UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Amendment No. 1

 

DIRECTVIEW HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   4899   04-3053538
(State of Incorporation)  

(Primary Standard Industrial

Classification Number)

 

(IRS Employer

Identification Number)

 

21218 Saint Andrews Blvd., Suite 323

Boca Raton, FL

(561) 750-9777

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive offices)

 

Please send copies of all communications to:

 

Lucosky Brookman LLP
101 Wood Avenue South, 5 th Floor
Woodbridge, NJ 08830
Tel. No.: (732) 395-4400
Fax No.: (732) 395-4401

(Address, including zip code, and telephone, including area code)

 

Approximate date of proposed sale to the public: From time to time after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(do not check if a smaller reporting company) Emerging Growth Company [  ] 

 

EXPLANATORY NOTE

 

The purpose of this Amendment No. 1 (the “Amendment”) to the DirectView Holdings, Inc. (the “Company”) Registration Statement on Form S-1, originally filed with the U.S. Securities and Exchange Commission on July 23, 2018 (the “S-1”), is solely to include the Legal Opinion under Exhibit 5.1 in the Amendment. No other changes have been made in this Amendment to the S-1. This Amendment speaks as of the original date of the S-1 and does not reflect events that may have occurred subsequent to the original filing date.

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of

securities to be registered

 

 

Number of shares of

common stock to be registered (1)

   

 

Proposed

Maximum

Offering

Price Per

Share (2)

   

 

Proposed

Maximum

Aggregate

Offering

Price

   

 

Amount of

Registration

Fee (3)

 
                                 
Common Stock     60, 000,000     $ 0.0055     $ 330,000     $ 41.09  

 

(1) In accordance with Rule 416(a), this registration statement shall also cover an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.
   
(2) Based on the reported closing price for our common stock on the trading day period immediately preceding the filing of this Registration Statement of $0.0055. The shares offered, hereunder, may be sold by the selling stockholder from time to time in the open market, through privately negotiated transactions, or a combination of these methods at market prices prevailing at the time of sale or at negotiated prices.
   
(3) The fee is calculated by multiplying the aggregate offering amount by .00012450, pursuant to Section 6(b) of the Securities Act of 1933.

 

The registrant hereby may amend this registration statement on such date or dates as may be necessary to delay our effective date until the registrant shall file a further amendment which specifically states that this registration statement shall, thereafter, become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a) may determine.

 

 

 

 

 

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JULY____, 2018

 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

DirectView Holdings, Inc.

60 ,000,000 Common Shares

 

The selling stockholder identified in this prospectus may offer an indeterminate number of shares of its common stock, which will consist of up to 60,000,000 shares of common stock to be sold by GHS Investments LLC (“GHS”) pursuant to an Equity Financing Agreement (the “Financing Agreement”) dated July 20, 2018. If issued presently, the 60,000,000 of common stock registered for resale by GHS would represent 29.59% of our issued and outstanding shares of common stock as of July 23, 2018.

 

The selling stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices, or at negotiated prices.

 

We will not receive any proceeds from the sale of the shares of our common stock by GHS. However, we will receive proceeds from our initial sale of shares to GHS pursuant to the Financing Agreement. We will sell shares to GHS at a price equal to 80% of the lowest closing price of our common stock during the ten (10) consecutive trading day period beginning on the date on which we deliver a put notice to GHS (the “Market Price”). There will be a minimum of ten (10) trading days between purchases.

 

GHS is an underwriter within the meaning of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933.

 

Our common stock is traded on OTC Markets under the symbol “DIRV”. On July 22, 2018, the reported closing price for our common stock was $0.0055 per share.

 

Prior to this offering, there has been a very limited market for our securities. While our common stock is on the OTC Markets, there has been negligible trading volume. There is no guarantee that an active trading market will develop in our securities.

 

This offering is highly speculative and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 11. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is July __, 2018.

 

   
 

 

Table of Contents

 

The following table of contents has been designed to help you find information contained in this prospectus. We encourage you to read the entire prospectus.

 

Prospectus Summary 3
Summary Consolidated Financial Information 9
Risk Factors 11
Cautionary Note Regarding Forward-Looking Statements 19
Use of Proceeds 20
Determination of Offering Price 20
Selling Stockholders 20
Plan of Distribution 23
Interests of Named Experts and Counsel  26
Market for Our Common Stock and Related Stockholder Matters 31
Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
Directors, Executive Officers and Key Employees 49
Executive Compensation 51
Security Ownership of Certain Beneficial Owners and Management 53
Index to Consolidated Financial Statements F-1

 

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized any person to give you any supplemental information or to make any representations for us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus is correct as of any time after its date. You should not rely upon any information about our company that is not contained in this prospectus. Information contained in this prospectus may become stale. You should not assume the information contained in this prospectus or any prospectus supplement is accurate as of any date other than their respective dates, regardless of the time of delivery of this prospectus, any prospectus supplement or of any sale of the shares. Our business, financial condition, results of operations, and prospects may have changed since those dates. The selling stockholders are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted.

 

In this prospectus, “DirectView” the “Company,” “we,” “us,” and “our” refer to DirectView Holdings, Inc., a Nevada corporation.

 

2

 

 

PROSPECTUS SUMMARY

 

You should carefully read all information in the prospectus, including the financial statements and their explanatory notes under the Financial Statements prior to making an investment decision.

 

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this entire prospectus before investing in our Common Stock, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year end is December 31 and our fiscal years ended December 31, 2016 and 2017 are sometimes referred to herein as fiscal years 2016 and 2017, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our”, the “Company” or “our Company” or “DirectView” refer to DirectView Holdings, Inc., a Nevada corporation, and our each of our subsidiaries.

 

When used in this prospectus the following terms have the following meanings related to our subsidiaries.

 

● “DirectView Video” refers to DirectView Video Technologies, Inc. a company organized under the laws of the state of Florida.

 

● “DirectView Security” refers to DirectView Security Systems, Inc. a company organized under the laws of the state of Florida.

 

● “Ralston” refers to Ralston Communication Services, Inc. a company organized under the laws of the state of Florida.

 

● “Meeting Technologies” refers to Meeting Technologies Inc., a company organized under the laws of the state of Delaware.

 

Corporate History

 

We were incorporated under the laws of the State of Delaware on October 6, 2006. In October 2006 we acquired Ralston Communications and Meeting Technologies from DirectView, Inc., a Nevada corporation of which our executive officers and directors were officers and directors immediately prior to such acquisition, in exchange for the assumption by us of these subsidiaries working capital deficiencies and any and all trade credit and other liabilities. Immediately prior to this transaction, in conjunction with the acquisition by DirectView, Inc. of all of the stock of another entity which resulted in a change of control of DirectView, Inc., our executive officers and directors resigned from their positions with DirectView, Inc. Both Ralston Communications and Meeting Technologies had historically provided the video conferencing services we continue to provide. Thereafter, in February 2007 we formed DirectView Security and in July 2007 we formed DirectView Video. On March 14, 2014, the Board of Directors and the majority shareholders approved and ratified the Company’s reincorporation merger from Delaware to Nevada, amongst other corporate actions disclosed in the Company’s Information Statement on Schedule 14C filed with the Securities and Exchange Commission on April 8, 2014. In March of 2015, the Company completed a 1 for 30 reverse stock split of its common stock.

 

3

 

 

Organization

 

Directview Holdings, Inc., a Nevada corporation (“Directview Holdings”) was formed in October 2006. At that time DirectView Holdings acquired Ralston Communications Services, Inc., a Florida Corporation, (“Ralston Communications”) and Meeting Technologies, Inc. a Delaware corporation (“Meeting Tech”).

 

Thereafter Directview Holdings formed Directview Security Systems, Inc., a Florida corporation (“Directview Security”) as a wholly owned subsidiary in February 2007 and Directview Video Technologies, Inc., a Florida corporation, (“Directview Video”) as a wholly owned subsidiary in July 2007.

 

Subsidiaries

 

DirectView Video Technologies, Inc. - is a full-service provider of high-quality, cost efficient videoconferencing technologies and services. DirectView provides multipoint videoconferencing, network integration services, custom room design, staffing, document conferencing and IP / web conferencing services to businesses and organizations in the United States and around the world. DirectView conferencing services enable our clients to cost-effectively, instantaneously conduct remote meetings by linking participants in geographically dispersed locations.

 

DirectView Security Systems, Inc. - is a provider of the latest technologies in surveillance systems, digital video recording and services. The systems provide the latest in onsite and remote video and audio surveillance.

 

Ralston Communications Services, Inc. - is a full-service provider of network services who partners with Sprint and works with other carriers such as Verizon and AT&T. The network allows many clients of other Directview Holdings companies to communicate whether they need it for DirectView videoconferencing connections or monitoring or DVRs.

 

Meeting Technologies, Inc. - is a company that provides services similar to DirectView Video Technologies, Inc.

 

Video Surveillance, LLC - is a company specializing in video and surveillance and access control solutions.

 

Apex CCTV, LLC - is a company specializing in video and surveillance and access control solutions.

 

Current Business Operations

 

Through our subsidiaries, our business operates within two divisions (i) security and surveillance, and (ii) video conferencing services. All of these entities combine to provide the services offered by Directview Holdings. None of the employees or officers of Directview Holdings provide similar services for any other entity.

 

Security and Surveillance: Designs and installs surveillance systems, digital video recording and services.

 

Video conferencing services: Full-service provider of teleconferencing services.

 

4

 

 

Security and Surveillance

 

We provide our customers with a range of technologies in surveillance systems, digital video recording and services. The systems provide onsite and remote video and audio surveillance. We offer several service options to protect and maintain each company’s security investment which includes a customized security system. We assess each client’s security needs and challenges through an on-site survey, which is performed by specially trained technicians, consists of a video-taped analysis and in-depth interviews to determine each client’s security needs. We also make recommendations for initiating or improving each client’s systems as well as providing a plan for growth. We are able to provide a plan for a simple addition or a major migration to a new platform. We provide the highest quality installations, from mobilization to final testing, certification and training. We offer a complete line of non-proprietary products including:

 

 

  DVR Recorders and Cameras
     
  NVR Recorders and IP Cameras
     
  Motion Detection and Thermal Imagery
     
  Remote Control Device Management
     
  Access Control Solutions
     
  Video Intercoms
     
  Laser and Video Beam Perimeter Security
     
  Security Design and Consulting
     
  Equipment Maintenance Service Plans

 

We have also developed customized software programs and applications to work with the products we offer to customers to enhance their convenience and capability. We have developed a mobile application which we call the “DirectView Security App” to enable full remote management of deployed surveillance devices including positioning cameras, setting recording parameters, and replay of selected video.

 

We target businesses of various sizes ranging from residential to large scale businesses. Our main markets are divided into five categories which include:

 

  Transportation (Airports, Heliports, and Bus Terminals)
     
  Hospitality (Hotels, Golf Courses, and Bar/Restaurant)
     
  Industrial (Warehouse, Storage, and Manufacturing)
     
  Educational (Daycare, Private Schools, Learning Centers/Religious Organizations)
     
  Residential (Condos/Co-ops, Property Management Companies, and Private Homes)

 

Video Conferencing Services

 

We are a full-service provider of video conferencing technologies and services. We provide multipoint video conferencing, network integration services, custom room design, staffing, document conferencing and IP/web conferencing services to businesses and organizations in the United States and we focus to provide this around the world . We believe that our video conferencing services enable our clients to cost-effectively, instantaneously conduct remote meetings by linking participants in geographically dispersed locations. Our mission is to provide customized video conferencing solutions and services to businesses and organizations. From design to installation, we strive to deliver products and services that are simple to understand, easy to implement and even easier to use.

 

Our products and services include the:

 

  sale of conferencing services based upon usage,
     
  sale and installation of video equipment, and
     
  sale of maintenance agreements.

 

5

 

 

Video conferencing as a medium for business communications has provided opportunities to streamline complex business processes and to conduct transactions more efficiently. As a result, sophisticated audio or video-enabled interactive communications have become increasingly necessary as companies seek to become more efficient and effective. We seek to employ the technical knowledge of our management team to provide our clients with solutions for a wide range of applications suitable for a variety of industries. We have installation and integration experience with expertise in one-on-one or large, multi-sided group meetings, and we currently have installations ranging from very simple configurations to highly customized rooms with multiple cameras, document presentation stands, recording devices, scanners, and printers.

 

Initially we provide consultation to address and evaluate the project requirements and to offer expert advice on technology solution for our customer’s specific application. We assess the customer’s needs, desires and existing communications equipment, as well as cost-justification and return-on-investment analysis for system installations. Our products and services include multipoint video conferencing, network integration services, custom room design, staffing, document conferencing and IP/web conferencing services.

 

A multipoint video conference is a video conference involving more than two sites. As a participant speaks, video is switched at all sites to broadcast the person speaking by a device called a multi-control unit. This switching unit is sound activated and can distinguish between short ambient sounds and long sustained sounds. It can also be set up in a “Hollywood Squares” type of look where all participants see each other. The call can also be set in a “chairperson mode” in which all sites see only the person heading the call. We offer multipoint bridge services to tie all of the locations, and we control this multipoint bridge. We outsource the remote access services which are incorporated into these multipoint video conferences to a variety of third-party providers. We have no fixed agreements with such third-party providers. Our base standard price is from $125 to $150 per hour per location which includes all costs related to these services. Where the client requests, we can staff a client assignment with one of our employees to manage all of the client’s video conferencing needs. The cost of this technical support varies from assignment to assignment.

 

We offer a wide variety of network integration services to support our clients’ planning, design, and implementation efforts in deploying new network technologies such as Internet protocol (IP), integrated services digital network (ISDN), a T-1 data transfer system or working with their existing network infrastructure. Our network integration services are designed to be comprehensive to ensure that all unique collaboration needs are met. Our services can include a full menu of services from initial order coordination with outside contractors or providers to liaison with local phone companies, installation, training, or can be customized for a particular job. Whether starting from scratch or working with an existing environment we can also provide all aspects of design and installation for video conferencing rooms, including room layout, furniture, built in wall monitors, custom audio and video as well as document collaboration such as T120 data conferencing and document camera and presentation stands. We will also design computer integration. Costs for these custom installations may vary based upon the layout and complexity of the job.

 

We also offer our clients document conferencing and IP/Web conferencing services. Document conferencing affords the ability to bring people together to discuss, review and collaborate as a group, and to make on-line, real-time decisions regardless of the locations of the participants. IP/web conferencing services provides the client with a reliable and affordable way to share software applications, PowerPoint presentations, or anything running on a personal computer with others in online meetings. With these systems, meeting participants can view with clarity what is displayed on a desktop. We utilize third party software and applications such as Polycom and Sony to provide these services to our clients.

 

When a video conferencing system is functional, we also provide training to all levels of the customer’s organization, including executives, managers, management information systems and data processing administrators, technical staff and end users. The training includes instruction in system operation, as well as the planning and administration of meetings. The training can last anywhere from one hour to two days, depending upon the level of training that the client requests or requires. All training costs are built into each sale where training is required.

 

We are also a reseller of video conferencing products, including integrated video conferencing systems, video presentation products, flat screen monitors, iPower collaboration tools, Polycom view stations. We sell products from a variety of top manufacturers including Sony, Elggen, Fujitsu, Hitachi, JVC, NEC, Panasonic, Phillips, Pioneer, Samsung and ViewSonic.

 

6

 

 

Suppliers

 

We are dependent on third-parties for the supply and manufacturing of our subassemblies, components and electronic parts, including standard and custom-designed components. We generally do not maintain supply agreements with such third-parties but instead purchase components and electronic parts pursuant to purchase orders in the ordinary course of business. We are dependent on the ability of our third-party manufacturers and suppliers to meet our design, performance and quality specifications.

 

Marketing and Distribution

 

Our security systems division focuses most of its sales and marketing efforts in various industries to companies where there is space/room to be monitored by our surveillance camera systems. Our marketing efforts are performed through direct sales force, referrals and our website .

 

Our video conferencing products and services are marketed and sold to the commercial, government, medical and educational sectors through a direct sales force and referrals. We currently have three sales agents in our direct sales force who are compensated under a commission program. Most of our sales come from word of mouth and referrals. Sales of video conferencing products to resellers are made on terms with respect to pricing, payment and returns that are consistent with those offered to end user customers. No price protection or similar arrangement is offered, nor are the obligations as to payment contingent on the resale of the equipment purchased by the reseller. There are no special rights to return equipment granted to resellers, nor are we obligated to repurchase reseller inventory.

 

We provide our security and surveillance and video conferencing sales force with ongoing training to ensure they have the necessary expertise to effectively market and promote our business and solutions. In conjunction with manufacturer-sponsored programs, we provide existing and prospective customers with sales, advertising and promotional materials. Our technical and training personnel periodically attend installation and service training sessions offered by various manufacturers to enhance their knowledge and expertise in the installation and maintenance of the systems.

 

Competition

 

The security industry is highly competitive. We compete on a local and regional level with a small number of major firms and many smaller companies in the installed surveillance system space, and nationally in the direct to dealer space. We compete primarily on the quality of our service and the design and reliability of our products. Some of our competitors have greater name recognition and financial resources than us. We may also face competition from potential new entrants into the security industry or increased competition from existing competitors that may attempt to develop the ability to offer the full range of services that we offer. We believe that competition is based primarily on the ability to deliver solutions that meet a client’s requirements and, to a lesser extent, on price. Our competitors in the installed system space include Vector Security, American Sentry Guard, GVI Security Solutions, Inc., ADT Security Services, Ltd. (a division of Tyco International) and Sonitrol, Inc. There can be no assurance that we will be able to compete successfully in the future against existing or potential competitors who are larger or better capitalized.

 

The market for video conferencing products and services is extremely competitive. Competitive factors include pricing, our reputation and ease of use. Our primary competitors include manufacturers and resellers of video communications equipment, some are larger, have longer operating histories and have greater financial resources and industry recognition than us. The competitors would include local Bell Companies, Polycom and Tandberg.

 

Since the barriers to entry in the market are relatively low and the potential market is large, we expect continued growth in existing competitors and the entrance of new competitors in the future. Most of our current and potential competitors have significantly longer operating histories and significantly greater managerial, financial, marketing, technical and other competitive resources, as well as greater name recognition than we do. As a result, these companies may be able to adapt more quickly to new or emerging technologies and changes in customer requirements and may be able to devote greater resources to the promotion and sale of their competing products and services. There are no assurances we will ever effectively compete in our target markets.

 

7

 

 

Our Customers

 

During the year ended December 31, 2017, one customer accounted for 34% of revenue.

 

Our video conferencing products and services are sold to commercial, government, medical and educational sectors that use technology to cost-effectively, instantaneously conduct remote meetings by linking participants in geographically dispersed locations. Our security system division provides the latest technologies in surveillance systems, digital video recording and services in any industry, organization and company.

 

Website

 

We maintain two websites at www.directview.com and www.directviewsecurity.com .

 

Intellectual Property

 

We do not have any intellectual property at this time.

 

Employees

 

We currently have 17 employees which includes our two officers; Roger Ralston, CEO and Michele Ralston, CFO both of whom are full-time. None of our employees are covered by a collective bargaining agreement, nor are they represented by a labor union. We have not experienced any work stoppages, and we consider relations with our employees to be good.

 

GHS Equity Financing Agreement and Registration Rights Agreement

 

Summary of the Offering

 

Shares currently outstanding (1):   202,743,300
     
Shares being offered:   60 ,000,000
     
Shares to    
Offering Price per share:   The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.
     
Use of Proceeds:   We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholder. However, we will receive proceeds from our initial sale of shares to GHS, pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of working capital and for potential acquisitions.
     
Trading Symbol:   DIRV
     
Risk Factors:   See “Risk Factors” beginning on page 11 and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock.

 

8

 

 

(1)

The number of shares of our Common Stock outstanding prior to and to be outstanding immediately after this offering, as set forth in the table above, is based on 202,743,300 shares outstanding as of July 23, 2018, and excluding 60,000,000 shares of Common Stock issuable in this offering.

 

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

 

The following summary consolidated statements of operations data for the fiscal years ended December 31, 2017 and 2016 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Additionally, the three months ended March 31, 2018 and 2017 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of March 31, 2018 are derived from our consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the quarter ended March 31, 2018 is not necessarily indicative of our operating results to be expected for the full fiscal year ending December 31, 2018 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    For the Three Months Ended March 31,  
    2018     2017  
             
NET SALES:                
Sales of Product   $ 967,057     $ 58,517  
Services     234,073       69,400  
Total Net Sales     1,201,130       127,917  
                 
COST OF SALES:                
Cost of Product     416,346       30,047  
Cost of Services     241,932       13,795  
Total Cost of Sales     658,278       43,842  
                 
GROSS PROFIT     542,852       84,075  
                 
OPERATING EXPENSES:                
Marketing and Public Relations     198,982       2,438  
Rent     34,114       645  
Depreciation     50,140       -  
Amortization     51,641       -  
Research and Development     -       3,700  
Compensation and Related Taxes     319,526       110,830  
Other Selling, General and Administrative     241,493       128,361  
                 
Total Operating Expenses     895,896       245,974  
                 
LOSS FROM OPERATIONS     (353,044 )     (161,899 )
                 
Gain (Loss) on Change in Fair Value of Derivative Liabilities     (24,902,861 )     2,469,356  
Initial Derivative Expense     (425,600 )     (103,281 )
Amortization of Debt Discount     (108,191 )     (153,550 )
Amortization of Deferred Financing Costs     (1,965 )     (6,708 )
Interest Expense     (301,839 )     (82,826 )
                 
Total Other Income (Expense)     (25,740,456 )     2,122,991  
                 
NET INCOME (LOSS)     (26,093,500 )     1,961,092  
                 
Net (Income) Loss Attributable to Non-Controlling Interest     20,983       (17,393 )
                 
Net Income (Loss) Attributable to DirectView Holdings, Inc.   $ (26,072,517 )   $ 1,943,699  
                 
NET LOSS PER COMMON SHARE                
Basic   $ (0.58 )   $ 0.43  
Diluted   $ (0.58 )   $ 0.04  
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                
Basic     44,908,006       4,506,194  
Diluted     44,908,006       54,902,385  

 

See accompanying notes to unaudited consolidated financial statements.

 

9

 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the Years Ended December 31,  
    2017     2016  
             
NET SALES:                
Sales of Product   $ 2,379,190     $ 309,687  
Services     525,797       151,015  
Total Net Sales     2,904,987       460,702  
                 
COST OF SALES:                
Cost of Product     1,192,177       134,662  
Cost of Services     450,952       96,603  
Total Cost of Sales     1,643,129       231,265  
                 
GROSS PROFIT     1,261,858       229,437  
                 
OPERATING EXPENSES:                
Marketing and Public Relations     129,112       178,495  
Rent     91,613       79,320  
Depreciation     142,468       15,156  
Amortization     146,318       -  
Bad Debt Expense     844       106,898  
Research and Development     11,344       18,014  
Compensation and Related Taxes     834,705       508,575  
Other Selling, General and Administrative     778,299       724,521  
                 
Total Operating Expenses     2,134,703       1,630,979  
                 
LOSS FROM OPERATIONS     (872,845 )     (1,401,542 )
                 
OTHER INCOME (EXPENSES):                
Gain on conversion of related party loan     2,310       10,264  
Gain (Loss) on Change in Fair Value of Derivative Liabilities     1,485,907       (958,072 )
Initial Derivative Expense     (537,541 )     (348,244 )
Interest Income     -       271  
Amortization of Debt Discount     (403,245 )     (1,721,296 )
Other Income     131,648       -  
Interest Expense     (1,353,399 )     (379,033 )
                 
Total Other Expense     (674,320 )     (3,396,110 )
                 
NET LOSS     (1,547,165 )     (4,797,652 )
                 
Net (Income) Loss Attributable to Non-Controlling Interest     (5,681 )     35,072  
                 
Net Loss Attributable to DirectView Holdings, Inc.   $ (1,552,846 )   $ (4,762,580 )
                 
                 
NET LOSS PER COMMON SHARE                
Basic and Diluted   $ (0.22 )   $ (16.95 )
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                
Basic and Diluted     6,976,620       280,943  

 

See accompanying notes to consolidated financial statements.

 

10

 

 

RISK FACTORS

 

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.

 

Special Information Regarding Forward-Looking Statements

 

Some of the statements in this prospectus are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the factors set forth herein under “Risk Factors.” The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements in this document to reflect any future or developments. However, the Private Securities Litigation Reform Act of 1995 is not available to us as a non-reporting issuer. Further, Section 27A(b)(2)(D) of the Securities Act and Section 21E(b)(2)(D) of the Securities Exchange Act expressly state that the safe harbor for forward looking statements does not apply to statements made in connection with an initial public offering.

 

11

 

 

Risks Related to Our Business

 

WE HAVE A HISTORY OF OPERATING LOSSES, ANTICIPATE FUTURE LOSSES AND MAY NEVER BE PROFITABLE.

 

We have experienced significant operating losses in our Company’s recent history. Our ability to achieve annual profitability in the future depends on a number of factors, including our ability to attract and service customers on a profitable basis and the growth of the video surveillance industry. If we are unable to achieve annual profitability, we may not be able to execute our business plan, our prospects may be harmed, and our stock price could be materially and adversely affected.

 

THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE.

 

The video surveillance and consumer markets in which we primarily compete are highly competitive and are influenced by competitive factors including:

 

our ability to rapidly develop and introduce new high performance integrated solutions;
   
the price and total cost of ownership and return on investment associated with the solutions;
   
the simplicity of deployment and use of the solutions;
   
the reliability and scalability of the solutions;
   
the market awareness of a particular brand;
   
our ability to provide secure access to wireless networks;
   
our ability to offer a suite of products and solutions;
   
our ability to allow centralized management of the solutions; and
   
our ability to provide quality product support.

 

New entrants seeking to gain market share by introducing new technology and new products may also make it more difficult for us to sell our products and could create increased pricing pressure. In addition, broadband equipment providers or system integrators may also offer wireless broadband infrastructure equipment for free or as part of a bundled offering, which could force us to reduce our prices or change our selling model to remain competitive.

 

If there is a shift in the market such that network operators and service providers begin to use closed network solutions that only operate with other equipment from the same vendor, we could experience a significant decline in sales because our products would not be interoperable.

 

We expect competition to continuously intensify as other established and new companies introduce new products in the same markets that we serve or intend to enter, as these markets consolidate. Our business will suffer if we do not maintain our competitiveness.

 

A number of our current or potential competitors have longer operating histories, greater brand recognition, larger customer bases and significantly greater resources than we do.

 

As we move into new markets for different types of products, our brand may not be as well-known as incumbents in those markets. Potential customers may prefer to purchase from their existing suppliers or well-known brands rather than a new supplier, regardless of product performance or features. We expect increased competition from other established and emerging companies if our markets continue to develop and expand. As we enter new markets, we expect to face competition from incumbent and new market participants and there is no assurance that our entry into new markets will be successful.

 

12

 

 

MANY OF THESE COMPANIES HAVE SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL, MARKETING, DISTRIBUTION AND OTHER RESOURCES THAN WE DO AND ARE BETTER POSITIONED TO ACQUIRE AND OFFER COMPLEMENTARY PRODUCTS AND TECHNOLOGIES.

 

Industry consolidation, acquisitions and other arrangements among competitors may adversely affect our competitiveness because it may be more difficult to compete with entities that have access to their combined resources. As a result of such consolidation, acquisition or other arrangements, our current and potential competitors might be able to adapt more quickly to new technologies and consumer preference, devote greater resources to the marketing and promotion of their products, initiate or withstand price competition, and take advantage of acquisitions or other opportunities more readily and develop and expand their products more quickly than we do. These combinations may also affect customers’ perceptions regarding the viability of companies our size and, consequently, affect their willingness to purchase our products.

 

THE COMPLEXITY OF OUR PRODUCTS COULD RESULT IN UNFORESEEN DELAYS OR EXPENSES CAUSED BY UNDETECTED DEFECTS OR BUGS.

 

Our products may contain defects and bugs when they are introduced, or as new versions are released. We have focused, and intend to focus in the future, on getting our new products to market quickly. Due to our rapid product introductions, defects and bugs that may be contained in our products may not yet have manifested. We have in the past experienced, and may in the future experience, defects and bugs. If any of our products contain material defects or bugs, or has reliability, quality or compatibility problems, we may not be able to promptly or successfully correct these problems. The existence of defects or bugs in our products may damage our reputation and disrupt our sales. If any of these problems are not found until after we have commenced commercial production and distribution of a new product, we may be required to incur additional development costs, repair or replacement costs, and other costs relating to regulatory proceedings, product recalls and litigation, which could harm our reputation and operating results. Undetected defects or bugs may lead to negative online Internet reviews of our products, which are increasingly becoming a significant factor in the success of our new product launches, especially for our consumer products. If we are unable to quickly respond to negative reviews, including end user reviews posted on various prominent online retailers, our ability to sell these products will be harmed. Moreover, we may offer stock rotation rights to our distributors. If we experience greater returns from retailers or end customers, or greater warranty claims, in excess of our reserves, our business, revenue and operating results could be harmed.

 

SECURITY VULNERABILITIES IN OUR PRODUCTS, SERVICES AND SYSTEMS COULD LEAD TO REDUCED REVENUES AND CLAIMS AGAINST US.

 

The quality and performance of some of our products and services may depend upon their ability to withstand cyber attacks. Third parties may develop and deploy viruses, worms and other malicious software programs, some of which may be designed to attack our products, systems, or networks. Some of our products and services also involve the storage and transmission of users’ and customers’ proprietary information which may be the target of cyber attacks. Hardware and software that we produce or procure from third parties also may contain defects in manufacture or design, including bugs and other problems, which could compromise their ability to withstand cyber attacks.

 

The costs to us to eliminate or alleviate security vulnerabilities can be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions, as well as potential liability to the company. The risk that these types of events could seriously harm our business is likely to increase as we expand the web-based products and services that we offer.

 

WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE CONTINUING LOSSES THAT WILL RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS AND WE MAY BE FORCED TO CEASE OPERATIONS.

 

We have incurred losses since our inception and have an accumulated deficit of $29,396,982 as of December 31, 2017. Our operations have been financed primarily through the issuance of equity and debt. For the year ended December 31, 2017, net loss and cash used in operations were $1,552,846 and $420,481, respectively. We are constantly evaluating our cash needs and our burn rate, in order to make appropriate adjustments in operating expenses. We anticipate that our cash used in operations will continue to increase as a result of becoming a public company due to increased professional fees. Our continued existence is dependent upon, among other things, our ability to raise capital and to market and sell our products and services successfully. While we are attempting to increase sales, growth has not been significant enough to support daily operations, there is no assurance that we will continue as a going concern. If we are unable to continue as a going concern and were forced to cease operations, it is likely that our stockholders would lose their entire investment in our company.

 

13

 

 

OUR AUDITORS HAVE EXPRESSED DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. IF WE WERE FORCED TO CEASE OUR BUSINESS AND OPERATIONS, YOU WOULD LOSE YOUR INVESTMENT IN OUR COMPANY.

 

Our revenues are not sufficient to enable us to meet our operating expenses and otherwise implement our business plan. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2017 contains an explanatory paragraph raising doubt as to our ability to continue as a going concern as a result of our losses from operations, stockholders’ deficit and negative working capital. Our consolidated financial statements, which appear elsewhere in this Form 10-K, are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result if we are not successful.

 

WE ARE PAST DUE IN THE PAYMENT OF PAYROLL TAXES.

 

At December 31, 2017, we had approximately $135,000 of accrued but unpaid payroll taxes and liabilities due the federal government which includes penalties and interest. We do not have the funds necessary to satisfy this obligation. If we are unable to raise the funds necessary, it is possible that we will be subject to significant additional fines and penalties, Mr. Ralston, our CEO, could be personally subject to a 100% penalty on the amount of unpaid taxes and the government could file liens against our company and our bank accounts until such time as the amounts have been paid.

 

WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS IF AT ALL. DUE TO THE SIZE OF OUR COMPANY AND THE LACK OF A PUBLIC MARKET FOR OUR COMMON STOCK IT IS LIKELY THAT THE TERMS OF ANY FINANCING WE MAY BE ABLE TO SECURE WILL BE DETRIMENTAL TO OUR CURRENT STOCKHOLDERS.

 

Our current operations are not sufficient to fund our operating expenses and we will need to raise additional working capital to continue our current business and to provide funds for marketing to support our efforts to increase our revenues. Generally, small businesses such as ours which lack a public market for their securities, face significant difficulties in their efforts to raise equity capital. While to date we have relied upon the relationships of our executive officers in our capital raising efforts, there are no assurances that we will be successful utilizing these existing sources. In such an event, we could be required to engage a broker-dealer to assist us in our capital raising efforts. Even if we are successful in finding a broker-dealer willing to assist us in raising capital, there are no assurances that the terms of financings offered by a broker-dealer will be as favorable as those we have offered our investors to date. While we do not have any commitments to provide additional capital, if we are able to raise capital, the structure of that capital raise could impact our company and our stockholders in a variety of ways. If we raise additional capital through the issuance of debt, this will result in interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing stockholders will be reduced and those stockholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. We cannot assure you that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all. If we do not raise funds as needed, we may not be able to continue our operations and it is likely that you would lose your entire investment in our company.

 

14

 

 

WE MAY NEED TO RAISE CAPITAL OVER THE NEXT TWELVE MONTHS TO FUND OUR OPERATIONS.

 

We do not have any additional commitments to provide capital and we cannot assure you that funds are available to us upon terms acceptable to us, if at all. If we do not raise funds as needed, our ability to provide for current working capital needs and satisfy our obligations is in jeopardy. In this event, you could lose all of your investment in our company.

 

BECAUSE WE SELL CAPITAL EQUIPMENT, OUR BUSINESS IS SUBJECT TO OUR CUSTOMERS’ CAPITAL BUDGET AND WE MAY SUFFER DELAYS OR CANCELLATIONS OF ORDERS. ANY DOWNTURN IN THE U.S. ECONOMY MAY ADVERSELY IMPACT NET SALES IN FUTURE PERIODS.

 

Customers for our products are companies that require teleconferencing equipment. These companies may purchase our equipment as part of their capital budget. As a result, we are dependent upon receiving orders from companies that are either expanding their business, commencing a new business, upgrading their capital equipment or otherwise require capital equipment. Our business is therefore dependent upon both the economic health of our customers’ financial condition and our ability to offer products that meet their requirements based on potential cost savings in using teleconferencing equipment in contrast to existing equipment or equipment offered by others.

 

OUR DEPENDENCE ON A LIMITED NUMBER OF THIRD-PARTY SUPPLIERS FOR KEY SURVEILLANCE, TELECONFERENCING AND CUSTOMIZED EQUIPMENT COULD PREVENT US FROM TIMELY DELIVERING OUR PRODUCTS TO OUR CUSTOMERS IN THE REQUIRED QUANTITIES, WHICH COULD RESULT IN ORDER CANCELLATIONS AND DECREASED REVENUES.

 

We purchase equipment from a limited number of third-party suppliers. If we fail to develop or maintain our relationships with these or our other suppliers, we may be unable to obtain equipment or our products may be available at a higher cost or after a long delay, and we could be prevented from delivering our products to our customers in the required quantities and at prices that are profitable. Problems of this kind could cause us to experience order cancellations and loss of market share. The failure of a supplier to supply components that meet our quality, quantity and cost requirements in a timely manner could impair our ability to deliver our products or increase our costs, particularly if we are unable to obtain these components from alternative sources on a timely basis or on commercially reasonable terms. As a result, such equipment is not readily available from multiple vendors and would be difficult to repair or replace.

 

WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS.

 

We place substantial reliance upon the efforts and abilities of our executive officers, Roger Ralston, our Chairman and Chief Executive Officer, and Michele Ralston, our Chief Financial Officer, and a director. The loss of the services of any of our executive officers could have a material adverse effect on our business, operations, revenues or prospects. We do not maintain key man life insurance on the lives of these individuals.

 

MANAGEMENT EXERCISES SIGNIFICANT CONTROL OVER MATTERS REQUIRING SHAREHOLDER APPROVAL WHICH MAY RESULT IN THE DELAY OR PREVENTION OF A CHANGE IN OUR CONTROL.

 

Roger Ralston, our Chairman and Chief Executive Officer, would have voting power equal to approximately 69.76% of our voting securities. As a result, management through such stock ownership rights has the ability to exercise significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership in management may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by shareholders other than management.

 

15

 

 

Risks Related to Our Stock

 

OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:

 

  technological innovations or new products and services by us or our competitors;
     
  additions or departures of key personnel;
     
  sales of our common stock, particularly under any registration statement for the purposes of selling any other securities, including management shares;
     
  negative sentiment from investors, customers, vendors and strategic partners due to doubt about our ability to continue as a going concern;
     
  our ability to execute our business plan;
     
  operating results that fall below expectations;
     
  loss of any strategic relationship;
     
  industry developments;
     
  economic and other external factors; and
     
  period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also significantly affect the market price of our common stock.

 

WE ARE SUBJECT TO PENNY STOCK RULES WHICH WILL MAKE THE SHARES OF OUR COMMON STOCK MORE DIFFICULT TO SELL.

 

We are subject to the Securities and Exchange Commission’s “penny stock” rules since our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a per share price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

 

In addition, the penny stock rules require that prior to a transaction the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.

 

OUR CURRENT CHIEF EXECUTIVE OFFICER AND A MEMBER OF THE BOARD OF DIRECTORS, MR. ROGER RALSTON, HOLDS SERIES A PREFERRED STOCK, CONTROLS A SIGNIFICANT PERCENTAGE OF OUR CAPITAL STOCK AND HAS SUFFICIENT VOTING POWER TO CONTROL THE VOTE ON SUBSTANTIALLY ALL CORPORATE MATTERS.

 

Roger Ralston, our chief executive officer and a member of the board of directors, controls a significant percentage of our capital stock. Accordingly, Mr. Ralston will be able to determine the composition of our board of directors, will retain the effective voting power to approve all matters requiring shareholder approval, will prevail in matters requiring shareholder approval, including, the election and removal of directors, and will continue to have significant influence over our business. As a result of his ownership and position in the Company, Mr. Ralston is able to influence all matters requiring shareholder action, including significant corporate transactions.

 

16

 

 

THERE IS, AT PRESENT, ONLY A LIMITED MARKET FOR OUR COMMON STOCK AND WE CANNOT ENSURE INVESTORS THAT AN ACTIVE MARKET FOR OUR COMMON STOCK WILL EVER DEVELOP OR BE SUSTAINED.

 

Our shares of common stock are thinly traded. Due to the illiquidity, the market price may not accurately reflect our relative value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Because our common stock is so thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price and investors may not be able to liquidate their investment in us at all or at a price that reflects the value of the business. In addition, our common stock currently trades on the OTC Pink, which generally lacks the liquidity, research coverage and institutional investor following of a national securities exchange like the NYSE MKT, the New York Stock Exchange or the Nasdaq Stock Market. While we intend to list our common stock on a national securities exchange once we satisfy the initial listing standards for such an exchange, we currently do not, and may not ever, satisfy such initial listing standards.

 

OUR BOARD OF DIRECTORS CAN AUTHORIZE THE ISSUANCE OF PREFERRED STOCK, WHICH COULD DIMINISH THE RIGHTS OF HOLDERS OF OUR COMMON STOCK AND MAKE A CHANGE OF CONTROL OF US MORE DIFFICULT EVEN IF IT MIGHT BENEFIT OUR SHAREHOLDERS.

 

Our board of directors is authorized to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the voting powers, preferences and other rights and limitations of the preferred stock. We currently have 51 shares of Series A Preferred Stock issued and outstanding. We may issue additional shares of preferred stock with a preference over our common stock with respect to dividends or distributions on liquidation or dissolution, or that may otherwise adversely affect the voting or other rights of the holders of common stock. Issuances of preferred stock, depending upon the rights, preferences and designations of the preferred stock, may have the effect of delaying, deterring or preventing a change of control, even if that change of control might benefit our shareholders.

 

OFFERS OR AVAILABILITY FOR SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.

 

Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock. As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could decrease the price of our common stock.

 

In addition, if our shareholders sell substantial amounts of our common stock in the public market, upon the expiration of any statutory holding period under Rule 144, upon the expiration of lock-up periods applicable to outstanding shares, or upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang,” in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, could also make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE. AS A RESULT, ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK.

 

We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investment in our common stock will only occur if our stock price appreciates.

 

17

 

 

WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.

 

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. While we have adopted certain corporate governance measures such as a Code of Ethics, we presently do not have any independent directors. It is possible that if we were to have independent directors on our board, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by our directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures and independent directors in formulating their investment decisions.

 

WE MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR INDEPENDENT AUDITORS.

 

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. We were not subject to these requirements for the fiscal year ended December 31, 2015. We are evaluating our internal control systems in order to allow our management to report on our internal controls, as a required part of our Annual Report on Form 10-K.

 

While we expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX 404, there is a risk that we will not comply with all of the requirements imposed thereby. At present, there is no precedent available with which to measure compliance adequacy. Accordingly, there can be no positive assurance that we will receive a positive attestation from our independent auditors.

 

In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could suffer.

 

Risks Related to the Offering

 

OUR EXISTING STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF OUR COMMON STOCK PURSUANT TO THE GHS FINANCING AGREEMENT.

 

The sale of our common stock to GHS Investments LLC in accordance with the Financing Agreement may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put options, the more shares of our common stock we will have to issue to GHS in order to exercise a put under the Financing Agreement. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.

 

18

 

 

The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

 

THE ISSUANCE OF SHARES PURSUANT TO THE GHS FINANCING AGREEMENT MAY HAVE A SIGNIFICANT DILUTIVE EFFECT.

 

Depending on the number of shares we issue pursuant to the GHS Financing Agreement, it could have a significant dilutive effect upon our existing shareholders. Although the number of shares that we may issue pursuant to the Financing Agreement will vary based on our stock price (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future stock prices, if the full amount of the Financing Agreement is realized. Dilution is based upon common stock put to GHS and the stock price discounted to GHS’s purchase price of 80% of the lowest trading price during the pricing period.

 

GHS INVESTMENTS LLC WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK WHICH COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.

 

Our common stock to be issued under the GHS Financing Agreement will be purchased at a twenty percent (20%) discount, or eighty percent (80%) of the lowest closing price for the Company’s common stock during the ten (10) consecutive trading days immediately preceding the Purchase Date (as defined in the GHS Financing Agreement).

 

GHS has a financial incentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the market price. If GHS sells our shares, the price of our common stock may decrease. If our stock price decreases, GHS may have further incentive to sell such shares. Accordingly, the discounted sales price in the Financing Agreement may cause the price of our common stock to decline.

 

WE MAY NOT HAVE ACCESS TO THE FULL AMOUNT UNDER THE FINANCING AGREEMENT.

 

The lowest closing price of the Company’s common stock during the ten (10) consecutive trading day period immediately preceding the filing of this Registration Statement was approximately $0.0055. At that price we would be able to sell shares to GHS under the Financing Agreement at the discounted price of $0.0044. At that discounted price, the 60,000,000 shares would only represent $264,000, which is far below the full amount of the Financing Agreement.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.

 

Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.

 

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Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

 

  changes in the market acceptance of our products;
     
  increased levels of competition;
     
  changes in political, economic or regulatory conditions generally and in the markets in which we operate;
     
  our relationships with our key customers;
     
  our ability to retain and attract senior management and other key employees;
     
  our ability to quickly and effectively respond to new technological developments;
     
  our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and
     
  other risks, including those described in the “Risk Factors” discussion of this prospectus.

 

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.

 

USE OF PROCEEDS

 

The Company will use the proceeds from the sale of the Shares for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in good faith deem to be in the best interest of the Company.

 

DETERMINATION OF OFFERING PRICE

 

We have not set an offering price for the shares registered hereunder, as the only shares being registered are those sold pursuant to the GHS Financing Agreement. GHS may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.

 

DILUTION

 

Not applicable. The shares registered under this registration statement are not being offered for purchase. The shares are being registered on behalf of our selling shareholders pursuant to the GHS Financing Agreement.

 

SELLING SECURITY HOLDER

 

The selling stockholder identified in this prospectus may offer and sell up to 60,000,000 shares of our common stock, which consists of shares of common stock to be sold by GHS pursuant to the Financing Agreement. If issued presently, the shares of common stock registered for resale by GHS would represent approximately 29.59% of our issued and outstanding shares of common stock as of July 23, 2018.

 

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We may require the selling stockholder to suspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading.

 

The selling stockholder identified in the table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described under the column “Shares of Common Stock Being Offered” in the table below.

 

GHS will be deemed to be an underwriter within the meaning of the Securities Act. Any profits realized by such selling stockholder may be deemed to be underwriting commissions.

 

Information concerning the selling stockholder may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly. We cannot give an estimate as to the number of shares of common stock that will actually be held by the selling stockholder upon termination of this offering, because the selling stockholders may offer some or all of the common stock under the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold, hereunder, will not exceed the number of shares offered, hereby. Please read the section entitled “Plan of Distribution” in this prospectus.

 

The manner in which the selling stockholder acquired or will acquire shares of our common stock is discussed below under “The Offering.”

 

The following table sets forth the name of each selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 202,743,300 shares of our common stock outstanding as of July 23, 2018.

 

Unless otherwise set forth below, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, and (b) no selling stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.

 

 

Shares

Owned by

the Selling

Stockholders

  Shares of Common Stock     Number of Shares to be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares  
Name of Selling Stockholder  

before the

Offering (1)

  Being
Offered
    # of
Shares (2)
    % of
Class (2)
 
GHS Investments LLC (3)       (4 )   0       0 %

 

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Notes:

 

(1) Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more than the number estimated in the table.

 

(2) Because the selling stockholders may offer and sell all or only some portion of the 60,000,000 shares of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our common stock that any of the selling stockholders will hold upon termination of the offering.

 

(3) Mark Grober exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned by GHS Investments LLC.

 

(4) Consists of up to 60,000,000 shares of common stock to be sold by GHS pursuant to the Financing Agreement.

 

THE OFFERING

 

On July 20, 2018, we entered into an Equity Financing Agreement (the “Financing Agreement”) with GHS Investments LLC (“GHS”). Although we are not mandated to sell shares under the Financing Agreement, the Financing Agreement gives us the option to sell to GHS, up to $8,000,000 worth of our common stock over the period ending twenty-four (24) months after the date this Registration Statement is deemed effective. The $8,000,000 was stated as the total amount of available funding in the Financing Agreement because this was the maximum amount that GHS agreed to offer us in funding. In connection with the Financing Agreement, the Company executed a promissory note dated July 10, 2018, in the principal amount of $21,000 (the “Note”) as payment of the commitment fee for the Financing Agreement. The Note has an original issue discount of 5%, bears interest at the rate of 10% per annum and has a maturity date of April 10, 2019. After 180 days the Note is convertible into shares of common stock of the Company at a fixed price of $0.0031 per share. There is no assurance the market price of our common stock will increase in the future. The number of common shares that remain issuable may not be sufficient, dependent upon the share price, to allow us to access the full amount contemplated under the Financing Agreement. If the bid/ask spread remains the same we will not be able to place a put for the full commitment under the Financing Agreement. Based on the lowest closing price of our common stock during the ten (10) consecutive trading day period preceding the filing date of this registration statement was approximately $0.0055, the registration statement covers the offer and possible sale of $264,000 worth of our shares.

 

The purchase price of the common stock will be set at eighty percent (80%) of the lowest trading price of the common stock during the ten (10) consecutive trading day period immediately preceding the date on which the Company delivers a put notice to GHS. In addition, there is an ownership limit for GHS of 9.99%.

 

GHS is not permitted to engage in short sales involving our common stock during the term of the commitment period. In accordance with Regulation SHO, however, sales of our common stock by GHS after delivery of a put notice of such number of shares reasonably expected to be purchased by GHS under a put will not be deemed a short sale.

 

In addition, we must deliver the other required documents, instruments and writings required. GHS is not required to purchase the put shares unless:

 

● Our registration statement with respect to the resale of the shares of common stock delivered in connection with the applicable put shall have been declared effective;

 

● We shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the registrable securities; and

 

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● We shall have filed all requisite reports, notices, and other documents with the SEC in a timely manner.

 

As we draw down on the equity line of credit, shares of our common stock will be sold into the market by GHS. The sale of these shares could cause our stock price to decline. In turn, if our stock price declines and we issue more puts, more shares will come into the market, which could cause a further drop in our stock price. You should be aware that there is an inverse relationship between the market price of our common stock and the number of shares to be issued under the equity line of credit. If our stock price declines, we will be required to issue a greater number of shares under the equity line of credit. We have no obligation to utilize the full amount available under the equity line of credit.

 

Neither the Financing Agreement nor any of our rights or GHS’s rights thereunder may be assigned to any other person.

 

PLAN OF DISTRIBUTION

 

Each of the selling stockholders named above and any of their pledgees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on OTC Markets or any other stock exchange, market or trading facility on which the shares of our common stock are traded or in private transactions. These sales may be at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

 

● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

● block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

● purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

● privately negotiated transactions;

 

● broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; or

 

● a combination of any such methods of sale.

 

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

GHS is an underwriter within the meaning of the Securities Act of 1933 and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. GHS has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock of our company. Pursuant to a requirement by FINRA, the maximum commission or discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceeds received by us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act of 1933.

 

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act of 1933.

 

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling stockholders. We may, however, receive proceeds from the sale of our common stock under the Financing Agreement with GHS. Neither the Financing Agreement with GHS nor any rights of the parties under the Financing Agreement with GHS may be assigned or delegated to any other person.

 

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We have entered into an agreement with GHS to keep this prospectus effective until GHS has sold all of the common shares purchased by it under the Financing Agreement and has no right to acquire any additional shares of common stock under the Financing Agreement.

 

The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders.

 

DESCRIPTION OF SECURITIES TO BE REGISTERED

 

General

 

We are authorized to issue an aggregate of one billion (1,000,000,000) shares of common stock, $0.0001 par value per share and 5,000,000 shares of preferred stock in one or more series and to fix the voting powers, preferences and other rights and limitations of the preferred stock. As of July 23, 2018, we had 202,743,300 shares of common stock outstanding and 51 shares of Series A Preferred Stock outstanding.

 

Each share of common stock shall have one (1) vote per share. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of Board of Directors.

 

Dividends

 

We have not paid any dividends on our common stock since our inception and do not intend to pay any dividends in the foreseeable future.

 

The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

 

Warrants

 

As of the date hereof, the Company has not issued any warrants to purchase any of the Company’s securities.

 

Options

 

As of the date hereof, the Company has not issued and options to purchase any of the Company’s securities.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

On October 21, 2016, the Board of Directors of the Company approved the adoption of Amendment No. 1 to the DirectView Holdings, Inc. 2014 Incentive Plan (the “Plan”) to increase the authorized shares under the Plan to 50,000,000. On November 23, 2016, the Company filed a Registration Statement on Form S-8 to register with the U.S. Securities and Exchange Commission 30,000,000 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 Plan. Please see the Plan filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the U.S. Securities and Exchange Commission on November 23, 2017.

 

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Preferred Stock

 

The Company has authorized 5,000,000 shares of preferred stock with a $.0001 par value. The board of directors has the authority to issue these shares and to set dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions. The board of directors designated 51 shares of preferred stock as Series A Preferred Stock, 51 shares of which are currently issued and outstanding.

 

Anti-Takeover Effects of Various Provisions of Nevada Law

 

Provisions of the Nevada Revised Statutes, our articles of incorporation, as amended, and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, would be expected to discourage certain types of takeover practices and takeover bids our Board may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us will outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

 

Blank Check Preferred

 

Our articles of incorporation permit our Board to issue preferred stock with voting, conversion and exchange rights that could negatively affect the voting power or other rights of our Common Stockholders. The issuance of our preferred stock could delay or prevent a change of control of our Company.

 

Amendments to our Articles of Incorporation and Bylaws

 

Under the Nevada Revised Statutes, our articles of incorporation may not be amended by stockholder action alone.

 

Nevada Anti-Takeover Statute

 

We may be subject to Nevada’s Combination with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder” from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10% or more of the corporation’s capital stock entitled to vote.

 

Limitations on Liability and Indemnification of Officers and Directors

 

The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors.

 

The limitation of liability and indemnification provisions under the Nevada Revised Stautes and in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

 

25

 

 

Authorized but Unissued Shares

 

Our authorized but unissued shares of Common Stock and preferred stock will be available for future issuance without stockholder approval, except as may be required under the listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

Penny Stock Considerations

 

Our shares will be “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00 per share. Thus, our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt.

 

In addition, under the penny stock regulations, the broker-dealer is required to:

 

● Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

 

● Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;

 

● Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value, and information regarding the limited market in penny stocks; and

 

● Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.

 

Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

The consolidated financial statements for the Company as of December 31, 2017 and 2016 and for the years then ended included in this prospectus have been audited by Assurance Dimensions, Inc. and D’Arelli Pruzansky, P.A., respectively, an independent registered public accounting firm, to the extent and for the periods set forth in our report and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

 

The legality of the shares offered under this registration statement will be passed upon by Lucosky Brookman LLP.

 

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INFORMATION WITH RESPECT TO THE REGISTRANT

 

Overview

 

Corporate History

 

We were incorporated under the laws of the State of Delaware on October 6, 2006. In October 2006 we acquired Ralston Communications and Meeting Technologies from DirectView, Inc., a Nevada corporation of which our executive officers and directors were officers and directors immediately prior to such acquisition, in exchange for the assumption by us of these subsidiaries working capital deficiencies and any and all trade credit and other liabilities. Immediately prior to this transaction, in conjunction with the acquisition by DirectView, Inc. of all of the stock of another entity which resulted in a change of control of DirectView, Inc., our executive officers and directors resigned from their positions with DirectView, Inc. Both Ralston Communications and Meeting Technologies had historically provided the video conferencing services we continue to provide. Thereafter, in February 2007 we formed DirectView Security and in July 2007 we formed DirectView Video. On March 14, 2014, the Board of Directors and the majority shareholders approved and ratified the Company’s reincorporation merger from Delaware to Nevada, amongst other corporate actions disclosed in the Company’s Information Statement on Schedule 14C filed with the Securities and Exchange Commission on April 8, 2014. In March of 2015, the Company completed a 1 for 30 reverse stock split of its common stock.

 

Organization

 

Directview Holdings, Inc., a Nevada corporation (“Directview Holdings”) was formed in October 2006. At that time DirectView Holdings acquired Ralston Communications Services, Inc., a Florida Corporation, (“Ralston Communications”) and Meeting Technologies, Inc. a Delaware corporation (“Meeting Tech”).

 

Thereafter Directview Holdings formed Directview Security Systems, Inc., a Florida corporation (“Directview Security”) as a wholly owned subsidiary in February 2007 and Directview Video Technologies, Inc., a Florida corporation, (“Directview Video”) as a wholly owned subsidiary in July 2007.

 

Subsidiaries

 

DirectView Video Technologies, Inc. - is a full-service provider of high-quality, cost efficient videoconferencing technologies and services. DirectView provides multipoint videoconferencing, network integration services, custom room design, staffing, document conferencing and IP / web conferencing services to businesses and organizations in the United States and around the world. DirectView conferencing services enable our clients to cost-effectively, instantaneously conduct remote meetings by linking participants in geographically dispersed locations.

 

DirectView Security Systems, Inc. - is a provider of the latest technologies in surveillance systems, digital video recording and services. The systems provide the latest in onsite and remote video and audio surveillance.

 

Ralston Communications Services, Inc. - is a full-service provider of network services who partners with Sprint and works with other carriers such as Verizon and AT&T. The network allows many clients of other Directview Holdings companies to communicate whether they need it for DirectView videoconferencing connections or monitoring or DVRs.

 

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Meeting Technologies Inc. - is a company that provides services similar to DirectView Video Technologies, Inc.

 

Video Surveillance Limited Liability Company - is a company specializing in video and surveillance and access control solutions.

 

Apex CCTV Limited Liability Company - is a company specializing in video and surveillance and access control solutions.

 

Current Business Operations

 

Through our subsidiaries, our business operates within two divisions (i) security and surveillance, and (ii) video conferencing services. All of these entities combine to provide the services offered by Directview Holdings. None of the employees or officers of Directview Holdings provide similar services for any other entity.

 

Security and Surveillance. Designs and installs surveillance systems, digital video recording and services.

 

Video conferencing services: Full-service provider of teleconferencing services.

 

Security and Surveillance

 

We provide our customers with a range of technologies in surveillance systems, digital video recording and services. The systems provide onsite and remote video and audio surveillance. We offer several service options to protect and maintain each company’s security investment which includes a customized security system. We assess each client’s security needs and challenges through an on-site survey, which is performed by specially trained technicians, consists of a video-taped analysis and in-depth interviews to determine each client’s security needs. We also make recommendations for initiating or improving each client’s systems as well as, providing a plan for growth. We are able to provide a plan for a simple addition or a major migration to a new platform. We provide the highest quality installations, from mobilization to final testing, certification and training. We offer a complete line of non-proprietary products including:

 

  DVR Recorders and Cameras
     
  NVR Recorders and IP Cameras
     
  Motion Detection and Thermal Imagery
     
  Remote Control Device Management
     
  Access Control Solutions
     
  Video Intercoms
     
  Laser and Video Beam Perimeter Security
     
  Security Design and Consulting
     
  Equipment Maintenance Service Plans

 

We have also developed customized software programs and applications to work with the products we offer to customers to enhance their convenience and capability. We have developed a mobile application which we call the “DirectView Security App” to enable full remote management of deployed surveillance devices including positioning cameras, setting recording parameters, and replay of selected video.

 

We target businesses of various sizes ranging from residential to large scale businesses. Our main markets can be divided into five categories which include:

 

  Transportation (Airports, Heliports, and Bus Terminals)
     
  Hospitality (Hotels, Golf Courses, and Bar/Restaurant)
     
  Industrial (Warehouse, Storage, and Manufacturing)
     
  Educational (Daycare, Private Schools, Learning Centers/Religious Organizations
     
  Residential (Condos/Co-ops, Property Management Companies, and Private Homes)

 

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Video Conferencing Services

 

We are a full-service provider of video conferencing technologies and services. We provide multipoint video conferencing, network integration services, custom room design, staffing, document conferencing and IP/web conferencing services to businesses and organizations in the United States and we focus to provide this around the world . We believe that our video conferencing services enable our clients to cost-effectively, instantaneously conduct remote meetings by linking participants in geographically dispersed locations. Our mission is to provide customized video conferencing solutions and services to businesses and organizations. From design to installation, we strive to deliver products and services that are simple to understand, easy to implement and even easier to use.

 

Our products and services include the:

 

● sale of conferencing services based upon usage,

 

● sale and installation of video equipment, and

 

● sale of maintenance agreements.

 

Video conferencing as a medium for business communications has provided opportunities to streamline complex business processes and to conduct transactions more efficiently. As a result, sophisticated audio or video-enabled interactive communications have become increasingly necessary as companies seek to become more efficient and effective. We seek to employ the technical knowledge of our management team to provide our clients with solutions for a wide range of applications suitable for a variety of industries. We have installation and integration experience with expertise in one-on-one or large, multi-sided group meetings, and we currently have installations ranging from very simple configurations to highly customized rooms with multiple cameras, document presentation stands, recording devices, scanners, and printers.

 

Initially we provide consultation to address and evaluate the project requirements and to offer expert advice on technology solution for our customer’s specific application. We assess the customer’s needs, desires and existing communications equipment, as well as cost-justification and return-on-investment analysis for system installations. Our products and services include multipoint video conferencing, network integration services, custom room design, staffing, document conferencing and IP/web conferencing services.

 

A multipoint video conference is a video conference involving more than two sites. As a participant speaks, video is switched at all sites to broadcast the person speaking by a device called a multi-control unit. This switching unit is sound activated and can distinguish between short ambient sounds and long sustained sounds. It can also be set up in a “Hollywood Squares” type of look where all participants see each other. The call can also be set in a “chairperson mode” in which all sites see only the person heading the call. We offer multipoint bridge services to tie all of the locations, and we control this multipoint bridge. We outsource the remote access services which are incorporated into these multipoint video conferences to a variety of third party providers. We have no fixed agreements with such third-party providers. Our base standard price is from $125 to $150 per hour per location which includes all costs related to these services. Where the client requests, we can staff a client assignment with one of our employees to manage all of the client’s video conferencing needs. The cost of this technical support varies from assignment to assignment.

 

We offer a wide variety of network integration services to support our clients’ planning, design, and implementation efforts in deploying new network technologies such as Internet protocol (IP), integrated services digital network (ISDN), a T-1 data transfer system or working with their existing network infrastructure. Our network integration services are designed to be comprehensive to ensure that all unique collaboration needs are met. Our services can include a full menu of services from initial order coordination with outside contractors or providers to liaison with local phone companies, installation, training, or can be customized for a particular job. Whether starting from scratch or working with an existing environment we can also provide all aspects of design and installation for video conferencing rooms, including room layout, furniture, built in wall monitors, custom audio and video as well as document collaboration such as T120 data conferencing and document camera and presentation stands. We will also design computer integration. Costs for these custom installations may vary based upon the layout and complexity of the job.

 

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We also offer our clients document conferencing and IP/Web conferencing services. Document conferencing affords the ability to bring people together to discuss, review and collaborate as a group, and to make on-line, real-time decisions regardless of the locations of the participants. IP/web conferencing services provides the client with a reliable and affordable way to share software applications, PowerPoint presentations, or anything running on a personal computer with others in online meetings. With these systems, meeting participants can view with clarity what is displayed on a desktop. We utilize third party software and applications such as Polycom and Sony to provide these services to our clients.

 

When a video conferencing system is functional, we also provide training to all levels of the customer’s organization, including executives, managers, management information systems and data processing administrators, technical staff and end users. The training includes instruction in system operation, as well as the planning and administration of meetings. The training can last anywhere from one hour to two days, depending upon the level of training that the client requests or requires. All training costs are built into each sale where training is required.

 

We are also a reseller of video conferencing products, including integrated video conferencing systems, video presentation products, flat screen monitors, iPower collaboration tools, Polycom view stations. We sell products from a variety of top manufacturers including Sony, Elggen, Fujitsu, Hitachi, JVC, NEC, Panasonic, Phillips, Pioneer, Samsung and ViewSonic.

 

Suppliers

 

We are dependent on third parties for the supply and manufacturing of our subassemblies, components and electronic parts, including standard and custom-designed components. We generally do not maintain supply agreements with such third parties but instead purchase components and electronic parts pursuant to purchase orders in the ordinary course of business. We are dependent on the ability of our third-party manufacturers and suppliers to meet our design, performance and quality specifications.

 

Marketing and Distribution

 

Our security systems division focuses most of its sales and marketing efforts in various industries to companies where there is space/room to be monitored by our surveillance camera systems. Our marketing efforts are done through direct sales force, referrals and our website .

 

Our video conferencing products and services are marketed and sold to the commercial, government, medical and educational sectors through a direct sales force and through referrals. We currently have three sales agents in our direct sales force that works for commission. Most of our sales comes from word of mouth and referrals. Sales of video conferencing products to resellers are made on terms with respect to pricing, payment and returns that are consistent with those offered to end user customers. No price protection or similar arrangement is offered, nor are the obligations as to payment contingent on the resale of the equipment purchased by the reseller. There are no special rights to return equipment granted to resellers, nor are we obligated to repurchase reseller inventory.

 

We provide our security and surveillance and video conferencing sales force with ongoing training to ensure that it has the necessary expertise to effectively market and promote our business and solutions. In conjunction with manufacturer-sponsored programs, we provide existing and prospective customers with sales, advertising and promotional materials. Our technical and training personnel periodically attend installation and service training sessions offered by various manufacturers to enhance their knowledge and expertise in the installation and maintenance of the systems.

 

Competition

 

The security industry is highly competitive. We compete on a local and regional level with a small number of major firms and many smaller companies in the installed surveillance system space, and nationally in the direct to dealer space. We compete primarily on the quality of our service and the design and reliability of our products. Some of our competitors have greater name recognition and financial resources than us. We may also face competition from potential new entrants into the security industry or increased competition from existing competitors that may attempt to develop the ability to offer the full range of services that we offer. We believe that competition is based primarily on the ability to deliver solutions that meet a client’s requirements and, to a lesser extent, on price. Our competitors in the installed system space include Vector Security, American Sentry Guard, GVI Security Solutions, Inc., ADT Security Services, Ltd. (a division of Tyco International) and Sonitrol, Inc. There can be no assurance that we will be able to compete successfully in the future against existing or potential competitors who are larger or better capitalized.

 

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The market for video conferencing products and services is extremely competitive. Competitive factors include pricing, our reputation and ease of use. Our primary competitors include manufacturers and resellers of video communications equipment, some are larger, have longer operating histories and have greater financial resources and industry recognition than us. The competitors would include local Bell Companies, Polycom and Tandberg.

 

Since the barriers to entry in the market are relatively low and the potential market is large, we expect continued growth in existing competitors and the entrance of new competitors in the future. Most of our current and potential competitors have significantly longer operating histories and significantly greater managerial, financial, marketing, technical and other competitive resources, as well as greater name recognition, than we do. As a result, these companies may be able to adapt more quickly to new or emerging technologies and changes in customer requirements and may be able to devote greater resources to the promotion and sale of their competing products and services. There are no assurances we will ever effectively compete in our target markets.

 

Our Customers

 

During the year ended December 31, 2017, one customer accounted for 34% of revenues.

 

Our video conferencing products and services are sold to commercial, government, medical and educational sectors that use technology to cost-effectively, instantaneously conduct remote meetings by linking participants in geographically dispersed locations. Our security system division provides the latest technologies in surveillance systems, digital video recording and services in any industry, organization and companies.

 

Website

 

We maintain two websites at www.directview.com and www.directviewsecurity.com .

 

Intellectual Property

 

We do not have any intellectual property at this time.

 

Employees

 

We currently have seventeen employees which includes our two officers; Roger Ralston, CEO and Michele Ralston, CFO both of whom are full-time. None of our employees are covered by a collective bargaining agreement, nor are they represented by a labor union. We have not experienced any work stoppages, and we consider relations with our employees to be good.

 

MARKET PRICE OF THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Common Stock

 

Our shares of common stock are quoted on the OTC Markets OTC Pink under the symbol “DIRV”. The OTC Markets OTC Pink is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. An OTC Markets OTC Pink equity security is not listed or traded on a national securities exchange.

 

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The following table sets forth the high and low price for our common stock for each quarter during the 2016 and 2017 fiscal years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.

 

Fiscal 2016   High     Low  
First Quarter (January 1 – March 31)   $ 38.50     $ 17.50  
Second Quarter (April 1 – June 30)   $ 20.30     $ 2.10  
Third Quarter (July 1 – September 30)   $ 4.20     $ 0.42  
Fourth Quarter (October 1 – December 31   $ 0.06     $ 0.14  

 

Fiscal 2017   High     Low  
First Quarter (January 1 – March 31)   $ 0.22     $ 0.04  
Second Quarter (April 1 – June 30)   $ 0.28     $ 0.027  
Third Quarter (July 1 – September 30)   $ 0.045     $ 0.005  
Fourth Quarter (October 1 – December 31)   $ 0.044     $ 0.01  

 

Fiscal 2018   High     Low  
First Quarter (January 1 – March 31)   $ 0.0221     $ 0.0032  
Second Quarter (April 1 – June 30)   $ 0.0395     $ 0.006  
Third Quarter (July 1 – July 10)   $ 0.0095     $ 0.0053  

 

(b) Holders of Common Equity

 

As of the date hereof, there were approximately 195 stockholders of record. An additional number of stockholders are beneficial holders of our common stock in “street name” through banks, brokers and other financial institutions that are the record holders.

 

(c) Dividend Information

 

We have not paid any cash dividends to our holders of common stock. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

You should read the following discussion of our financial condition and results of operations in conjunction with financial statements and notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the section labeled “Risk Factors.”

 

This section of the prospectus includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project,” and similar expressions, or words that, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this prospectus. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

 

Overview

 

Our Company was formed in October 2006 and immediately thereafter we acquired Ralston Communication Services and Meeting Technologies from DirectView, Inc., a Nevada corporation of which Mr. and Mrs. Ralston were officers and directors immediately prior to such acquisition, in exchange for the assumption by us of these subsidiaries working capital deficiencies and any and all trade credit and other liabilities. Both of these entities had historically provided the video conferencing services we continue to provide. Thereafter, in February 2007, we formed DirectView Security Systems, Inc. (“DirectView Security”) and in July 2007 we formed DirectView Video. DirectView Security began offering services and products immediately from inception.

 

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Effective April 20, 2017, 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”). The Company entered into the SPA to expand business operations and increase our presence. We anticipate serving more clients and increasing revenue with the addition of VS and APEX.

 

Our operations are conducted within New York and Texas.

 

We operate our security division through DirectView Security, Virtual Surveillance, and ApexCCTV, LLC where we provide a wide array of video and audio hardware and software options to create custom security and surveillance solutions for large and small businesses as well as residential customers. The Company currently services customers in transportation, hotel and hospitality, education, cannabis, food services, and real estate industries.

 

We provide our customers with the latest technologies in surveillance systems, digital video recording and services. The systems provide onsite and remote video and audio surveillance. We generate revenue through the sale and installation of surveillance systems and the sale of maintenance agreements.

 

We have also developed custom software programs and applications to work with the products we offer to customers to enhance their convenience and capability. We have developed a mobile application which we call the “DirectView Security App” to enable full remote management of deployed surveillance devices including positioning cameras, setting recording parameters, and replay of selected video. The DirectView Security App provides full encryption and is compatible with all Apple and Android based mobile devices. We are also in late stage development of a proprietary software platform targeted for educational institutions/daycare, aviation, and religious organizations. The platform will enable tiered database controlled access to multiple encrypted live streaming videos with audio with full scalability. The software will allow these businesses and organizations to provide parents, patrons or customers access to see and view a particular classroom, attend a religious service, or watch any activity permitted by the licensor of the software through any internet connected mobile device or computer.

 

We target businesses of various sizes ranging from residential to large scale businesses.

 

Beginning in 2014, we focused a significant amount of our business development and marketing efforts towards the legalized cannabis industry. We see this market as a strong growth area for the Company due to our belief that the political landscape will continue to move towards the legalization of marijuana for medical and recreational use across the country.

 

The medical use of cannabis is legal (with a doctor's recommendation) in 31 states, the District of Columbia, and the territories of Guam and Puerto Rico. The recreational use of cannabis is legal in 9 states (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Vermont, and Washington) plus the District of Columbia, and decriminalized in another 13 states plus the U.S. Virgin Islands. M any large security service providers have publicly avoided servicing businesses engaged in the sale or growing of marijuana which we believe lowers the competitive landscape.

 

In addition to conducting direct sales activities to businesses operating in this market, we also focus on partnerships with other service providers in the industry that are generally involved in the design and construction of facilities to grow and dispense marijuana. We have a preferred provider agreement with Legacy Construction Company of Colorado, LLC (“Legacy”). Under the terms of the preferred provider agreement, Legacy directs their retail and marijuana facility construction clients to DirectView for video surveillance and security needs. Legacy has over fifteen years of experience and expertise in commercial general contracting with specific experience in the retail and medical marijuana industry. Legacy holds a Class A general contractors license in six states including Colorado, Wyoming, Nevada, New Mexico, Utah, and Arizona. We also have a strategic partnership agreement with Cannamor, LLC (“Cannamor”), a privately held Colorado based consulting company focusing on legal cannabis growing and dispensing projects, where we are engaged as its exclusive security solutions provider. Under the terms of the agreement, Cannamor exclusively endorses and recommends DirectView as its vendor of choice for the planning and installation of video surveillance, video monitoring, video recording products and related services to its prospective clients. Both of these arrangements have led to sales and a number of large potential project leads within our sales pipeline. We continue to see this industry as a growing part of our security and surveillance business for the foreseeable future.

 

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In an effort to further expand our market opportunities, in April 2015, we began preparations to develop a unique body-worn-camera solution to target law enforcement, business security and homeland security markets. We expect the solution to comprise of a line of body-worn-cameras integrated with a suite of communications capabilities including high capacity streaming video, Bluetooth ®, GPS, push to talk, WIFI/4G LTE, and imbedded biometric access. We are also working to integrate the video feeds with backend storage solutions for video/audio storage including playback and editing of stored evidence. We have received body-worn-camera prototypes that have been manufactured to our design specifications by a large third-party manufacturer and we are currently beta testing those prototypes. We intend to have that manufacturer produce a finished product upon successful completion of product testing.

 

In order to enhance the communications capability of the solution as well as our marketing capabilities, we entered into an agreement with xG Technology, Inc. (“xG”), a developer of wireless communications and spectrum sharing technologies, to integrate our body-worn-camera device and related hardware with xG’s xMax private mobile broadband technology. The planned integration will consolidate the private, secure, high-performance communications capabilities of xMax with the features and functionality of our body-worn cameras.

 

We intend to offer our body-worn-cameras and the related suite of communications and storage solutions to our target customers through both direct sales and strategic partnerships with companies that sell complimentary products in the areas of law enforcement, homeland security and private security. In addition to our integration agreement with xG, we entered into a co-marketing agreement with PositiveID Corporation (“PSID”), a developer of diagnostic testing systems for use by first responders, to jointly market both companies’ products to homeland security and first responder markets. We believe that co-marketing and product integration agreements such as these will expand the breadth of our product offerings and enable us to leverage the marketing capabilities of our partners to increase sales opportunities upon product launch.

 

Our video conferencing products and services enable our clients to cost-effectively conduct remote meetings by linking participants in geographically dispersed locations. Our primary focus is to provide high value-added conferencing products and services to organizations such as commercial, government, medical and educational sectors. We generate revenue through the sale of conferencing services based upon usage, the sale and installation of video equipment and the sale of maintenance agreements.

 

Our Outlook

 

Our net sales are currently not sufficient to fund our operating expenses. We have relied upon funds from the issuance of convertible promissory notes, the sale of common stock and advances from our executive officers to provide working capital to the Company. These funds, however, are not sufficient to pay all of our expenses nor to provide the additional capital we believe is necessary to permit us to properly market our company in an effort to increase our sales. We are always looking for opportunities with new dealers to expand our IP based surveillance products offerings and plan to evaluate the market for our products throughout 2018 to determine whether we should hire additional employees in our sales force. We seek to leverage our current customer base which includes major international hotel chains, well known real estate development companies, and respected educational facilities, to build our reputation as a trusted security provider and generate customer referrals. Beginning in 2014 we also began targeting our marketing efforts toward the cannabis industry. We see the specific security needs of this industry, representing a significant opportunity for sales growth. Each state has specific requirements for security which includes extensive video surveillance and perimeter security. Additionally, some larger security companies have been hesitant to enter this market up to this point we believe this will help reduce competitive pressures. While we believe our strategy for growth will result in an increase in demand for our products and service and generate revenues, no assurance can be provided that we will successfully implement our strategy. We are subject to significant business risks and may need to raise additional capital in order to realize and effectuate the above strategy. As a result of the addition of VS and APEX we are planning a roll up strategy to acquire more entities that will compliment ours and enhance our revenue and growth.

 

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Results of Operations

 

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

 

Net Sales

 

Overall, our net sales for the three months ended March 31, 2018 increased approximately 555% from the comparable period in 2016. The following table provides comparative data regarding the source of our net sales in each of these periods and the change from 2017 to 2018:

 

   

Three Months Ended

March 31, 2018

    Three Months Ended
March 31, 2017
       
    $     % of Total     $     % of Total     Variance  
Sale of product     967,057       81 %     58,517       46 %     1553 %
Service     234,073       19 %     69,400       54 %     237 %
Total     1,201,130       100 %     127,917       100 %     839 %

 

Sales of product for the three months ended March 31, 2018 increased approximately 1553% as compared to the three months ended March 31, 2017. The increase is attributed to the acquisition of VS and Apex. Service revenue increased by approximately 237% for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. The increase was also attributed to the acquisition of VS and Apex.

 

Net sales increased due to the acquisition of VS and Apex. In an effort to continue to increase our sales in future periods, we believe we need to monitor and grow the business related to the acquisition of VS and Apex along with hiring additional sales staff to initiate a telemarketing campaign and to obtain leads from various lead sources such as lead generating telemarketing lists, email marketing campaigns and other sources. However, given our lack of working capital, we cannot assure that we will ever be able to successfully implement our current business strategy or increase our revenues in future periods.

 

Cost of Sales

 

Cost of product includes product and delivery costs relating to the sale of product revenue. Cost of services includes labor and installation for service revenue. Overall, cost of sales increased approximately 1401% for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The following table provides comparative data regarding the breakdown of the cost of sales in each of these periods and the change from 2017 to 2018:

 

    Three Months Ended
March 31, 2018
    Three Months Ended
March 31, 2017
       
    $     % of Total     $     % of Total     Variance  
Cost of product     416,346       63 %     30,047       69 %     1286 %
Cost of service     241,932       37 %     13,795       31 %     1654 %
Total     658,278       100 %     43,842       100 %     1401 %

 

During the three months ended March 31, 2018, our cost of product increased approximately 1286% as compared to the three months ended March 31, 2017 which is directly related to the acquisition of VS and Apex. Our cost of services for the three months ended March 31, 2018 increased 1654% as compared to the three months ended March 31, 2017 due to the acquisition of VS and Apex.

 

Total operating expenses for the three months ended March 31, 2018 were $895,896, an increase of $649,922, or approximately 264%, from total operating expenses for the comparable three months ended March 31, 2017 of $245,974. This increase is primarily attributable to the acquisition of VS and Apex coupled with increase in compensation and related taxes, rent, depreciation expense, amortization expense, marketing and public relations, rent and other selling, general and administrative expenses.

 

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Loss from Operations

 

We reported loss from operations of $353,044 for the three months ended March 31, 2018, as compared to a loss from operations of $161,899 for the three months ended March 31, 2017, representing an increase in loss of $191,145 or 118%.

 

Other Income (Expense)

 

Total other expense was $25,740,456 for the three months ended March 31, 2018 as compared to total other income of $2,122,991 for the three months ended March 31, 2017. The increase in other expense was primarily attributable to the loss on change in fair value of derivative liabilities, increase in interest expense, increase in initial derivative expense, offset by a reduction of amortization of debt discount and a reduction in amortization of deferred financing costs for the three months ended March 31, 2018 compared to the three months ended March 31, 2017.

 

Net Loss

 

We reported a net loss of $26,093,500 for the three months ended March 31, 2018 as compared to a net income of $1,961,092 for the three months ended March 31, 2017. Net loss from non-controlling interest for the three months ended March 31, 2018 was $20,983 compared to net income of $17,393 for the three months ended March 31, 2017.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At March 31, 2018, we had a cash balance of $184,410. Our working capital deficit was $38,049,671 at March 31, 2018.

 

We reported a net increase in cash for the three months ended March 31, 2018 of $115,973. While we currently have no material commitments for capital expenditures, at March 31, 2018 we owed approximately $1.9 million under various notes payable. During the three months ended March 31, 2018, we have raised $308,500 of net proceeds from convertible notes payable.

 

Accrued expenses were $3,852,882 as of March 31, 2018 and consist of the following:

 

  Accrued salaries for certain employees amounting to $1,835,980
  Accrued commissions for certain employees amounting to $10,357
  Sales tax payable of $58,364
  Accrued interest of $1,789,189
  Accrued payroll liabilities and taxes of $141,732
  Other accrued expenses of $17,260

 

On January 5, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $8,947 with a one-year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $13,098, OID of $447, debt discount of $8,053 and derivative expense of $5,045. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $8,947 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 amounted to $2,572.

 

On January 19, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $7,895 with a one-year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $11,557, OID of $395, debt discount of $7,105 and derivative expense of $4,452. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $7,895 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 amounted to $1,958.

 

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On January 24, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632 with a one-year maturity date. This convertible debenture converts at 55% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $84,591, OID of $2,632, debt discount of $47,368 and derivative expense of $37,223. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 amounted to $12,829.

 

On January 30, 2018, the Company issued a convertible promissory note with a principal balance of $58,000 with a one-year maturity date. This note holder has the right to convert the principal balance of the debenture beginning on the date which is one hundred eighty (180) days following the date of this note and ending on the later of the maturity date and the date of the default amount. The convertible promissory note has terms to convert at a 37% discount of the lowest trading price during the 10 days prior to conversion. The Company recorded $3,000 in deferred financing associated with this note. The deferred financing is being amortized on a straight-line basis over the term of the note. The balance of the convertible promissory note amounted to $58,000 as of March 31, 2018. The balance of the convertible promissory note net of deferred financing as of March 31, 2018 amounted to $55,917.

 

On February 9, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $15,789 with a one-year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $23,434, OID of $789, debt discount of $8,434 and derivative expense of $15,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $15,789 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $7,719.

 

On February 15, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $12,632 with a one-year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $18,747, OID of $632, debt discount of $6,747 and derivative expense of $12,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $12,632 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $6,175.

 

On February 26, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $26,316 with a one-year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $39,056, OID of $1,316, debt discount of $14,056 and derivative expense of $25,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $26,316 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $12,225.

 

On March 6, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $31,579 with a one-year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $50,755, OID of $1,579, debt discount of $28,421 and derivative expense of $22,334. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $31,579 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018 amounted to $4,079.

 

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On March 9, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $31,579 with a one-year maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $46,868, OID of $1,579, debt discount of $16,868 and derivative expense of $30,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $31,579 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $13,901.

 

On March 16, 2018, the Company issued a replacement convertible promissory note with a principal balance of $124,689 with a one-year maturity date that was recorded under note payable on the company’s balance sheet as of December 31, 2017 in the amount of $66,667 and accrued interest of $8,811. This convertible debenture converts at 55% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $200,404 and derivative expense of $202,404. During the quarter ended March 31, 2018, the note holder converted $18,150 of the principal balance of the convertible promissory note into 10,312,500 common shares at a contractual rate of $.00176 per share. The balance of the convertible promissory note amounted to $106,539 as of March 31, 2018.

 

On March 21, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632 with a nine-month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $74,001, OID of $2,632, debt discount of $24,000 and derivative expense of $50,001. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $23,205.

 

On March 23, 2018, the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $26,316 with a one-year maturity date. This convertible debenture converts at 55% of the lowest trading price during the 30 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $42,848, OID of $1,316, debt discount of $17,848 and derivative expense of $25,000. The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $26,316 as of March 31, 2018. The balance of the convertible promissory note net of OID and debt discount as of March 31, 2018, amounted to $7,915.

 

We reported a net loss of $26,093,500 during the three months ended March 31, 2018. At March 31, 2018 we had a working capital deficit of $38,049,671. We do not anticipate we will be profitable in 2018. Therefore, our operations will be dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. The trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Furthermore, we have debt obligations, which must be satisfied. If we are successful in securing additional working capital, we intend to increase our marketing efforts to grow our revenues. Other than those disclosed above, we do not presently have any firm commitments for any additional capital and our financial condition as well as the uncertainty in the capital markets may make our ability to secure this capital difficult. There are no assurances that we will be able to continue our business, and we may be forced to cease operations in which event investors could lose their entire investment in our company. Included in our Notes to the financial statements for the year ended December 31, 2017 is a discussion regarding Going Concern.

 

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Operating Activities

 

Net cash used in operating activities for the three months ended March 31, 2018 amounted to $52,500 and was primarily attributable to our net loss of $26,093,500 coupled with an increase in accounts receivable of $105,281, an increase in other assets of $10,545 and a decrease in deferred revenue of $43,646. The losses were offset by an increase in initial derivative liability expense of $425,600, an increase in depreciation and amortization expense of $101,782, an increase in amortization of debt discount of $108,191, an increase in deferred financing costs of $1,965, an increase in original issue discount of $6,372, an increase in stock compensation expense of $71,200, an increase in accrued expenses of $405,964, an increase in accounts payable of $192,061, an increase in other current assets of $69, and a loss on change in fair value of derivative liabilities of $24,902,861. Net cash flows used in operating activities for the three months ended March 31, 2017 amounted to $136,498 and was primarily attributable to our net income of $1,961,092 coupled with an increase in derivative liability expense of $103,281, an increase in amortization of debt discount of $153,550, an increase in deferred financing costs of $1,708, an increase in original issue discount of $11,945, an increase in accounts payable of $32,808, an increase in accrued expenses of $145,986 and an increase in other assets of $9,332. The losses were offset by a decrease in accounts receivable of $85,167, a decrease in other assets of $1,677 and a change in fair value of derivative liabilities of $2,469,356.

 

Investing Activities

 

Net cash used in investing activities was $5,130 for the three months ended March 31, 2018 and consisted of a purchase of property and equipment.

 

Financing Activities

 

Net cash provided by financing activities was $173,603 for the three months ended March 31, 2018. We received proceeds from convertible notes payable of $308,500. These amounts were offset by repayments of notes payables of $118,877, repayments on the line of credit of $4,020, and payments to a related party of $12,000. Net cash flows provided by financing activities was $119,000 for the three months ended March 31, 2017. We received proceeds from convertible notes payable of $59,000 and proceeds from notes payable of $60,000.

 

Contractual Obligations

 

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

 

The following table summarizes our contractual obligations as of March 31, 2018, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

 

    Payments Due by Period  
    Total     Less than 1 year     1-3 Years     4-5 Years     5 Years +  
Contractual Obligations:                                        
Operating Leases   $ 136,452       125,081       11,371       -       -  
Total Contractual Obligations:   $ 136,452       125,081       11,371       -       -  

 

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Critical Accounting Policies and Estimates

 

Our unaudited financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s applications of accounting policies. Critical accounting policies for our company include revenue recognition and accounting for stock-based compensation, use of estimates, accounts receivable, property and equipment, derivative liabilities and income taxes.

 

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.

 

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Stock Based Compensation

 

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under ASC 718. Upon adoption of ASC 718, the Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk-free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

 

Use of Estimates

 

The preparation of these unaudited financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Account Receivable

 

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in existing accounts receivable. We periodically review our 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 allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Property and Equipment

 

Property and equipment are 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.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”). It requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

 

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Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and we intend to settle our current tax assets and liabilities on a net basis.

 

Pursuant to accounting standards related to the accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on our financial statements.

 

Recent Accounting Pronouncements and Adoption of New Accounting Principles

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flows, except as described below.

 

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 was to become effective for us beginning January 2017; however, ASU 2015-14 deferred our effective date until January 2018, which is when we plan to adopt this standard. The ASU permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The ASU also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We have completed the process of evaluating the effect of the adoption and determined that our contracts for which customers purchase both surveillance products and installation services from us may result in a change to our reported revenues as a result of the adoption. Based on our evaluation process and review of our contracts with customers, the timing and amount of revenue recognized based on ASU 2015-14 will be recognized when our performance obligations are satisfied for both product sales and installation services. This differs from previous guidance in which we recognized the sale of the products and installation services at the same time. We adopted the new standard effective January 1, 2018, using the modified retrospective approach, and will expand our consolidated financial statement disclosures in order to comply with the ASU. The adoption of ASU 2015-14 did not have a material impact on our results of operations, cash flows, or financial position due to the short-term nature of our contracts.

 

In February 2016, the FASB issued Accounting Standards Update, Leases (Topic 842), intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the statement of assets, liabilities, and members’ equity (deficit)—the new ASU will require both types of leases to be recognized on the statement of assets, liabilities, and members’ equity (deficit). The ASU on leases will take effect for all public companies for fiscal years beginning after December 15, 2018.

 

Off Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

 

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Results of Operations

 

Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

 

Net Sales

 

Overall, our net sales for the year ended December 31, 2017 increased approximately 531% from the comparable period in 2016. The following table provides comparative data regarding the source of our net sales in each of these periods and the change from 2017 to 2016:

 

    Year Ended December 31, 2017     Year Ended December 31, 2016        
    $     % of Total     $     % of Total     Variance  
Sale of product     2,379,190       82 %     309,687       67 %     668 %
Service     525,797       18 %     151,015       33 %     248 %
Total     2,904,987       100 %     460,702       100 %     531 %

 

Sales of product for the year ended December 31, 2017 increased approximately 668% as compared to the year ended December 31, 2016. The increase is attributed to the acquisition of VS and Apex. Service revenue increased by approximately 248% for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The increase was also attributed to the acquisition of VS and Apex.

 

Net sales increased due to the acquisition of VS and Apex. In an effort to continue to increase our sales in future periods, we believe we need to monitor and grow the business related to the acquisition of VS and Apex along with hiring additional sales staff to initiate a telemarketing campaign and to obtain leads from various lead sources such as lead generating telemarketing lists, email marketing campaigns and other sources. However, given our lack of working capital, we cannot assure that we will ever be able to successfully implement our current business strategy or increase our revenues in future periods.

 

Cost of Sales

 

Cost of product includes product and delivery costs relating to the sale of product revenue. Cost of services includes labor and installation for service revenue. Overall, cost of sales increased approximately 610% for the year ended December 31, 2017 compared to the year ended December 31, 2016. The following table provides comparative data regarding the breakdown of the cost of sales in each of these periods and the change from 2017 to 2016:

 

    Year Ended December 31, 2017     Year Ended December 31, 2016        
    $     % of Total     $     % of Total     Variance  
Cost of product     1,192,177       73 %     134,662       58 %     785 %
Cost of service     450,952       27 %     96,603       42 %     367 %
Total     1,643,129       100 %     231,265       100 %     610 %

 

During the year ended December 31, 2017, our cost of product increased approximately 785% as compared to the year ended December 31, 2016 which is directly related to the acquisition of VS and Apex. Our cost of services for the year ended December 31, 2017 increased 367% as compared to the year ended December 31, 2016 due to the acquisition of VS and Apex.

 

Total operating expenses for the year ended December 31, 2017 were $2,134,703, an increase of $503,724, or approximately 31%, from total operating expenses for the comparable year ended December 31, 2016 of $1,630,979. This increase is primarily attributable to the acquisition of VS and Apex coupled with increase in compensation and related taxes, rent, depreciation expense and amortization expense.

 

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Loss from Operations

 

We reported loss from operations of $872,845 for the year ended December 31, 2017, as compared to a loss from operations of $1,401,542 for the year ended December 31, 2016, representing a decrease in loss of $528,697 or 38%.

 

Other Income (Expense)

 

Total other expense was $674,320 for the year ended December 31, 2017 as compared to total other expense of $3,396,110 for the year ended December 31, 2016. The increase in other expense was primarily attributable to the loss on change in fair value of derivative liabilities, increase in interest expense, offset by other income due to a write off of lease abandonment liabilities. Other expenses decreased due to a reduction of amortization of debt discount for the year ended 2017 compared to the year ended 2016.

 

Net Loss

 

We reported a net loss of $1,547,165 for the year ended December 31, 2017 as compared to a net loss of $4,797,652 for the year ended December 31, 2016. Net income from non-controlling interest for the year ended December 31, 2017 was $5,681 compared to net loss of $35,072 for the year ended December 31, 2016.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At December 31, 2017, we had a cash balance of $68,437. Our working capital deficit was $13,004,160 at December 31, 2017.

 

We reported a net increase in cash for the year ended December 31, 2017 of $9,988. While we currently have no material commitments for capital expenditures, at December 31, 2017 we owed approximately $2,000,000 under various notes payable. During the year ended December 31, 2017, we have raised $465,000 of net proceeds from convertible notes payable and $59,000 from notes payable.

 

Accrued expenses were $3,607,100 as of December 31, 2017 and consist of the following:

 

  Accrued salaries for certain employees amounting to $1,770,027
  Accrued commissions for certain employees amounting to $18,633
  Sales tax payable of $54,532
  Accrued interest of $1,611,924
  Accrued payroll liabilities and taxes of $134,724
  Other accrued expenses of $17,260

 

We reported a net loss of $1,547,165 during the year ended December 31, 2017. At December 31, 2017 we had a working capital deficit of $13,004,160. We do not anticipate we will be profitable in 2018. Therefore, our operations will be dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt and convertible debt securities, obtaining credit facilities, or other financing mechanisms. The trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Furthermore, we have debt obligations, which must be satisfied. If we are successful in securing additional working capital, we intend to increase our marketing efforts to grow our revenues. Other than those disclosed above, we do not presently have any firm commitments for any additional capital and our financial condition as well as the uncertainty in the capital markets may make our ability to secure this capital difficult. There are no assurances that we will be able to continue our business, and we may be forced to cease operations in which event investors could lose their entire investment in our company. Included in our Notes to the financial statements for the year ended December 31, 2017 is a discussion regarding Going Concern.

 

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Operating activities

 

Net cash used in operating activities for the year ended December 31, 2017 amounted to $420,481 and was primarily attributable to our net loss of $1,547,165 coupled with an increase in accounts receivable of $329,182, a gain in change in fair value of derivative liabilities of $1,485,907, and an increase in capitalized costs of $89,813. The losses were offset by an increase in derivative liability expense of $537,541, an increase in depreciation and amortization expense of $273,630, an increase in amortization of debt discount of $403,245, an increase in deferred financing costs of $6,968, an increase in original issue discount of $36,350, an increase in other assets of $26,322, an increase in bad debt of $844, an increase in accrued expenses of $1,341,243, an increase in accounts payable of $110,523, an increase of stock compensation expense of $25,000, and an increase in deferred revenue of $254,764. Net cash flows used in operating activities for the year ended December 31, 2016 amounted to $1,046,575 and was primarily attributable to our net loss of $4,797,652 coupled with an increase in accounts receivable of $4,676 and an increase in other assets of $53,605. The losses were offset by depreciation of $15,156, common stock issued for compensation and services of $69,864, change in fair value of derivative liabilities of $958,072, derivative liability expenses of $348,244, amortization of debt discount of $1,721,296, amortization of deferred financing costs of $6,288, amortization of original issue discount of $86,524, bad debt expense of $106,898, deferred revenue of $38,500 and an increase in accounts payable and accrued expenses of $458,516.

 

Investing activities

 

Net cash provided by investing activities was $14,648 for the year ended December 31, 2017. We received cash from the acquisition of companies of $59,389 which was offset by an acquisition of a telephone system of $3,222 and the acquisition of the companies of $41,519.

 

Financing activities

 

Net cash provided by financing activities was $415,821 for the year ended December 31, 2017. We received proceeds from convertible notes payable of $465,000, proceeds from notes payable of $59,000, and proceeds for a line of credit of $34,248. These amounts were offset by repayments of notes payables of $136,148 and repayments on the line of credit of $6,279. Net cash flows provided by financing activities was $775,009 for the year ended December 31, 2016. We received proceeds from convertible notes payable of $850,644 and proceeds from notes payable of $25,000 offset by payments on convertible notes payable of $54,989, payments on notes payable of $34,900 and payments to related parties of $10,746.

 

Reverse Split

 

1-for-200 Reverse Stock Split

 

Effective May 17, 2017, the Company filed an Articles of Amendment to the Articles of Incorporation of the Company (the “Amendment”) to effectuate a reverse split of the Company’s issued and outstanding common stock at an exchange ratio of 1-for-200 (the “Reverse Split”). As a result of the Reverse Split, every two hundred (200) shares of the Company’s issued and outstanding common stock will be converted into one (1) share of issued and outstanding common stock. The number of authorized shares will remain unchanged. No fractional shares will be issued in connection with the Reverse Split. Any fractional shares of common stock resulting from the Reverse Split will be rounded up to the nearest whole share. It is not necessary for stockholders to exchange their existing stock certificates for new stock certificates in connection with the Reverse Split. Stockholders who hold their shares in brokerage accounts are not required to take any action to exchange their shares.

 

On May 18, 2017, the Company received notice from Financial Industry Regulatory Authority that the Reverse Split has been approved and took effect at the opening of trading on May 22, 2017.

 

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The Reverse Split has no impact on shareholders’ proportionate equity interests or voting rights in the Company or the par value of the Company’s common stock, which remains unchanged.

 

Contractual Obligations

 

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

 

The following table summarizes our contractual obligations as of December 31, 2017, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

 

    Payments Due by Period  
    Total     Less than 1
year
    1-3 Years     4-5 Years     5 Years +  
Contractual Obligations:                                        
Operating Leases   $ 170,565       125,081       45,484       -       -  
Total Contractual Obligations:   $ 170,565       125,081       45,484       -       -  

 

Critical Accounting Policies and Estimates

 

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s applications of accounting policies. Critical accounting policies for our company include revenue recognition and accounting for stock-based compensation, use of estimates, accounts receivable, property and equipment, derivative liabilities and income taxes.

 

Revenue Recognition

 

We follow the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin 104 for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. When a customer order contains multiple items such as hardware, software, and services which are delivered at varying times, we determine whether the delivered items can be considered separate units of accounting. Delivered items should be considered separate units of accounting if delivered items have value to the customer on a standalone basis, there is objective and reliable evidence of the fair value of undelivered items, and if delivery of undelivered items is probable and substantially in our control. The following policies reflect specific criteria for our various revenues streams:

 

  Revenue is recognized upon completion of conferencing services. We generally do not charge up-front fees and bill our customers based on usage.
     
  Revenue for video equipment sales and security surveillance equipment sales is recognized upon delivery and installation.
     
  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.

 

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Stock Based Compensation

 

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under ASC 718. Upon adoption of ASC 718, the Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk-free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

 

Use of Estimates

 

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Account Receivable

 

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in existing accounts receivable. We periodically review our 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 allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Property and Equipment

 

Property and equipment are 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.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”). It requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

 

47

 

 

Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and we intend to settle our current tax assets and liabilities on a net basis.

 

Pursuant to accounting standards related to the accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on our financial statements.

 

Recent Accounting Pronouncements and Adoption of New Accounting Principles

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flows, except as described below.

 

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 was to become effective for us beginning January 2017; however, ASU 2015-14 deferred our effective date until January 2018, which is when we plan to adopt this standard. The ASU permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The ASU also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We have completed the process of evaluating the effect of the adoption and determined that our contracts for which customers purchase both surveillance products and installation services from us may result in a change to our reported revenues as a result of the adoption. Based on our evaluation process and review of our contracts with customers, the timing and amount of revenue recognized based on ASU 2015-14 will be recognized when our performance obligations are satisfied for both product sales and installation services. This differs from previous guidance in which we recognized the sale of the products and installation services at the same time. We adopted the new standard effective January 1, 2018, using the modified retrospective approach, and will expand our consolidated financial statement disclosures in order to comply with the ASU. We have determined the adoption of ASU 2015-14 will not have a material impact on our results of operations, cash flows, or financial position due to the short-term nature of our contracts.

 

In February 2016, the FASB issued Accounting Standards Update, Leases (Topic 842), intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the statement of assets, liabilities, and members’ equity (deficit)—the new ASU will require both types of leases to be recognized on the statement of assets, liabilities, and members’ equity (deficit). The ASU on leases will take effect for all public companies for fiscal years beginning after December 15, 2018.

 

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.

 

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Off Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

 

Changes In and Disagreements with Accountants

 

Effective May 9, 2017, we formally engaged Assurance Dimensions, Inc. as our independent registered public accounting firm. The engagement was due to the recent merger of our existing certifying accountant, D’Arelli Pruzansky, P.A. and Assurance Dimensions, Inc. The decision to engage Assurance Dimensions, Inc. as our independent registered public accounting firm was approved by our Board of Directors on May 9, 2017.

 

Directors, Executive Officers, Promoters, and Control Persons

 

Set forth below is information concerning our executive officers and directors:

 

Name   Age   Position
         
Roger Ralston   49   Chief Executive Officer and Chairman of the Board of Directors
         
Michele Ralston   48   Chief Financial Officer, Secretary, Treasurer and Director

 

Roger Ralston has served as our Chairman and Chief Executive Officer since our inception in October 2006. He has also served as Chief Executive Officer of DirectView Video since March 2003, Chief Executive Officer of DirectView Security since July 2007 and Chief Executive Officer of Ralston Communications since December 2002. Mr. Ralston is the spouse of Michele Ralston.

 

In evaluating Mr. Ralston’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we considered his experience in the technology industry and his knowledge of publicly traded companies.

 

Michele Ralston has served as our Chief Financial Officer, Secretary and Treasurer and a member of our Board of Directors since inception in October 2006. From May 2003 until October 2006 she served as our Chairman of the Board, Secretary and Treasurer of DirectView, Inc., a predecessor company. Ms. Ralston is the spouse of Mr. Ralston.

 

In evaluating Mrs. Ralston’s specific experience, qualifications, attributes and skills in connection with her appointment to our board, we considered her experience in the technology industry and her knowledge of accounting matters.

 

There are no family relationships between any of the executive officers and directors, except as set forth above. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms furnished to us during the year ended December 31, 2015, none of our executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have failed to file the required reports in a timely manner.

 

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Code of Ethics

 

In July 2009 our Board of Directors adopted a Code of Ethics which applies to our Chief Executive Officer, Chief Financial Officer, directors and employees of the Company.

 

Committees of our Board of Directors

 

Our Board of Directors has not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee performing a similar function. The functions of those committees are being undertaken by the entire board as a whole.

 

We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.

 

None of our directors is an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-X. In general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors who:

 

  understands generally accepted accounting principles and financial statements,
     
  is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
     
  has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
     
  understands internal controls over financial reporting, and
     
  understands audit committee functions.

 

It is our desire to expand our Board of Directors during 2017 to include additional independent directors as well as one or more directors who are considered audit committee financial experts. At that time, we intend to establish an Audit Committee of our Board of Directors. Our securities are not quoted on an exchange, however, that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors. We are uncertain, however, as to our ability to attract qualified independent director candidates to serve on our Board of Directors given that we do not maintain directors’ and officers’ liability insurance.

 

Family Relationships

 

The Company’s Chief Executive Officer is married to the Company’s Chief Financial Officer.

 

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Involvement in Certain Legal Proceedings

 

There are no known pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any other pending legal proceedings

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms furnished to us during the year ended December 31, 2015, none of our executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have failed to file the required reports in a timely manner.

 

Audit Committee and Financial Expert

 

We do not have an audit committee or an audit committee financial expert. Our corporate financial affairs are simple at this stage of development and each financial transaction can be viewed by any officer or Director at will. We will form an audit committee if it becomes necessary as a result of growth of the Company or as mandated by public policy.

 

Code of Ethics

 

We have adopted a code of ethics that applies to all of our directors, officers and employees. To obtain a copy without charge, contact our Corporate Secretary, Guided Therapeutics, Inc., 5835 Peachtree Corners East, Suite B, Norcross, Georgia 30092. If we amend our code of ethics, other than a technical, administrative or non-substantive amendment, or we grant any waiver, including any implicit waiver, from a provision of the code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, we will disclose the nature of the amendment or waiver on our website, www.guidedinc.com, under the “Investor Relations” tab under the tab “About Us.” Also, we may elect to disclose the amendment or waiver in a report on Form 8-K filed with the Securities and Exchange Commission.

 

Executive Compensation

 

Summary Compensation Table

 

The following table summarizes all compensation recorded by us in each of the last two completed fiscal years for our principal executive officer, each other executive officer serving as such whose annual compensation exceeded $100,000.

 

Name and principal position (a)   Year (b)     Salary ($) (c)     Bonus ($) (d)     Stock Awards ($) (e)     Option Awards ($) (f)     Non-Equity Incentive Plan Compen-sation ($) (g)     Non-qualified Deferred Compen-sation Earnings ($) (h)     All Other Compen-sation ($) (i)     Total ($) (j)  
Roger Ralston (1)     2017       276,924                                     40,000       316,924  
      2016       276,924                                           40,000       316,924  
                                                                         
Michele Ralston (2)     2017       72,000                                           72,000  
      2016       72,000                                             72,000  

 

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(1) Accrued but unpaid compensation due to Mr. Ralston during fiscal 2017, 2016, 2015 and 2014 amounts to approximately $1,500,000.
   
(2) Accrued but unpaid compensation due to Mrs. Ralston during fiscal 2017, 2016, 2015 and 2014 amounts to approximately $256,000.

 

Employment Agreement with Mr. Ralston

 

On September 1, 2009, we entered into an employment agreement with Mr. Ralston to serve as our CEO and President. The term of this agreement shall be for a sixty-three month period. Mr. Ralston’s present base salary is $150,000 per year, which increases by $50,000 each beginning of the year commencing on January 1, 2010 until the term of this agreement expires. During the Employment Term, Mr. Ralston shall be entitled to (i) four (4) weeks paid vacation per annum, (ii) an automobile allowance of $750 per month (pro-rated) which shall increase at five percent (5%) per annum beginning on January 1, 2010 and each year thereafter, and (iii) receive a mobile phone allowance of $500 per month (pro-rated) which shall increase five percent (5%) per annum beginning on January 1, 2010 and each year thereafter. Mr. Ralston is entitled to receive discretionary bonus compensation as determined by the board of directors from time to time. In addition, Mr. Ralston shall receive incentive compensation, as defined, computed on a calendar year beginning September 1, 2009. If Mr. Ralston’s employment is terminated without cause, upon death or should he become disabled, Mr. Ralston will be entitled to all of his compensation, benefits and severance until the date of termination. As defined in the agreement, Mr. Ralston is restricted from competing with us for 1 year following such termination.

 

Mr. Ralston, who has served as our CEO since October 2006, entered into an employment agreement with our company on September 1, 2009. His compensation is arbitrarily determined by our Board of Directors of which he is a member. The Board considers revenues, net income as well as general performance in determining the compensation due Mr. Ralston. The Board of Directors did not consult with any experts or other third parties in fixing the amount of Mr. Ralston’s compensation. Effective on September 1, 2010, Mr. Ralston’s compensation package included a base salary of $200,000 and company provided for automobile expense and health care benefits . During fiscal 2017, Mr. Ralston’s compensation package included a base salary of $276,924 and company provided for automobile expense and health care benefits . The amount of compensation payable to Mr. Ralston can be increased at any time upon the determination of the Board of Directors.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
OPTION AWARDS               STOCK AWARDS  

Name

(a)

    Number of Securities Underlying Unexercised Options (#) Exercisable (b)       Number of Securities Underlying Unexercised Options (#) Unexercisable (c)       Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)       Option Exercise Price ($) (e)       Option Expiration Date (f)       Number of Shares or Units of Stock That Have Not Vested (#) (g)       Market Value of Shares or Units of Stock That Have Not Vested ($) (h)       Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) (i)       Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j)  
Roger Ralston     0       0       0       0       0       0       0       0       0  
Michele Ralston     0       0       0       0       0       0       0       0       0  

 

 

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Director Compensation

 

We have not established standard compensation arrangements for our directors and the compensation, if any payable to each individual for their service on our Board will be determined from time to time by our Board of Directors based upon the amount of time expended by each of the directors on our behalf. No member of our Board of Directors received compensation for their services for the fiscal year ended December 31, 2017.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

As of July 23, 2018, we had outstanding 202,743,300 shares of common stock. Each share of common stock is currently entitled to one vote on all matters put to a vote of our stockholders. The following table sets forth the number of common shares, and percentage of outstanding common shares, beneficially owned as of the date hereof by:

 

  each person known by us to be the beneficial owner of more than five percent of our outstanding common stock;
     
  each of our current directors;
     
  each our current executive officers and any other persons identified as a “named executive” in the Summary Compensation Table above; and
     
  all our current executive officers and directors as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC and includes general voting power and/or investment power with respect to securities. Shares of common stock issuable upon exercise of options or warrants that are currently exercisable or exercisable within 60 days of the record date, and shares of common stock issuable upon conversion of other securities currently convertible or convertible within 60 days, are deemed outstanding for computing the beneficial ownership percentage of the person holding such securities but are not deemed outstanding for computing the beneficial ownership percentage of any other person. Under the applicable SEC rules, each person’s beneficial ownership is calculated by dividing the total number of shares with respect to which they possess beneficial ownership by the total number of outstanding shares. In any case where an individual has beneficial ownership over securities that are not outstanding but are issuable upon the exercise of options or warrants or similar rights within the next 60 days, that same number of shares is added to the denominator in the calculation described above. Because the calculation of each person’s beneficial ownership set forth in the “Percentage Beneficially Owned” column of the table may include shares that are not presently outstanding, the sum total of the percentages set forth in such column may exceed 100%. Unless otherwise indicated, the address of each of the following persons is 21218 Saint Andrews Blvd., Suite 323, Boca Raton, Florida, and, based upon information available or furnished to us, each such person has sole voting and investment power with respect to the shares set forth opposite his, her or its name.

 

Name of Beneficial Owner (1)   Shares of
Series A
Preferred (3)
    Percent of
Series A
Preferred (2)
    Shares of
Common
Stock
    Percent of
Common
Stock (2)
 
                         
Roger Ralston     51       100 %     52,880,953       5.30 %
Chief Executive Officer, President, Chairman                                
                                 
Michele Ralston     0       0 %     278       * %
Chief Financial Officer, Secretary, Treasurer and Director                                
                                 
All officers and directors as a group (2 persons)     51       100 %     52,881,231       5.30 %
                                 
All officers, directors and 5% holders as a group (2 persons)     51       100 %     52,881,231       5.30 %

 

*represents less than 1%

 

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(1) Beneficial ownership is determined in accordance with Rule 13D-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities.
   
(2) The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse. Based on 202,743,300 shares of common stock as of July 23, 2018.
   
(3) Each one share of the Series A Preferred Stock has 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). 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.

 

Transactions with Related Persons

 

During the year ended December 31, 2017, the Company paid $18,886 in accrued salaries to the Chief Executive Officer. During the year ended December 31, 2016, the Company paid $18,915 in accrued interest to the Chief Executive Officer.

 

In the period of March 2016 through June 2016, the company repaid $8,334 to the Chief Executive Officer. In July 2016 the Company repaid $1,809 to the Chief Executive Officer. In July 2016 the Company repaid $1,809 to the Chief Executive Officer. In November 2016 the Company repaid $603 to the Chief Executive Officer. As of December 31, 2017 and December 31, 2016 the Company had a payable to the Chief Executive Officer of the Company amounting to $1,814 and $1,814, respectively. These advances are short-term in nature and non-interest bearing.

 

Below is a summary of the accrued salaries due to our executive officers:

 

Name   December 31, 2017  
Roger Ralston   $ 1,497,295  
Michele Ralston     256,429  
Total   $ 1,753,274  

 

Director Independence

 

The common stock of the Company is currently quoted on the OTC Pink which currently do not have director independence requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy the criteria for the Nasdaq.

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in Nasdaq Market Place Rules 4200.

 

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    Page No.
     
  PART I. Financial Information  
     
Item 1. Unaudited Consolidated Financial Statements F-2
     
  Unaudited Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 F-2
     
  Unaudited Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2018 and 2017 F-3
     
  Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 F-4
     
  Notes to Consolidated Financial Statements (Unaudited) F-5

  

F- 1

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    March 31, 2018     December 31, 2017  
    (UNAUDITED)        
ASSETS                
                 
CURRENT ASSETS:                
Cash   $ 184,410     $ 68,437  
Accounts Receivable - net     720,920       615,639  
Capitalized Job Costs     156,861       141,267  
Inventory     89,076       73,499  
Other Current Assets     59,869       59,938  
                 
Total Current Assets     1,211,136       958,780  
                 
PROPERTY AND EQUIPMENT - Net     19,240       64,250  
                 
Goodwill     794,830       794,830  
Intangible Assets, net     631,040       682,682  
Other Assets     1,635       6,670  
                 
Total Assets   $ 2,657,881     $ 2,507,212  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES:                
Convertible Promissory Notes, net of debt discounts of $256,893 and $230,721   $ 3,084,793     $ 2,952,250  
Short Term Advances     146,015       146,015  
Note Payable     1,852,331       1,971,208  
Accounts Payable     418,642       361,619  
Credit Card Payable     287,517       152,481  
Accrued Expenses     3,852,882       3,607,100  
Line of Credit     256,638       260,658  
Stock Payable     25,000       25,000  
Deferred Revenue     435,780       479,426  
Due to Related Parties     1,814       1,814  
Note Payable - related party, current     52,000       52,000  
Derivative Liability     28,847,395       3,953,369  
Total Current Liabilities