in hardware and wireless access, and negotiations to acquire a manufacturer of gold tournament scoring and management software to compete with the competition and provide more services to the customer. As a result, in the second quarter, DSG has finalized a contract renewal in the amount of $240,000, and has signed other installation contracts.
 
DSG has increased the monthly recurring service revenue by $25,699.44 or 17.7%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The increase was primarily due to the increase in the installed units of TAG systems from 2014 to 2015.
 
Cost of Revenue
 
   
For the Three Months Ended March 31,
       
   
2016
   
2015
   
% Change
 
                   
Cost of revenue
  $ 94,548     $ 488,047       (80.6 ) % 
 
Cost of revenue decreased by $393,499, or 80.6%, for the three months ended March 31, 2016 as compared to the three months March 31, 2015. The decrease was primarily due to the decrease in hardware rentals and sales. Lower sales also resulted in lower installation costs, freight charges, mapping, and direct labor costs in the three months ended in March 31, 2016 in comparison to the three months ended March 31, 2015. Installation costs, such as direct labor decreased by $16,368, cost of goods for hardware sales decrease by $314,479 and mapping and freight costs decreased by $21,309. Wireless fees also decreased by $24,078 due to new lower negotiated wireless fee rates. There was also a decrease of $17,265 for inventory adjustments which was primarily due to write-off of obsolete inventory in the three months ended March 31, 2015 in comparison to the three months ended March 31, 2016. In addition, the decrease in cost of revenue was also due to lower sales compared to the prior year, and lower hardware purchasing costs from the new hardware supplier.
 
Overall, the cost of revenue decreased by 24.7% from the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The increase was due to the lower monthly fee rates for wireless data for the three months ended March 31, 2016. In addition, the decrease in cost of revenue was also due to lower sales compared to the prior period, which resulted in lower cost of good on hardware, mapping, direct labor and other installation costs.

 
 
25

 
 
Compensation Expense
 
   
For the Three Months Ended March 31,
       
   
2016
   
2015
   
% Change
 
                   
Compensation Expense
  $ 195,844     $ 152,920       28.1
 
Compensation expense increased by $42,924, or 28.1%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The increase was primarily due to the increase in hiring of employees and contractors to meet projected growth obligations in engineering for software and hardware development.
 
Research and Development
 
   
For the Three Months Ended March 31,
       
   
2016
   
2015
   
% Change
 
                   
Research and development expense
  $ 17,037     $ 19,433       (12.3 ) % 
 
Research and development expense decreased by $2,396, or 12.3% for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. We expect research and development expenses to increase as we enter new markets like commercial fleet management, agriculture, and advertising. In addition, the hiring of engineers in the first quarter of 2016 will result in higher research and development costs in future periods.
 
General and Administration Expense
 
   
For the Three Months Ended March 31,
       
   
2016
   
2015
   
% Change
 
                   
General & administration expense
  $ 318,664       331,228       (3.8 ) % 
 
General & administration expense decreased by $12,564 or 3.8% for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. The table below outlines the differences in detail:
 
   
March 31,
2016
   
March 31,
2015
   
Difference
   
%
Difference
 
                         
Accounting & Legal
  $ 21,878     $ 34,044     $ (12,166 )     -35.74 %
Marketing & Advertising
    142,634       187,779       (45,145 )     -24.04 %
Subcontractor & Commissions
    24,472       6,535       17,937       274.48 %
Interest Expense
    12,746       7,638       5,108       66.88 %
Hardware Design
    12,745       779       11,966       1536.42 %
Office Expense, Rent, Software, Bank & Credit Card Charges, Telephone, Travel, & Meals
    104,189       94,453       9,736       -10.24 %
    $ 318,664     $ 331,228     $ (12,564 )        
 

 
26

 

Overall, there was a decrease of $12,166 in accounting & legal fees due to efforts in decreasing legal costs for public filing requirements in the three months ended March 31, 2016. There was a decrease of $45,145 in marketing and advertising costs, this was due to the convertible note issued in March 31, 2015 for marketing services, in the three months ended March 31, 2016, no additional advertising services was expensed from the convertible note. Marketing and advertising also includes tradeshow costs, which provides us with brand recognition and awareness, and to help generate sales. Tradeshow costs include tradeshow rental space, booth design, travel, meals and entertainment costs, and hiring of additional staff. There was an increase of $17,937 and $11,966 in subcontractor wages and hardware design, respectively, this was due to hiring of engineers for software and hardware development needs. Overall, there was an increase of $14,844 in office and computer expense, rent, operations software, bank and interest charges, and filing fees for the three months ended March 31, 2016 compared to the three months ended March 31, 2015, this was due to due to warranty shipping and travel costs, filing fees for SEC requirements, and interest expense.
 
Warranty Expense
 
   
For the Three Months Ended March 31,
       
   
2016
   
2015
   
% Change
 
                   
Warranty Expense
  $ 45,217     $ 58,843       (23.2 ) % 
 
Warranty expense decreased by $13,626, or 23.2% for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The decrease in warranty expense was primarily due to using a combination of repairing repairable units and replacing older units with new units, in order to help lower warranty costs. We are currently outsourcing products from an alternative supplier, which we believe will reduce the instances of defective products and reduce our warranty expense in future periods. In addition, the warranty amount for the three months ended March 31, 2016 includes a reserve of $115,643 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,
       
   
2016
   
2015
   
% Change
 
                   
Foreign currency exchange
  $ (72,140 )   $ 20,995       (443.6 ) % 
 
For the three months ended March 31, 2016, we recognized $72,140 gain in foreign currency transaction losses as compared to $20,995 in foreign currency transaction losses for the three months ended March 31, 2016. The decrease was primarily due to the gains or losses arising from exchange rate fluctuations on payables, receivables, and other foreign exchange transactions denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar, Euro and British pound.
 
Finance Costs
 
   
For the Three Months Ended March 31,
       
   
2016
   
2015
   
% Change
 
                   
Finance costs
  $ 108,560     $ 47,798       127.1
 
Finance costs increased by $60,762 or 127.1%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The increase was primarily due to accrued interest expensed from additional loans and note convertible loans obtained after the three months ended March 31, 2015.
 
 
 
27

 

Liquidity and Capital Resources
 
From our incorporation in April 17, 2008 through March 31, 2016, we have financed our operations, capital expenditures and working capital needs through the sale of common shares and the incurrence of indebtedness, including term loans, convertible loans, revolving lines of credit and purchase order financing. At March 31, 2016, we had $2,362,393 in outstanding indebtedness, which all matures within the next twelve months.
 
We had cash in the amount of $0 as of March 31, 2016 as compared to $11,675 as of March 31, 2016. We had a working capital deficit of $3,666,597 as of March 31, 2016 compared to working capital deficit of 1,260,031 as of March 31, 2015.   
 
Liquidity and Financial Condition
 
Our financial position as of March 31, 2016 and 2015, and the changes for the periods then ended are as follows:
 
Working Capital
 
   
 
   
 
   
Percentage
 
   
At March 31,
   
At March 31,
    Increase/  
   
2016
   
2015
   
(Decrease)
 
                   
Current Assets
  $ 628,283     $ 1,319,784       (52.4 ) %
Current Liabilities
  $ 4,294,880     $ 2,579,815       66.5 %
Working Capital
  $ (3,666,597 )   $ (1,260,031 )     191.0 %
 
Cash Flow Analysis
 
Our cash flows from operating, investing and financing activities are summarized as follows:
 
   
March 31
 
   
2016
   
2015
 
             
Net cash used in operating activities
  $ (259,817 )   $ (216,967 )
Net cash provided by investing activities
    378       12,155  
Net cash provided by financing activities
    243,919       127,735  
Net decrease in cash
    (15,520 )     (77,077 )
Cash at beginning of period
    0.00       91,840  
Cash at end of period
  $ 0.00     $ 11,675  
 
Net Cash Used in Operating Activities .  During the three months ended March 31, 2016, cash used in operations totaled $259,817.  This reflects the net loss of $461,981 less $202,164 provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by a decrease in prepaid expense and deposits of $75,651, a decrease in related party receivable of $10,142, an increase in trade receivables of $61,117, a decrease of $37,436 in inventories, and an increase in trade payables of $117,343.
 
During the three months ended March 31, 2015, cash used in operations totaled $216,967. This reflects a net loss of $340,241 less $123,274 provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by $158,381 for non-cash financing costs for notes issued for services, an increase of prepaid expense and deposits of $311,993, a decrease of inventory of $23,684, a decrease of $513,911 in trade receivables, and an increase in trade payables of $166,600.
 
 
 
28

 
 
Net Cash Provided by Investing Activities .  Investing activities provided $378 of cash in the three months ended March 31, 2016, and $12,155 for the three months ended March 31, 2015 for TAG system units leased to customers.
 
Net Cash Provided by Financing Activities .  Net cash used in financing activities during the three months ended March 31, 2016 totaled $243,919, of which $239,542 was from various note and loan facilities entered into during the period.  Net cash provided by financing activities during the three months ended March 31, 2015 was $127,735, of which was from various note and loan facilities entered into during the period.
 
Outstanding Indebtedness
 
Our current indebtedness as of March 31, 2016 is comprised of the following:
 
 
·  
Unsecured loan payable in the amount of $192,738 bearing interest at 15% per annum and due on demand;
 
·  
Unsecured loan payable in the amount of $315,000 bearing interest at 18% per annum;
 
·  
Unsecured note payable in the amount of $53,885, bearing interest at 36% per annum and due on July 20, 2017;
 
·  
Secured convertible loan payable in the amount of $949,139, bearing interest at 15.2% per annum and due on December 31, 2015;
 
·  
Unsecured, convertible note payable to related party in the amount of $310,000, bearing interest at 5% per annum and due on March 30, 2016;
 
·  
Unsecured, convertible note payable in the amount of $250,000, bearing interest at 10% per annum and due on demand;
 
·  
Unsecured, loan payable in the amount of $41,631, interest 6% per annum, due April 30, 2016;
 
·  
Unsecured, loan payable in the amount of $250,000, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016.
 
Preferred Stock Redemption Obligations
 
Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a member of our board of directors, owns 4,229,384 shares (the “Series A Shares”) of Series A Convertible Preferred Stock of DSG TAG Systems. Pursuant to a Subscription / Debt Settlement Agreement dated September 26, 2014 between DSG TAG Systems and Westergaard Holdings, as amended on April 29, 2016, DSG TAG Systems has agreed that DSG Global, Inc. will complete financings for gross proceeds of at least $10 million and use a portion of the proceeds to redeem all of the Series A Shares at a price of $1.25 per share, as follows:
 
 
 
·  
On or before August 1, 2016, we must complete a financing for gross proceeds of at least $2.5 million and use at least $1.125 million to redeem a minimum of 900,000 Series A Shares;
 
·  
On or before September 1, 2016, we must complete an additional financing for gross proceeds of at least $2.5 million and use at least $1.125 million to redeem a minimum of 900,000 additional Series A Shares; and
 
·  
On or before October 1, 2016, we must complete an additional financing for gross proceeds of at least $5.0 million and use at least $3.14 million to redeem the remaining 2,509,384 Series A Shares.
 
If we fail to satisfy the above described financing and share redemption schedule, we will be in default of the Subscription and Debt Settlement Agreement which would entitle the holder of the Preferred Shares to convert the Series A Convertible Preferred Shares into common shares in the capital of DSG Global at the price of $1.25 per share.
 

 
29

 

Prospective Capital Needs
 
 
We estimate our operating expenses and working capital requirements for the twelve month period beginning April 1, 2016 to be as follows:
 
Estimated Expenses for the Twelve Month Period Beginning April 1, 2016
 
Management compensation
  $ 500,000  
Professional fees
  $ 150,000  
General and administrative
  $ 1,900,000  
Total
  $ 2,550,000  

At present, our cash requirements for the next 12 months outweigh the funds available to maintain our operations or development of any future properties. Of the $2,550,000 that we require for the next 12 months, we had $12,600 in cash as of May 13, 2016, and a working capital deficit of $3,666,597. Our principal sources of liquidity are our existing cash and cash generated from product sales.  In order to achieve sustained profitability and positive cash flows from operations, we will need to increase revenue and/or reduce operating expenses.  Our ability to maintain, or increase, current revenue levels to achieve and sustain profitability will depend, in part, on demand for our products.

In order to improve our liquidity, we also plan to pursue additional equity financing from private investors or possibly a registered public offering. We do not currently have any definitive arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources obligations, and execute our business plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely affect our ability to achieve our business objectives.
 
Off-Balance Sheet Transactions
 
We do not have any off-balance sheet arrangements.
 
Critical Accounting Policies and Estimates
 
We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected.
 
We believe that the assumptions and estimates associated with revenue recognition, foreign currency and foreign currency transactions and comprehensive loss have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see the notes to our condensed consolidated financial statements.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Not Applicable
 

 
30

 

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
The phrase “disclosure controls and procedures” refers to controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, or SEC. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our interim chief executive officer, or Interim CEO, and chief financial officer, or CFO, as appropriate to allow timely decision regarding required disclosure.
 
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2016, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of March 31, 2016, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control
 
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the first quarter of 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Limitations on Effectiveness of Controls and Procedures
 
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
PART II: OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
On June 4, 2015, a lawsuit was commenced against DSG TAG Systems Inc. in the Supreme Court of British Columbia, captioned Amanda McGuire v. DSG TAG Systems Inc., No. S-154634, Vancouver Registry.  The plaintiff alleges that a promissory note in the principal amount of $100,000 CDN issued by DSG TAG Systems was not converted into common shares of DSG TAG Systems, as asserted by DSG TAG Systems, and the plaintiff seeks repayment of indebtedness in the amount of $100,000 CDN plus interest and costs.  An agreement was reached on August 13, 2015 between DSG TAG Systems and the plaintiff, pursuant to which DSG TAG Systems agreed to pay the plaintiff $119,700 CDN in monthly installations of $17,100 CDN, the first payment commencing on October 1, 2015, and the plaintiff agreed to exchange 101,200 shares of common stock of DSG Tag Systems for 18,422 shares of common stock of DSG Global, which exchange occurred on October 22, 2015.

On December 3, 2015, a second action lawsuit was commenced against DSG TAG Systems Inc. in the Supreme Court of British Columbia, captioned Amanda McGuire v. DSG TAG Systems and DSG Global Inc., No. S-1510050, Vancouver Registry. The plaintiff filed a claim for default on the settlement agreement entered in on August 13, 2015 due to non-payment. On February 20, 2016, a new agreement was reached between DSG TAG Systems and the plaintiff, pursuant to which DSG TAG Systems agreed to pay the plaintiff $86,780 CDN in monthly installations of $5,423.75 CDN over a period of sixteen consecutive months, the first payment commencing April 20, 2016.
 
 
 
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We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future financial position, results of operations or cash flows.
 
ITEM 1A. RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-K, including our consolidated financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.
 
Risks Related To Our Business
 
We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
 
We have yet to establish any history of profitable operations and have incurred net losses since our inception.  We have generated only nominal revenues since our inception and do not anticipate that we will generate revenues which will be sufficient to sustain our operations in the near future.  Our profitability will require the successful commercialization and sales of our products. We may not be able to successfully achieve any of these requirements or ever become profitable.
 
There is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient cash resources to meet our business objectives, all of which means that we may not be able to continue operations.
 
Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the financial statements for the years ended December 31, 2015 and 2014 with respect to their doubt about our ability to continue as a going concern. As discussed in Note [3] to our financial statements for the years ended December 31, 2015 and 2014, we have generated operating losses since inception, and our cash resources are insufficient to meet our planned business objectives, which together raise doubt about our ability to continue as a going concern.
 
Our inability to complete our future research and development and engineering projects in a timely manner could have a material adverse effect of our results of operations, financial condition and cash flows.
 
If our research and development projects are not completed in a timely fashion, we could experience:
 
 
·  
substantial additional cost to obtain a marketable product;
 
·  
additional competition resulting from competitors in the surveillance and facial recognition market, and;
 
·  
delay in obtaining future inflow of cash from financing or partnership activities.

We face intense competition, which could result in lower revenues and higher research and development expenditures and could adversely affect our results of operations.
 
Unless we keep pace with changing technologies, we could lose existing customers and fail to win new customers. In order to compete effectively in the fleet management systems market, we must continually design, develop and market new and enhanced technologies. Our future success will depend, in part, upon our ability to address the changing and sophisticated needs of the marketplace.  Fleet management technologies have achieved widespread commercial acceptance and our strategy of expanding our fleet management technologies business could adversely affect our business operations and financial condition.
 
 
 
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Further, we expect to derive revenue from government contracts, which are often non-standard, involve competitive bidding, may be subject to cancellation with or without penalty and may produce volatility in earnings and revenue.
 
The market for our technologies is still developing and if the industry adopts technology standards that are different from our own our competitive position would be negatively affected.
 
Parts of our company’s business plan are dependent on business relationships with various parties.
 
We expect to rely in part upon original equipment manufacturers (OEM), and distribution partners to sell and install our products, and we may be adversely affected if those parties do not actively promote our products or pursue installations that use our products.  Further, if our products are not timely delivered or do not perform as promised, we could experience increased costs, lower margins, liquidated damage payment obligations and reputational harm.
 
We must attract and maintain key personnel or our business will fail.
 
Success depends on the acquisition of key personnel.  We will have to compete with other companies both within and outside the electronics industry to recruit and retain competent employees.  If we cannot maintain qualified employees to meet the needs of our anticipated growth, this could have a material adverse effect on our business and financial condition.
 
We may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions.
 
We anticipate requiring significant capital to fulfill our contractual obligations, continue development of our planned products to meet market evolution, and execute our business plan, generally.  We may use capital more rapidly than currently anticipated and incur higher operating expenses than currently expected, and we may be required to depend on external financing to satisfy our operating and capital needs. We may need new or additional financing in the future to conduct our operations or expand our business. Any sustained weakness in the general economic conditions and/or financial markets in the United States and Europe, or globally could adversely affect our ability to raise capital on favorable terms or at all. From time to time we have relied, and may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes. We may be unable to secure debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.
 
Our business and operating results could be harmed if we fail to manage our growth or change.
 
Our business may experience periods of rapid change and/or growth that could place significant demands on our personnel and financial resources. To manage possible growth and change, we must continue to try to locate skilled engineers and professionals and adequate funds in a timely manner.
 
Our business depends on GPS technology owned and controlled by others. If we do not have continued access to GPS technology, we will be unable to deliver our services and our revenues will decrease.
 
Our services rely on signals from GPS satellites built and maintained by the U.S. Department of Defense. GPS satellites and their ground support systems are subject to electronic and mechanical failures and sabotage. If one or more satellites malfunction, there could be a substantial delay before they are repaired or replaced, if at all, and our services may cease and customer satisfaction would suffer.
 
 
 
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Our GPS technology depends on the use of radio frequency spectrum controlled by others.
 
Our GPS technology is dependent on the use of radio frequency spectrum. The assignment of spectrum is controlled by an international organization known as the International Telecommunications Union, or ITU. The Federal Communications Commission, or FCC, is responsible for the assignment of spectrum for non-government use in the United States in accordance with ITU regulations. Any ITU or FCC reallocation of radio frequency spectrum, including frequency band segmentation or sharing of spectrum, could cause interference with the reception of GPS signals and may materially and adversely affect the utility and reliability of our products, which would, in turn, cause a material adverse effect on our operating results. In addition, emissions from mobile satellite service and other equipment operating in adjacent frequency bands or inband may materially and adversely affect the utility and reliability of our products, which could result in a material adverse effect on our operating results.
 
Government regulations and standards may harm our business and could increase our costs or reduce our opportunities to earn revenues.
 
In addition to regulations applicable to businesses in general, we may also be subject to direct regulation by governmental agencies, including the FCC and Department of Defense. A number of legislative and regulatory proposals under consideration by federal, state, provincial, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of wireless communications and GPS technology. Additionally, it is uncertain how existing laws governing issues such as taxation, intellectual property, libel, user privacy and property ownership, will be applied to our services. The adoption of new laws or the application of existing laws may expose us to significant liabilities and additional operational requirements, which could decrease the demand for our services and increase our cost of doing business.
 
If we are not able to adequately protect our intellectual property, then we may not be able to compete effectively and we may not be profitable.
 
Our commercial success may depend, in part, on obtaining and maintaining patent protection of our technologies and product as well as successfully defending third-party challenges to such technologies and products. We will be able to protect our technologies and product candidates from use by third parties only to the extent that valid and enforceable patents cover them and we have exclusive rights to use them. The ability of our licensors, collaborators and suppliers to maintain their patent rights against third-party challenges to their validity, scope or enforceability will also play an important role in determining our future.
 
The copyright and patent positions of software and technology related companies can be highly uncertain and involve complex legal and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed regarding such companies’ patents has emerged to date in the United States, and the patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict with any certainty the range of claims that may be allowed or enforced concerning our patents.
 
We may also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, through confidentiality agreements with our consultants and scientific and other advisors, they may unintentionally or willfully disclose our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable. If we are not able to maintain patent or trade secret protection on our technologies and product candidates, then we may not be able to exclude competitors from developing or marketing competing products, and we may not be able to operate profitability.
 
 
 
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If we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could cause us to go out of business.
 
There has been, and we believe that there will continue to be, significant litigation and demands for licenses in our industry regarding patent and other intellectual property rights. Although we anticipate having a valid defense to any allegation that our current products, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights that we might infringe with our products or other activities, and our competitors or other patent holders may assert that our products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause us to incur substantial litigation expenses and, if successful, may require us to pay substantial damages. Some of our potential competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, we could be forced to stop or delay our research, development, manufacturing or sales activities. Any of these costs could cause us to go out of business.
 
Risks Relating to Ownership of Our Securities
 
Trading on the OTCQB® Venture Marketplace may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
 
Our common stock is quoted on the OTCQB Venture Marketplace operated by the OTC Markets Group. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCQB is often more sporadic than the trading of securities listed on a stock exchange like the Nasdaq Stock Market or New York Stock Exchange.  Accordingly, our shareholders may have difficulty reselling any of their shares.
 
Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock.
 
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
 
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
 
 
 
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We do not anticipate paying any cash dividends to our common shareholders.
 
We presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to retain all earnings after paying the interest for the preferred stock, if any, to implement our business plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.
 
Volatility in Our Common Share Price May Subject Us to Securities Litigation.
 
The market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
 
The Elimination of Monetary Liability Against our Directors, Officers and Employees under Nevada law and the Existence of Indemnification Rights of our Directors, Officers and Employees May Result in Substantial Expenditures by our Company and may Discourage Lawsuits Against our Directors, Officers and Employees.
 
Our articles of incorporation do not contain any specific provisions that eliminate the liability of our directors for monetary damages to our company and shareholders; however, we are prepared to give such indemnification to our directors and officers to the extent provided for by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
 
Our business is subject to changing regulations related to corporate governance and public disclosure that have increased both our costs and the risk of noncompliance.
 
Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and FINRA, have issued requirements and regulations and continue to develop additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities. Because new and modified laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.
 
 
 
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Item 6. Exhibits
 
Exhibit
                 
Filed
 
Number
 
Exhibit Description
 
Form
 
Exhibit
 
Filing Date
 
Herewith
 
                       
3.1.1
 
Articles of Incorporation of the Registrant
 
SB-2
 
3.1
 
10-22-07
     
                       
3.1.2
 
Certificate of Change of the Registrant
 
8-K
 
3.1
 
06-24-08
     
                       
3.1.3
 
Articles of Merger of the Registrant
 
8-K
 
3.1
 
02-23-15
     
                       
3.1.4
 
Certificate of Change of the Registrant
 
8-K
 
3.2
 
02-23-15
     
                       
3.1.5
 
Certificate of Correction of the Registrant
 
8-K
 
3.3
 
02-23-15
     
                       
3.2.1
 
Bylaws of the Registrant
 
SB-2
 
3.2
 
10-22-07
     
                       
3.2.2
 
Amendment No. 1 to Bylaws of the Registrant
 
8-K
 
3.2
 
06-19-15
     
                       
4.1
 
Form of the Registrant’s common stock certificate
             
X
 
                       
4.1.2
 
DSG Global, Inc. 2015 Omnibus Incentive Plan
 
10-Q
 
10.3
 
11-13-15
     
                       
10.1
 
Subscription Agreement / Debt Settlement, dated September 26, 2014, between DSG TAG Systems Inc. and Westergaard Holdings Ltd.
 
8-K
 
10.1
 
08-17-15
     
                       
10.2
 
Addendum to Subscription Agreement / Debt Settlement, dated October 7, 2014, between DSG TAG Systems Inc. and Westergaard Holdings Ltd.
 
8-K
 
10.2
 
08-17-15