NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Acquisition
Effective
April 20, 2017 (the “Effective Date”), the Company entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with Video Surveillance Limited Liability Company, a Texas limited liability company with an assumed name of
Virtual Surveillance (“VS”), Apex CCTV Limited Liability Company, a Texas limited liability company formerly known
as Vaultronics (“APEX” and together with VS, the “Acquisition Companies”), and Mark D. Harris the sole
member and equity owner of each of the Acquisition Companies (the “Seller”).
According
to the terms of the Purchase Agreement, on the Effective Date, the Seller transferred to the Company all of the issued and outstanding
equity interests of each of the Acquisition Companies.
Virtual
Surveillance, LLC. was incorporated in the State of Texas on February 26, 2015. VS is an integrator of security products and low
voltage technology such as security cameras, access control, structure cabling, Wi-Fi and digital signage. VS’s services
enable its clients to cost-effectively have one vendor that can provide services across their geographically dispersed locations.
VS’s primary focus is to provide high value-added commercial security products and services to manufacturing, distribution,
healthcare, entertainment, and a number of Fortune 500 clients in North America.
Apex
CCTV, LLC was incorporated in the State of Texas on February 24, 2015. Apex is a full-service provider of security products through
an ecommerce website. Apex’s website allows customers to purchase commercial grade software and equipment cost-effectively.
Apex markets to systems integrators, small businesses, corporations, and individuals. Apex is a provider of the latest technologies
in surveillance systems, digital video recording, access control, and low voltage products.
In
connection with the acquisition, the Company acquired all the assets and assumed all of the liabilities of the acquired companies.
Included in these liabilities is a Note Payable to a bank with a remaining balance, at the acquisition date, of $1,923,896. Per
the Purchase Agreement this Note Payable to bank was to be paid in full and have a complete release of the Seller’s guarantee
and collateral related to the note within 180 days of the effective date of the Purchase Agreement. In addition to the assumed
assets and liabilities the Company executed a Note Payable – related party (“Note”) in the amount of $830,000.
The Note Payable principal amount will be reduced by a $2,000 cash purchase price payout calculated related to the terms in the
Purchase Agreement and $150,000 based on an Employment Agreement with the Seller 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. In an Event of Default of the Note, Purchaser shall issue to Seller convertible
preferred stock convertible into common stock of the Purchaser with a fair value up to $1,000,000 (“Convertible Preferred
Stock”) valued by the closing price of the Purchaser’s common stock on the day written notice of an Event of Default
(as define in the Note) under the terms of the Note are delivered to the Purchaser (the “Default Notice”). The Convertible
Preferred Stock may be converted solely upon an Event of Default and in the amount equal to the outstanding amount due under the
Note triggering such Event of Default. The Convertible Preferred Stock shall be held by the Purchaser in escrow and shall be released
within ten days of the Event of Default. As of December 31, 2017, no payments have been remitted pursuant to the Cash Payout and
the Employment Agreement. The Company has not been notified of an Event of Default. Furthermore, per the Purchase Agreement, in
the event the acquisition companies are purchased for less than the Maximum Purchase Price upon the acquisition companies generating
at least $500,000 in cash flow each year as determined by Schedule 2.03(a) in the Purchase Agreement, the Seller shall receive
five percent (5%) of such cash flow up to $300,000 per year (the “Cash Flow Payments”). The Cash Flow Payments shall
expire upon the earlier of (i) three years from the Effective Date, or (ii) the aggregate payment of the Purchase Price in the
amount of the Maximum Purchase Price. Any payments made as cash flow payments will reduce the note Payable – related party.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
fair value of the assets acquired and liabilities assumed on April 20, 2017 in the acquisition are as follows:
Assets
acquired:
|
|
|
|
|
Cash
|
|
$
|
59,389
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
201,846
|
|
Inventory
|
|
|
42,381
|
|
Other
current assets
|
|
|
15,372
|
|
Property
and equipment
|
|
|
203,496
|
|
Goodwill
|
|
|
794,830
|
|
Intangible
assets
|
|
|
829,000
|
|
Total
assets
|
|
$
|
2,146,314
|
|
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
58,308
|
|
Credit
card payable
|
|
|
102,906
|
|
Deferred
Revenue
|
|
|
184,877
|
|
Line
of Credit
|
|
|
232,689
|
|
Note
payable - related party
|
|
|
830,000
|
|
Note
payable
|
|
|
1,923,896
|
|
Total
Liabilities
|
|
$
|
3,332,676
|
|
The
following unaudited pro forma consolidated results of operations have been prepared as if the merger occurred on January 1, 2017:
|
|
Year
Ended December 31, 2017
|
|
Net
Revenues
|
|
$
|
5,088,920
|
|
Net
Loss
|
|
$
|
(1,607,909
|
)
|
Net
Loss per Share
|
|
$
|
(0.12
|
)
|
Pro
forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at
the beginning of the periods presented and is not intended to be a projection of future results.
Basis
of Presentation
The
consolidated financial statements include the accounts of the Company, five 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
2% which is owned by the Company’s CEO) as of December 31, 2018. In the preparation of the 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.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”).
All
share and per share amounts have been presented to give retroactive effect to a 1 for 200 reverse stock split that occurred May
22, 2017.
Use
of Estimates
In
preparing the 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 for the
years then ended. 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 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 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 December 31, 2018 and December 31, 2017, the Company
reflected a non-controlling interest of ($24,366) and $2,941 in connection with our majority-owned subsidiary, DirectView Security
Systems Inc. as reflected in the accompanying consolidated balance sheets.
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. As of December 31, 2018 and 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 December
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 December 31, 2018 and 2017 there were not any cash
equivalents.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 December 31, 2018 and 2017, management determined that an allowance was necessary which amounted
to approximately $68,000 and $160,000, respectively. During the year ended December 31, 2018 the Company did not recognize any
write-offs related to uncollectible accounts receivable. During the year ended December 31, 2017 the Company recognized $844 of
write-offs related to uncollectible accounts receivable.
Contract
Assets
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.
As of December 31, 2018 and 2017, the Company had $97,140 and $141,267, respectively included on their balance sheets under
Contract Assets.
Advertising
Advertising
is expensed as incurred. Advertising expense for the years ended December 31, 2018 and 2017 was $1,477,474 and 129,112, 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 years ended December 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 $108,805 and $73,499 in inventory as of December 31, 2018 and 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.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 years ended December 31, 2018 and
2017.
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
|
Derivative
Instruments
We
account for derivative instruments in accordance with Accounting Standards Codification 815,
Derivatives and
Hedging
(“ASC 815”)
, which establishes accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities. ASC 815 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If
certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing
of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
Effective
January 1, 2018, the Company changed its method of accounting for the reduction of the derivative liability associated with convertible
promissory notes at the time of partial conversion. Prior to January 1, 2018, the Company recorded such derivative liability reductions
as an increase to Additional Paid-In Capital within its Consolidated Balance Sheets. Effective January 1, 2018, the Company began
recording such derivative liability reductions as an increase to Other Income within its Consolidated Statements of Operations.
The Company believes the new method more accurately reflects periodic results of operations and conforms to derivative liability
practices predominant in the industry.
Income
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.
The Company’s tax returns for its December 31, 2018, 2017, 2016, 2015, 2014,
2013, 2012, and 2011 tax years may be selected for examination by the taxing authorities as the statute of limitations remains
open since the Company last filed an income tax return for the December 31, 2010 tax year.
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 $118,400 to employees during the year
ended December 31, 2018. There was no stock based compensation to employees recorded during the year ended December 31, 2017.
Loan
Costs
The
Company records loan costs as a debt discount and amortized to interest expense over the terms of the note payable in accordance
with ASU 2015-3 “Interest – Imputation of Interest” - Simplifying the Presentation of Debt Issuance Costs.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 years ended December 31, 2018 and 2017:
Years Ended December 31,
|
|
2018
|
|
|
2017
|
|
Sales of Product
|
|
|
|
|
|
|
|
|
New York
|
|
$
|
250,623
|
|
|
$
|
163,102
|
|
Texas
|
|
|
3,061,893
|
|
|
|
2,216,088
|
|
Total Sales of Product
|
|
|
3,312,516
|
|
|
|
2,379,190
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
New York
|
|
|
160,946
|
|
|
|
206,909
|
|
Texas
|
|
|
632,114
|
|
|
|
318,888
|
|
Total Services
|
|
|
793,060
|
|
|
|
525,797
|
|
Total Net Sales
|
|
$
|
4,105,576
|
|
|
$
|
2,904,987
|
|
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Contract Balances
The following table provides information
about receivables, contract assets and contract liabilities from contracts with customers.
As of December 31,
|
|
2018
|
|
|
2017
|
|
Contract Assets
|
|
$
|
97,140
|
|
|
$
|
141,267
|
|
Contract Liability
|
|
$
|
5,735
|
|
|
$
|
479,426
|
|
Contract receivables are recognized when
the receipt of consideration is unconditional.
During
the year ended December 31, 2018, the Company recognized revenue equal to the balance of the 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 December 31, 2018
are equal to the contract liability disclosed above. The Company expects to recognize the full balance of the contract liability
at December 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.
During the years ended
December 31, 2018 and December 31, 2017, two customers accounted for 54% and one customer accounted for
34% of revenues, respectively.
As
of December 31, 2018, two customers accounted for 71% of total accounts receivable. The following is a list of percentage of accounts
receivable owed by the three customers:
Customer
1
|
|
|
47
|
%
|
Customer
2
|
|
|
24
|
%
|
Total
|
|
|
71
|
%
|
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
|
%
|
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2018 the Company had approximately 2,800,000,000 share equivalents
issuable pursuant to embedded conversion features. At December 31, 2017 the Company had approximately 443,000,000 share equivalents
issuable pursuant to embedded conversion features.
Recently Adopted Accounting Standards
Effective January 1, 2018, the Company
adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step
revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous
industry-specific pieces of revenue recognition guidance that have historically existed in US GAAP. The underlying principle of
the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires
more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting
guidance. The Company adopted ASC 606 using the modified retrospective method, which did not have an impact on its consolidated
financial statements. The Company expects the impact to net income of the new standard will be immaterial on an ongoing quarterly
and annual basis. The comparative information has not been restated and continues to be reported under the accounting standards
in effect for those periods. Refer to Note 4 for additional information regarding the Company’s adoption of ASC 606.
Effective January 1, 2018, the Company
adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”),
which clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of businesses. The Company determined the adoption of ASU 2017-01 did not
have a material impact on its consolidated financial statements.
Recent Issued
Accounting Standards Not Yet Adopted
The
Company has reviewed all recently issued, but not yet adopted, 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 is effective for the Company as of January 1, 2019, and
will not have a material impact on its consolidated financial statements.
In
January 2017, the FASB issued Accounting Standards Update 2017-04, to simplify the subsequent measurement of goodwill by eliminating
Step 2 from the goodwill impairment test. Under this updated standard, an entity should recognize an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the
total amount of goodwill allocated to that reporting unit. An entity also should consider income tax effects from any tax-deductible
goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if any. This guidance is effective
prospectively and is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted.
In
June 2018, the FASB issued Accounting Standards Update 2018-07, to reduce cost and complexity and to improve financial reporting
for share-based payment transactions for acquiring goods or services from nonemployees. Under this update standard, an entity
should apply the requirements to nonemployee awards except for specific guidance on inputs to an option pricing model and the
attribution of cost. Furthermore, this update standard applies to all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance
is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted.
In
August 2018, the FASB issued Accounting Standards Update 2018-13, to modify the disclosure requirements on fair value measurements
in Topic 820, Fair Value Measurement, based on the concepts in the Concept Statement, including the consideration of costs and
benefits. This guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and
does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial
position or results of operations.
NOTE
2 – GOING CONCERN CONSIDERATIONS
The
accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. At December
31, 2018, the Company had an accumulated deficit of approximately $39 million, a stockholders’ deficit of approximately
$21 million and a working capital deficiency of approximately $21 million. The net cash used in operating activities for the year
ended December 31, 2018 totaled $1,854,095. 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 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.
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
Estimated
life
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Computer
Equipment
|
|
1
year
|
|
$
|
23,438
|
|
|
$
|
13,333
|
|
Office
Equipment
|
|
1
year
|
|
|
5,866
|
|
|
|
5,767
|
|
Telephone
System
|
|
1
year
|
|
|
11,576
|
|
|
|
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
|
|
|
|
|
(203,025
|
)
|
|
|
(140,559
|
)
|
|
|
|
|
$
|
12,522
|
|
|
$
|
64,250
|
|
For
the years ended December 31, 2018 and 2017, depreciation and amortization expense amounted to $62,466 and $142,468, respectively.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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:
As
of December 31,
|
|
2018
|
|
|
2017
|
|
|
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
|
|
|
(352,885
|
)
|
|
|
(146,318
|
)
|
|
|
|
|
$
|
1,270,945
|
|
|
$
|
1,477,512
|
|
|
|
For
the year ended December 31, 2018, amortization expense related to the intangible assets was $206,567. Amortization expense related
to the intangible assets for the period of April 20, 2017 (Acquisition Date) through December 31, 2017 was $146,318. Annual
amortization of intangible assets for the next five years is expected to be the following:
Year
|
|
$ Amount
|
|
2019
|
|
$
|
95,933
|
|
2020
|
|
$
|
33,364
|
|
2021
|
|
$
|
7,600
|
|
2022
|
|
$
|
7,600
|
|
2023
|
|
$
|
7,600
|
|
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 expired on April 7, 2018. The Line of Credit was 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 had an interest rate of prime plus
1. In the period of April 20, 2017 through December 31, 2017 the Company had borrowings of $34,248 and repayments of $6,279. The
balance outstanding on the line of credit was approximately $261,000 at December 31, 2017. During 2018, the Company repaid the outstanding balance
of $260,658 in full.
NOTE
6 – NOTE PAYABLE - RELATED PARTY
In
connection with the Purchase Agreement of the Acquisition Companies (see Note 1) the Co
mpany
exec
uted 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. No payments have been remitted pursuant to the Cash Payout and the Employment Agreement as of December
31, 2018 or December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 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 an 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.
During March 2018, this promissory note was paid in full and the Company negotiated full satisfaction of this liability in cash
with no issuance of restricted shares of common stock.
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 was
guaranteed by the Acquisition
Companies’ previous managing member and his spouse and collateralized by all of the assets of the Acquisition Companies.
Per the Purchase Agreement the note was to be paid within 180 days of the Effective Date, however, the Company has not complied
with the payment terms. Additionally, the note has certain debt covenants that the Company is out of compliance with. On July
27, 2018, the Company entered into a settlement with JP Morgan Chase Bank, N.A. (“Chase”) regarding payment of the
outstanding balance under this note payable, known as the Promissory Note and U.S. Small Business Administration Note dated April
15, 2015 (the “Notes”) in the aggregate principal amount of approximately $1,900,000 including interest (the “Loan
Amount”) between Video Surveillance LLC, Apex CCTV, and Chase. According to the terms of the settlement, the Company and
Chase agreed to a full and final settlement of the Loan Amount and the related transactions thereunder in exchange for payment
by the Company in the amount of $475,000 on August 3, 2018 (the “Initial Payment”) and three additional payments of
$475,000 each month thereafter (the “Additional Payment”). As of the date hereof, the Company has timely made
the Initial and three Additional Payments. As of December 31, 2018 and December 31, 2017 the total balance owed on the note
payable was $48,563 and $1,787,749, respectively.
As
of December 31, 2018 and December 31, 2017, notes payable amounted to $165,355 and $1,971,208, respectively.
Accrued
interest on the notes payable amounted to approximately $97,000 and $92,000 as of December 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 December 31, 2018 and 2017.
NOTE
9 – ACCRUED EXPENSES
As of December 31, 2018
and 2017, the Company had accrued expenses of $4,542,124 and $3,632,100, respectively. The following table displays
the accrued expenses by category:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Operating
Expenses
|
|
$
|
235,826
|
|
|
$
|
42
,260
|
|
Employee
Commissions
|
|
|
-
|
|
|
|
18,633
|
|
Interest
|
|
|
2,169,257
|
|
|
|
1,611,924
|
|
Salaries
|
|
|
2,029,838
|
|
|
|
1,770,027
|
|
Sales
Tax Payable
|
|
|
67,610
|
|
|
|
54,532
|
|
Payroll
Liabilities
|
|
|
39,593
|
|
|
|
134,724
|
|
|
|
$
|
4,542,124
|
|
|
$
|
3,632,100
|
|
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CONVERTIBLE PROMISSORY NOTES
At
December 31, 2018 and 2017, convertible promissory notes consisted of the following:
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Secured
convertible promissory notes
|
|
$
|
7,362,740
|
|
|
$
|
3,182,972
|
|
|
|
|
|
|
|
|
|
|
Debt
discount
|
|
|
(2,554,281
|
)
|
|
|
(216,069
|
)
|
|
|
|
|
|
|
|
|
|
Debt
discount original issue discount
|
|
|
(269,426
|
)
|
|
|
(12,229
|
)
|
|
|
|
|
|
|
|
|
|
Debt
discount deferred financing
|
|
|
(281,458
|
)
|
|
|
(2,424
|
)
|
Secured
convertible promissory notes, net
|
|
$
|
4,257,574
|
|
|
$
|
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 $0.02. 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 December 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 $0.15. 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). In connection herewith, the Company recorded a derivative liability and an offsetting debt
discount of $8,333 (see Note 12). The balance of the convertible debenture was $10,000 as of December 31, 2018 and December 31,
2017.
On
December 11, 2013, the Company issued a $25,000 6% convertible debenture with a one year maturity date. This convertible debenture
converts at $0.16. 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 12). The balance of this convertible debenture was
$25,000 as of December 31, 2018 and December 31, 2017.
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 was $25,000 as of December 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.
During 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 December 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 December
31, 2018 and December 31, 2017 was $21,600.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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
were amortized over the term of the note and were fully amortized as of September 30, 2016. The balance of the convertible promissory
note amounted to $52,632 as of December 31, 2018 and December 31, 2017.
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
were amortized over the term of the note and were fully amortized as of September 30, 2016. The balance of the convertible promissory
note amounted to $52,632 as of December 31, 2018 and December 31, 2017.
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
were amortized over the term of the note and were fully amortized as of September 30, 2016. The balance of the convertible promissory
note amounted to $52,632 as of December 31, 2018 and December 31, 2017.
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
were amortized over the term of the note and were fully amortized as of September 30, 2016. The balance of the convertible promissory
note amounted to $157,895 as of December 31, 2018 and December 31, 2017.
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
were amortized over the term of the note and were fully amortized as of September 30, 2016. The balance of the convertible promissory
note amounted to $125,754 as of December 31, 2018 and December 31, 2017.
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 was amortized over the term of the note and was fully amortized
as of September 30, 2016. The balance of the convertible promissory note amounted to $236,289 as of December 31, 2018 and December
31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On October 9, 2015,
three convertible promissory notes mentioned above were assigned to a third party note holder with the same terms and balances.
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 of the note by $81,239 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. The balance of the convertible promissory note
amounted to $56,954 and $349,719 as of December 31, 2018 and December 31, 2017, respectively.
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 were amortized over the term of the note and were fully amortized as of December 31, 2016. In December
2016, the Company adjusted the convertible promissory note’s principal balance to $157,895 per recalculation of the OID.
The balance of the convertible promissory note amounted to $157,895 as of December 31, 2018 and December 31, 2017.
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 were amortized over the term of the note and were fully amortized as of December 31,
2016. In December 2016, the Company adjusted the convertible promissory note’s principal balance to $157,895 per recalculation
of the OID. The balance of the convertible promissory note amounted to $157,895 as of December 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 were amortized over the term of the note and were fully amortized as of December 31, 2016. The balance
of the convertible promissory note amounted to $263,158 as of December 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 were amortized over the term of the note. The balance of the convertible promissory note amounted to $61,111
as of December 31, 2018 and December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 were amortized over the term of the note. The balance of the convertible promissory note amounted to $80,117
and $137,886 as of December 31, 2018 and December 31, 2017, 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
were amortized over the term of the note. The balance of the convertible promissory note amounted to $118,573 as of December 31,
2018 and 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
were amortized over the term of the note. The balance of the convertible promissory note amounted to $105,263 as of December 31,
2018 and December 31, 2017.
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
were 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 $0 and $80,039 as of December 31,
2018 and 2017, respectively.
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
were amortized over the term of the note. The balance of the convertible promissory note amounted to $78,947 as of December 31,
2018 and December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 were amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as
of December 31, 2018 and December 31, 2017.
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 were amortized over the term of the note. The balance of the
convertible promissory note amounted to $52,632 as of December 31, 2018 and December 31, 2017.
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 were amortized over the term of the note. The balance of the convertible promissory note amounted to $32,895
as of December 31, 2018 and December 31, 2017.
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 was
amortized over the term of the note. The balance of the convertible promissory note amounted to $25,000 as of December 31, 2018
and 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 December 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 were amortized over the term of the note. The balance of the convertible promissory note amounted to $26,316
as of December 31, 2018 and 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 were amortized over the term of the note. The balance of the convertible promissory note amounted to $26,316
as of December 31, 2018 and December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 were amortized over the term of the note. The balance of the convertible promissory note amounted to
$26,316 as of December 31, 2018 and 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 was amortized over the term of the note. The balance of the
convertible promissory note amounted to $51,579 as of December 31, 2018 and December 31, 2017.
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. This convertible promissory note was paid in full during
2018.
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 was amortized over the term of the note. The balance of the convertible
promissory note amounted to $0 as of December 31, 2018 and $15,750 as of December 31, 2017.
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 amortized over the term of the note. The balance of the
convertible promissory note amounted to $0 as of December 31, 2018 and $26,316 as of December 31, 2017.
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 was amortized over the term of the note. The balance of the convertible
promissory note amounted to $21,053 as of December 31, 2018 and December 31, 2017.
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 accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded 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 were amortized over the term
of the note. The balance of the convertible promissory note amounted to $0 as of December 31, 2018 and $15,789 as of December
31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 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, debt discount of $28,421, and derivative expense of $24,081. The OID and debt discount were amortized over the
term of the note. The balance of the convertible promissory note amounted to $0 as of December 31, 2018 and $31,579 as of December
31, 2017.
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 accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded 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 were amortized over the term of the note.
The balance of the convertible promissory note amounted to $0 as of December 31, 2018 and $31,579 as of December 31, 2017.
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 accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded 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 were amortized over the term of the note.
The balance of the convertible promissory note amounted to $21,053 as of December 31, 2018 and 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. 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 $70,003, OID of $2,105,
debt discount of $37,895 and derivative expense of $32,108. The OID and debt discount were amortized over the term of the note.
The balance of the convertible promissory note amounted to $42,105 as of December 31, 2017. This convertible promissory note was
paid in full during 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 were amortized over the term of the note. The balance of the convertible promissory note amounted to
$68,000 as of December 31, 2017. This convertible promissory note was paid in full during 2018.
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 were amortized over the term of the note. The
balance of the convertible promissory note amounted to $0 as of December 31, 2018 and $31,579 as of December 31, 2017.
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 were amortized over the term of the note. The balance
of the convertible promissory note amounted to $0 as of December 31, 2018 and $15,789 as of December 31, 2017.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 were amortized over the term of the note. The
balance of the convertible promissory note amounted to $0 as of December 31, 2018 and $57,895 as of December 31, 2017.
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 were amortized over the term of the
note. The balance of the convertible promissory note amounted to $0 as of December 31, 2018 and $63,158 as of December 31, 2017.
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 were amortized over the term
of the note. The balance of the convertible promissory note amounted to $31,579 as of December 31, 2018 and December 31, 2017.
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 December 31, 2018.
On
January 19, 2018, the Company issued a 5% 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 was $7,895 at December 31, 2018.
On
January 24, 2018, the Company issued a 5% 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 were amortized over the term of the note. During
June 2018, this promissory note was paid in full.
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 was amortized
on a straight line basis over the term of the note. During August 2018, this promissory note was paid in full.
On
February 9, 2018, the Company issued a 5% 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 was $15,789 at December 31, 2018.
On
February 15, 2018, the Company issued a 5% 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 was $12,632 at December 31, 2018.
DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 26, 2018,
the Company issued a 5% 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 were amortized over the term of the note. This promissory note was included
in the October 12, 2018 Note Settlement Agreement.
On
March 6, 2018, the Company issued a 5% 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 were amortized over the term of the note. During June 2018, this
promissory note was paid in full.
On March 9, 2018, the
Company issued a 5% 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 were amortized over the term of the note. This promissory note was included in the
October 12, 2018 Note Settlement Agreement.
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 June 2018, this promissory note was paid in full.
On March 21, 2018, the
Company issued a 5% 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 were amortized over the term of the note. This promissory note was included
in the October 12, 2018 Note Settlement Agreement.
On
March 23, 2018, the Company issued a 5% 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 were amortized over the term of the note. During June 2018, this
promissory note was paid in full.
On
March 31, 2018, the Company issued a replacement convertible promissory note assigning two outstanding convertible promissory
notes to a third party note holder with a principal balance of $74,754 and 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 $121,717, OID of $439, debt discount of $54,858 and derivative expense
of $74,754. The OID and debt discount were amortized over the term of the note. During June 2018, this promissory note was paid
in full.
On April 3, 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 were being amortized over the term of the note.
This promissory note was included in the October 12, 2018 Note Settlement Agreement.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
March 23, 2018, the Company executed an assignment agreement with a note holder that rolled the outstanding principal balance
on a convertible note payable of $31,579 and accrued interest of $10,477 into a new convertible instrument with a principal balance
of $46,026.
On
March 26, 2018, the Company executed an assignment agreement with a note holder that rolled the estimated outstanding principal
balances on multiple convertible notes payable of $1,722,933 and accrued interest of $1,488,834 into a new convertible instrument
with a principal balance of $3,211,767.
On
April 5, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $105,263 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 $145,905, OID of $5,263, debt discount of $94,737
and derivative expense of $51,168. The OID and debt discount were amortized over the term of the note. During June 2018, this
promissory note was paid in full.
On April 5, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $55,368 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 $64,472, OID of $2,368, debt discount of $50,632 and derivative
expense of $13,841. The OID and debt discount are being amortized over the term of the note. This promissory note was included
in the October 12, 2018 Note Settlement Agreement.
On April 18, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $113,250 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 $131,876, OID of $5,250, debt discount of $108,000 and
derivative expense of $23,876. The OID and debt discount were amortized over the term of the note. This promissory note
was included in the October 12, 2018 Note Settlement Agreement.
On
April 27, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $18,947 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 $23,695, OID of $947, debt discount of $17,053
and derivative expense of $6,642. The OID and debt discount are being amortized over the term of the note. The balance of the
convertible promissory note was $18,947 at December 31, 2018.
On May 2, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $129,000 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 $150,229, OID of $6,000, debt discount of $123,000 and
derivative expense of $27,229. The OID and debt discount were amortized over the term of the note. This promissory note
was included in the October 12, 2018 Note Settlement Agreement.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On May 16, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $113,250 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 $131,904, OID of $5,250, debt discount of $108,000 and
derivative expense of $23,904. The OID and debt discount were amortized over the term of the note. This promissory note
was included in the October 12, 2018 Note Settlement Agreement.
On May 30, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $118,500 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 $138,006, OID of $5,500, debt discount of $113,000 and
derivative expense of $25,006. The OID and debt discount were amortized over the term of the note. This promissory note
was included in the October 12, 2018 Note Settlement Agreement.
On June 13, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $122,273 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 $142,418, OID of $5,750, debt discount of $116,523 and
derivative expense of $25,894. The OID and debt discount were amortized over the term of the note. This promissory note
was included in the October 12, 2018 Note Settlement Agreement.
On
June 14, 2018, the Company issued two convertible promissory notes for prior services, each with a principal balance of $100,000
with a one year maturity date. Each convertible debenture converts at 70% of the lowest average three trading price during the
10 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 debt discount of $100,000
for each note, which is being amortized over the term of the notes. The balance of the convertible promissory notes was $200,000
at December 31, 2018.
On June 15, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $279,102 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 $325,078, OID of $13,125, debt discount of $265,477 and
derivative expense of $59,601. The OID and debt discount were amortized over the term of the note. This promissory note
was included in the October 12, 2018 Note Settlement Agreement.
On June 27, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $118,500 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 $138,022, OID of $5,500, debt discount of $113,000 and
derivative expense of $25,022. The OID and debt discount were amortized over the term of the note. This promissory note
was included in the October 12, 2018 Note Settlement Agreement.
On July 12, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $81,750 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 $95,159, OID of $3,750, debt discount of $78,000 and derivative
expense of $17,159. The OID and debt discount were amortized over the term of the note. This promissory note was included
in the October 12, 2018 Note Settlement Agreement.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On July 26, 2018, the
Company issued a 5% OID convertible promissory note with a principal balance of $57,500 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 $66,932, OID of $4,500, debt discount of $53,000 and derivative
expense of $13,932. The OID and debt discount were amortized over the term of the note. This promissory note was included
in the October 12, 2018 Note Settlement Agreement.
On
July 27, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $52,632 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 $65,775, OID of $2,362, debt discount of $47,368
and derivative expense of $18,406. The OID and debt discount are being amortized over the term of the note. The balance of the
convertible promissory note was $52,632 at December 31, 2018.
On
August 3, 2018, the Company issued a 10% OID convertible promissory note with a principal balance of $527,778 with a two 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 $1,311,420, OID of $52,778,
debt discount of $422,222 and derivative expense of $889,198. The OID and debt discount are being amortized over the term of the
note. The balance of the convertible promissory note, net of required monthly payments, was $476,667 at December 31, 2018.
On
September 5, 2018, the Company issued a 10% OID convertible promissory note with a principal balance of $527,778 with a two 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 $1,015,365, OID of $52,778,
debt discount of $412,222 and derivative expense of $603,143. The OID and debt discount are being amortized over the term of the
note. The balance of the convertible promissory note, net of required monthly payments, was $494,444 at December 31, 2018.
On
September 6, 2018, the Company issued a convertible promissory note for future services with a principal balance of $100,000 with
a one year maturity date. This convertible debenture converts at 85% of the lowest trading price during the 10 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 debt discount of $100,000, which is being amortized
over the term of the note. The balance of the convertible promissory note was $100,000 at December 31, 2018.
On
September 25, 2018, the Company executed a Securities Purchase Agreement (SPA), with an effective date of August 3, 2018. In connection
with the SPA the Company may issue 5% original issue discount (OID) convertible promissory notes with an aggregate principal balance
amounting to $136,842. In connection with the SPA, on September 10, 2018, the Company issued a 5% OID convertible promissory note
with a principal balance of $136,842 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 $322,204, OID of $6,842, debt discount of $103,158 and derivative expense of $219,046. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note was $136,842 at December 31, 2018.
On
October 5, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $52,632 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 $50,000, OID of $2,632, and debt discount of
$50,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note
was $52,632 at December 31, 2018.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On October 12, 2018,
the Company successfully restructured all outstanding debt with an existing lending partner (“Agreement”). The
Agreement satisfies approximately $1,456,000 of convertible notes payable and accrued interest for $1,200,000 of cash over a specified
payment schedule. As part of the Agreement, the lending partner also agreed to an immediate lock up of all of its convertible
notes and no further conversions. On December 21, 2018, the Agreement was amended to adjust the amount of each periodic payment.
The outstanding balance of the Agreement was $700,000 at December 31, 2018.
On
October 13, 2018, the Company executed a Securities Purchase Agreement (SPA). In connection with the SPA the Company may issue
10% original issue discount (OID) convertible promissory notes with an aggregate principal balance amounting to $2,722,222. In
connection with the SPA, on October 15, 2018, the Company issued a 10% original issue discount (OID) convertible promissory note
with a principal balance of $833,333. This convertible debenture converts at 60% of the lowest VWAP during the 30 days prior to
conversion. The promissory note will be fulfilled by issuing multiple tranches. Each tranche will have a twenty four 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 $750,000, OID of $83,333, deferred financing costs of $275,000, and a debt discount of $750,000 (see Note 11). The
OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to
$833,333 as of December 31, 2018.
On
October 17, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $52,632 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 $50,000, OID of $2,632, and
debt discount of $50,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $52,632 at December 31, 2018.
On
October 25, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $68,421 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 $65,000, OID of $3,421, and
debt discount of $65,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $68,421 at December 31, 2018.
On
November 1, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $84,211 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 $80,000, OID of $4,211, and
debt discount of $80,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $84,211 at December 31, 2018.
On
November 5, 2018, the Company issued a second tranche related to the October 13, 2018 SPA as noted above. The Company issued a
10% OID convertible promissory note with a principal balance of $421,053 with a two year maturity date. This convertible debenture
converts at 60% of the lowest VWAP 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 $400,000, OID of $21,053, and debt discount of $400,000. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note was $421,053 at December 31, 2018.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
November 16, 2018, the Company issued a third tranche related to the October 13, 2018 SPA as noted above. The Company issued a
10% OID convertible promissory note with a principal balance of $555,556 with a two year maturity date. This convertible debenture
converts at 60% of the lowest VWAP 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 $500,000, OID of $55,556, deferred financing costs of $15,000, and debt discount
of $500,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory
note was $555,556 at December 31, 2018.
On
November 26, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $26,318 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 $25,000, OID of $1,316, and
debt discount of $25,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $26,316 at December 31, 2018.
On
November 29, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $52,632 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 $50,000, OID of $2,632, and
debt discount of $50,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $52,632 at December 31, 2018.
On
December 11, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $42,105 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 $40,000, OID of $2,105, and
debt discount of $40,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $42,105 at December 31, 2018.
On
December 17, 2018, the Company issued a 5% 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 $30,000, OID of $1,579, and
debt discount of $30,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $31,579 at December 31, 2018.
On
December 21, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $105,263 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 $100,000, OID of $5,263, and
debt discount of $100,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $105,263 at December 31, 2018.
On
December 27, 2018, the Company issued a 5% OID convertible promissory note with a principal balance of $28,947 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 $27,500, OID of $1,447, and
debt discount of $27,500. The OID and debt discount are being amortized over the term of the note. The balance of the convertible
promissory note was $28,947 at December 31, 2018.
During
the years ended December 31, 2018 and 2017 amortization of debt discount amounted to $2,329,447 and $403,245, respectively.
NOTE
11 – DERIVATIVE LIABILITY
Accounting
for Derivatives
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.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 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
|
|
|
4,667,665
|
|
Initial fair value of derivative liability charged to other expense
|
|
|
2,468,667
|
|
Gain on change of derivative liabilities from convertible notes payable conversions
|
|
|
(2,507,705
|
)
|
Loss on change in fair value included in earnings
|
|
|
3,377,004
|
|
Balance at December 31, 2018
|
|
$
|
11,959,000
|
|
Total
derivative liability at December 31, 2018 and December 31, 2017 amounted to $11,959,000 and $3,953,369, respectively. The change
in fair value included in earnings of $3,377,004 is due in part to the quoted market price of the Company’s common stock
decreasing from $0.0131 at December 31, 2017 to $.00342 at December 31, 2018 coupled with substantially reduced conversion prices
due to the effect of “ratchet” provisions incorporated in convertible notes payable.
The
Company used the following assumptions for determining the fair value of the convertible instruments granted under the binomial
pricing model with Monte Carlo simulations at December 31, 2018:
Expected
volatility
|
|
|
177%
- 286
|
%
|
Expected
term
|
|
|
3
– 23 months
|
|
Risk-free
interest rate
|
|
|
2.45%
- 2.63
|
%
|
Stock
price
|
|
$
|
0.0034
|
|
NOTE
12 - STOCKHOLDERS’ DEFICIT
On
January 6, 2016, the Company filed an amendment to its articles of incorporation (the “Amendment”) with the Secretary
of State of the State of Nevada, which, among other things, established the designation, powers, rights, privileges, preferences
and restrictions of the Series A Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”). Among
other provisions, each one (1) share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607
multiplied
by
the total issued and outstanding shares of common stock of the Company eligible to vote at the time of the respective vote
(the “Numerator”),
divided by
(y) 0.49,
minus
(z) the Numerator. For purposes of illustration only,
if the total issued and outstanding shares of common stock of the Company eligible to vote at the time of the respective vote
is 5,000,000, the voting rights of one share of the Series A Preferred Stock shall be equal to 102,036 (0.019607 x 5,000,000)
/ 0.49) – (0.019607 x 5,000,000) = 102,036).
Fifty-one
(51) shares of Series A Preferred Stock were authorized and fifty-one (51) shares of Series A Preferred Stock were issued to Roger
Ralston, the Company’s Chief Executive Officer and a director of the Company (CEO). The Series A Preferred Stock was issued
to the CEO and is Series A Super Voting Preferred Stock. The Super Voting was created primarily to be able to obtain a quorum
and conduct business at shareholder meetings.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
During
2017, the Company issued 11,739,816 shares of common stock at contractual rates ranging from $0.34 to $0.009 for the conversion
of $223,669 in principal and $9,624 in accrued interest of convertible notes payable (See Note 10).
Effective
May 22, 2017 the Company executed a 1-200 Reverse Stock Split (see Note 1).
Effective July 31, 2018, the Company’s
Registration Statement on Form S-1 (“S-1”) was approved by the U.S. Securities and Exchange Commission, providing
the Company the ability to sell up to 60,000,000 shares of its common stock to GHS Investments LLC. During 2018, the Company issued
60,000,000 shares of common stock at rates ranging from $.00296 to $.00748 for the sale of shares under the provisions of the
S-1, generating $291,237 in proceeds to the Company.
On
October 4, 2018, the Company increased the number of authorized shares of common stock from 1,000,000,000 to 4,000,000,000.
During
2018, the Company issued 380,155,618 shares of common stock at contractual rates ranging from $0.0018 to $0.120 for the conversion
of $1,088,943 in principal and accrued interest of convertible notes payable (See Note 10).
During
2018, the Company issued 16,000,000 shares of common stock to employees of the Company for $118,400 in non-cash compensation.
These shares were valued at the closing market price on the date of issuance which ranges from $0.0058 to $0.009. These shares
vested immediately upon issuance and accordingly their value was recorded as stock compensation expense.
NOTE
13 - RELATED PARTY TRANSACTIONS
Due
to Related Parties
As
of December 31, 2018 and December 31, 2017 the Company had a payable to its Chief Executive Officer amounting to $1,814. This
amount is considered 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 Co
mpany executed
a non-interest bearing note payable in the amount of $830,000 due to the former CEO of the Acquisition Companies. The balance
of the non-interest bearing note payable as of December 31, 2018 was $778,000.
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 years ended December
31, 2018 and 2017 totaled $9,822 and $27,721, respectively.
NOTE
15 - ACCRUED PAYROLL TAXES
As of December 31, 2018 and December 31, 2017 the Company recorded a liability related to unpaid payroll taxes
which includes interest and penalties of approximately $39,593 and $135,000, respectively. The liability was incurred in the years
ended December 31, 2007 through December 31, 2018 as a result of the Company not remitting payroll tax liabilities. Such amount
also includes current payroll tax liabilities and has been included in accrued expenses in the accompanying 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 CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 – COMMITMENTS
Leases:
In
connection with the Purchase Agreement of the Acquisition Companies (see Note 1) the Co
mpany
assumed
a lease for office space with a four year term beginning on April 1, 2015 and ending on March 31, 2019. The Company
had the option to renew the lease for an additional six years after the expiration date, however, elected to execute an extension
for 60 days beginning April 1, 2019. The monthly rent expense under the lease is $11,371 and the monthly rent under the extension
is $12,319.
|
|
Payments
Due by Period
|
|
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
Years
|
|
|
4-5
Years
|
|
|
5
Years +
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
$
|
58,751
|
|
|
|
58,751
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Contractual Obligations:
|
|
$
|
58,751
|
|
|
|
58,751
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Rent
expense for 2018 was $136,452 and for the period of April 20, 2017 through December 31, 2017 was $90,968.
NOTE
17 – INCOME TAXES
The
Company accounts for income taxes under ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities,
and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC Topic 740 additionally
requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company
estimates its net operating loss carry forward for tax purposes to be approximately $10.3 million at December 31, 2018, expiring
through the year 2038. As noted below, the Company is delinquent in its income tax filings and has not reported its losses to
the taxing authorities since 2010. Therefore, utilization of tax losses may be limited due to non-filing of returns for 2011,
2012, 2013, 2014, 2015, 2016, and 2017. Also, Internal Revenue Code Section 382 places a limitation on the amount of taxable income
that can be offset by carry forwards after certain ownership shifts.
The
Company last filed an income tax return for the year ended December 31, 2010. Tax years ending December 31, 2018, 2017, 2016,
2015, 2014, 2013, 2012 and 2011 will be subject to IRS examination for a period of three years after the file dates, and the Company’s
tax net operating loss carryforwards have not yet been established with the taxing authorities due to non-filing.
Effective
December 22, 2017, a new tax bill was signed into law that reduced the federal income tax rate for corporations from 35% to 21%.
The new bill reduced the blended tax rate for the Company from 38.5% to 25.4%. The change in the blended tax rate reduced the
2017 net operating loss carryforward deferred tax assets by approximately $2.2 million during the year ended December 31, 2017.
The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows
for the years ended December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Federal
income tax benefit at statutory rate (21% for 2018 and 35% for 2017)
|
|
$
|
(2,112,173
|
)
|
|
$
|
(542,000
|
)
|
State
income taxes, net of benefit
|
|
|
(442,551
|
)
|
|
|
(54,000
|
)
|
Stock
based compensation and other permanent differences
|
|
|
1,939,082
|
|
|
|
1,169,000
|
|
Effect of change in federal rate to 21%
|
|
|
-
|
|
|
|
(180,000
|
)
|
Increase
(Decrease) in valuation allowance
|
|
|
615,642
|
|
|
|
(393,000
|
)
|
Net
income tax benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred
tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial
reporting purposes. Temporary differences, which give rise to a net deferred tax asset is as follows as of December 31, 2018 and
2017:
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
10,315,642
|
|
|
$
|
9,700,000
|
|
Allowance for doubtful account
|
|
|
17,261
|
|
|
|
41,000
|
|
Accrued salaries
|
|
|
574,199
|
|
|
|
550,460
|
|
Total Deferred tax asset
|
|
|
10,907,102
|
|
|
|
10,291,460
|
|
Less: Valuation allowance
|
|
|
(10,907,102
|
)
|
|
|
(10,291,460
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
After
consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December
31, 2018 and 2017, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by
$615,642 and decreased by $393,000 during 2018 and 2017, respectively.
At December 31, 2018, the Company has a total net operating loss carryforward of
approximately $40,600,000, which expire through 2038.
NOTE
18 – SUBSEQUENT EVENTS
Subsequent to December 31, 2018, the Company
issued 5% OID convertible promissory notes with principal balances totaling approximately $847,000 with maturity dates of one
year. These convertible debentures convert at 40% 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 December 31, 2018, the Company
issued approximately 108,000,000 shares of common stock upon conversion of approximately $189,000 of convertible promissory notes
and approximately $17,000 of accrued interest. These notes were converted at contractual rates ranging from $.00176 to $.00228.
Subsequent to December 31, 2018, the
Company filed a Registration Statement on Form S-8 to register with the U.S. Securities and Exchange Commission 48,000,000 shares
of the Company’s common stock, which may be issued by the Company upon the exercise of options granted, or other awards
made, pursuant to the terms of the 2019 Incentive Plan.
Subsequent to December 31, 2018, the
Company issued 26,000,000 shares of common stock at the fair market value rate of $0.004 totaling $104,000 to the Company’s
CFO for services rendered. The Company also issued 10,000,000 shares of common stock at the fair market value rate of $0.004 totaling
$40,000 to an employee for services rendered. Both issuances were from the 48,000,000 shares of the Company’s common stock
as registered on Form S-8 on February 19, 2019.
Subsequent to December 31, 2018, the Company’s
CEO agreed to convert approximately $1,800,000 in debt owed to him from the Company, consisting of money he invested and accrued
compensation, into preferred shares of equity of the Company.