NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
DirectView
Holdings, Inc., (the “Company”), was incorporated in the State of Delaware on October 2, 2006. On July 6, 2012 the
Company changed its domicile from Delaware and incorporated in the State of Nevada.
The
Company has the following six subsidiaries: DirectView Video Technologies Inc. (“DVVT”), DirectView Security Systems
Inc. (“DVSS”), Ralston Communication Services Inc. (“RCI”), Meeting Technologies Inc (“MT”),
Virtual Surveillance (“VS”), and Apex CCTV, LLC (“APEX”).
The
Company is a full-service provider of teleconferencing services to businesses and organizations. The Company’s conferencing
services enable its clients to cost-effectively conduct remote meetings by linking participants in geographically dispersed locations.
The Company’s focus is to provide high value-added conferencing services to organizations such as professional service firms,
investment banks, high tech companies, law firms, investor relations firms, and other domestic and multinational companies. The
Company is also a provider of the latest technologies in surveillance systems, digital video recording and services. The systems
provide onsite and remote video and audio surveillance.
Basis
of Presentation
The
unaudited consolidated financial statements include the accounts of the Company, three wholly-owned subsidiaries, and a subsidiary
with which the Company has a majority voting interest of approximately 58% (the other 42% is owned by non-controlling interests,
including 12% which is owned by the Company’s CEO) as of March 31, 2018. In the preparation of the unaudited consolidated
financial statements of the Company, intercompany transactions and balances are eliminated and net earnings are reduced by the
portion of the net earnings of subsidiaries applicable to non-controlling interests.
The
accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q
and Article 8-03 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information
and footnotes required by US GAAP for complete financial statements. The unaudited consolidated financial statements and notes
included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December
31, 2017 included in our Annual Report on Form 10-K filed with the SEC on April 17, 2018.
In
the opinion of management, all adjustments (consisting of normal recurring items) necessary to present fairly the Company’s
financial position as of March 31, 2018, and the results of operations and cash flows for the three months ending March 31, 2018
have been included. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the
results to be expected for the full year.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
Use
of Estimates
In
preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the dates of the statements of financial condition, and revenues and expenses
during the reporting period. Actual results may differ significantly from those estimates. Significant estimates made by management
include, but are not limited to, the allowance for doubtful accounts, deferred tax asset valuation allowance, valuation of stock-based
compensation, the useful life of property and equipment, valuation of beneficial conversion features on convertible debt, valuation
of intangible assets and the assumptions used to calculate fair value of derivative liabilities.
Non-controlling
Interests in Consolidated Financial Statements
The
Company follows ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements.” This statement clarifies
that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity
in the unaudited consolidated financial statements. It also requires consolidated net income to include the amounts attributable
to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts
attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, the losses attributable to
the parent and the non-controlling interest in subsidiary may exceed their interests in the subsidiary’s equity. The excess
and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even
if that attribution results in a deficit non-controlling interest balance. As of March 31, 2018 and December 31, 2017, the Company
reflected a non-controlling interest of ($18,042) and $2,941 in connection with our majority-owned subsidiary, DirectView Security
Systems Inc. as reflected in the accompanying March 31, 2018 unaudited consolidated balance sheet and December 31, 2017 consolidated
balance sheet, respectively.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
The Company places its cash with a high credit quality financial institution. The Company’s account at this institution
is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. For the three months ended March
31, 2018 and for the year ended December 31, 2017 the Company had no bank balances exceeding the FDIC insurance limit. To reduce
its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the
financial institution in which it holds deposits.
Fair
Value of Financial Instruments
The
Company follows FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities
measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring
fair value and expands disclosure about such fair value measurements.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
|
Level
1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities
|
|
Level
2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data
|
|
Level
3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions
|
Cash
and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of March 31,
2018 and December 31, 2017. These securities are valued using inputs observable in active markets for identical securities and
are therefore classified as Level 1 within our fair value hierarchy. As of March 31, 2018 and December 31, 2017 there were not
any cash equivalents.
In
addition, FASB ASC 825-10-25 Fair Value Option expands opportunities to use fair value measurements in financial reporting and
permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect
the fair value options for any of its qualifying financial instruments.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
The
carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, accrued expenses, notes payable
and due to related parties approximate their estimated fair market value based on the short-term maturity of these instruments.
The carrying amount of the notes and convertible promissory notes approximates the estimated fair value for these financial instruments
as management believes that such notes constitute substantially all of the Company’s debt and the interest payable on the
notes approximates the Company’s incremental borrowing rate.
Accounts
Receivable
The
Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses
in its existing accounts receivable. The Company uses specific identification of accounts to reserve possible uncollectible receivables.
The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of
past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed
to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for
recovery is considered remote. At March 31, 2018 and December 31, 2017, management determined that an allowance was necessary
which amounted to approximately $160,000 for both dates. During the three months ended March 31, 2018 and the year ended December
31, 2017 the Company recognized $0 and $844 respectively of write-offs related to uncollectible accounts receivable.
Capitalized
Job Costs
The
Company records capitalized jobs costs on the balance sheet and expenses the costs upon completion of related jobs based on when
revenue is earned per ASC 606 “Revenue Recognition.” As of March 31, 2018 and December 31, 2017, the Company had $156,861
and $141,267, respectively included on their balance sheets under Capitalized Job Costs.
Advertising
Advertising
is expensed as incurred. Advertising expense for the three months ended March 31, 2018 and 2017 was $198,982 and $2,438, respectively.
Shipping
costs
Shipping
costs are included in cost of sales for VS and Apex and shipping costs are included in other selling, general and administrative
expenses for DVVS and were deemed to be not material for the three months ended March 31, 2018 and 2017, respectively.
Inventory
Inventory,
consisting of finished goods related to our products is stated at the lower of cost or net realizable value utilizing the first-in,
first-out method. The Company acquires inventory for specific installation jobs. As a result, the Company generally orders inventory
only as needed for installations. Due to the anticipation of customers’ needs the Company purchased inventory items and
had $89,076 and $73,499 in inventory as of March 31, 2018 and December 31, 2017, respectively.
Property
and Equipment
Property
and equipment is carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements
are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts,
and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases
in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. Leasehold improvements are amortized
on a straight-line basis over the shorter of the estimated useful life or the term of the lease.
Impairment
of Long-Lived Assets
Long-Lived
Assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets
may not be recoverable, pursuant to guidance established in ASC 360-10-35-15,
“Impairment or Disposal of Long-Lived Assets”
.
The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount
of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book
value. The Company did not consider it necessary to record any impairment charges during the three months ended March 31, 2018
and 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
Intangible
Assets
The
Company amortizes the below identifiable intangible assets over their useful lives on a straight line basis.
Customer
Relationships
|
10
years
|
Brand
|
10
years
|
Technology
|
3
years
|
I
ncome
Taxes
Income
taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”).
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation
allowance, when in the Company’s opinion it is likely that some portion or the entire deferred tax asset will not be realized.
Pursuant
to ASC Topic 740-10: Income Taxes related to the accounting for uncertainty in income taxes, the evaluation of a tax position
is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained
upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.
The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit
to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than
50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial
reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures, and transition. The adoption had no effect on the Company’s
consolidated financial statements.
Stock
Based Compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity
instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively,
the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for
an award based on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the service period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date. The Company recorded stock based compensation of $71,200 and $0 for employees
during the three months ended March 31, 2018 and 2017, respectively.
Loan
Costs
The
Company has early adopted ASU 2015-3 “Interest – Imputation of Interest” - Simplifying the Presentation of Debt
Issuance Costs. The loan costs are recorded as a debt discount and amortized to interest expense over the terms of the note payable.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
Revenue
recognition
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 (ASC 606) and related amendments, which superseded
all prior revenue recognition methods and industry-specific guidance. The core principle of ASC 606 is that an entity should recognize
revenue to depict the transfer of control for promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue principles, an entity
is required to identify the contract(s) with a customer, identify the performance obligations, determine the transaction price,
allocate the transaction price to the performance obligations and recognize revenue when the performance obligation is satisfied
(i.e., either over time or point in time). ASC 606 further requires that companies disclose sufficient information to enable users
of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers.
ASC
606 provides companies an option of two transition methods, the full retrospective method, in which case the standard would be
applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the
earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would
be recognized at the date of initial application. The ASU is effective for annual reporting periods beginning after December 15,
2017.
Effective
January 1, 2018 (beginning of fiscal year 2018), the Company adopted the requirements of ASC 606 using the modified retrospective
method. The guidance was not applied to contracts that were complete at December 31, 2017, and the comparative information for
the prior fiscal year has not been retrospectively adjusted.
The
adoption of ASC 606 did not have any impact on the Company’s consolidated financial statements. The adoption of ASC 606
did not have a significant impact on the Company’s revenue recognition policy as revenues on the substantial majority of
the Company’s contracts continue to be recognized over time.
In
adopting ASC 606, the Company elected to use certain practical expedients permitted by the standard including electing to adopt
the right-to-invoice practical expedient on certain time and material contracts where the Company recognizes revenues as it is
contractually able to invoice the customer based on the control transferred to the customer.
The
following policies reflect specific criteria for the various revenue streams of the Company:
Revenue
is recognized upon transfer of control of conferencing services. The Company generally does not charge up-front fees and bills
its customers based on usage. The Company has elected the practical expedient to recognized revenue “as-billed”.
Revenue
for video equipment sales and security surveillance equipment sales is recognized upon delivery and installation which the Company
has determined is the point in time that control is transferred to the customer. Due to the nature of the Company’s business
it is not practicable to return products therefore the Company has determined that it is not necessary to estimate for sales returns
and allowances. The Company’s manufacturers provide the highest quality products available. If there is a defect in a product
related to materials or workmanship the Company extends the manufacturer’s warranty to its customers. To date this process
has never occurred. Therefore no warranty liability is recorded.
Revenue
from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant
obligations remain and collectability of the related receivable is probable. Maintenance agreements are considered stand ready
arrangements for which control is transferred to the customer ratably over time.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
Disaggregation
of Revenue
The Company operates in two different geographic locations and both locations have two sources of revenue;
sales of product and sales of service. Service sales mainly include installation of products related to security systems. The sales
of products are generally contract based and short term in nature.
The
following table illustrates our revenue by type related to the three months ended March 31, 2018:
|
|
Texas
|
|
|
New
York
|
|
|
Total
|
|
Sale
of Products
|
|
$
|
927,861
|
|
|
$
|
39,196
|
|
|
$
|
967,057
|
|
Service
|
|
|
180,946
|
|
|
|
53,127
|
|
|
|
234,073
|
|
Total
Revenue from Customers
|
|
$
|
1,108,807
|
|
|
$
|
92,323
|
|
|
$
|
1,201,130
|
|
Contract
Balances
The
following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Capitalized
Job Costs
|
|
$
|
156,861
|
|
|
$
|
141,267
|
|
Deferred
Revenue
|
|
$
|
435,780
|
|
|
$
|
479,426
|
|
Contract
receivables are recognized when the receipt of consideration is unconditional. The increase in contract assets was primarily due
to timing of billings and revenue recognized on performance of services rendered.
The
decrease in contract liabilities was primarily due to revenue recognized on completed jobs.
During
the quarter ended March 31, 2018, the Company recognized revenue of $241,911 relating to amounts that were included as a contract
liability at December 31, 2017.
As
a practical expedient, the Company expenses the costs of sales commissions that are paid to its sales force associated with obtaining
contracts less than one year in length in the period incurred.
Remaining
Performance Obligations
The
Company typically enters into contracts that are one year or less in length. As such, the remaining performance obligations at
March 31, 2018 are equal to the deferred revenue disclosed above. The Company expects to recognize the full balance of
the deferred revenue at March 31, 2018 within the next year.
Cost
of Sales
Cost
of sales includes cost of products and cost of service. Product cost includes the cost of products and delivery costs. Cost of
services includes labor and fuel expenses.
Concentrations
of Credit Risk and Major Customers
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high credit quality financial institutions. Almost all of the Company’s sales
are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in
these areas. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
During
the three months ended March 31, 2018, one customer accounted for 52% of revenues.
During
the three months ended March 31, 2017, three customers accounted for 58% of revenues. The following is a list of percentage of
revenue generated by the three customers:
Customer
1
|
|
|
|
12
|
%
|
Customer
2
|
|
|
|
22
|
%
|
Customer
3
|
|
|
|
24
|
%
|
Total
|
|
|
|
58
|
%
|
As
of March 31, 2018, two customers accounted for 43% of total accounts receivable. The following is a list of percentage of accounts
receivable owed by the two customers:
Customer
1
|
|
|
|
13
|
%
|
Customer
2
|
|
|
|
30
|
%
|
Total
|
|
|
|
43
|
%
|
As
of December 31, 2017, three customers accounted for 56% of total accounts receivable. The following is a list of percentage of
accounts receivable owed by the three customers:
Customer
1
|
|
|
|
30
|
%
|
Customer
2
|
|
|
|
15
|
%
|
Customer
3
|
|
|
|
11
|
%
|
Total
|
|
|
|
56
|
%
|
Research
and Development
Research
is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful
in developing a new product or service (hereinafter “product”) or a new process or technique (hereinafter “process”)
or in bringing about a significant improvement to an existing product or process. Development is the translation of research findings
or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product
or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives,
construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products,
production lines, manufacturing processes, and other on-going operations even though those alterations may represent improvements
and it does not include market research or market testing activities. Per FASB ASC 730, the Company expenses research and development
cost as incurred.
Related
Parties
Parties
are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal if one party controls or can significantly influence the management or operating policies of the other
to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company
discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged.
Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related
party in excess of the cost is reflected as a distribution to related party.
Net
Income per Common Share
Net
income per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic income
per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.
The computation of diluted net earnings per share does not include dilutive common stock equivalents in the weighted average shares
outstanding as they would be anti-dilutive. At March 31, 2018 the Company had 1,560,784,224 share equivalents issuable pursuant
to embedded conversion features. At December 31, 2017 the Company had 442,601,456 share equivalents issuable pursuant to embedded
conversion features.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption
of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flows, except
as described below.
In
February 2016, the FASB issued Accounting Standards Update, Leases (Topic 842), intended to improve financial reporting about
leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes,
and manufacturing equipment. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases
with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition,
measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification
as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the
statement of assets, liabilities, and members’ equity (deficit)—the new ASU will require both types of leases to be
recognized on the statement of assets, liabilities, and members’ equity (deficit). The ASU on leases will take effect for
all public companies for fiscal years beginning after December 15, 2018.
NOTE
2 – GOING CONCERN CONSIDERATIONS
The
accompanying unaudited consolidated financial statements are prepared assuming the Company will continue as a going concern. At
March 31, 2018, the Company had an accumulated deficit of approximately $55 million, a stockholders’ deficit of approximately
$37 million and a working capital deficiency of approximately $38 million. The net cash used in operating activities
for the three months ended March 31, 2018 totaled $52,500. These matters raise substantial doubt about the Company’s ability
to continue as a going concern for a period of twelve months from the issue date of this report. The ability of the Company to
continue as a going concern is dependent upon increasing sales and obtaining additional capital and financing. Management intends
to attempt to raise funds by way of a public or private offering. While the Company believes in the viability of its strategy
to increase sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The Company’s
limited financial resources have prevented the Company from aggressively advertising its products and services to achieve consumer
recognition. The unaudited consolidated financial statements do not include adjustments to reflect the possible effects on the
recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
NOTE
3 - PROPERTY AND EQUIPMENT
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
Estimated
life
|
|
2018
|
|
|
2017
|
|
Computer
Equipment
|
|
1
year
|
|
$
|
18,463
|
|
|
$
|
13,333
|
|
Office
Equipment
|
|
1
year
|
|
|
5,767
|
|
|
|
5,767
|
|
Telephone
System
|
|
1
year
|
|
|
11,042
|
|
|
|
11,042
|
|
ERP
Software
|
|
1
year
|
|
|
150,000
|
|
|
|
150,000
|
|
Vehicles
|
|
1
year
|
|
|
22,667
|
|
|
|
22,667
|
|
Furniture
& Fixtures
|
|
2-3
years
|
|
|
2,000
|
|
|
|
2,000
|
|
Less:
Accumulated depreciation
|
|
|
|
|
(190,699
|
)
|
|
|
(140,559
|
)
|
|
|
|
|
$
|
19,240
|
|
|
$
|
64,250
|
|
For
the three months ended March 31, 2018 and 2017, depreciation expense amounted to $50,140 and $0, respectively.
NOTE
4 – INTANGIBLE ASSETS
In
connection with the Purchase Agreement of the Acquisition Companies (see Note 1) goodwill and other intangible assets were acquired.
An independent valuation of the intangible assets was completed as of December 31, 2017. The intangible assets other than goodwill
are being amortized on a straight line basis over their useful lives.
Intangible
assets consist of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
Useful
Lives
|
Intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
794,830
|
|
|
$
|
794,830
|
|
|
|
Customer
Relationships
|
|
|
95,000
|
|
|
|
95,000
|
|
|
10
years
|
Brand
|
|
|
204,000
|
|
|
|
204,000
|
|
|
10
years
|
Technology
|
|
|
530,000
|
|
|
|
530,000
|
|
|
3
years
|
Total
|
|
|
1,623,830
|
|
|
|
1,623,830
|
|
|
|
Less:
Accumulated amortization
|
|
|
(197,960
|
)
|
|
|
(146,318
|
)
|
|
|
|
|
$
|
1,425,870
|
|
|
$
|
1,477,512
|
|
|
|
Amortization expense related to the intangible assets for the period ended March 31, 2018 and 2017 was $51,642 and $0,
respectively.
NOTE
5 – LINE OF CREDIT
In
connection with the Purchase Agreement of the Acquisition Companies (see Note 1) the Co
mpany
assumed a $350,000 revolving line of credit (“Line of Credit”) that VS and Apex are jointly and severally liable for
that expires on April 7, 2018. As of the filing date of this quarterly report the line of credit has not been repaid and
is in default. The Line of Credit is guaranteed by VS, Apex and the Acquisition Companies’ previous managing member and
collateralized by all of the assets of VS and Apex. The line of credit has an interest rate of prime plus 1. The interest rate
was 6.24% as of March 31, 2018. For the three month period ended March 31, 2018, the company had $0 borrowings and made repayments
of $4,020. The balance outstanding on the line of credit was approximately $257, 000 and $261,000 as of March 31, 2018 and December
31, 2017, respectively. As of March 31, 2018 the Company is out of compliance with the debt covenants related to the Line of Credit.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
NOTE
6 – NOTE PAYABLE - RELATED PARTY
In
connection with the Purchase Agreement of the Acquisition Companies (see Note 1) the Company executed a non-interest bearing Note
Payable – related party in the amount of $830,000. The Note Payable principal amount will be reduced by the calculated cash
payout of $2,000 related to the terms in the Purchase Agreement and payments owed in accordance with the Employment Agreement
with the Seller in the amount of $150,000. The terms of the Employment Agreement include $50,000 annually to be paid over a three
year period commencing on Effective Date of the Purchase Agreement. Upon delivery by the Purchaser to the Seller of the final
note payment, related to the Employment Agreement, the Note held by the Seller shall be forfeited and cancelled and no further
force or effect, and the Purchaser shall have no further obligations on the Note. As of March 31, 2018 and December 31, 2017,
$12,000 and $0, respectively has been paid related to the Employment Agreement. No payments have been remitted pursuant to the
Cash Payout as of March 31, 2018.
NOTE
7 – NOTES PAYABLE
During
the year ended December 31, 2012, the Company entered into demand notes with Regal Capital (formerly a related party) totaling
$116,792 bearing interest at 12% per annum. As of March 31, 2018 and December 31, 2017 the notes amounted to $116,792 and $116,792
respectively.
On
March 6, 2017, the Company issued a 10% original issue discount (OID) promissory note with a principal balance of $66,667 due
August 6, 2017 with an interest rate of 10%. In connection with the original issue discount promissory note the Company recorded
OID of $6,667 and deferred financing of $1,000 which are to be amortized over the term of the note. On October 3, 2017, the Company
executed an agreement with a Note Holder to extend the maturity date of a promissory note ad additional five months beyond the
original maturity date of August 6, 2017. The cost of funding is 20% over a six month term prorated to a five month term. In addition,
the Company agreed to issue the note holder 375,000 restricted shares of common stock upon payment of the note. It was also agreed
that if the company and the note holder agreed the note may be repaid in the form of shares of common stock of the Company at
30% discount to market. As of December 31, 2017 the balance of the original issue discount promissory note amounted to $66,667.
In March 16, 2018, the note holder assigned the principal balance of the note along with the accrued interest to a third party
and the Company issued a replacement convertible promissory note (see Note 10).
As
of April 20, 2017, in connection with the Purchase Agreement of the Acquisition Companies (see Note 1) the Company assumed a note
payable with a balance of $1,923,896 that VS and Apex are jointly and severally liable for with a maturity date of April 2025
and an interest rate of 4.35%. The note payable is guaranteed by the Acquisition Companies’ previous managing member and
his spouse and collateralized by all of the assets of the Acquisition Companies. The note has certain debt covenants that the
Company is out of compliance with. Per the Purchase Agreement the note was to be paid within 180 days of the Effective Date, the
Company has not complied with the payment terms. As of March 31, 2018 and December 31, 2017 the total balance owed on the note
payable was $1,735,539 and $1,787,749, respectively.
As
of March 31, 2018 and December 31, 2017, notes payable amounted to $1,852,331 and $1,971,208, respectively.
Accrued
interest on the notes payable amounted to approximately $87,000 and $92,000 as of March 31, 2018 and December 31, 2017, respectively
and is included in accrued expenses.
NOTE
8 – SHORT TERM ADVANCES
During
the years ended December 31, 2013, 2012 and 2011 an unrelated party advanced funds to the Company used for operating expenses.
The advances are payable in cash and are non interest bearing and due on demand. The balance of these short term advances was
$146,015 and $146,015 as of March 31, 2018 and December 31, 2017, respectively.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
NOTE
9 – ACCRUED EXPENSES
As
of March 31, 2018 and December 31, 2017, the Company had accrued expenses of $3,852,882 and $3,607,100, respectively. The following
table displays the accrued expenses by category.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Operating
Expenses
|
|
$
|
17,260
|
|
|
$
|
17,260
|
|
Employee
Commissions
|
|
|
10,357
|
|
|
|
18,633
|
|
Interest
|
|
|
1,789,189
|
|
|
|
1,611,924
|
|
Salaries
|
|
|
1,835,980
|
|
|
|
1,770,027
|
|
Sales
Tax Payable
|
|
|
58,364
|
|
|
|
54,532
|
|
Payroll
Liabilities
|
|
|
141,732
|
|
|
|
134,724
|
|
|
|
$
|
3,852,882
|
|
|
$
|
3,607,100
|
|
NOTE
10 – CONVERTIBLE PROMISSORY NOTES
Convertible
promissory notes consisted of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Secured
convertible promissory notes
|
|
$
|
3,444,779
|
|
|
$
|
3,182,972
|
|
|
|
|
|
|
|
|
|
|
Debt
discount liability
|
|
|
(321,533
|
)
|
|
|
(216,069
|
)
|
|
|
|
|
|
|
|
|
|
Debt
discount original issue discount
|
|
|
(19,173
|
)
|
|
|
(12,229
|
)
|
|
|
|
|
|
|
|
|
|
Debt
discount deferred financing
|
|
|
(19,280
|
)
|
|
|
(2,424
|
)
|
Secured
convertible promissory notes– net
|
|
$
|
3,084,793
|
|
|
$
|
2,952,250
|
|
During
fiscal 2009, the Company reclassified $45,000 3% unsecured notes payable from long-term to short-term. The maturity of these notes
payable ranged from January 2010 to April 2010 and the notes were in default at December 31, 2012. The Company negotiated with
the note holder to extend the maturity date and has accrued 12% interest per annum based on the default provision until such time
this note is extended or settled. In May 2013, the Company and the note holder renegotiated the terms of the note to include features
that allow the note holder to convert the principal balance of the note into common shares at the conversion price of $.02. This
note included down round (“ratchet”) provisions that resulted in derivative accounting treatment for this note (See
Note 11). At issuance of the renegotiated note the Company recorded a debt discount in the amount of $45,000 which was fully amortized
as of December 31, 2013. In June 2013, the note holder converted $764 into common shares at the contractual rate of $.02 per share.
In March 2014, the note holder converted an additional $990 into common shares at the contractual rate of $.02 per share. In October
2014, the note holder assigned $20,000 of the note balance to a third party. The balance of the unsecured note payable amounted
to $23,246 as of March 31, 2018 and December 31, 2017.
On
October 10, 2013, the Company issued a $10,000 6% convertible debenture with a one year maturity date. This convertible debenture
converts at $.15. The Company recorded a debt discount of $8,333 upon issuance of this note. The debt discount was amortized over
the term of the note. This note included down round (“Ratchet”) provisions that resulted in derivative accounting
treatment for this note (See note 11). The balance of the convertible debenture is $10,000 as of March 31, 2018 and December 31,
2017. In connection herewith, the Company recorded a derivative liability and an offsetting debt discount of $8,333 (see Note
12).
On
December 11, 2013, the Company issued a $25,000 6% convertible debenture with a one year maturity date. This convertible debenture
converts at $.16. The debt discount was amortized over the term of the note. This note included down round (“Ratchet”)
provisions that resulted in derivative accounting treatment for this note (See note 11). In connection herewith, the Company recorded
a derivative liability and an offsetting debt discount of $23,958 (see Note 11). The balance of this convertible debenture is
$25,000 as of March 31, 2018 and December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
January 16, 2014, the Company issued a $25,000 6% convertible debenture with a one year maturity date. This convertible debenture
converts at 50% of the lowest trading price during the ten trading days prior to the conversion date. The Company recorded a debt
discount of $25,000 with the difference of $26,848 recorded as a derivative expense. The debt discount was amortized over the
term of the note. This note included down round (“Ratchet”) provisions that resulted in derivative accounting treatment
for this note (See note 11). In connection herewith, the Company recorded a derivative liability and an offsetting debt discount
of $51,848 (see Note 12). The balance of this convertible debenture is $25,000 as of March 31, 2018 and December 31, 2017.
In
March 2014, the Company issued three $50,000 8% convertible debentures with a one year maturity date. Each note is convertible
at a contractual rate of $3.50 which exceeded the quoted stock price on the date of the issuance of the convertible debentures.
In the first quarter of 2016, the Company paid $50,000 in reduction of one of the notes. The balance of these three notes was
$100,000 as of March 31, 2018 and December 31, 2017.
On
October 27, 2014, the Company issued an 8% original issue discount (OID) senior secured convertible promissory note with a principal
balance of $21,600 with a one year maturity date. This convertible debenture converts at the lower of $.50 or 60% of the lowest
trading price during the 25 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory
note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded
a derivative liability of $311,662 and a debt discount of $18,400 (see Note 11). The Company also recorded OID of $1,600. The
OID and debt discount were fully being amortized as of December 31, 2015. The balance of this convertible debenture as of March
31, 2018 and December 31, 2017 was $21,600.
On
May 15, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $67,171, a debt discount
of $50,000 (see Note 11), and derivative expense of $17,171. The Company also recorded OID of $2,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of March
31, 2018 and December 31, 2017. The debt discount and OID were fully amortized as of September 30, 2016.
On
May 27, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $67,171, a debt discount
of $50,000 (see Note 11), and derivative expense of $17,171. The Company also recorded OID of $2,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of March
31, 2018 and December 31, 2017. The debt discount and OID were fully amortized as of September 30, 2016.
On
June 5, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $67,171, a debt discount
of $50,000 (see Note 11), and derivative expense of $17,171. The Company also recorded OID of $2,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of March
31, 2018 and December 31, 2017. The debt discount and OID were fully amortized as of September 30, 2016.
On
July 1, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $157,895
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $201,512, a debt discount
of $142,500 (see Note 11), and derivative expense of $59,406. The Company also recorded OID of $7,500. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $157,895 as of March
31, 2018 and December 31, 2017. The debt discount and OID were fully amortized as of September 30, 2016.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
July 15, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $157,895
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $201,512, a debt discount
of $142,500 (see Note 11), and derivative expense of $59,406. The Company also recorded OID of $7,500. The OID and debt discount
are being amortized over the term of the note. In September 2016, the note holder converted $9,720 of principle balance into 27,000
common shares at a contractual rate of $.036 per share. In January 2017, the note holder converted $22,421 of principle balance
into 386,510 common shares at a contractual rates ranging from $.03 to $.084 per share. The balance of the convertible promissory
note amounted to $125,754 as of March 31, 2018 and December 31, 2017. The debt discount and OID were fully amortized as of September
30, 2016.
On
July 23, 2015, the Company issued a convertible promissory note with a principal balance of $429,439 with a one year maturity
date. This convertible debenture converts at 55% of the two lowest trading price during the 30 days prior to conversion. Due to
certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a
derivative liability. In connection herewith, the Company recorded a derivative liability of $707,603, a debt discount of $429,439
(see Note 11), and derivative expense of $278,164. The debt discount is being amortized over the term of the note. In March 2016,
the note holder converted $70,000 of principle balance into 7,273 common shares at the contractual rate of $9.64 per share. In
April 2016, the note holder converted $15,000 of principle balance into 2,997 common shares at the contractual rate of $5.02 per
share. In May 2016, the note holder converted $14,000 of principle balance into 4,545 common shares at the contractual rate of
$3.08 per share. In the period of July 2016 through September 2016 the note holder converted $19,600 of principle balance into
52,216 common shares at the contractual rate ranging from $.242 to $.76 per share. In the period of October 2016 through December
2016 the note holder converted $29,700 of principle balance into 254,500 common shares at the contractual rate ranging from $.082
to $2.42 per share. In January 2017, the note holder converted $40,100 of principle balance into 771,429 common shares at a contractual
rates ranging from $.034 to $.078 per share. July 2017, the note holder converted $4,750 of principle balance into 314,050 common
shares at a contractual rate of $.0151 per share. The balance of the convertible promissory note amounted to $236,289 as of March
31, 2018 and December 31, 2017. The debt discount was fully amortized as of September 30, 2016.
On
October 9, 2015, three convertible promissory notes mentioned above were assigned to a third party note holder with the same terms
and balances. In February 2016, the note holder converted $20,000 of the convertible promissory note and $2,000 of accrued interest
into 2,095 common shares at the contractual rate of $10.50 per share. In March 2016, the note holder converted $20,000 of the
convertible promissory note and $2,000 of accrued interest into 2,095 common shares at the contractual rate of $10.50 per share.
In
April 2016, the note holder converted an additional $15,000 of the convertible promissory note and $1,500 of accrued interest
into 3,273 common shares at the contractual rate of $5.04 per share. In May 2016, the note holder converted $10,895 of the convertible
promissory note and $1,089 of accrued interest into 3,566 common shares at the contractual rate of $3.36 per share. In the period
of July 2016 through September 2016 the note holder converted $15,000 of principle balance into 35,138 common shares at the contractual
rate ranging from $.252 to $1.20 per share. In the period of October 2016 through December 2016 the note holder converted $27,500
of principle balance and $2,750 of accrued interest into 285,083 common shares at the contractual rate ranging from $.08 to $.252
per share. In the period of January 1, 2017, through December 31, 2017, the note holder converted $96,810 of principle balance
and $9,624 of accrued interest into 8,150,974 common shares at the contractual rate ranging from $.00495 to $.08 per share. On
July 3, 2017 in an effort to resolve outstanding events of default to a note holder the Company modified the terms on an existing
note from a 10% interest rate to a 12% interest rate with a retroactive date to September 11, 2016, the date of original maturity
date and date of the first event of default. In addition, the Company agreed to incorporate the penalties and interest due to
the note holder into the existing principal amount of the note increasing the principal balance by $81,239of the note as of July
3, 2017. The Company also agreed to increase the discount on the note from 60% of the lowest traded price in the prior thirty
trading days to 55% of the lowest traded price in the prior thirty trading days. During the quarter ended March 31, 2018, the
note holder converted $91,024 of the principal balance of the convertible promissory note and $8,552 of accrued interest into
38,375,139 common shares at contractual rates ranging from $.00176 to $.00583 per share. The balance of the convertible promissory
note amounted to $258,695 and $349,719 as of March 31, 2018 and December 31, 2017, respectively. The debt discount was fully amortized
as of September 30, 2016.
On
October 19, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$157,500 with a one year maturity date. This convertible debenture converts at 55% of the average of the two lowest traded prices
in the prior 30 days before conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company
accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability
of $259,764, a debt discount of $142,500 (see Note 11), and derivative expense of $117,264. The Company also recorded OID of $7,500.
The OID and debt discount are being amortized over the term of the note. In December 2016, the Company adjusted the convertible
promissory note’s principal balance to $157,895 per recalculation of the OID. The OID and debt discount was fully amortized
as of December 31, 2016. The balance of the convertible promissory note amounted to $157,895 as of March 31, 2018 and December
31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
November 18, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $157,500 with a one year maturity date. This convertible debenture converts at 55% of the average of the two lowest traded
prices in the prior 30 days before conversion. Due to certain ratchet provisions contained in the convertible promissory note
the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative
liability of $259,764, a debt discount of $142,500 (see Note 11), and derivative expense of $117,264. The Company also recorded
OID of $7,500. The OID and debt discount are being amortized over the term of the note. In December 2016, the Company adjusted
the convertible promissory note’s principal balance to $157,895 per recalculation of the OID. The OID and debt discount
was fully amortized as of December 31, 2016. The balance of the convertible promissory note amounted to $157,895 as of March 31,
2018 and December 31, 2017.
On
December 18, 2015, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $263,158 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$335,598, a debt discount of $237,500 (see Note 11), and derivative expense of $98,756. The Company also recorded OID of $12,500.
The OID and debt discount are being amortized over the term of the note. The OID and debt discount were fully amortized as of
December 31, 2016. The balance of the convertible promissory note amounted to $263,158 as of March 31, 2018 and December 31, 2017.
On
January 19, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$111,111 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $141,697,
a debt discount of $95,000 (see Note 11), and derivative expense of $52,808. The Company also recorded OID of $5,000. The OID
and debt discount are being amortized over the term of the note. In December 2016, the note holder converted $15,700 of principle
balance into 186,904 common shares at a contractual rate of $.084 per share. During the period of In January through February
2017, the note holder converted $34,300 of principle balance and into 550,396 common shares at contractual rates ranging from
$.036 to $.084 per share. The balance of the convertible promissory note amounted to $61,111 as of March 31, 2018 and December
31, 2017. The OID and debt discount was fully amortized as of December 31, 2017.
On
February 5, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$157,895 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $201,359,
a debt discount of $142,500 (see Note 11), and derivative expense of $59,254. The Company also recorded OID of $7,500. The OID
and debt discount are being amortized over the term of the note. In June 2017, the note holder converted $7,350 of principle balance
into 262,500 common shares at contractual rate of $.012 per share. During the quarter ended March 31, 2018, the note holder converted
$52,778 of the principal balance of the convertible promissory note and $1,385 of accrued interest into 24,510,682 common shares
at contractual rates ranging from $.00176 to $.003245 per share. The balance of the convertible promissory note amounted to $80,117
and $137,886 as of March 31, 2018 and, respectively. The balance of the convertible promissory note net of debt discount and OID
as of March 31, 2018 and December 31, 2017 amounted to $80,117 and $132, 895, respectively.
On
March 7, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $118,573
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $151,213, a debt discount
of $112,940 (see Note 11), and derivative expense of $38,569. The Company also recorded OID of $5,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $118,573 as of March
31, 2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
On
April 1, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $105,263
with a six month maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $108,185, a debt discount
of $95,000 (see Note 11), and derivative expense of $13,448. The Company also recorded OID of $5,000. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $105,263 as of March
31, 2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
May 23, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a five month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $65,144, a debt discount
of $47,500 (see Note 11), and derivative expense of $17,776. The Company also recorded OID of $2,500. The OID and debt discount
are being amortized over the term of the note. As of May 23, 2017, the convertible promissory note was in default. In November
2017, the Company renegotiated the convertible promissory note and agreed to waive all existing events of default through January
31, 2018. In addition, the Company agreed to roll all penalties and accrued interest amounting to $27,408 into the principal balance
of the instrument. The Company also agreed to adjust the discount in the note from 60% of the lowest trading price during the
30 days prior to conversion to 55%. The balance of the convertible promissory note amounted to $80,039 as of March 31, 2018 and
December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
On
June 24, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $78,947
with a four month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $84,205, a debt discount
of $71,250 (see Note 11), and derivative expense of $15,653. The Company also recorded OID of $3,750. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $78,947 as of March
31, 2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
On
July 20, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with an eighteen month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $56,141,
a debt discount of $47,500 (see Note 11), and derivative expense of $8,641. The Company also recorded OID of $2,632. The OID and
debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632
as of March 31, 2018 and December 31, 2017. The balance of the convertible promissory note net of debt discount and OID as of
March 31, 2018 and December 31, 2017 amounted to $52,632 and $44,167, respectively.
On
July 29, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with an eighteen month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $56,137,
a debt discount of $47,500 (see Note 11), and derivative expense of $8,637. The Company also recorded OID of $2,632 and deferred
financing of $2,500. The OID, deferred financing, and debt discount are being amortized over the term of the note. The balance
of the convertible promissory note amounted to $52,632 as of March 31, 2018 and December 31, 2017. The balance of the convertible
promissory note net of debt discount, deferred financing and OID as of March 31, 2018 and December 31, 2017 amounted to $52,632
and $45,669, respectively.
On
September 1, 2016, the Company executed a Securities Purchase Agreement (SPA). In connection with the SPA the Company may issue
5% original issue discount (OID) convertible promissory notes with an aggregate principal balance amounting to $157,895. In connection
with the SPA, on September 1, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal
balance of $157,895. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion.
The promissory note will be fulfilled by issuing multiple tranches. On September 1, 2016, at the closing of the first tranche,
the outstanding principle amount totaled $32,895. Each tranche will have a twelve month maturity date following the issuances
of the tranche. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this
conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $35,086,
a debt discount of $25,000 (see Note 11), and derivative expense of $10,086. The Company also recorded OID of $7,895. The OID
and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $32,895
as of March 31, 2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
September 2, 2016, the Company issued a second tranche of $25,000 related to the above note. The principal balance of the second
tranche was recorded as $25,000 with a twelve month maturity date. In connection herewith, the Company recorded a derivative liability
of $26,665, and derivative expense of $5,165. The Company also recorded deferred financing of $3,500. The deferred financing is
being amortized over the term of the note. The balance of the convertible promissory note amounted to $25,000 as of March 31,
2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
On
April 10, 2017, the Company issued a third tranche of $15,000 related to the above referenced September 1, 2016 SPA. The principal
balance of the third tranche was recorded as $15,000 with a twelve month maturity date. In connection herewith, the Company recorded
a derivative liability of $25,835, and derivative expense of $25,835. The balance of the convertible promissory note amounted
to $15,000 as of March 31, 2018 and December 31, 2017.
On
October 18, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$26,316 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $36,709,
a debt discount of $25,000 (see Note 11), and derivative expense of $11,709. The Company also recorded OID of $1,316. The OID
and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $26,316
as of March 31, 2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
On
October 28, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$26,316 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $36,709,
a debt discount of $26,316 (see Note 11), and derivative expense of $10,393. The Company also recorded OID of $1,316. The OID
and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $26,316
as of March 31, 2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
On
November 18, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $26,316 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$36,709, a debt discount of $25,000 (see Note 11), and derivative expense of $11,709. The Company also recorded OID of $1,316.
The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted
to $26,316 as of March 31, 2018 and December 31, 2017. The OID and debt discount were fully amortized as of December 31, 2017.
On
December 23, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $51,579 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$84,398, OID of $2,579 and derivative expense of $84,398. The OID is being amortized over the term of the note. The balance of
the convertible promissory note amounted to $51,579 as of March 31, 2018 and December 31, 2017. The OID and debt discount were
fully amortized as of December 31, 2017.
On
January 17, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$15,750 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $25,772,
OID of $750 and derivative expense of $25,772. The OID is being amortized over the term of the note. The balance of the convertible
promissory note amounted to $15,750 as of March 31, 2018 and December 31, 2017. The balance of the convertible promissory note
net of OID as of March 31, 2018 and December 31, 2017 amounted to $15,750 and $15,124, respectively.
On
February 1, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$26,316 with a four month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$43,061, OID of $1,316 and derivative expense of $43,061. The OID was fully amortized over the term of the note as of December
31, 2017. The balance of the convertible promissory note amounted to $26,316 as of March 31, 2018 and December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
February 3, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$21,053 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $34,449,
OID of $1,053 and derivative expense of $34,449. The OID is being amortized over the term of the note. The balance of the convertible
promissory note amounted to $21,053 as of March 31, 2018 and December 31, 2017. The balance of the convertible promissory note
net of OID as of March 31, 2018 and December 31, 2017 amounted to $21,053 and $19,765, respectively.
On
April 10, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$15,789 with a six month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company will account for
this conversion feature as a derivative liability. In connection herewith, the Company will record a derivative liability of $25,835,
OID of $789, debt discount of $14,210 and derivative expense of $11,643. The OID and debt discount will be amortized over the
term of the note. The balance of the convertible promissory note amounted to $15,789 as of March 31, 2018 and December 31, 2017.
The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted
to $15,373 and $11,623, respectively.
On
April 28, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$31,578 with a six month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company will account for
this conversion feature as a derivative liability. In connection herewith, the Company will record a derivative liability of $52,502,
OID of $1,579, debt discount of $28,421 and derivative expense of $24,081. The OID and debt discount will be amortized over the
term of the note. The balance of the convertible promissory note amounted to $31,579 as of March 31, 2018 and December 31, 2017.
The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted
to $29,246 and $21,746, respectively.
On
May 24, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $31,578
with a six month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company will account for this
conversion feature as a derivative liability. In connection herewith, the Company will record a derivative liability of $52,503,
OID of $1,579, debt discount of $28,421and derivative expense of $24,081. The OID and debt discount will be amortized over the
term of the note. In March 2018, the note holder converted $8,360 of principle balance into 4,750,000 common shares at a contractual
rate of $.00176 per share. As of March 31, 2018 and December 31, 2017 the balance of the convertible promissory note amounted
to $23,218 and $31,579, respectively. The balance of the convertible promissory note net of OID and debt discount as of March
31, 2018 and December 31, 2017 amounted to $18,802 and $19,662, respectively.
On
June 8, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $21,053
with a six month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company will account for this
conversion feature as a derivative liability. In connection herewith, the Company will record a derivative liability of $35,002,
OID of $1,053, debt discount of $18,947and derivative expense of $16,055. The OID and debt discount will be amortized over the
term of the note. The balance of the convertible promissory note amounted to $21,053 as of March 31, 2018 and December 31, 2017.
The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted
to $16,886 and $11,886, respectively.
On
December 29, 2016, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $7,895 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$11,557, OID of $395 and derivative expense of $11,557. The OID is being amortized over the term of the note. The balance of the
convertible promissory note amounted to $7,895 as of December 31, 2017. On June 23, 2017, the Company issued a 5% original issue
discount (OID) convertible promissory note with a principal balance of $42,105 with a one year maturity date to the same noteholder
as the December 29, 2016 convertible promissory note. This convertible debenture converts at 60% of the lowest trading price during
the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company will
account for this conversion feature as a derivative liability. In connection herewith, the Company will record a derivative liability
of $70,003, OID of $2,105, debt discount of $37,895 and derivative expense of $32,108. The OID and debt discount will be amortized
over the term of the note. The balance of the convertible promissory note amounted to $42,105 as of December 31, 2017. The noteholder
assigned the principal balance and accrued interest of both of these notes to a third party on March 31, 2018. The replacement
convertible promissory note has a principal balance of $74,754 as of March 31, 2018. The balance of the convertible promissory
note net of OID and debt discount as of March 31, 2018 amounted to $19,458. This convertible debenture converts at 55% of the
lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory
note the Company will account for this conversion feature as a derivative liability. In connection herewith, the Company will
record a derivative liability of $121,717 and derivative expense of $74,754.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
July 18, 2017, the Company issued a convertible promissory note with a principal balance of $68,000 with a one year maturity date.
an interest rate of 8%. This convertible debenture converts at 65% of the average lowest trading price during the 10 days prior
to conversion. The Company recorded $3,000 in deferred financing costs in connection with this convertible promissory note. The
deferred financing costs will be amortized over the term of the note. During the quarter ended March 31, 2018, the note holder
converted $36,650 of the principal balance of the convertible promissory note into 10,514,986 common shares at contractual rates
ranging from $.00299 to $.005915 per share. As of March 31, 2018 and December 31, 2018 the balance of the convertible promissory
note amounted to $31,350 and $68,000, respectively. The balance of the convertible promissory note net of deferred financing as
of March 31, 2018 and December 31, 2017 amounted to $30,475 and $66,375, respectively.
On
October 2, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$31,579 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $52,502,
OID of $1,579 and derivative expense of $52,502. The OID and deferred financing are being amortized over the term of the note.
The balance of the convertible promissory note amounted to $31,579 as of March 31, 2018 and December 31, 2017. The balance of
the convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted to $14,474 and
$12,829, respectively.
On
October 5, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$15,789 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $26,251,
OID of $789 and derivative expense of $26,251. The OID and deferred financing are being amortized over the term of the note. The
balance of the convertible promissory note amounted to $15,789 as of March 31, 2018 and December 31, 2017. The balance of the
convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted to $8,289 and $4,539,
respectively.
On
October 25, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$57,895 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $96,254
OID of $2,895 and derivative expense of $96,254. The OID and deferred financing are being amortized over the term of the note.
The balance of the convertible promissory note amounted to $57,895 as of March 31, 2018 and December 31, 2017. The balance of
the convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted to $25,812 and
$12,062, respectively.
On
November 24, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $63,158 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$105,005, OID of $3,158 and derivative expense of $105,005. The OID and deferred financing are being amortized over the term of
the note. The balance of the convertible promissory note amounted to $63,158 as of March 31, 2018 and December 31, 2017. The balance
of the convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted to $23,158
and $8,158, respectively.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
December 7, 2017, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$31,579 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $46,229,
OID of $1,579, debt discount of $28,421 and derivative expense of $17,808. The OID and debt discount are being amortized over
the term of the note. The balance of the convertible promissory note amounted to $31,579 as of March 31, 2018 and December 31,
2017. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 and December 31, 2017 amounted
to $11,579 and $4,079, respectively.
On
January 5, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$8,947 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $13,098,
OID of $447, debt discount of $8,053 and derivative expense of $5,045. The OID and debt discount are being amortized over the
term of the note. The balance of the convertible promissory note amounted to $8,947 as of March 31, 2018. The balance of the convertible
promissory note net of OID and debt discount as of March 31, 2018 amounted to $2,572.
On
January 19, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$7,895 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $11,557,
OID of $395, debt discount of $7,105 and derivative expense of $4,452. The OID and debt discount are being amortized over the
term of the note. The balance of the convertible promissory note amounted to $7,895 as of March 31, 2018. The balance of the convertible
promissory note net of OID and debt discount as of March 31, 2018 amounted to $1,958.
On
January 24, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$52,632 with a one year maturity date. This convertible debenture converts at 55% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $84,591,
OID of $2,632, debt discount of $47,368 and derivative expense of $37,223. The OID and debt discount are being amortized over
the term of the note. The balance of the convertible promissory note amounted to $52,632 as of March 31, 2018. The balance of
the convertible promissory note net of OID and debt discount as of March 31, 2018 amounted to $12,829.
On
January 30, 2018, the Company issued a convertible promissory note with a principal balance of $58,000 with a one year maturity
date. This note holder has the right to convert the principal balance of the debenture beginning on the date which is one hundred
eighty (180) days following the date of this note and ending on the later of the maturity date and the date of the default amount.
The convertible promissory note has terms to convert at a 37% discount of the lowest trading price during the 10 days prior to
conversion. The Company recorded $3,000 in deferred financing associated with this note. The deferred financing is being amortized
on a straight line basis over the term of the note. The balance of the convertible promissory note amounted to $58,000 as of March
31, 2018. The balance of the convertible promissory note net of deferred financing as of March 31, 2018 amounted to $55,917.
On
February 9, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$15,789 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $23,434,
OID of $789, debt discount of $8,434 and derivative expense of $15,000. The OID and debt discount are being amortized over the
term of the note. The balance of the convertible promissory note amounted to $15,789 as of March 31, 2018. The balance of the
convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $7,719.
On
February 15, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $12,632 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$18,747, OID of $632, debt discount of $6,747 and derivative expense of $12,000. The OID and debt discount are being amortized
over the term of the note. The balance of the convertible promissory note amounted to $12,632 as of March 31, 2018. The balance
of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $6,175.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
February 26, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance
of $26,316 with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$39,056, OID of $1,316, debt discount of $14,056 and derivative expense of $25,000. The OID and debt discount are being amortized
over the term of the note. The balance of the convertible promissory note amounted to $26,316 as of March 31, 2018. The balance
of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $12,225.
On
March 6, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $31,579
with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $50,755, OID of $1,579,
debt discount of $28,421 and derivative expense of $22,334. The OID and debt discount are being amortized over the term of the
note. The balance of the convertible promissory note amounted to $31,579 as of March 31, 2018. The balance of the convertible
promissory note net of OID and debt discount as of March 31, 2018 amounted to $4,079.
On
March 9, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $31,579
with a one year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $46,868, OID of $1,579,
debt discount of $16,868 and derivative expense of $30,000. The OID and debt discount are being amortized over the term of the
note. The balance of the convertible promissory note amounted to $31,579 as of March 31, 2018. The balance of the convertible
promissory note net of OID and debt discount as of March 31, 2018, amounted to $13,901.
On
March 16, 2018, the Company issued a replacement convertible promissory note with a principal balance of $124,689 with a one year
maturity date that was recorded under note payable on the company’s balance sheet as of December 31, 2017 in the amount
of $66,667 and accrued interest of $8,811. This convertible debenture converts at 55% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$200,404 and derivative expense of $202,404. During the quarter ended March 31, 2018, the note holder converted $18,150 of the
principal balance of the convertible promissory note into 10,312,500 common shares at a contractual rate of $.00176 per share.
The balance of the convertible promissory note amounted to $106,539 as of March 31, 2018.
On
March 21, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$52,632 with a nine month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30
days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$74,001, OID of $2,632, debt discount of $24,000 and derivative expense of $50,001. The OID and debt discount are being amortized
over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of March 31, 2018. The balance
of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $23,205.
On
March 23, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$26,316 with a one year maturity date. This convertible debenture converts at 55% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $42,848,
OID of $1,316, debt discount of $17,848 and derivative expense of $25,000. The OID and debt discount are being amortized over
the term of the note. The balance of the convertible promissory note amounted to $26,316 as of March 31, 2018. The balance of
the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $7,915.
During
the three months ended March 3, 2018 and the year ended December 31, 2017 amortization of debt discount amounted to $108,191 and
$403,245, respectively.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
NOTE
11 – DERIVATIVE LIABILITY
The
Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and
Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the statement of operation as other income (expense). Upon conversion or exercise of a derivative instruments,
the instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments
that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities
at the fair value of the instrument on the reclassification date.
The
following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) from December 31, 2016 to March 31, 2018:
|
|
Conversion
feature
|
|
|
|
derivative
liability
|
|
Balance
at December 31, 2016
|
|
$
|
4,956,637
|
|
Initial
fair value of derivative liability recorded as debt discount
|
|
|
336,094
|
|
Initial
fair value of derivative liability charged to other expense
|
|
|
537,541
|
|
Reclass
of derivative liability to additional paid in capital due to conversions
|
|
|
(390,996
|
)
|
Loss
on change in fair value included in earnings
|
|
|
(1,485,907
|
)
|
Balance at
December 31, 2017
|
|
$
|
3,953,369
|
|
Initial
fair value of derivative liability recorded as debt discount
|
|
|
229,673
|
|
Initial
fair value of derivative liability charged to other expense
|
|
|
425,600
|
|
Reclass
of derivative liability to additional paid in capital due to conversions
|
|
|
(664,108
|
)
|
Loss
on change in fair value included in earnings
|
|
|
24,902,861
|
|
Balance
at March 31, 2018
|
|
$
|
28,847,395
|
|
Total
derivative liability at March 31, 2018 and December 31, 2017 amounted to $28,847,395 and $3,953,369, respectively. The
change in fair value included in earnings of $24,902,861 is due substantially reduced conversion prices due to the effect
of
“Ratchet” provisions incorporated in convertible notes payable (see Note 10) coupled
with an increase in the risk-free interest rate.
The
Company used the following assumptions for determining the fair value of the convertible instruments granted under the Black-Scholes
option pricing model:
|
|
From
January 1, 2018
to
March 31, 2018
|
|
|
|
|
|
Expected
volatility
|
|
|
281%
- 293%
|
|
Expected
term
|
|
|
3
– 12 months
|
|
Risk-free
interest rate
|
|
|
1.28%-2.93%
|
|
Expected
dividend yield
|
|
|
0%
|
|
NOTE
12 - STOCKHOLDERS’ DEFICIT
The
Series A Preferred Stock has no dividend rights, no liquidation rights and no redemption rights, and was created primarily to
be able to obtain a quorum and conduct business at shareholder meetings. All shares of the Series A Preferred Stock shall rank
(i) senior to the Company’s common stock and any other class or series of capital stock of the Company hereafter created,
(ii)
pari passu
with any class or series of capital stock of the Company hereafter created and specifically ranking, by
its terms, on par with the Series A Preferred Stock and (iii) junior to any class or series of capital stock of the Company hereafter
created specifically ranking, by its terms, senior to the Series A Preferred Stock, in each case as to distribution of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
On
February 12, 2018, the Company issued 5,000,000 shares of common stock at the fair market value rate of $0.009 totaling $45,000
to the Company’s CEO for services rendered. The Company also issued 3,000,000 shares of common stock at the fair market
value rate of $0.009 totaling $27,000 to an employee for services rendered.
During
the quarter ended March 31, 2018, the Company issued 88,463,307 shares of common stock at contractual rates ranging from $.00176
to $.00583 for the conversion of $211,953 in principal and $10,487 in accrued interest of convertible notes payable (See Note
10).
NOTE
13 - RELATED PARTY TRANSACTIONS
Due
to Related Parties
The
Chief Executive Officer of the Company advanced funds for operating expenses in 2016. As of March 31, 2018 and December 31, 2017
the Company has a balance of $1,814 in Due to Related Parties included on the balance sheet. These advances are short-term in
nature and non-interest bearing.
Note
Payable – related party
The
following related party transactions have been presented on the balance sheet in Note Payable – related party. In connection
with the Purchase Agreement of the Acquisition Companies (see Note 1) the Company executed a non-interest bearing note payable
in the amount of $830,000 due to the former CEO of the Acquisition Companies. During the quarter ended March 31, 2018, the Company
paid $12,000 related to this note payable. As of March 31, 2018 and December 31, 2017 the balance of the note payable –
related party amounted to $818,000 and $830,000, respectively.
NOTE
14 – BARTER REVENUE
The
Company provides security systems and associated installation labor in exchange for business services. The Company recognizes
revenue from these barter transactions when security systems are installed and recognizes deferred barter costs as other current
assets until the barter transaction is completed and then recognizes the appropriate expense. The barter revenue is valued at
the fair market value which is the selling price we sell to other third parties. The barter revenue for the three months ended
March 31, 2018 and 2017 totaled $0 and $27,721, respectively.
NOTE
15 - ACCRUED PAYROLL TAXES
As
of March 31, 2018 and December 31, 2017 the Company recorded a liability related to unpaid payroll taxes which includes interest
and penalties of approximately $142,000 and $135,000, respectively. The liability was incurred in the years ended December 31,
2007 through December 31, 2017 as a result of the Company not remitting payroll tax liabilities. In August 2013, the Company paid
$43,176 and in September 2015, the Company paid $28,281 toward the outstanding payroll tax liabilities. Such amount also includes
current payroll tax liabilities and has been included in accrued expenses in the accompanying unaudited consolidated financial
statements. The Company has not received any notices from the IRS related to the unpaid payroll taxes.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
NOTE
16 - SEGMENT REPORTING
Although
the Company has a number of operating divisions, separate segment data has not been presented as they meet the criteria for aggregation
as permitted by ASC Topic 280, “Segment Reporting” (formerly Statement of Financial Accounting Standards (SFAS) No.
131, “Disclosures About Segments of an Enterprise and Related Information”).
Our
chief operating decision-maker is considered to be our Chief Executive Officer (CEO). The CEO reviews financial information presented
on a consolidated basis for purposes of making operating decisions and assessing financial performance. The financial information
reviewed by the CEO is identical to the information presented in the accompanying unaudited consolidated statements of operations.
Therefore, the Company has determined that it operates in a single operating segment, specifically, security systems and related
services. For the three months ended March 31, 2018 and 2017 all material assets and revenues of the Company were in the United
States.
NOTE
17 – COMMITMENTS
Leases:
In
connection with the Purchase Agreement of the Acquisition Companies (see Note 1) the Company assumed a lease for office space
with a four year term beginning on April 1, 2015 and ending on March 31, 2019. The Company has the option to renew the lease for
an additional six years after the expiration date. The monthly rent expense is $11,371.
|
|
Payments
Due by Period
|
|
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
Years
|
|
|
4-5
Years
|
|
|
5
Years +
|
|
Contractual
Obligations :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
$
|
136,452
|
|
|
|
125,081
|
|
|
|
11,371
|
|
|
|
-
|
|
|
|
-
|
|
Total
Contractual Obligations:
|
|
$
|
136,452
|
|
|
|
125,081
|
|
|
|
11,371
|
|
|
|
-
|
|
|
|
-
|
|
Rent expense
for the three months ended March 31, 2018 and 2017 was $34,114 and $645, respectively.
NOTE
18 – SUBSEQUENT EVENTS
Subsequent
to March 31, 2018, the Company issued 5% original issue discount (OID) convertible promissory notes with principal balances totaling
approximately $251,000 with one year maturity dates. These convertible debentures convert between 55% and 60% of the lowest trading
price during the 30 days prior to conversions. Due to certain ratchet provisions contained in the convertible promissory notes
the Company will account for these conversion features as derivative liabilities.
Subsequent
to March 31, 2018, the Company issued 44,427,015 shares of common stock upon conversion of $133,948 of convertible promissory
notes and $3,285 of accrued interest. These notes were converted at contractual rates ranging from $.002156 to $.0055.