NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
DirectView
Holdings, Inc., (the “Company”), was incorporated in the State of Delaware on October 2, 2006. On July 6, 2012 the
Company changed its domicile from Delaware and incorporated in the State of Nevada.
The
Company has the following four subsidiaries: DirectView Video Technologies Inc., DirectView Security Systems Inc., Ralston Communication
Services Inc., and Meeting Technologies Inc.
The
Company is a full-service provider of teleconferencing services to businesses and organizations. The Company’s conferencing
services enable its clients to cost-effectively conduct remote meetings by linking participants in geographically dispersed
locations. The Company’s primary focus is to provide high value-added conferencing services to organizations such as
professional service firms, investment banks, high tech companies, law firms, investor relations firms, and other domestic
and multinational companies. The Company is also a provider of the latest technologies in surveillance systems, digital video
recording and services. The systems provide onsite and remote video and audio surveillance.
Basis
of Presentation
The
unaudited consolidated financial statements include the accounts of the Company, three wholly-owned subsidiaries, and a subsidiary
with which the Company has a majority voting interest of approximately 58% (the other 42% is owned by non-controlling interests,
including 23% which is owned by the Company’s CEO who is a majority shareholder of the Parent Company) as of September 30,
2016. In the preparation of unaudited consolidated financial statements of the Company, intercompany transactions and balances
are eliminated and net earnings are reduced by the portion of the net earnings of subsidiaries applicable to non-controlling interests.
The
accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q
and Article 8-03 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information
and footnotes required by US GAAP for complete financial statements. The unaudited consolidated financial statements and notes
included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December
31, 2015 included in our Annual Report on Form 10-K filed with the SEC on April 14, 2016.
In
the opinion of management, all adjustments (consisting of normal recurring items) necessary to present fairly the Company’s
financial position as of September 30, 2016, and the results of operations and cash flows for the nine months ending September
30, 2016 have been included. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative
of the results to be expected for the full year.
Use
of Estimates
In
preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the dates of the statements of financial condition, and revenues and expenses
for the six months then ended. Actual results may differ significantly from those estimates. Significant estimates made by management
include, but are not limited to, the allowance for doubtful accounts, deferred tax asset valuation allowance, valuation of stock-based
compensation, the useful life of property and equipment, valuation of beneficial conversion features on convertible debt and the
assumptions used to calculate derivative liabilities.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Non-controlling
Interests in Consolidated Financial Statements
The
Company follows ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements.” This statement clarifies
that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity
in the unaudited consolidated financial statements. It also requires consolidated net income to include the amounts attributable
to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts
attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, the losses attributable to
the parent and the non-controlling interest in subsidiary may exceed their interests in the subsidiary’s equity. The excess
and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even
if that attribution results in a deficit non-controlling interest balance. As of September 30, 2016, the Company reflected a non-controlling
interest of $28,807 in connection with our majority-owned subsidiary, DirectView Security Systems Inc. as reflected in the accompanying
consolidated balance sheets.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
The Company places its cash with a high credit quality financial institution. The Company’s account at this institution
is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. For the nine months ended September
30, 2016 the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the
failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which
it holds deposits.
Fair
Value of Financial Instruments
The
Company follows FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities
measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring
fair value and expands disclosure about such fair value measurements.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
|
Level 1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities
|
|
|
|
|
Level 2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data
|
|
|
|
|
Level 3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions
|
Cash
and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of September
30, 2016 and December 31, 2015. These securities are valued using inputs observable in active markets for identical securities
and are therefore classified as Level 1 within our fair value hierarchy.
In
addition, FASB ASC 825-10-25 Fair Value Option expands opportunities to use fair value measurements in financial reporting and
permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect
the fair value options for any of its qualifying financial instruments.
The
carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, accrued expenses, notes payable
and due to related parties approximate their estimated fair market value based on the short-term maturity of these instruments.
The carrying amount of the notes and convertible promissory notes approximates the estimated fair value for these financial instruments
as management believes that such notes constitute substantially all of the Company’s debt and the interest payable on the
notes approximates the Company’s incremental borrowing rate.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts
Receivable
The
Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses
in its existing accounts receivable. The Company uses specific identification of accounts to reserve possible uncollectible receivables.
The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of
past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed
to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for
recovery is considered remote. At September 30, 2016 and December 31, 2015, management determined that an allowance is necessary
which amounted to $38,000 at both dates. During the nine months ended September 30, 2016 and 2015, the Company recognized $20,275
and $0 respectively of expenses related to uncollectible accounts receivable.
Advertising
Advertising
is expensed as incurred. Advertising expenses for the nine months ended September 30, 2016 and 2015 was $176,618 and $267,903
respectively.
Shipping
costs
Shipping
costs are included in other selling, general and administrative expenses and was deemed to be not material for the nine months
ended September 30, 2016 and 2015, respectively.
Inventories
Inventories,
consisting of finished goods related to our products are stated at the lower of cost or market utilizing the first-in, first-out
method. The Company acquires inventory for specific installation jobs. As a result, the Company generally orders inventory only
as needed for installations and there was an insignificant amount of inventory on hand at December 31, 2015. Due to the anticipation
of customers needs the Company purchased inventory items and had $23,748 in inventory as of September 30, 2016.
Property
and Equipment
Property
and equipment carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements
are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts,
and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases
in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. Leasehold improvements are amortized
on a straight-line basis over the term of the lease.
Impairment
of Long-Lived Assets
Long-Lived
Assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets
may not be recoverable, pursuant to guidance established in ASC 360-10-35-15,
“Impairment or Disposal of Long-Lived Assets”
.
The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount
of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book
value. The Company did not consider it necessary to record any impairment charges during the nine months ended September 30, 2016
and 2015.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I
ncome
Taxes
Income
taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”).
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation
allowance, when in the Company’s opinion it is likely that some portion or the entire deferred tax asset will not be realized.
Pursuant
to ASC Topic 740-10: Income Taxes related to the accounting for uncertainty in income taxes, the evaluation of a tax position
is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained
upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.
The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit
to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than
50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial
reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures, and transition. The adoption had no effect on the Company’s
consolidated financial statements.
Stock
Based Compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity
instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively,
the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for
an award based on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the service period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date. The Company recorded stock based compensation expense of $0 during the nine
months ended September 30, 2016. During the nine months ended September 30, 2015 the Company recorded stock based
compensation of $44,100 to employees and $9,760 to non-employees.
Revenue
recognition
The
Company follows the guidance of the FASB ASC 605-10-S99 “Revenue Recognition Overall – SEC Materials. The Company
records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred,
the s
ales price to the customer is fixed or determinable, and collectibility is reasonably assured.
When a customer order contains multiple items such as hardware, software, and services which are delivered at varying times, the
Company determines 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 the Company’s
control. Sales are recorded net of discounts and discounts are determined to be immaterial.
The
following policies reflect specific criteria for the
various
revenue streams of the Company:
Revenue
is recognized upon completion of conferencing services. The Company generally does not charge up-front fees and bills its customers
based on usage.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
for video equipment sales and security surveillance equipment sales is recognized upon delivery and installation.
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 provide a provision 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 collectibility of the related receivable is probable.
Cost
of sales includes cost of products and cost of service. Product cost includes the cost of products and freight costs. Cost of
services includes labor and fuel expenses.
Concentrations
of Credit Risk and Major Customers
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high credit quality financial institutions. Almost all of the Company’s
sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing
in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to
generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further
reduce credit risk.
During
the nine months ended September 30, 2016, one customer accounted for 22% of revenues.
During
the nine months ended September 30, 2015, three customers accounted for 60% of revenues. The following is a list of percentage
of revenue generated by the three customers:
Customer 1
|
|
|
13
|
%
|
Customer 2
|
|
|
22
|
%
|
Customer 3
|
|
|
25
|
%
|
Total
|
|
|
60
|
%
|
As
of September 30, 2016, two customers accounted for 60% of total accounts receivable. The following is a list of percentage of
accounts receivable owed by the two customers:
Customer 1
|
|
|
16
|
%
|
Customer 2
|
|
|
44
|
%
|
Total
|
|
|
60
|
%
|
As
of December 31, 2015, three customers accounted for 65% of total accounts receivable. The following is a list of percentage of
accounts receivable owed by the three customers:
Customer 1
|
|
|
14
|
%
|
Customer 2
|
|
|
16
|
%
|
Customer 3
|
|
|
35
|
%
|
Total
|
|
|
65
|
%
|
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research
and Development
Research
is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful
in developing a new product or service (hereinafter “product”) or a new process or technique (hereinafter “process”)
or in bringing about a significant improvement to an existing product or process. Development is the translation of research findings
or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product
or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives,
construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products,
production lines, manufacturing processes, and other on-going operations even though those alterations may represent improvements
and it does not include market research or market testing activities. Per Statement of Financial Account Standards Number 2, the
Company expenses research and development cost as incurred.
Related
Parties
Parties
are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal if one party controls or can significantly influence the management or operating policies of the other
to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company
discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged.
Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related
party in excess of the cost is reflected as a distribution to related party.
Net
Loss per Common Share
Net
loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per
share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
The computation of diluted net earnings per share does not include dilutive common stock equivalents in the weighted average shares
outstanding as they would be anti-dilutive. At September 30, 2016 the Company had 1,475,345,119 share equivalents issuable pursuant
to embedded conversion features. At December 31, 2015 the Company had 1,240,096,048 share equivalents issuable pursuant to embedded
conversion features.
Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption
of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flows, except
as described below.
In
May 2014, the FASB issued an update (“ASU 2014-09”)
Revenue from Contracts with Customers.
ASU 2014-09 establishes
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most of the existing revenue recognition guidance and notes that lease contracts with customers are a scope exception. ASU 2014-09
requires an entity to recognize revenue when it transfers 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 and also requires certain additional
disclosures. On August 12, 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09. Public business
entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting
periods beginning after December 15, 2017. The Company is currently assessing the impact of the guidance on our consolidated financial
statements and notes to our consolidated financial statements.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
2 – GOING CONCERN CONSIDERATIONS
The
accompanying unaudited consolidated financial statements are prepared assuming the Company will continue as a going concern. At
September 30, 2016, the Company had an accumulated deficit of approximately $25 million, a stockholders’ deficit of approximately
$7 million and a working capital deficiency of $7,447,743. The net cash used in operating activities for the nine months ended
September 30, 2016 totaled $979,366.These matters raise substantial doubt about the Company’s ability to continue as a going
concern. The ability of the Company to continue as a going concern is dependent upon increasing sales and obtaining additional
capital and financing. Management intends to attempt to raise funds by way of a public or private offering. While the Company
believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can be
no assurances to that effect. The Company’s limited financial resources have prevented the Company from aggressively advertising
its products and services to achieve consumer recognition. The unaudited consolidated financial statements do not include adjustments
to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
NOTE
3 - PROPERTY AND
EQUIPMENT
Property
and equipment consisted of the following:
|
|
Estimated
life
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
Leasehold Improvements
|
|
2 years
|
|
$
|
26,901
|
|
|
$
|
26,901
|
|
Less: Accumulated amortization
|
|
|
|
|
(26,901
|
)
|
|
|
(11,745
|
)
|
Furniture and fixtures
|
|
3 years
|
|
|
2,771
|
|
|
|
2,771
|
|
Less: Accumulated depreciation
|
|
|
|
|
(2,771
|
)
|
|
|
(2,771
|
)
|
|
|
|
|
$
|
0
|
|
|
$
|
15,156
|
|
For
the nine months ended September 30, 2016 and 2015, depreciation and amortization expense amounted to $15,156 and $5,270, respectively.
In
June 2014 the Company negotiated to lease approximately 3,000 square feet of office space in New York City and made leasehold
improvements totaling $12,448. In August 2015 the Company made leasehold improvements totaling $14,453. The Company began amortizing
the balance on a straight-line basis for the term of 2 years commencing in July 2014 and August 2015. In September 2016 the Company
moved its office to a different floor in the same building. Consequently, the company amortized the remainder of the leasehold
improvements during September 2016. The monthly rent expense remained the same. The original monthly rent was $5,000 per month
which was increased to $6,460 in November 2015.
NOTE
4 – NOTES PAYABLE
In
November 2009, the Company issued unsecured notes payable of $20,000. The note is payable either in cash or security equivalent
at the option of the Company. In the event the Company repays this note in shares of the Company’s common stock the rate
is $0.05 per share. The note payable bears 6% interest per annum and matured in May 2010. In January 2010, this note was satisfied
by issuing a note payable to another unrelated party with the same terms and conditions except for its maturity date changed to
January 2011. The note was in default as of December 31, 2015. In February 2016 the Company paid the noteholder $19,133, the remaining
$9,900 balance of the note and $9,233 in accrued interest. As of September 30, 2016 and December 31, 2015 the balance of the note
was $0 and $9,900, respectively.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
4 – NOTES PAYABLE (continued)
During
the year ended December 31, 2012, the Company entered into demand notes with Regal Capital (formerly a related party) totaling
$116,792 bearing interest at 12% per annum. As of September 30, 2016 and December 31, 2015 the notes amounted to $116,792 and
$116,792 respectively.
On
September 15, 2016, the Company issued a demand promissory note of $25,000 due December 22, 2016. The interest rate is 10% with
a minimum guaranteed interest amount of $2,500. As of September 30, 2016 the balance of this note was $25,000.
As
of September 30, 2016 and December 31, 2015, notes payable amounted to $141,792 and $126,692, respectively.
Accrued
interest on the notes payable amounted to approximately $62,600 and $64,200 as of September 30, 2016 and December 31, 2015, respectively
and is included in accrued expenses.
NOTE
5 – SHORT TERM ADVANCES
During
the years ended December 31, 2013, 2012 and 2011 an unrelated party advanced funds to the Company used for operating expenses.
The advances are payable in cash and are non interest bearing and due on demand. The balance of these short term advances was
$146,015 and $146,015 as of September 30, 2016 and December 31, 2015.
NOTE
6 – ACCRUED EXPENSES
As
of September 30, 2016 and December 31, 2015 the Company had accrued expenses of $2,187,393 and $2,024,457 respectively. The following
table displays the accrued expenses by category.
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Operating Expenses
|
|
$
|
17,700
|
|
|
$
|
87,410
|
|
Lease Abandonment
|
|
|
164,375
|
|
|
|
164,375
|
|
Employee Commissions
|
|
|
79,934
|
|
|
|
60,590
|
|
Interest
|
|
|
392,373
|
|
|
|
276,791
|
|
Salaries
|
|
|
1,401,806
|
|
|
|
1,312,594
|
|
Sales Tax Payable
|
|
|
44,866
|
|
|
|
37,994
|
|
Payroll Liabilities
|
|
|
86,339
|
|
|
|
84,703
|
|
|
|
$
|
2,187,393
|
|
|
$
|
2,024,457
|
|
NOTE
7 – CONVERTIBLE PROMISSORY NOTES
Convertible
promissory notes consisted of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
Secured convertible promissory
notes
|
|
$
|
2,838,798
|
|
|
$
|
2,507,356
|
|
|
|
|
|
|
|
|
|
|
debt discount related to derivative
liability
|
|
|
(467,013
|
)
|
|
|
(1,221,506
|
)
|
|
|
|
|
|
|
|
|
|
debt discount original issue discount
|
|
|
(29,633
|
)
|
|
|
(57,352
|
)
|
|
|
|
|
|
|
|
|
|
debt discount
deferred financing costs
|
|
|
(8,105
|
)
|
|
|
(4,189
|
)
|
Secured convertible
promissory notes– net
|
|
$
|
2,334,047
|
|
|
$
|
1,224,309
|
|
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
7 – CONVERTIBLE PROMISSORY NOTES (continued)
During
fiscal 2009, the Company reclassified $45,000 3% unsecured notes payable from long-term to short-term. The maturity of these notes
payable ranged from January 2010 to April 2010 and the notes are in default at December 31, 2012. The Company negotiated with
the note holder to extend the maturity date and has accrued 12% interest per annum based on the default provision until such time
this note is extended or settled. In May 2013 the Company and the note holder renegotiated the terms of the note to include features
that allow the note holder to convert the principal balance of the note into common shares at the conversion price of $ .0001.
This note included down round (“ratchet”) provisions that resulted in derivative accounting treatment for this note
(See note 8). At issuance of the renegotiated note the Company recorded a debt discount in the amount of $45,000 which has been
fully amortized as of December 31, 2013. In June 2013 the note holder converted $764 into common shares at the contractual rate
of $.0001per share. In March 2014 the note holder converted an additional $990 into common shares at the contractual rate of $.0001
per share. In October 2014 the note holder assigned $20,000 of the note balance to a third party. The balance of the unsecured
note payable amounted to $23,246 as of September 30, 2016 and December 31, 2015.
On
October 10, 2013 the Company issued a $10,000 6% convertible debenture with a one year maturity date. This convertible debenture
converts at $.00075. The Company recorded a debt discount of $8,333 upon issuance of this note. The debt discount was amortized
over the term of the note. This note included down round (“Ratchet”) provisions that resulted in derivative accounting
treatment for this note (See note 8). The balance of the convertible debenture is $10,000 as of September 30, 2016 and December
31, 2015. In connection herewith, the Company recorded a derivative liability and an offsetting debt discount of $8,333 (see Note
8).
On
December 11, 2013 the Company issued a $25,000 6% convertible debenture with a one year maturity date. This convertible debenture
converts at $.0008. The debt discount was amortized over the term of the note. This note included down round (“Ratchet”)
provisions that resulted in derivative accounting treatment for this note (See note 8). In connection herewith, the Company recorded
a derivative liability and an offsetting debt discount of $23,958 (see Note 8). The balance of this convertible debenture is $25,000
as of September 30, 2016 and as of December 31, 2015.
On
January 16, 2014 the Company issued a $25,000 6% convertible debenture with a one year maturity date. This convertible debenture
converts at 50% of the lowest trading price during the ten trading days prior to the conversion date. The Company recorded a debt
discount of $25,000 with the difference of $26,848 recorded as a derivative expense. The debt discount was amortized over the
term of the note. This note included down round (“Ratchet”) provisions that resulted in derivative accounting treatment
for this note (See note 8). In connection herewith, the Company recorded a derivative liability and an offsetting debt discount
of $51,848 (see Note 8). The balance of this convertible debenture is $25,000 as of September 30, 2016 and as of December 31,
2015.
In
March 2014 the Company issued three $50,000 8% convertible debentures with a one year maturity date. Each note is convertible
at a contractual rate of $.0175 which exceeded the quoted stock price on the date of the issuance of the convertible debentures.
In the first quarter of 2016 the Company paid $50,000 in reduction of one of the notes. The balance of these three notes was $100,000
and $150,000 as of September 30, 2016 and as of December 31, 2015, respectively.
On
October 27, 2014 the Company issued an 8% original issue discount (OID) senior secured convertible promissory note with a principal
balance of $21,600 with a one year maturity date. This convertible debenture converts at the lower of $.0025 or 60% of the lowest
trading price during the 25 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory
note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded
a derivative liability of $311,662 and a debt discount of $18,400 (see Note 8). The Company also recorded OID of $1,600. The OID
and debt discount were fully being amortized as of December 31, 2015. The balance of this convertible debenture as of September
30, 2016 and as of December 31, 2015 is $21,600.
On
December 19, 2014 the Company issued an 8% original issue discount (OID) senior secured convertible promissory note with a principal
balance of $27,174 with a one year maturity date. This convertible debenture converts at the lower of $.0025 or 60% of the lowest
trading price during the 25 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory
note the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded
a derivative liability of $5,017 and a debt discount of $5,017 (see Note 8). The Company also recorded OID of $2,000. The OID
and debt discount were fully amortized as of December 31, 2015. In February 2016 the note holder converted $27,174 of the convertible
promissory note payable balance and $2,174 of accrued interest into 559,006 common shares at the contractual rate of $.004 per
share. The balance of this convertible debenture as of September 30, 2016 and as of December 31, 2015 is $0 and $27,174, respectively.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
7 – CONVERTIBLE PROMISSORY NOTES (continued)
In
October 2014 a note holder assigned $20,000 of principal balance and $4,489 of an accrued interest balance to a third party. In
January 2015 the note holder converted $1,000 into 9,524 common shares at the contractual rate of $.105. In March 2015 the note
holder converted $1,300 into 37,143 common shares at the contractual rate of $.035. In April and May 2015 the note holder converted
$17,200 into 397,143 common shares at the contractual rate ranging from $.028 to $.055 per share. In March 2016 the Company paid
the note holder the balance of the unsecured note payable of $4,989. The balance of this unsecured note payable as of September
30, 2016 and as of December 31, 2015 is $0 and $4,989, respectively.
On
February 11, 2015 the Company issued an 8% original issue discount (OID) senior secured convertible promissory note with a principal
balance of $54,348 with a one year maturity date. This convertible debenture converts at the lower of $.0025 or 60% of the lowest
trading price during the 25 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory
the Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative
liability of $119,940, a debt discount of $50,348 (see Note 8), and derivative expense of $69,940. The Company also recorded OID
of $4,000. The OID and debt discount are being amortized over the term of the note. In June 2015 the note holder assigned the
balance of the note and accrued interest of $4,348 to a third party totaling a new note balance of $58,696 as of June 30, 2015.
In August 2015 the note holder converted $10,000 of principle balance into 207,039 common shares at the contractual rate of $.0483
per share. In September 2015 the note holder converted $24,000 of principle balance into 496,894 common shares at the contractual
rate of $.0483 per share. In October 2015 the note holder converted an additional $10,000 of principle balance into 226,757 common
shares at the contractual rate of $.0441 per share. In March 2016 the note holder converted the remaining $14,696 of principle
balance into 362,733 common shares at the contractual rate of $.0406 per share. The balance of the unsecured note payable amounted
to $0 and $14,696 as of September 30, 2016 and as of December 31, 2015, respectively.
On
May 5, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $115,789
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $147,775, a debt discount
of $110,000 (see Note 8), and derivative expense of $37,775. The Company also recorded OID of $5,789 and deferred financing of
$10,000. The OID, deferred financing and debt discount are being amortized over the term of the note. In December 2015 the note
holder converted $23,000 of principle balance into 408,148 common shares at the contractual rate of $.0564 per share. In January
2016 the note holder converted $65,673 of principle balance into 941,913 common shares at the contractual rate ranging from $.0686
to $.0711 per share. In February the note holder converted the remaining balance of $27,117 of the convertible promissory note
and $11,579 of accrued interest into 453,252 common shares at the contractual rate of $.0256 per share. The balance of the convertible
promissory note amounted to $0 and $92,789 as of September 30, 2016 and as of December 31, 2015, respectively.
On
May 15, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $67,171, a debt discount
of $50,000 (see Note 8), and derivative expense of $17,171. The Company also recorded OID of $2,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of September
30, 2016 and as of December 31, 2015. The debt discount and OID were fully amortized as of June 30, 2016. The balance of the convertible
promissory note net of debt discount and OID as of December 31, 2015 amounted to $32,895.
On
May 27, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $67,171, a debt discount
of $50,000 (see Note 8), and derivative expense of $17,171. The Company also recorded OID of $2,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of September
30, 2016 and as of December 31, 2015. The debt discount and OID were fully amortized as of June 30, 2016. The balance of the convertible
promissory note net of debt discount and OID as of December 31, 2015 amounted to $31,433.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
7 – CONVERTIBLE PROMISSORY NOTES (continued)
On
June 5, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $67,171, a debt discount
of $50,000 (see Note 8), and derivative expense of $17,171. The Company also recorded OID of $2,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of September
30, 2015 and as of December 31, 2015. The debt discount and OID were fully amortized as of June 30, 2016. The balance of the convertible
promissory note net of debt discount and OID as of December 31, 2015 amounted to $29,386.
On
June 15, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $157,895
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $201,512, a debt discount
of $142,500 (see Note 8), and derivative expense of $59,406. The Company also recorded OID of $7,500 and deferred
financing
costs of $1,500. The OID, deferred financing and debt discount are being amortized over the term of the note. In June 2016 the
note holder converted $5,000 of principle balance into 793,651 common shares at the contractual rate of $.0063 per share. The
balance of the convertible promissory note amounted to $90,900 as of September 30, 2016 and $157,895 as of December 31, 2015.
The debt discount and OID were fully amortized as of June 30, 2016. The balance of the convertible promissory note net of debt
discount, deferred financing and OID as of December 31, 2015 amounted to $113,707.
On
July 1, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $157,895
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $201,512, a debt discount
of $142,500 (see Note 8), and derivative expense of $59,406. The Company also recorded OID of $7,500. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $157,895 as of September
30, 2016 and as of December 31, 2015. The debt discount and OID were fully amortized as of June 30, 2016. The balance of the convertible
promissory note net of debt discount and OID as of December 31, 2015 amounted to $82,895.
On
July 15, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $157,895
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $201,512, a debt discount
of $142,500 (see Note 8), and derivative expense of $59,406. The Company also recorded OID of $7,500. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $157,895 as of September
30, 2016 and as of December 31, 2015. The debt discount and OID were fully amortized as of September 30, 2016. The balance of
the convertible promissory note net of debt discount and OID as of December 31, 2015 amounted to $76,645.
On
July 23, 2015 the Company issued a convertible promissory note with a principal balance of $429,439 with a one year maturity date.
This convertible debenture converts at 55% of the two lowest trading price during the 30 days prior to conversion. Due to certain
ratchet provisions contained in the convertible promissory note the Company accounted for this conversion feature as a derivative
liability. In connection herewith, the Company recorded a derivative liability of $707,603, a debt discount of $429,439 (see Note
8), and derivative expense of $278,164. The debt discount is being amortized over the term of the note. In March 2016 the note
holder converted $70,000 of principle balance into 1,454,545 common shares at the contractual rate of $.0482 per share. In April
2016 the note holder converted $15,000 of principle balance into 599,401 common shares at the contractual rate of $.0251 per share.
In May 2016 the note holder converted $14,000 of principle balance into 909,091 common shares at the contractual rate of $.0154
per share. In the period of July 2016 through September 2016 the note holder converted $19,600 of principle balance into10,443,129
common shares at the contractual rate ranging from $.00121 to $.0038 per share. The balance of the convertible promissory note
amounted to $310,839 and $429,439 as of September 30, 2016 and as of December 31, 2015, respectively. The debt discount was fully
amortized as of September 30, 2016. The balance of the convertible promissory note net of debt discount as of December 31, 2015
amounted to $278,767.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
7 – CONVERTIBLE PROMISSORY NOTES (continued)
On
October 9, 2015 three convertible promissory notes mentioned above were assigned to a third party note holder with the same terms
and balances. In February 2016 the note holder converted $20,000 of the convertible promissory note and $2,000 of accrued interest
into 419,048 common shares at the contractual rate of $.0525 per share. In March 2016 the note holder converted $20,000 of the
convertible promissory note and $2,000 of accrued interest into 419,048 common shares at the contractual rate of $.0525 per share.
In
April 2016 the note holder converted an additional $15,000 of the convertible promissory note and $1,500 of accrued interest into
654,762 common shares at the contractual rate of $.0252 per share. In May 2016 the note holder converted $10,895 of the convertible
promissory note and $1,089 of accrued interest into 713,346 common shares at the contractual rate of $.0168 per share. In the
period of July 2016 through September 2016 the note holder converted $15,000 of principle balance into7,027,779 common shares
at the contractual rate ranging from $.00126 to $.006 per share. The balance of the convertible promissory note amounted to $392,789
and $473,684 as of September 30, 2016 and as of December 31, 2015, respectively. The debt discount was fully amortized as of September
30, 2016. The balance of the convertible promissory note net of debt discount as of December 31, 2015 amounted to $159,101.
On
October 19, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$157,500 with a one year maturity date. This convertible debenture converts at 55% of the average of the two lowest traded prices
in the prior 30 days before conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company
accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability
of $259,764, a debt discount of $142,500 (see Note 8), and derivative expense of $117,264. The Company also recorded OID of $7,500.
The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted
to $157,500 as of September 30, 2016 and as of December 31, 2015. The balance of the convertible promissory note net of debt discount
and OID as of September 30, 2016 amounted to $151,250 and as of December 31, 2015 amounted to $38,750.
On
November 18, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$157,500 with a one year maturity date. This convertible debenture converts at 55% of the average of the two lowest traded prices
in the prior 30 days before conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company
accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability
of $259,764, a debt discount of $142,500 (see Note 8), and derivative expense of $117,264. The Company also recorded OID of $7,500.
The OID and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted
to $157,500 as of September 30, 2016 and as of December 31, 2015. The balance of the convertible promissory note net of debt discount
and OID as of September 30, 2016 amounted to $138,750 and as of December 31, 2015 amounted to $26,250.
On
December 18, 2015 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$263,158 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $335,598,
a debt discount of $237,500 (see Note 8), and derivative expense of $98,756. The Company also recorded OID of $12,500. The OID
and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $263,158
as of September 30, 2016 and as of December 31, 2015. The balance of the convertible promissory note net of debt discount and
OID as of September 30, 2016 amounted to $211,075 and as of December 31, 2015 amounted to $23,575.
On
January 19, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$111,111 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $141,697,
a debt discount of $95,000 (see Note 8), and derivative expense of $52,808. The Company also recorded OID of $5,000. The OID and
debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $111,111
as of September 30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016
amounted to $81,944.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
7 – CONVERTIBLE PROMISSORY NOTES (continued)
On
February 5, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$157,895 with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $201,359,
a debt discount of $142,500 (see Note 8), and derivative expense of $59,254. The Company also recorded OID of $7,500. The OID
and debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $157,895
as of September 30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016
amounted to $107,895.
On
March 7, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $118,573
with a one year maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $151,213, a debt discount
of $112,940 (see Note 8), and derivative expense of $38,569. The Company also recorded OID of $5,632. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $118,573 as of September
30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016 amounted to $64,227.
On
April 1, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $105,263
with a six month maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $108,185, a debt discount
of $95,000 (see Note 8), and derivative expense of $13,448. The Company also recorded OID of $5,000. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $105,263 as of September
30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016 amounted to $55,263.
On
May 23, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with a five month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $65,144, a debt discount
of $47,500 (see Note 8), and derivative expense of $17,776. The Company also recorded OID of $2,500. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632 as of September
30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016 amounted to $20,474.
On
June 24, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $78,947
with a four month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior
to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $84,205, a debt discount
of $71,250 (see Note 8), and derivative expense of $15,653. The Company also recorded OID of $3,750. The OID and debt discount
are being amortized over the term of the note. The balance of the convertible promissory note amounted to $78,947 as of September
30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016 amounted to $23,100.
On
July 20, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with an eighteen month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $56,141,
a debt discount of $47,500 (see Note 8), and derivative expense of $8,641. The Company also recorded OID of $2,632. The OID and
debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $52,632
as of September 30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016
amounted to $1,462.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
7 – CONVERTIBLE PROMISSORY NOTES (continued)
On
July 29, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of $52,632
with an eighteen month maturity date. This convertible debenture converts at 60% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for
this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $56,137,
a debt discount of $47,500 (see Note 8), and derivative expense of $8,637. The Company also recorded OID of $2,632 and deferred
financing of $2,500. The OID, deferred financing, and debt discount are being amortized over the term of the note. The balance
of the convertible promissory note amounted to $52,632 as of September 30, 2016. The balance of the convertible promissory note
net of debt discount, deferred financing and OID as of September 30, 2016 amounted to $724.
On
September 1, 2016 the Company executed a Securities Purchase Agreement (SPA). In connection with the SPA the Company may issue
5% original issue discount (OID) convertible promissory notes with an aggregate principal balance amounting to $157,895. In connection
with the SPA, on September 1, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal
balance of $157,895. This convertible debenture converts at 60% of the lowest trading price during the 30 days prior to conversion.
The promissory note will be fulfilled by issuing multiple tranches. On September 1, 2016, at the closing of the first tranche,
the outstanding principle amount totaled $32,895. Each tranche will have a twelve month maturity date following the issuances
of the tranche. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted for this
conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $35,086,
a debt discount of $25,000 (see Note 8), and derivative expense of $10,086. The Company also recorded OID of $7,895. The OID and
debt discount are being amortized over the term of the note. The balance of the convertible promissory note amounted to $32,895
as of September 30, 2016. The balance of the convertible promissory note net of debt discount and OID as of September 30, 2016
amounted to $2,741.
On
September 2, 2016 the Company issued a second tranche on $25,000 related to the above note. The principal balance of the second
tranche was recorded as $25,000 with a twelve month maturity date. In connection herewith, the Company recorded a derivative liability
of $26,665, and derivative expense of $5,165. The Company also recorded deferred financing of $3,500. The deferred financing is
being amortized over the term of the note. The balance of the convertible promissory note amounted to $25,000 as of September
30, 2016. The balance of the convertible promissory note net of deferred financing as of September 30, 2016 amounted to $2,083.
During
the nine months ended September 30, 2016 and 2015 amortization of debt discount amounted to $1,460,187 and $475,654, respectively.
NOTE
8 – DERIVATIVE LIABILITY
The
Company enters into financing arrangements that contain embedded derivative features due to down round (“Ratchet”)
provisions or conversion formulas that cause derivative treatment. The Company accounts for these arrangements in accordance with
Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”)
as well as related interpretation of this standard. In accordance with this standard, derivative instruments are recognized as
either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings.
The Company determines the fair value of derivative instruments based on available market data using appropriate valuation models,
considering all of the rights and obligations of each instrument.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
8 – DERIVATIVE LIABILITY (continued)
We
estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered
consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other factors,
the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative
instruments we generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite
assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments.
Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that
may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.
In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading
market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values,
our income (expense) going forward will reflect the volatility in these estimates and assumption changes. Under the terms of the
new accounting standard, increases in the trading price of the Company’s common stock and increases in fair value during
a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price
of the Company’s common stock and decreases in trading fair value during a given financial quarter result in the application
of non-cash derivative income.
The
following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) from December 31, 2014 to September 30, 2016:
|
|
Conversion feature
|
|
|
|
derivative
liability
|
|
Balance at December 31, 2014
|
|
$
|
1,462,984
|
|
Recognition of initial derivative liability
|
|
|
3,492,594
|
|
Reclass of derivative liability to additional
paid in capital due to conversions
|
|
|
(1,196,842
|
)
|
Change in fair
value included in earnings
|
|
|
(40,494
|
)
|
Balance at December 31, 2015
|
|
|
3,718,242
|
|
Initial fair value of derivative liability
recorded as debt discount
|
|
|
695,801
|
|
Initial fair value of derivative liability
charged to other expense
|
|
|
230,036
|
|
Reclass of derivative liability to additional
paid in capital due to conversions
|
|
|
(533,830
|
)
|
Change in fair
value included in earnings
|
|
|
(1,472,386
|
)
|
Balance at September 30, 2016
|
|
$
|
2,637,863
|
|
Total
derivative liability at September 30, 2016 and December 31, 2015 amounted to $2,637,863 and $3,718,242, respectively. The change
in fair value included in earnings of $1,472,386 is due in part to the quoted market price of the Company’s common stock
decreasing from $.126 at December 31, 2015 to $.0024 at September 30, 2016 coupled with substantially reduced conversion prices
due to the effect of “Ratchet” provisions incorporated in convertible notes payable.
The
Company used the following assumptions for determining the fair value of the convertible instruments granted under the Black-Scholes
option pricing model:
|
|
September
30, 2016
|
|
|
|
|
|
Expected volatility
|
|
|
192%
- 439
|
%
|
Expected term
|
|
|
3
– 12 months
|
|
Risk-free interest rate
|
|
|
0.02%
- 0.09
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
9 - STOCKHOLDERS’ DEFICIT
In
March 2015 the Company approved a 1-30 Reverse Stock Split and on August 2, 2016 the Company approved a 1-35 Reverse Stock split.
The financial statements have been retroactively restated to reflect the August 2, 2016 Reverse Split.
In
January 2015 the Company made four issuances of common shares related to the same convertible note payable. The Company issued
17,143; 18,095; 18,095 and 19,048 shares of common stock at the contractual rate of $.378 for the reduction of $6,480; at the
contractual rate of $.378 for the reduction of $6,840; at $.378 for the reduction of $6,840 and at $.315 for an additional
reduction of $6,000 in principal of notes payable.
In
January 2015 the Company issued 9,523 shares of common stock at the contractual rate of $.1050 for the reduction of $1,000 in
principal of convertible notes payable.
In
January 2015 the Company issued 19,133 shares of common stock at the contractual rate of $.378 for the reduction of $7,556 in
principal of convertible notes payable.
In
February 2015 the Company issued 20,000; 21,905 and 23,810 shares of common stock at the contractual rate of $.315 for the reduction
of $6,300; at the contractual rate of $.315 for the reduction of $6,900; and at the contractual rate of $.252 for the reduction
of $6,000 in principal of convertible notes payable.
In
February 2015 the Company made four issuances of common shares at contractual rates related to the same convertible note payable.
The Company issued 21,178; 27,051; 29,524 and 31,365 shares of common stock at $.315 for the reduction of $6,671; at $.315 for
the reduction of $8,521; at $.252 for the reduction of $7,440 and at $.189 for an additional reduction of $5,928 in principal
of notes payable.
In
February 2015 the Company issued 3,333 shares of common stock at fair market value of $.63 for $2,100 of services rendered.
In
March 2015 the Company made two issuances of common shares at contractual rates related to the same convertible note payable.
The Company issued 119 and 1,238 shares of common stock at $.945 for the reduction of $1,121 and at $.945 for the reduction of
$1,170 in principal of notes payable.
In
March 2015 the Company made issuances of common shares at contractual rates related to the same convertible note payable. The
Company issued 138,418 shares of common stock at $.252 for the reduction of $8,720 of principal, interest and associated fees.
In
March 2015 the Company made two issuances of common shares at contractual rates related to the same convertible note payable.
The Company issued 1,310 and 1,565 shares of common stock at $.945 for the reduction of $1,238 and at $.945 for the reduction
of $1,479 in principal of notes payable.
In
March 2015 the Company issued 37,143 shares of common stock at the contractual rate of $.035 for the reduction of $1,300 in principal
of convertible notes payable.
In
the period of April 1, 2015 through June 30, 2015 the Company issued 4,977,930 shares of common stock at contractual rates ranging
from $.0336 to $2.625 for the reduction of $265,281 in principal convertible notes payable, $8,540 in fees and $959 in the reduction
of accrued interest (See Note 7).
In
May 2015 the Company issued 85,714 shares of common stock at fair market value of $.49 per share, based on quoted traded prices,
for compensation totaling $42,000.
In
the period of July 1, 2015 through September 30, 2015 the Company issued 2,036,594 shares of common stock at contractual rates
ranging from $.0483 to $.1050 for the reduction of $114,289 in principal of convertible notes payable, $156 in fees and $44,181
in the reduction of accrued interest (See Note 7).
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
9 - STOCKHOLDERS’ DEFICIT (continued)
In
the period of October 1, 2015 through December 31, 2015 the Company issued 1,971,517 shares of common stock at contractual rates
ranging from $.0460 to $.0805 for the reduction of $85,500 in principal of convertible notes payable and $5,250 in the reduction
of accrued interest (See Note 7).
On
January 6, 2016, the Company filed an amendment to its articles of incorporation (the “Amendment”) with the Secretary
of State of the State of Nevada, which, among other things, established the designation, powers, rights, privileges, preferences
and restrictions of the Series A Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”). Among
other provisions, each one (1) share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607
multiplied
by
the total issued and outstanding shares of common stock of the Company eligible to vote at the time of the respective vote
(the “Numerator”),
divided by
(y) 0.49,
minus
(z) the Numerator. For purposes of illustration only,
if the total issued and outstanding shares of common stock of the Company eligible to vote at the time of the respective vote
is 5,000,000, the voting rights of one share of the Series A Preferred Stock shall be equal to 102,036 (0.019607 x 5,000,000)
/ 0.49) – (0.019607 x 5,000,000) = 102,036).
Fifty-one
(51) shares of Series A Preferred Stock were authorized and fifty-one (51) shares of Series A Preferred Stock were issued to Roger
Ralston, the Company’s Chief Executive Officer and a director of the Company (CEO). The Series A Preferred Stock was issued
to the CEO and is Series A Super Voting Preferred Stock. The Super Voting was created primarily to be able to obtain a quorum
and conduct business at shareholder meetings.
The
Series A Preferred Stock has no dividend rights, no liquidation rights and no redemption rights, and was created primarily to
be able to obtain a quorum and conduct business at shareholder meetings. All shares of the Series A Preferred Stock shall rank
(i) senior to the Company’s common stock and any other class or series of capital stock of the Company hereafter created,
(ii)
pari passu
with any class or series of capital stock of the Company hereafter created and specifically ranking, by
its terms, on par with the Series A Preferred Stock and (iii) junior to any class or series of capital stock of the Company hereafter
created specifically ranking, by its terms, senior to the Series A Preferred Stock, in each case as to distribution of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.
In
the period of January 1, 2016 through March 31, 2016 the Company issued 4,609,850 shares of common stock at contractual rates
ranging from $.0483 to $.0711 for the conversion of $244,660 in principal of convertible notes payable and $17,753 in the conversion
of accrued interest (See Note 7).
In
the period of April 1, 2016 through June 30, 2016 the Company issued 3,670,250 shares of common stock at contractual rates ranging
from $.0063 to $.0252 for the conversion of $59,895 in principal of convertible notes payable and $2,589 in the conversion of
accrued interest (See Note 7).
In
the period of July 1, 2016 through September 30, 2016 the Company issued 48,070,511 shares of common stock at contractual rates
ranging from $.00121 to $.003 for the conversion of $96,595 in principal of convertible notes payable and $1,500 in the conversion
of accrued interest (See Note 7).
NOTE
10 - RELATED PARTY TRANSACTIONS
Due
to Related Parties
The
following related party transactions have been presented on the balance sheet in due to related parties. During the six months
ended June 30, 2016, the Company paid $18,915 in accrued interest to the Chief Executive Officer. Additionally, as of June 30,
2016 and as of December 31, 2015 $0 and $48,478 of accrued interest due to related parties has been included in accrued expenses.
The
Company repaid $10,907 to the Chief Executive Officer and borrowed $2,484 in the second quarter of 2015. The Company repaid
$140,330 to the Chief Executive Officer and borrowed $3,412 in the third quarter of 2015. In October 2015 the Company repaid
$2,584 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. As of September 30, 2016 and
December 31, 2015 the Company had a payable to the Chief Executive Officer of the Company amounting to $2,417 and $12,560,
respectively. These advances are short-term in nature and non-interest bearing.
DIRECTVIEW
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2016
NOTE
11 – BARTER REVENUE
The
Company provides security systems and associated installation labor in exchange for business services. The Company recognizes
revenue from these barter transactions when security systems are installed and recognizes deferred barter costs as other current
assets until the barter transaction is completed and then recognizes the appropriate expense. The barter revenue is valued at
the fair market value which is the selling price we sell to other third parties. The barter revenue for the nine months ended
September 30, 2016 and 2015 totaled $20,543 and $18,047, respectively.
NOTE
12 - ACCRUED PAYROLL TAXES
As
of September 30, 2016 and December 31, 2015 the Company recorded a liability related to unpaid payroll taxes which includes interest
and penalties of approximately $86,000 and $84,000, respectively. The liability was incurred in the years ended December 31, 2007
through December 31, 2010 as a result of the Company not remitting payroll tax liabilities. In August 2013, the Company paid $43,176
and in September 2015, the Company paid $28,281 toward the outstanding payroll tax liabilities. Such amount also includes current
payroll tax liabilities and has been included in accrued expenses in the accompanying consolidated financial statements. In period
of January 2011 through September 2016 the Company has filed and paid its payroll liabilities timely.
NOTE
13 - SEGMENT REPORTING
Although
the Company has a number of operating divisions, separate segment data has not been presented as they meet the criteria for aggregation
as permitted by ASC Topic 280, “Segment Reporting” (formerly Statement of Financial Accounting Standards (SFAS) No.
131, “Disclosures About Segments of an Enterprise and Related Information”).
Our
chief operating decision-maker is considered to be our Chief Executive Officer (CEO). The CEO reviews financial information presented
on a consolidated basis for purposes of making operating decisions and assessing financial performance. The financial information
reviewed by the CEO is identical to the information presented in the accompanying consolidated statements of operations. Therefore,
the Company has determined that it operates in a single operating segment, specifically, security systems and related services.
For the nine months ended September 30, 2016 and the year ended December 31, 2015 all material assets and revenues of the Company
were in the United States.
NOTE
15 – SUBSEQUENT EVENTS
Subsequent
to September 30, 2016 the Company issued 58,941,209 shares of common stock upon conversion of $51,820 of convertible
promissory notes and $500 of accrued interest. These notes were converted at contractual rates ranging from $.00066 to
$.00126.
On
October 18, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$26,316 with a six month maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company will account for
this conversion feature as a derivative liability. In connection herewith, the Company will record a derivative liability of $36,709,
a debt discount of $25,000, and derivative expense of $11,709. The Company also will record OID of $1,316. The OID and debt discount
will be amortized over the term of the note.
On
October 28, 2016 the Company issued a 5% original issue discount (OID) convertible promissory note with a principal balance of
$26,316 with a six month maturity date. This convertible debenture converts at 70% of the lowest trading price during the 30 days
prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company will account for
this conversion feature as a derivative liability. In connection herewith, the Company will record a derivative liability of $36,709,
a debt discount of $25,000, and derivative expense of $11,709. The Company also will record OID of $1,316. The OID and debt discount
will be amortized over the term of the note.