DSG Global Inc. - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2018

or

For the transition period from _____________ to _____________.

Commission file number 000-53988

DSG GLOBAL, INC.

(Exact name of registrant as specified in its charter)

214 - 5455 152nd Street

Surrey, British Columbia V3S 5A5, Canada

(Address of principal executive offices, zip code)

(604) 575-3848

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

As December 17, 2018, the issuer had 2,502,280,318 shares of common stock issued and outstanding.

DSG GLOBAL, INC.
TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

ITEM 1: Financial Statements (unaudited)

The accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at and for the three and nine months ended September 30, 2018, have been prepared by our management in conformity with accounting principles generally accepted in the United States of America and in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

Operating results for the three and nine month periods ended September 30, 2018 are not necessarily indicative of the results that can be expected for the year ending December 31, 2018.

DSG GLOBAL, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS AT SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

DSG GLOBAL, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDING SEPTEMBER 30, 2018 and 2017

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

DSG GLOBAL INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

DSG GLOBAL, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(unaudited)

Note 1 – ORGANIZATION

DSG Global, Inc. (formerly Boreal Productions Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on September 24, 2007. The Company is a technology development company engaged in the design, manufacture, and marketing of fleet management solutions for the golf industry, as well as commercial, government and military applications. Its principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support services. The Company specializes in the vehicle fleet management industry, primarily focused on the golf industry to help golf course operators manage their fleet of golf carts, turf equipment, and utility vehicles.

Previously, in anticipation of the share exchange agreement with DSG Tag Systems, Inc. (“DSG TAG”), we undertook to change our name and effect a reverse stock split of our authorized and issued common stock. Accordingly, on January 19, 2015, our board of directors approved an agreement and plan of merger to merge with our wholly-owned subsidiary DSG Global Inc., a Nevada corporation, to affect a name change from Boreal Productions Inc. to DSG Global, Inc. Our company remains the surviving company. DSG Global, Inc. was formed solely for the change of our name.

The Company’s wholly owned subsidiary, DSG TAG was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008. In March 2011, DSG TAG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of DSG TAG.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Certain information and footnote disclosures normally included in these interim condensed consolidated 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 consolidated financial statements and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2017. Current and future financial statements may not be directly comparable to the Company’s historical financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Principles of Consolidation

These interim condensed consolidated financial statements include the accounts of DSG Global Inc., its wholly-owned subsidiary DSG TAG, and its wholly owned subsidiary DSG UK, collectively referred to as the Company. For all periods presented, all significant intercompany accounts, transactions, and profits have been eliminated in the consolidated financial statements.

Use of Estimates

The preparation of these interim condensed consolidated financial statements in conformity with U.S. GAAP 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.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. This new standard replaces most of the existing revenue recognition guidance in U.S. GAAP permits the use of either the retrospective or cumulative effect transition method. The new standard, as amended, became effective in the first quarter of fiscal year 2018. The Company adopted the standard using the modified retrospective method. There was no effect for any adjustments to retained earnings (accumulated deficit) upon adoption of the standard on January 1, 2018.

Recently Issued Accounting Pronouncements

Applicable for fiscal years beginning after December 15, 2018:

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This accounting standard seeks to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Current U.S. GAAP does not require lessees to recognize assets and liabilities arising from operating leases on the balance sheet. This standard also provides guidance from the lessees’ perspective on how to determine if a lease is an operating lease or a financing lease and the differences in accounting for each. In January 2018, the FASB issued ASU No. 2018-01, which allows for an entity to elect an optional transition practical expedient for land easements that exist or expired before adoption of Topic 842. The adoption of this standard is required for interim and fiscal periods beginning after December 15, 2018 and it is required to be applied using the modified retrospective approach. Early adoption is permitted.

In March 2017, the “FASB” issued ASU 2017-08 “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities” an amendment to shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount.

In July 2017, the FASB issued ASU 2017-11 “Earnings Per Share (Topic 260), Distinguishing Liability from Equity (Topic 480), and Derivatives and Hedging (Topic 815) – (i) Accounting for Certain Financial Instruments with Down Round Features (ii) Replace of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments.” The amendments in (i) change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features and to help clarify existing disclosure requirements. The amendments in (ii) characterize the indefinite deferral of certain provisions and do not have an accounting effect.

The Company is currently evaluating the impact of the above standards on its consolidated financial statements. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s consolidated financial statements.

Going Concern

As reflected in the accompanying financial statements, the Company incurred a net loss of $9,316,119 for the nine month period ended September 30, 2018 and has a working capital deficit of $7,207,275 and an accumulated deficit of $41,545,536 as of September 30, 2018.

While the Company is attempting to grow revenues, improve margins, and lower costs, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management is seeking to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These interim condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Reclassifications

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 flows.

Note 3 – TRADE RECEIVABLES, NET

As of September 30, 2018 and December 31, 2017, trade receivables consisted of the following:

Note 4 – FIXED ASSETS

As of September 30, 2018 and December 31, 2017, fixed assets consisted of the following:

As of September 30, 2018 and December 31, 2017, equipment on lease consisted of the following:

For the three months ended September 30, 2018 and 2017, total depreciation expense for fixed assets and leased equipment was $3,121 and $8,668, respectively.

For the nine months ended September 30, 2018 and 2017, total depreciation expense for fixed assets and leased equipment was $11,441 and $24,178, respectively.

Note 5 – INTANGIBLE ASSETS

As of September 30, 2018 and December 31, 2017, intangible assets consisted of the following:

The estimated useful life of the patent is 20 years. Patents are amortized on a straight-line basis.

Note 6 – TRADE AND OTHER PAYABLES

As of September 30, 2018 and December 31, 2017, trade and other payables consist of the following:

Note 7 – LOANS PAYABLE

As of September 30, 2018 and December 31, 2017, loans payable consisted of the following:

Note 8 – CONVERTIBLE LOANS PAYABLE

Related Party Convertible Loans Payable

Third Party Convertible Loans Payable

Note 9 – DERIVATIVE LIABILITIES

The Company records the fair value of the of the conversion price of the convertible loans payable disclosed in Note 8 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. For the nine-month period ended September 30, 2018, the Company recorded a gain on the change in fair value of derivative liability of $277,205 (September 30, 2017 – $42,550 loss). As at September 30, 2018 and December 31, 2017, the Company recorded derivative liability of $2,916,607 and $1,676,155, respectively.

The following inputs and assumptions were used to value the derivative liabilities outstanding during the period and year ended September 30, 2018 and December 31, 2017 respectively, assuming no dividend yield:

A summary of the activity of the derivative liabilities is shown below:

Note 10 – MEZZANINE EQUITY

Authorized

150,000,000 shares of undesignated preferred stock of DSG TAG authorized, each having a par value of $0.001 per share.

5,000,000, 1,000,000 and 5,000,000 shares of redeemable Series C, D and E preferred shares, respectively, authorized, each having a par value of $0.001 per share.

Mezzanine equity transactions

DSG TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“DSG TAG Series A Shares”) and on October 24, 2014 issued 4,309,384 DSG TAG Series A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731. The DSG TAG Series A Shares have no general voting rights and carry a 5% per annum interest rate. DSG TAG Series A Shares that are converted to common shares are entitled to the same voting rights as other common shareholders. The DSG TAG Series A Shares are subject to a redemption obligation at $1.25 per common share pursuant to the following terms:

During the year ended December 31, 2015, 80,000 DSG TAG Series A Shares with a value of $100,000 were purchased by an unrelated third-party and exchanged for 80,000 shares of common stock of the Company. The DSG TAG Series A Shares were not exchanged for securities of DSG Global, Inc. as part of the Share Exchange Agreement.

The DSG TAG Series A Shares are recorded in the consolidated financial statements as Mezzanine Equity.

On August 27, 2018, pursuant to a debt exchange agreement, the Company exchanged all 4,229,384 issued and outstanding DSG TAG Series A Shares with a fair value of $5,873,481 ($7,627,303 CDN) for 51 shares of Series B and 3,000,000 shares of Series E preferred shares, respectively. The Series B preferred shares are classified as permanent equity. Refer to Note 11.

During the nine months ended September 30, 2018, pursuant to a series of debt exchange agreements, the Company issued an aggregate of 148,706 shares of Series D preferred shares for the settlement of outstanding accounts payable with a fair value of $91,944.

During the nine months ended September 30, 2018, pursuant to a series of debt exchange agreements, the Company issued an aggregate of 81 shares of Series B and 1,649,908 shares of Series E preferred shares, respectively, for the settlement of outstanding convertible loans. The Series B preferred shares are classified as permanent equity. Refer to Note 11.

Note 11 – PREFERRED STOCK

Authorized

On August 27, 2018, the Company amended its Articles of Incorporation to authorize and designate Series A through Series E preferred shares for the collective issuance of up to 14,010,000 shares having a par value of $0.001 per share. The preferred shares are designated as: 3,000,000 Series A preferred shares, 10,000 Series B convertible preferred shares, 5,000,000 Series C convertible preferred shares, 1,000,000 Series D convertible preferred shares and 5,000,000 Series E convertible preferred shares. The Series C, D and E preferred shares are mandatorily redeemable upon a major transaction which includes a change in control. As a result, they are classified as mezzanine equity. Refer to Note 10.

Equity Transactions

During the nine months ended September 30, 2018 the Company issued an aggregate of:

Note 12 – COMMON STOCK

Authorized

On August 27, 2018, the Company amended its Articles of Incorporation to increase the shares of common stock authorized from 2,000,000,000 to 3,000,000,000.

Equity Transactions

During the nine months ended September 30, 2018 the Company issued an aggregate of:

Note 13 – RELATED PARTY TRANSACTIONS

As at September 30, 2018, the Company owed $119,692 ($154,952 CDN) (December 31, 2017 - $205,963 ($258,381 CDN)) to the President, CEO, and CFO of the Company for management fees, which has been recorded in accounts payable and accrued liabilities. The amounts owed and owing are unsecured, non-interest bearing, and due on demand. During the nine months ended September 30, 2018 the Company incurred $150,000 in management fees to the President, CEO, and CFO of the Company.As at September 30, 2018, the Company owed $13,480 ($17,450 CDN) (December 31, 2017 - $22,280 ($27,950 CDN)) to a company controlled by the son of the President, CEO, and CFO of the Company. The balance owing has been recorded in accounts payable and accrued liabilities. The amount owing is unsecured, non-interest bearing, and due on demand.

Note 14 – COMMITMENTS

Lease Obligations

On June 1, 2018, the Company signed a two year operating lease agreement expiring on May 31, 2020 with the right to renew for an additional two year term if written notice is provided within 120 days prior to the expiration of the current term. The annual rent for the premises in Canada is approximately $46,552 CDN and commenced on July 1, 2018.

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 September 30, 2018, the Company has reserved $137,265 (December 31, 2017 - $165,523) for future warranty costs. The Company’s past experience with warranty related costs was used as a basis for the reserve. During the nine months ended September 30, 2018, the Company recorded warranty expense of $48,452 (2017 - $25,716).

A tabular reconciliation of the Company’s aggregate product warranty liability for the reporting periods is as follows:

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 15 – CONTINGENCIES

A director of the Company, representing his company, Adore Creative Agency Inc. (“Adore”), has filed a notice of default on March 31, 2016, in regard to a related party convertible note issued by the Company. The note was issued in lieu of marketing services and has a maturity date of March 31, 2016. The Company has countersued Adore for failure to provide services as obligated under the terms and agreement of the convertible note, and in addition for damages as a result.

On September 7, 2016, Chetu Inc. filed a Complaint for Damage in Florida to recover an unpaid invoice amount of $27,335 plus interest of $4,939. The invoice was not paid due to a service dispute.

On May 24, 2017, the Company received a notice of default from Coastal Investment Partners LLC (“Coastal”), on three 8% convertible promissory notes issued by the Company in aggregate principal amount of $261,389 and commenced a lawsuit on June 12, 2017 in the United States District Court, Southern District of New York. Coastal alleges that the Company failed to deliver shares of common stock underlying the Coastal notes, and thus giving rise to an event of default. Coastal seeks damages in excess of $250,000 for breach of contact damages, and legal fees incurred by Coastal with respect to the lawsuit. This action is still pending.

On October 10, 2017, a vendor filed a complaint for Breach of Contract with Superior Court of the State of California. The Complainant is alleging that it is contractually owed 1,848,130 shares of the Company’s common stock and is seeking damages of $270,000. In addition, a related vendor filed in the same filing a complaint for $72,000 as part of a consulting agreement the Company executed. No accrual has been recorded because the Company is of the opinion that no obligation exists since the vendors have not performed their contractual duties.

On February 9, 2017, the Company received a notice of default from Auctus Fund LLC (“Auctus”), on a 12% convertible promissory note issued to the Company in the principal amount of $75,000 and commenced a lawsuit on February 2, 2018 in the United States District Court, District of Massachusetts. Auctus alleges that the Company failed to honor a conversion notice under the terms of the note, and thus giving rise to an event of default. Auctus seeks damages in excess of $306,681, which consists of the principal amount of the note, liquidated damages, and default interest, and legal fees incurred by Auctus with respect to the lawsuit. On June 1, 2018 the remaining $58,167 note balance, including principal and interest, was reassigned to another unrelated note holder and the note was extinguished. Refer to Note 8(e) and 8(z).

On April 9, 2018, the Company received a share-reserve increase letter from JSJ Investments Inc. (“JSJ”) pursuant to the terms of a 10% convertible promissory note issued to the Company in the principal amount of $135,000. On April 24, 2018, the Company received a notice of default from JSJ for failure to comply with the share-reserve increase and on April 30, 2018 demanded payment in full of the default amount totaling $172,845. On May 7, 2018, JSJ commenced a lawsuit in the United States District Court, District of Dallas County, Texas. JSJ alleges that the Company failed to comply with the share-reserve increase letter, thus giving rise to an event of default, and failed to pay the outstanding default amount due under the terms of the note. JSJ seeks damages in excess of $200,000 but not more than $1,000,000, which consists of the principal amount of the note, default interest, and legal fees incurred by JSJ with respect to the lawsuit. This action is still pending.

Note 16 – REVISION OF PRIOR YEAR FINANCIAL STATEMENTS

While preparing the interim condensed consolidated financial statements for the period ending March 31, 2018, the Company noted that there was a revision of the fair value of the derivative liabilities and during the period ended June 30, 2018, determined that no non-controlling interest exists. Accordingly, the Company has revised its consolidated financial statements as at and for the year ended December 31, 2017 to reflect the change in fair value of derivative liabilities and retained earnings during the period and the fair value of the derivative liabilities and retained earnings as at December 31, 2017. This revision resulted in an increase to deficit of $1,819,564, an increase to net loss of $484,759, and an increase to comprehensive loss of $720,424 and an increase to net loss per share of $0.01. There was no impact on the consolidated statement of cash flows. In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality and Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, the Company has determined that the impact of adjustments relating to the correction of this accounting error was derived from an estimate, has no impact on compliance with regulatory requirements or loan covenants, and has no impact on the Company’s cash flows. Accordingly, these changes are disclosed herein and have been disclosed prospectively.

The impact of the revision as at December 31, 2017 and for the year then ended is summarized below:

Consolidated Balance Sheet

Consolidated Statement of Operations and Comprehensive Loss

Consolidated Statement of Stockholders’ Equity

Consolidated Statement of Cash Flows

Note 17 – SUPPLEMENTAL CASH FLOW INFORMATION

Note 18 – SUBSEQUENT EVENTS

Subsequent to September 30, 2018, the Company issued:

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:

These forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted 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. On August 27, 2018, an aggregate of 4,229,384 issued and outstanding shares of Series A Convertible Preferred Stock of DSG TAG Systems, Inc. previously held by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a former member of our board of directors, were exchanged for 51 and 3,000,000 shares of Series B and Series E preferred shares of DSG Global, Inc., respectively.

The reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG Systems is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized. We adopted the business and operations of DSG TAG Systems upon the closing of the share exchange agreement.

Overview of Our Business

DSG Global, Inc. is a technology development company based in Surrey, British Columbia, Canada, engaged in the design, manufacture, and marketing of fleet management solutions for the golf industry, as well as commercial, government and military applications. Our principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support services. We were founded by a group of individuals who have dedicated their careers to fleet management technologies and have been at the forefront of the industry’s most innovative developments, and our executive team has over 50 years of experience in the design and manufacture of wireless, GPS, and fleet tracking solutions. We have developed the TAG suite of products that we believe is the first completely modular fleet management solution for the golf industry. The TAG suite of products is currently sold and installed around the world in golf facilities and as commercial applications through a network of established distributors and partnerships with some of the most notable brands in fleet and equipment manufacture.

DSG stands for “Digital Security Guard”, which is our primary value statement giving fleet operator’s new capabilities to track and control their vehicles. We have developed a proprietary combination of hardware and software that is marketed around the world as the TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course operators manage their fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of the National Golf Course Owners Association. To date the TAG system is installed on over 8,000 vehicles and has been used to monitor over 6,000,000 rounds of golf.

The TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which can operate independently, we offer two golfer information display systems — the alphanumeric TEXT and high definition TOUCH — providing the operator with two display options which is unique in the industry.

The primary market for our TAG system is the 40,000 golf operations worldwide. While the golf industry remains the primary focus of our sales and marketing efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new markets.

We have a direct sales force in North America, which comprises the most significant portion of the golf fleet market and have developed key relationships with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive sales for the North American and worldwide markets.

In order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier of our hardware units and components at competitive prices. Presently, we source our TOUCH units from one supplier in China and our TAG units from one supplier in the United Kingdom. We have recently established a new relationship with a supplier for our TOUCH units in China to provide us with higher quality, newer technology at competitive pricing. We are also exploring the opportunity of a partnership with a US manufacturer.

In addition, DSG is currently in negotiations with a telecommunications provider to provide new technology in hardware and wireless access.

Our Revenue Model

We derive revenue from four different sources, as follows:

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. We accrue for warranty costs, sales returns, and other allowances based on its historical experience.

Our revenue recognition policies are discussed in more detail under “Note 2 – Summary of Significant Accounting Policies” in the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Cost of Revenue

Our cost of revenue consists primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and inventory adjustments.

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

The following table summarizes key items of comparison and their related increase (decrease) for the three and nine month periods September 30, 2018 and 2017:

We recognized a net loss of $4,994,712 for the three-month period ended September 30, 2018, which was $4,400,409 or 740.4% more than the net loss of $594,303 for the three-month period ended September 30, 2017. The primary reasons are attributable to the $4,494,554 loss on extinguishment of debt recorded in the current period relating to the conversion and settlement of convertible debt and $728,840 finance costs on outstanding debt.

We recognized a net loss of $9,316,119 for the nine-month period ended September 30, 2018, which was $7,359,983 or 376.3% more than the net loss of $1,956,136 for the nine-month period ended September 30, 2017. The primary reasons are attributable to the $6,658,785 loss on extinguishment of debt recorded in the current period relating to the conversion and settlement of convertible debt and $2,245,908 finance costs on outstanding debt.

Comparison of the three and nine months ended September 30, 2018 and 2017:

Revenue

Revenue increased by $405,812 or 133.9%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Revenue increased by $81,282 or 8.3% for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.

Sales increased as the result of aggressive marketing and installation of the new infinity suite of products.

Cost of Revenue

Cost of revenue decreased by $26,091, or 78.5%, for the three months ended September 30, 2018 as compared to the three months September 30, 2017. The table below outlines the differences in detail:

For the three months ended September 30, 2018 as compared to the three months ended September 30, 2017, the overall decrease was due to manufacturing and supply efficiencies and better negotiated rates with suppliers, specifically the Company’s wireless carrier.

Cost of revenue decreased by $202,545, or 62.0%, for the nine months ended September 30, 2018 as compared to the nine months September 30, 2017. The table below outlines the differences in detail:

For the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017, the overall decrease was due to manufacturing and supply efficiencies and better negotiated rates with suppliers, specifically the Company’s wireless carrier.

Compensation Expense

Compensation expense increased by $30,352, or 20.1%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Compensation expense increased by $27,761 or 4.9% for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. The increase in compensation expense was due to more employees in the period.

General and Administration Expense

General & administration expense increased by $41,993 or 14.0% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The table below outlines the differences in detail:

For the three months ended September 30, 2018 as compared to the three months ended September 30, 2017, the overall increase in expenses is primary related to increases in office expense, rent, software, bank & credit card charges, telephone, travel, & meals of $53,330 or 112.5% due to additional shipping and travel fees incurred during the period. Accounting and legal increase by $48.556 or 82.1% due to additional legal fees incurred pursuant to new debt agreements. These increases were partially offset by decrease in subcontractors and commissions of $46,232 or 29.8% due to hiring fewer contract workers.

General & administration expense decreased by $242,209 or 19.9% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The table below outlines the differences in detail:

For the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017, the overall decrease in expenses is primary related to decreases in marketing expenses of $597,356 or 94.7% due to shares issued as compensation for marketing services in the prior year which were not issued in the current year. This decrease was partially offset by increases in accounting and legal of $167,299 or 196.6% due to additional legal fees incurred pursuant to new debt agreements. Office expense, rent, software, bank & credit card charges, telephone, travel, & meals increased by $153,699 or 59.7% due to additional shipping and travel fees incurred during the period.

Warranty Expense

Warranty expense decreased by $16,175, or 88.1% for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Warranty expense increased by $22,736 or 88.4% for the nine month period ended September 30, 2018 as compared to the nine month period ended September 30, 2017. Warranty expense for the year to date increased primarily due to the replacement of cables and batteries for multiple clients of which are expected to last for several years.

As of September 30, 2018, our balance sheet included a reserve of $137,265 for future warranty costs (September 30, 2017 - $122,120).

Foreign Currency Exchange

For the three months ended September 30, 2018, we recognized a $234,109 gain in foreign currency transaction as compared to $297,333 gain in foreign currency transaction for the three months ended September 30, 2017. The decrease in gain was primarily 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.

For the nine months ended September 30, 2018, we recognized a $83,897 gain in foreign currency transaction as compared to $458,279 gain in foreign currency transaction for the nine months ended September 30, 2017. The decrease in gain was primarily due to exchange rate fluctuations on payables, receivables, and other foreign exchange transactions denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar, Euro and British pound.

Derivative Expense

Derivative loss decreased by $13,908 or 10.4%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 due to the change in fair value as of September 30, 2017 triggering of unrealized gains on derivative instruments in the current quarter ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s stock price.

Derivative loss decreased by $319,755 to a gain of $277,205 or 751.5%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 due to the change in fair value as of September 30, 2017 triggering of unrealized gains on derivative instruments in the current quarter ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s stock price.

Finance Costs

Finance costs increased by $289,373 or 65.8%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Finance costs increased by $1,136,723 or 102.5% for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. Significant finance costs were incurred in relation to the restructuring work, which resulted in additional accretion and extinguishment of debt costs.

Net Loss

As a result of the above factors, net loss increased by $4,400,409 or 740.4% for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. The overall increase was primarily due to the $5,109,597 in other expenses inclusive of losses on extinguishment of debt of $4,494,554 and finance costs of $728,840. This was partially offset by a foreign currency gain of $234,109.

As a result of the above factors, net loss increased by $7,359,983 or 376.3% for the nine month period ended September 30, 2018 as compared to the nine months ended September 30, 2017. The overall increase was primarily due to the $8,543,591 in other expenses inclusive of losses on extinguishment of debt of $6,658,785 and finance costs of $2,245,908. This was partially offset by a gain on change in derivative instruments of $277,205 and foreign currency gain of $83,897.

Liquidity and Capital Resources

From our incorporation in April 17, 2008 through September 30, 2018, we have financed our operations, capital expenditures and working capital needs through the sale of common shares and the incurrence of indebtedness, including term loans, convertible loans, revolving lines of credit and purchase order financing. At September 30, 2018, we had $9,690,238 in outstanding liabilities, which all matures within the next twelve months.

We had cash in the amount of $55,166 as of September 30, 2018, as compared to $5,488 as of December 31, 2017. We had a working capital deficit of $7,207,275 as of September 30, 2018 compared to working capital deficit of $8,487,059 as of December 31, 2017.

Liquidity and Financial Condition

Our financial position as of September 30, 2018 and December 31, 2017, and the changes for the periods then ended are as follows:

Working Capital

Cash Flow Analysis

Our cash flows from operating, investing, and financing activities are summarized as follows:

Net Cash (Used in) Provided by Operating Activities. During the nine months ended September 30, 2018, cash used in operations totaled $1,124,073. This reflects the net loss of $9,316,119 less amounts provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital and adjustments for non-cash items was primarily impacted by adjustments from fair valuing derivative liabilities of $277,205, a loss on extinguishment of debt of $6,658,785, and accretion of discounts on convertible debt totaling $1,416,573.

Net Cash (Used in) Provided by Investing Activities. Investing activities reduced cash by $2,670 in the nine months ended September 30, 2018, related to the purchase of property, plant and equipment and intangible assets, and decreased cash by $nil for the nine months ended September 30, 2017.

Net Cash (Used in) Provided by Financing Activities. Net cash from financing activities during the nine months ended September 30, 2018 totaled $1,328,659, primarily from various note and loan facilities entered during the period and from proceeds for the issuance of shares. Net cash provided by financing activities during the nine months ended September 30, 2017 was $766,434 from various note and loan facilities entered during the period and from proceeds for the issuance of shares.

Outstanding Indebtedness

Our current indebtedness as of September 30, 2018 is comprised of the following. For loans that have expired terms, we are in talks with the lenders to extend them. The Company must increase revenue or raise more equity capital to meet the payment obligations.

Our current indebtedness as of September 30, 2018 is comprised of the following: