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EX-31.1 - DIRECTVIEW HOLDINGS INCex31-1.htm
EX-31.2 - DIRECTVIEW HOLDINGS INCex31-2.htm
EX-32.2 - DIRECTVIEW HOLDINGS INCex32-2.htm
EX-10.5 - DIRECTVIEW HOLDINGS INCex10-5.htm
EX-10.6 - DIRECTVIEW HOLDINGS INCex10-6.htm
EX-32.1 - DIRECTVIEW HOLDINGS INCex32-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2015

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-53741

 

DIRECTVIEW HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   04-3053538
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

21218 Saint Andrews Blvd., Suite 323

Boca Raton, FL

(Address of principal executive offices)

 

(561) 750-9777

(Issuer’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, $0.0001 par value

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

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

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

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

 

Large accelerated filer [  ]   Non-accelerated filer [  ]
         
Accelerated filer [  ]   Smaller reporting company [X]

 

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

 

The aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates (as defined by Rule 12b-2 of the Exchange Act) computed by reference to the average bid and asked price of such common equity on June 30, 2015, was $1,275,495. As of April 14, 2016, the registrant has one class of common equity, and the number of shares issued and outstanding of such common equity was 617,104,759.

 

Documents Incorporated By Reference: None.

 

 

 

   
 

 

DIRECTVIEW HOLDINGS, INC.

FORM 10-K

TABLE OF CONTENTS

 

      Page No.
       
  Part I    
       
Item 1. Business.   4
       
Item 1A. Risk Factors.   8
       
Item 1B. Unresolved Staff Comments.   12
       
Item 2. Properties.   12
       
Item 3. Legal Proceedings.   12
       
Item 4. Mine Safety Disclosures.   12
       
  Part II    
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   12
       
Item 6. Selected Financial Data.   13
       
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   13
       
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.   20
       
Item 8. Financial Statements and Supplementary Data.   20
       
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.   20
       
Item 9A. Controls and Procedures.   21
       
Item 9B. Other Information.   22
       
  Part III    
       
Item 10. Directors, Executive Officers and Corporate Governance.   22
       
Item 11. Executive Compensation.   24
       
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   25
       
Item 13. Certain Relationships and Related Transactions, and Director Independence.   28
       
Item 14. Principal Accountant Fees and Services.   29
       
  Part IV    
       
Item 15. Exhibits, Financial Statement Schedules.   30

 

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

 

Various statements in this annual report on Form 10-K contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our history of losses and declining sales, our ability to raise sufficient capital to fund our operating losses, increase our net sales to a level which funds our operating expenses, economic, political and market conditions and fluctuations, competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this annual report on Form 10-K in its entirety, including the risks described in Item 1A. Risk Factors. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this annual report on Form 10-K, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

OTHER PERTINENT INFORMATION

 

Unless specifically set forth to the contrary, “DirectView,” “we,” “us,” “our” and similar terms refer to DirectView Holdings, Inc., a Nevada corporation, and each of our subsidiaries.

 

When used in this report 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.

 

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PART I

 

Item 1. Business.

 

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.

 

In November 2008, Homeland Integrated Security Systems, Inc., a Florida corporation (name changed to DirectView Technology Group, Inc. and referred to hereafter as “Technology Group) entered into an acquisition agreement with Directview Video Technology, Inc. a Florida corporation (“Directview Video”). The agreement includes a condition to ultimate consummation of the transaction, a 30-day clause which provided for termination of the agreement in the event any of the payment or exchanges were not finalized. Technology Group failed to pay the consideration within 30 days of acquisition which resulted in a termination of such agreement. Thus the closing of this transaction did not occur or consummate. As a result of these transactions and events, Technology Group, Roger Ralston and the DirectView companies did not complete the acquisition and integration of the DirectView companies with Technology Group, and there has been no relationship between the parties since that time. Mr. Ralston, our CEO, or any of the employees of Directview Holdings do not presently hold any position or ownership of Technology Group.

 

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.

 

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

 

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)

 

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.

 

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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.

 

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 a majority 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.

 

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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. A majority 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.

 

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

 

In 2014, one client, Green Ivy Schools, accounted for revenues of $250,082 which is approximately 50% of our total consolidated revenues in 2014. In 2015, two customers, Hilton Hotel and JRM Construction accounted for revenues of $419,000 which is approximately 52% of our total consolidated revenues in 2015.

 

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 a website at www.directviewinc.com and www.directviewsecurity.com. Recently, the Company purchased the domain name www.directview.com which we intend to make our main website. The Company paid approximately $4,000 to obtain this website.

 

Intellectual Property

 

We do not have any intellectual property at this time.

 

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Employees

 

We currently have nine 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.

 

Item 1A. Risk Factors.

 

You should carefully consider the risks described below together with all of the other information included in this annual report on Form 10-K before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment.

 

Risks Related to Our Business

 

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 $23,081,557 as of December 31, 2015. Our operations have been financed primarily through the issuance of equity and debt. For the year ended December 31, 2015, net loss and cash used in operations were $4,373,018 and $1,263,626, 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 as a result of 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.

 

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, 2015 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, 2015 we had approximately $84,700 of accrued but unpaid payroll taxes 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.

 

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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.

 

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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, in particular 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.

 

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.

 

10 
 

 

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.

 

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.

 

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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.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable to a smaller reporting company.

 

Item 2. Description of Property.

 

We currently use general office space in Boca Raton, Florida from a related party. The facility is provided to us at no cost by our CEO and director, Roger Ralston. We believe that our facility is adequate to meet our current needs.

 

Item 3. Legal Proceedings.

 

We are not currently involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

Item 5. Market for Common Stock and Related Stockholder Matters.

 

Market Price of and Dividends on Common Equity and Related Stockholder Matters

 

Our common stock is quoted on the over-the-counter market on OTC Markets OTC Pink under the symbol DIRV. However, the Company has had limited trading activity in its common stock and we are unable to provide the range of high and low bids per share of our common stock for the applicable periods.

 

The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.

 

The closing price of our common stock as reported on the OTC Markets OTC Pink on April 11, 2016 was $0.0024 per share. As of April 14, 2016, there were approximately 617,104,759 shares of our common stock issued and outstanding and approximately 192 record owners of our common stock.

 

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Dividend Policy

 

We have not paid any cash dividends to our shareholders. 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.

 

Under Nevada law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Nevada statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our company, computed in accordance with the relevant Nevada statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits and dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

On March 13, 2014, the Board of Directors of the Company approved the adoption of the 2014 Incentive Plan of DirectView Holdings, Inc. (the “Plan”). There are 10,000,000 shares of our common stock reserved for issuance under the Plan. On the same date, the Company filed a Registration Statement on Form S-8 to register with the Securities and Exchange Commission (the “Commission”) 10,000,000 shares of the Company’s common stock, par value $0.0001 per share, 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 as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the U.S. Securities and Exchange Commission on March 13, 2014.

 

Recent Sales of Unregistered Securities

 

There were no sales of unregistered securities not already reported on the Company’s quarterly filings on Form 10-Q or on a Current Report on Form 8-K.

 

Item 6. Selected Financial Data.

 

Not applicable to a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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.

 

Our operations are conducted within two divisions:

 

  The vast majority of our business is derived from our security division which provides surveillance systems, digital video recording and services to businesses, organizations and law enforcement, and
     
  Our video conferencing division which is a full-service provider of teleconferencing products and services to businesses and organizations.

 

We operate our security division through DirectView Security 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 source our products from a variety of different suppliers and our product and service offerings include:

 

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

 

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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 to 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. Our main markets can be divided into five categories which include:

 

-Transportation (Airport, Heliport, and Bus Terminal)

 

-Hospitality (Hotel, Golf Course, Food Service and Bars/Restaurant)

 

-Industrial (Warehousing and Storage, Cannabis Grow House and Dispensary, and Manufacturing)

 

-Educational (Daycare, Private School, Learning Center/Religious Organization)

 

-Residential (Condo/Co-op, Property Management Company, and Private Home)

 

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. By the middle of 2013, 18 states and the District of Columbia have already allowed the production and use of marijuana for medical purposes. Two states, Colorado and Washington, also have approved cannabis for recreational use. Additionally, many large security service providers have publicly avoided servicing businesses engaged in the sale or growing of marijuana which we believes 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.

 

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.

 

14 
 

 

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 notes, the sale of common stock and advances from our executive officers to provide working capital to our 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 2016 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 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.

 

15 
 

 

Results of Operations

 

Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014

 

Net Sales

 

Overall, our net sales for the year ended December 31, 2015 increased approximately 57% from the comparable period in 2014. The following table provides comparative data regarding the source of our net sales in each of these periods and the change from 2015 to 2014:

 

   Year Ended December 31, 2015   Year Ended December 31, 2014     
   $   % of Total   $   % of Total   Variance 
Sale of product   598,774    74%   316,140    62%   89%
Service   205,620    26%   194,704    38%   6%
Total   804,394    100%   510,844    100%   57%

 

Sales of product for the year ended December 31, 2015 increased approximately 89% as compared to the year ended December 31, 2014. Service revenue increased by approximately 6% due to customers increasing their service needs in 2015 compared to 2014.

 

Net sales increased due to customers’ needs and the Company responding effectively to their orders. In an effort to continue to increase our sales in future periods, we believe we need to hire 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. Although we recognized increased sales during the year ended December 31, 2015, there can be no assurances that we will continue to recognize similar revenues in the future.

 

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 11% for the year ended December 31, 2015 compared to December 31, 2014. The following table provides comparative data regarding the breakdown of the cost of sales in each of these periods and the change from 2015 to 2014:

 

   Year Ended December 31, 2015   Year Ended December 31, 2014     
   $   % of Total   $   % of Total   Variance 
Cost of product   354,007    69%   279,766    60%   27%
Cost of service   159,887    31%   182,925    40%   -13%
Total   513,894    100%   462,691    100%   11%

 

During the year ended December 31, 2015, our cost of product increased approximately 27% as compared to the year ended December 31, 2014. Our cost of services for 2015 decreased 13% as compared to the year ended December 31, 2014.

 

Total operating expenses for the year ended December 31, 2015 were $2,067,172, an increase of $613,887, or approximately 42%, from total operating expenses for the comparable year ended December 31, 2014 of $1,453,285. This increase is primarily attributable to an increase in rent expense, public company expenses, legal and accounting expenses, marketing and public relations, stock based compensation and a decrease in bad debt expense.

 

Loss from Operations

 

We reported a loss from operations of $1,776,672 for the year ended December 31, 2015, as compared to a loss from operations of $1,405,132 for the year ended December 31, 2014, an increase of $371,540 or 26% for the year ended December 31, 2015.

 

16 
 

 

Other Income (Expenses)

 

Total other income was $171,081 for the year ended December 31, 2014 as compared to total other expense of ($2,596,346) for the year ended December 31, 2015. An increase of other expense of $2,767,427, for the year ended December 31, 2015 which is primarily attributable to an increase in derivative expense, amortization of debt discount and an increase in interest expense.

 

Net income (loss)

 

We reported a net loss of $4,373,018 for the year ended December 31, 2015 as compared to a net loss of $1,234,051 for the year ended December 31, 2014.

 

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, 2015, we had a cash balance of $330,015. Our working capital deficit is $6,845,752 at December 31, 2015.

 

We reported a net increase in cash for the year ended December 31, 2015 of $316,857. While we currently have no material commitments for capital expenditures, at December 31, 2015 we owed approximately $126,692 under various notes payable. During the year ended December 31, 2015, we have raised $2,296,438 of net proceeds from convertible notes payable.

 

Accrued liabilities were $2,024,457 as of December 31, 2015 consist of the following:

 

Accrued salaries for certain employees amounting to $1,312,594
   
Accrued commissions for certain employees amounting to $60,590
   
Sales tax payable of $37,994
   
Lease abandonment charges of $164,375
   
Accrued interest of $276,791
   
Accrued payroll liabilities and taxes of $84,703
   
Other rent expenses of $9,000
   
Other legal expenses of $66,710
   
Other accrued expenses of $11,700

 

Our net sales are not sufficient to fund our operating expenses. We will need to raise significant additional capital to fund our operating expenses, pay our obligations, and grow our company. We reported a net loss of $4,373,018 during the year ended December 31, 2015. At December 31, 2015 we had a working capital deficit of $6,845,752. We do not anticipate we will be profitable in 2016. 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 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. 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, 2015 is a discussion regarding Going Concern.

 

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Operating activities

 

Net cash flows used in operating activities for the year ended December 31, 2015 amounted to $1,263,626 and was primarily attributable to our net loss of $4,373,018, offset by depreciation of $8,633, $343,860 of common stock issued for compensation and services, and net derivative expenses of $1,479,865, add back of amortization of debt issuance cost and debt discount of $919,034. Net cash flows used in operating activities for the year ended December 31, 2014 amounted to $453,155 and was primarily attributable to our net loss of $1,234,051, offset by depreciation of $3,112, $470,100 of common stock issued for compensation, and net derivative expenses of $329,535, add back of amortization of debt issuance cost and debt discount of $329,565.

 

Financing activities

 

Net cash flows provided by financing activities was $1,594,936 for the year ended December 31, 2015. We received proceeds from notes payable of $2,296,438 and proceeds due to related parties of $26,940. We made payments of $50,000 related to notes payable and $678,442 to related parties. Net cash flows provided by financing activities was $455,292 for the year ended December 31, 2014. We received proceeds from notes payable of $521,796, proceeds from short term advances of $0 and net proceeds due to related parties of $29,745.

 

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, 2015, 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:                         
Short term loans- unrelated party  $146,015    146,015             
Short term loans- related party  $12,560    12,560             
Operating Leases  $164,375    164,375             
Purchase Obligations  $                 
Total Contractual Obligations:  $322,950    322,950             

 

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 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 collectibility 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:

 

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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.

 

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.

 

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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.

 

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

 

There are no recent accounting pronouncements or new accounting principles that have an effect on the Company’s financial statements.

 

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.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable to smaller reporting companies.

 

Item 8. Financial Statements and Supplementary Data.

 

See our Financial Statements beginning on page F-1 of this annual report.

 

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

 

Not applicable.

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Item 9A. Controls and Procedures.

 

Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2015, the end of the year covered by this report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.

 

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and our Chief Financial Officer. Based on that evaluation, Roger Ralston, our Chief Executive Officer, and Michele Ralston, our Chief Financial Officer concluded that because of the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2015.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2015, management identified material weaknesses related to (i) our internal audit functions and (ii) the absence of an Audit Committee as of December 31, 2015, (iii) a lack of segregation of duties within accounting functions, (iv) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (v) ineffective controls over period end financial close and reporting processes. Therefore, our internal controls over financial reporting were not effective as of December 31, 2015.

 

21 
 

 

Management has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal audit functions. Finally, management determined that the lack of an Audit Committee of our Board of Directors also contributed to insufficient oversight of our accounting and audit functions.

 

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

 

We believe that the foregoing steps will remediate the material weaknesses identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. Due to the nature of these material weaknesses in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected.

 

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting during our fiscal year 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

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

 

Name   Age   Position
Roger Ralston   47   Chief Executive Officer and Chairman of the Board of Directors
         
Michele Ralston   46   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 took into account his experience in the technology industry and his knowledge of publicly traded companies.

 

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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 took into account 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.

 

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. We have filed a copy of the Financial Code of Ethics with the Securities and Exchange Commission as an exhibit to this report.

 

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.

 

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It is our desire to expand our Board of Directors during 2016 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.

 

Item 11. 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 and up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer of our company at December 31, 2015.

  

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)   2015    276,924    -    -    -    -    -     300,000 (4)   576,924 
    2014    276,924    -    -    -    -    -     387,500 (3)    664,424 
                                              
Michele Ralston (2)   2015    72,000    -    -    -    -    -    -    72,000 
    2014    72,000    -    -    -    -    -    -    72,000 

  

(1) Accrued but unpaid compensation due to Mr. Ralston during fiscal 2015 and 2014 amounted to approximately $277,000.
   
(2) Accrued but unpaid compensation due to Mrs. Ralston during fiscal 2015 and 2014 amounted to approximately $72,000.
   
(3)

Represents compensation of 25,000,000 shares of common stock issued at $0.0155.

   
(4)

Represents compensation of 100,000,000 shares of common stock issued at $0.003 for retirement of loans payable.

 

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 2013, 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.

 

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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  

 

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, 2015.

 

Item 12.

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

 

At April 14, 2016, we had 617,104,759 shares of our common stock issued and outstanding and 51 shares of Series A Preferred Stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of April 14, 2016 by:

 

each person known by us to be the beneficial owner of more than 5% of our common stock;
   
each of our directors;
   
each of our named executive officers; and
   
our named executive officers, directors and director nominees as a group.

 

Unless otherwise indicated, the business address of each person listed is in care of 21218 Saint Andrews Blvd., suite 323, Boca Raton, FL 33433. 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.

 

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Name of Beneficial Owner (1)  Shares of Series A Preferred   Percent of Series A Preferred (2)   Shares of Common Stock   Percent of Common Stock (2) 
                 
Roger Ralston   51    100%   102,910,002    16.67%
Chief Executive Officer, President, Chairman                    
                     
Michele Ralston   0    0%   8,334    *%
Chief Financial Officer, Secretary, Treasurer and Director                    
                     
All officers and directors as a group (2 persons)   51    100%   102,918,336    16.67%
                     
All officers, directors and 5% holders as a group (2 persons)   51    100%   102,918,336    16.67%

 

*represents less than 1%

 

Description of Securities

 

General

 

Our authorized capital stock consists of 1,000,000,000 shares of common stock, par value of $0.0001 per share, and 5,000,000 shares of blank check preferred stock, par value of $0.0001 per share, of which 51 shares are authorized as Series A Preferred Stock and 51 shares of Series A Preferred Stock are issued and outstanding. As of April 14, 2016 there were 617,104,759 shares of our common stock issued and outstanding held by 192 holders of record of our common stock.

 

Common Stock

 

Each share of our common stock entitles its holder to one vote in the election of each director and on all other matters voted on generally by our stockholders. No share of our common stock affords any cumulative voting rights. This means that the holders of a majority of the voting power of the shares voting for the election of directors can elect all directors to be elected if they choose to do so.

 

Holders of our common stock will be entitled to dividends in such amounts and at such times as our Board of Directors in its discretion may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire available discretionary cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividends on the common stock in the foreseeable future. Any future dividends will be paid at the discretion of our Board of Directors after taking into account various factors, including:

 

  general business conditions;
     
  industry practice;
     
  our financial condition and performance;
     
  our future prospects;
     
  our cash needs and capital investment plans;
     
  our obligations to holders of any preferred stock we may issue;
     
  income tax consequences; and
     
  the restrictions Nevada and other applicable laws and our credit arrangements then impose.

 

If we liquidate or dissolve our business, the holders of our common stock will share ratably in all our assets that are available for distribution to our stockholders after our creditors are paid in full and the holders of all series of our outstanding preferred stock, if any, receive their liquidation preferences in full.

 

Our common stock has no preemptive rights and is not convertible or redeemable or entitled to the benefits of any sinking or repurchase fund.

 

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Preferred Stock

 

Our Board has the authority, within the limitations and restrictions in our certificate of incorporation, to issue 5,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of any series, without further vote or action by the stockholders. The issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in our control without further action by the stockholders. The issuance of shares of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of our common stock, including voting rights, of the holders of our common stock. In some circumstances, this issuance could have the effect of decreasing the market price of our common stock.

 

Undesignated preferred stock may enable our Board to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock may adversely affect the rights of our common stockholders. For example, any shares of preferred stock issued may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. As a result, the issuance of shares of preferred stock, or the issuance of rights to purchase shares of preferred stock, may discourage an unsolicited acquisition proposal or bids for our common stock or may otherwise adversely affect the market price of our common stock or any existing preferred stock.

 

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.

 

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.

 

The foregoing descriptions of the Amendment and the Series A Preferred Stock designations does not purport to be complete and is subject to, and qualified in its entirety by, the Amendment, a copy of which is attached as Exhibit 3.1 to the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on January 19, 2016, and incorporated herein by reference.

 

Anti-Takeover Provisions

 

Our Articles of Incorporation and Bylaws contain provisions that may make it more difficult for a third party to acquire or may discourage acquisition bids for us. Our Board of Directors may, without action of our stockholders, issue authorized but unissued common stock and preferred stock. The Series A Preferred Stock and the issuance of additional shares to certain persons allied with our management could have the effect of making it more difficult to remove our current management by diluting the stock ownership or voting rights of persons seeking to cause such removal. The existence of unissued preferred stock may enable the Board of Directors, without further action by the stockholders, to issue such stock to persons friendly to current management or to issue such stock with terms that could render more difficult or discourage an attempt to obtain control of us, thereby protecting the continuity of our management. Our shares of preferred stock could therefore be issued quickly with terms that could delay, defer, or prevent a change in control of us, or make removal of management more difficult.

 

Disclosure of Commission Position on Indemnification for Securities Act Liabilities

 

The Articles of Incorporation provide for indemnification of directors and officers against certain liabilities. Officers and directors of the Company are indemnified generally for any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful.

 

27 
 

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our directors, officers or controlling persons in the successful defense of any action, suit or proceedings) is asserted by such director, officer, or controlling person in connection with any securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issues.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

During 2007 and 2006, the Company’s Chief Executive Officer loaned $39,436 and $14,400, respectively to the Company for working capital purposes. This debt carries 3% interest per annum and matures in July 2010. In March 2012, the Company and the principal officer of the Company agreed to change the term of this promissory note into a demand note. The amount due to such related party including accrued interest at December 31, 2014 and December 31, 2013 was $57,065 and $55,495 respectively. As of December 31, 2014 and December 31, 2013, this note was reflected as due to related party.

 

In June 2009, the Company issued a promissory note amounting $22,000 to the Chief Executive Officer of the Company. This note is payable either in cash or security equivalent at the option of the note holder. The note payable bears 12% interest per annum and shall be payable in June 2010. During 2012, the Company repaid the Chief Executive Officer $11,157 related to this note leaving the balance of the note at $10,843 as of December 31, 2013 and December 31, 2014.

 

Accrued interest on the notes payable to the Chief Executive Officer of the Company amounted to $22,000 and $22,000 as of December 31, 2014 and December 31, 2013, respectively and is included in accrued expenses in the Company’s balance sheet.

 

The Chief Executive Officer of the Company, from time to time, provided advances to the Company for operating expenses. At December 31, 2014 and December 31, 2013, the Company had a payable to the Chief Executive Officer of the Company amounting to $163,320 and $193,065, respectively. These advances are short-term in nature and non-interest bearing.

 

The Chief Financial Officer of the Company, from time to time, provided advances to the Company for operating expenses. At December 31, 2014 and 2013, the Company had a payable to the Chief Financial Officer of the Company amounting to $8,119 and $8,119, respectively. These advances are short-term in nature and non-interest bearing.

 

During the quarter ended June 30, 2012, the Company issued notes payable to the CFO amounting to $429,439 related to the accrued salaries. As of December 31, 2014 and December 31, 2013 the balance on the notes payable related to the accrued salaries remained at $429,439 for both year ends.

 

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

 

Name  December 31, 2015 
Roger Ralston  $998,150 
Michele Ralston   261,000 
Total  $1,259,150 

 

28 
 

 

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.

 

Item 14. Principal Accounting Fees and Services.

 

The following table sets forth the fees billed by our principal independent accountants for each of our last two fiscal years for the categories of services indicated.

 

  Year Ended
December 31,
 
Category   2015   2014 
Audit Fees(1)  $20,000   $20,000 
Audit Related Fees(2)  $15,000   $15,000 
Tax Fees(3)   -    - 
All Other Fees(4)   -    - 

 

(1) Consists of fees billed for the audit of our annual financial statements, review of our Form 10-K and services that are normally provided by the accountant in connection with year end statutory and regulatory filings or engagements.
   
(2) Consists of fees billed for the review of our quarterly financial statements, review of our forms 10-Q and 8-K and services that are normally provided by the accountant in connection with non year end statutory and regulatory filings on engagements.
   
(3) Consists of professional services rendered by a company aligned with our principal accountant for tax compliance, tax advice and tax planning.
   
(4) The services provided by our accountants within this category consisted of advice and other services relating to SEC matters, registration statement review, accounting issues and client conferences.

 

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting.

 

29 
 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

Exhibit

Number

  Description
3.1   Delaware Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
3.2   Delaware Amended Certificate of Incorporation (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
3.3   Delaware Bylaws (incorporated herein by reference to Exhibit 3.3 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
3.4   Plan  of Conversion (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2014)
     
3.5   Delaware Certificate of Conversion (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2014)
     
3.6   Nevada Articles of Incorporation (incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2014)
     
3.7   Nevada Bylaws (incorporated herein by reference to Exhibit 3.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2014)
     
3.8   Nevada Certificate of Amendment (incorporated herein by reference to Exhibit 3.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2014)
     
3.9   Nevada Certificate of Amendment (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K with the Securities and Exchange Commission on January 19, 2016)
     
4.1   Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
4.2   Promissory Note (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
4.3   Promissory Note (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
4.4    Promissory Note (incorporated herein by reference to Exhibit 4.4 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
10.1   Subsidiary Stock Purchase Agreement dated August 31, 2006 between DirectView, Inc. and DirectView Holdings, Inc. (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
10.2   Lease for Principal Executive Offices (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
10.3   Employment Agreement with Roger Ralston (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on September 22, 2009)
     
10.4   DirectView Holdings, Inc. 2014 Incentive Plan (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 13, 2014)

 

30 
 

 

10.5   Form of Securities Purchase Agreement*
     
10.6   Form of Convertible Promissory Note*
     
10.7   Form of Securities Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
     
10.8   Senior Secured Convertible Promissory Note(incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
     
10.9   Guaranty and Pledge Agreement(incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
     
10.10   Security Agreement(incorporated herein by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
     
10.11   Subsidiary Agreement(incorporated herein by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
     
14   Code of Ethics (incorporated herein by reference to Exhibit 14 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
21   Subsidiaries of the Registrant (incorporated herein by reference to Exhibit 21 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 27, 2009)
     
31.1   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
     
31.2   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
     
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
101.INS   XBRL Instance Document*
     
101.SCH   XBRL Taxonomy Extension Schema Document*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*

 

*Filed herein

 

31 
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  DIRECTVIEW HOLDINGS, INC.  
       
April 14, 2016 By: /s/ Roger Ralston  
    Roger Ralston  
    Chief Executive Officer and Director  
    (Principal Executive Officer)  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Roger Ralston   Chief Executive Officer and Director   April 14, 2016
Roger Ralston   (Principal Executive Officer)    
         
/s/ Michele Ralston   Chief Financial Officer and Director   April 14, 2016
Michele Ralston  

(Principal Financial Officer)

(Principal Accounting Officer)

   

 

32 
 

 

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

DirectView Holdings, Inc.

 

We have audited the accompanying consolidated balance sheets of DirectView Holdings, Inc. and Subsidiaries as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DirectView Holdings, Inc. and Subsidiaries as of December 31, 2015 and 2014 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company had a net loss of approximately $4,373,000 and cash used in operations of approximately $1,264,000 for the year ended December 31, 2015, and an accumulated deficit of approximately $23,082,000 and a working capital deficiency of approximately $6,846,000 at December 31, 2105. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

  /s/ D’Arelli Pruzansky, P.A.  
  Certified Public Accountants  

 

Coconut Creek, Florida

April 13, 2016

 

 

 

33 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    December 31, 2015     December 31, 2014  
             
ASSETS                
                 
CURRENT ASSETS:                
Cash   $ 330,015     $ 13,158  
Accounts Receivable - net     187,677       60,014  
Other Current Assets     47,489       1,659  
                 
Total Current Assets     565,181       74,831  
                 
PROPERTY AND EQUIPMENT - Net     15,156       9,336  
OTHER ASSETS     7,582       796  
                 
Total Assets   $ 587,919     $ 84,963  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
CURRENT LIABILITIES:                
Convertible Promissory Notes, net of debt discounts   $ 1,224,309     $ 559,029  
Short Term Advances     146,015       146,015  
Notes Payable     126,692       176,692  
Accounts Payable     158,658       131,020  
Accrued Expenses     2,024,457       1,565,139  
Due to Related Parties     12,560       664,068  
Derivative Liability     3,718,242       1,462,984  
Total Current Liabilities     7,410,933       4,704,947  
                 
Total Liabilities     7,410,933       4,704,947  
                 
STOCKHOLDERS' DEFICIT:                
Preferred Stock ($0.0001 Par Value; 5,000,000 Shares Authorized; None Issued and Outstanding)     -       -  
Common Stock ($0.0001 Par Value; 1,000,000,000 Shares Authorized; 456,245,339 and 14,440,933 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively)     45,625       1,444  
Additional Paid-in Capital     16,180,586       14,054,779  
Accumulated Deficit     (23,081,557 )     (18,645,772 )
                 
Total DirectView Holdings, Inc. Stockholders' Deficit     (6,855,346 )     (4,589,549 )
                 
Non-Controlling Interest in Subsidiary     32,332       (30,435 )
                 
Total Stockholders' Deficit     (6,823,014 )     (4,619,984 )
                 
Total Liabilities and Stockholders' Deficit   $ 587,919     $ 84,963  

 

See accompanying notes to consolidated financial statements.

 

34 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the Years Ended December 31,  
    2015     2014  
             
NET SALES:                
Sales of Product   $ 598,774     $ 316,140  
Services     205,620       194,704  
Total Net Sales     804,394       510,844  
                 
COST OF SALES:                
Cost of Product     354,007       279,766  
Cost of Services     159,887       182,925  
Total Cost of Sales     513,894       462,691  
                 
GROSS PROFIT (LOSS)     290,500       48,153  
                 
OPERATING EXPENSES:                
Marketing and Public Relations     443,015       100,975  
Rent     97,203       -  
Depreciation     8,632       3,112  
Bad Debt Expense     627       20,500  
Research and Development     21,019       -  
Compensation and Related Taxes     790,336       845,799  
Other Selling, General and Administrative     706,340       482,899  
                 
Total Operating Expenses     2,067,172       1,453,285  
                 
LOSS FROM OPERATIONS     (1,776,672 )     (1,405,132 )
                 
OTHER INCOME (EXPENSES):                
Other Income     23,696       170,057  
Gain on Extinguishment of Derivative Liabilities     -       10,995,882  
Change in Fair Value of Derivative Liabilities     40,404       (10,236,272 )
Derivative Expense     (1,479,865 )     (329,535 )
Amortization of Debt Discount     (919,034 )     (329,565 )
Interest Expense     (261,547 )     (99,486 )
                 
Total Other Income (Expense)     (2,596,346 )     171,081  
                 
NET INCOME (LOSS)     (4,373,018 )     (1,234,051 )
                 
Less: Net (Income) Loss Attributable to Non-Controlling Interest     (62,767 )     10,087  
                 
Net Income (Loss) Attributable to DirectView Holdings, Inc.   $ (4,435,785 )   $ (1,223,964 )
                 
NET LOSS PER COMMON SHARE:                
Basic and Diluted   $ (0.02 )   $ (0.11 )
                 
WEIGHTED AVERAGE COMMON SHARES                
OUTSTANDING - Basic and Diluted     257,604,137       11,341,460  

 

See accompanying notes to consolidated financial statements.

 

35 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the Years Ended December 31,  
    2015     2014  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (4,373,018 )   $ (1,234,051 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:                
Depreciation     8,633       3,112  
Common stock issued for compensation and services     343,860       470,100  
Change in fair value of derivative liabilities     (40,404 )     10,236,272  
Gain on extinguishment of derivative liabilities     -       (10,995,882 )
Derivative liability expense     1,479,865       329,535  
Amortization of debt discount     919,034       329,565  
Amortization of deferred financing costs     32,729       19,583  
Bad debt expenses     627       20,500  
Amortization of original issue discount     51,629       -  
Non cash interest charges     -       23,246  
(Increase) Decrease in:                
Accounts receivable     (128,290 )     (40,448 )
Other current assets     (52,616 )     (1,276 )
Other assets     -       2,358  
Increase (Decrease) in:                
Accounts payable     3,943       27,519  
Accrued expenses     490,382       356,712  
                 
Net Cash (Used in) Operating Activities     (1,263,626 )     (453,155 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
Purchase of leasehold improvements     (14,453 )     (12,448 )
                 
Net Cash (Used in) Investing Activities     (14,453 )     (12,448 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Net proceeds from convertible notes payable     2,296,438       521,796  
Payments of convertible notes payable     (50,000 )     (36,759 )
Proceeds from related parties     26,940       -  
Payments to related parties     (678,442 )     (29,745 )
                 
Net Cash Provided by Financing Activities     1,594,936       455,292  
                 
Net Increase in Cash     316,857       (10,311 )
                 
Cash - Beginning of Period     13,158       23,469  
                 
Cash - End of Period   $ 330,015     $ 13,158  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
                 
Cash paid during the period for:                
Interest   $ -     $ 12,953  
Income Taxes   $ -     $ -  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:                
                 
Issuance of common stock in connection with conversion of convertible promissory notes and accrued interest   $ 619,287     $ 111,710  
Beneficial conversion and derivative liabilities on convertible notes payable   $ -     $ 25,000  
Issuance of Common Stock in satisfaction of amount due to related party   $ 10,000     $ -  
Initial recognition of derivative liability as debt discount   $ 1,101,046     $ 719,063  

 

See accompanying notes to consolidated financial statements.

 

36 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Years Ended December 31, 2015 and 2014

 

    Common Stock     Additional                 Total  
    $0.0001 Par Value     Paid-in     Accumulated     Non-Controlling     Stockholders'  
    Shares     Amount     Capital     Deficit     Interest     Deficit  
                                     
                                     
Balance at December 31, 2013     7,615,971       762       13,473,651       (17,421,808 )     (20,347 )     (3,967,742 )
                                                 
Issuance of Common Stock in connection with the conversion of promissory notes and accrued interest     5,516,626       551       111,159                       111,710  
                                                 
Issuance of Common Stock for Compensation and Services     1,308,333       131       469,969                       470,100  
                                                 
Net loss for the year                             (1,223,964 )     (10,087 )     (1,234,051 )
                                                 
Balance at December 31, 2014     14,440,930       1,444       14,054,779       (18,645,772 )     (30,435 )     (4,619,984 )
                                                 
Issuance of Common Stock in connection with the conversion of promissory notes and accrued interest     338,687,742       33,869       585,418                       619,287  
                                                 
Issuance of Common Stock for Compensation and Services     99,783,334       9,979       333,881                       343,860  
                                                 
Issuance of Common Stock in satisfaction of amount due to related party     3,333,333       333       9,667                       10,000  
                                                 
Adjustment to APIC to reflect change in fair value of derivative liabilities upon conversion of promissory notes                     1,196,841                       1,196,841  
                                                 
Net loss for the year                             (4,435,785 )     62,767       (4,373,018 )
                                                 
Balance at December 31, 2015     456,245,339       45,625       16,180,586       (23,081,557 )     32,332       (6,823,014 )

 

See accompanying notes to consolidated financial statements.

 

37 
 

  

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

DirectView Holdings, Inc., (the “Company”), was incorporated in the State of Delaware on October 2, 2006. On July 6, 2012 the Company changed its domicile from Delaware and incorporated in the State of Nevada.

 

The Company has the following 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 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 December 31, 2015. In the preparation of 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 consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

All share and per share amounts have been presented to give retroactive effect to a 1 for 30 reverse stock split that occurred in March 2015.

 

Use of Estimates

 

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the allowance for doubtful accounts, deferred tax asset valuation allowance, valuation of stock-based compensation, the useful life of property and equipment, valuation of beneficial conversion features on convertible debt and the assumptions used to calculate derivative liabilities.

 

Non-controlling Interests in Consolidated Financial Statements

 

The Company follows ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements.” This statement clarifies that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, the losses attributable to the parent and the non-controlling interest in subsidiary may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. As of December 31, 2015, the Company reflected a non-controlling interest of $32,333 in connection with our majority-owned subsidiary, DirectView Security Systems Inc. as reflected in the accompanying consolidated balance sheets.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 year ended December 31, 2015 the Company was over the insured limit by $58,390. For the year ended December 31, 2014, the Company had 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 December 31, 2015 and December 31, 2014. 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.

 

Accounts Receivable

 

The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company uses specific identification of accounts to reserve possible uncollectible receivables. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At December 31, 2015 and December 31, 2014, management determined that an allowance is necessary which amounted to $38,000 at both dates. During the year ended December 31, 2015 and the year ended December 31, 2014, the Company recognized $627 and $20,500 respectively of expenses related to uncollectible accounts receivable.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Advertising

 

Advertising, marketing and public relations are expensed as incurred. Advertising, marketing and public relations expenses for the years ended December 31, 2015 and 2014 were $443,015 and $100,975, respectively.

 

Shipping costs

 

Shipping costs are included in other selling, general and administrative expenses and was deemed to be not material for the years ended December 31, 2015 and 2014, 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 orders inventory only as needed for installations and there was an insignificant amount of inventory on hand at December 31, 2015 and December 31, 2014.

 

Property and equipment and Leasehold Improvements

 

Property and equipment and leasehold improvements 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. 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 years ended December 31, 2015 and 2014.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance, when in the Company’s opinion it is likely that some portion or the entire deferred tax asset will not be realized.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 $334,100 and $470,100 during the years ended December 31, 2015 and 2014, respectively.

 

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 sales 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.

 

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.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 year ended December 31, 2015, two customers accounted for 52% of revenues. The following is a list of percentage of revenue generated by the two customers:

 

Customer 1   16%
Customer 2   36%
Total   52%

 

During the year ended December 31, 2014, one customer accounted for 50% of revenues.

 

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%

 

As of December 31, 2014, three customers accounted for 73% of total accounts receivable. The following is a list of percentage of accounts receivable owed by the three customers:

 

Customer 1   16%
Customer 2   26%
Customer 3   31%
Total   73%

 

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. b. 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.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 December 31, 2015 the Company had 1,240,096,048 share equivalents issuable pursuant to embedded conversion features. At December 31, 2014, the Company had 69,694,188 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 flow.

 

NOTE 2 – GOING CONCERN CONSIDERATIONS

 

The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern.  At December 31, 2015, the Company had an accumulated deficit of approximately $23 million, a stockholders’ deficit of approximately $7 million and a working capital deficiency of $6,845,752. For the year ended December 31, 2015 the net loss totaled $4,373,018. The net cash used in operating activities for the year ended December 31, 2015 totaled $1,263,626. 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 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.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   Estimated life  December 31, 2015   December 31, 2014 
Leasehold Improvements  2 years  $26,901   $12,448 
Less: Accumulated amortization      (11,745)   (3,112)
Furniture and fixtures  3 years   2,771    2,771 
Less: Accumulated depreciation      (2,771)   (2,771)
      $15,156   $9,336 

 

For the year ended December 31, 2015 and 2014, depreciation and amortization expense amounted to $8,633 and $3,112 respectively.

 

In June 2014 the Company negotiated to lease office space and made leasehold improvements totaling $12,448. In August 2015 the Company made leasehold improvements totaling $14,453. The Company will amortize the balance on a straight-line basis for the term of 2 years commencing in July 2014 and August 2015.

 

In 2014 the Company took occupancy of approximately 3,000 square feet of office space in New York city. The Company negotiated lease terms and has recorded rent expense of $5,500 per month for the period of September 1, 2014 through October 31, 2015. In November 2015 the monthly rent expense increased to $6,460 per month.

 

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 is in default as of June 30, 2015 and as of December 31, 2014. In October 2013 $10,100 was assigned to a different note holder. The new note is included in Notes Payable. The remaining balance of this note is $9,900 as of December 31, 2015 and as of December 31, 2014.

 

During the year ended December 31, 2012, the Company entered into demand notes with Regal Capital (formerly a related party) totaling $116,792 bearing interest at 12% per annum. As of December 31, 2015 and December 31, 2014 the notes amounted to $116,792 and $116,792 respectively.

 

In November 2014, the Company issued a Demand Promissory Note of $50,000 due December 22, 2014. The interest rate is 10% with a minimum guaranteed interest amount of $5,000. The Note Holder granted the Company an extension of due date making the note due January 22, 2015. The note was satisfied in March 2015. As of December 31, 2015 and December 31, 2014 the notes amounted to $0 and $50,000 respectively.

 

As of December 31, 2015 and December 31, 2014, notes payable amounted to $126,692 and $176,692, respectively.

 

Accrued interest on the notes payable amounted to approximately $64,200 and $43,900 as of December 31, 2015 and December 31, 2014, respectively and is included in accrued expenses.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 December 31, 2015 and December 31, 2014.

 

NOTE 6 – ACCRUED EXPENSES

 

As of December 31, 2015 and December 31, 2014 the Company had accrued expenses of $2,024,456 and $1,565,139 respectively. The following table displays the accrued expenses by category.

 

   December 31, 2015   December 31, 2014 
Operating Expenses  $87,410   $8,700 
Lease Abandonment   164,375    164,375 
Employee Commissions   60,590    60,590 
Interest   276,791    213,473 
Salaries   1,312,594    981,908 
Sales Tax Payable   37,994    25,674 
Payroll Liabilities   84,703    110,419 
   $2,024,457   $1,565,139 

 

NOTE 7 – CONVERTIBLE PROMISSORY NOTES

 

Convertible promissory notes consisted of the following:

 

  December 31, 2015   December 31, 2014 
Secured convertible promissory notes  $2,507,356   $720,269 
           
debt discount liability   (1,221,506)   (124,527)
           
debt discount original issue discount   (57,352)   (16,296)
           
debt discount deferred financing   (4,189)   (20,417)
Secured convertible promissory notes– net  $1,224,309   $559,029 

 

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 December 31, 2015 and $43,246 as of December 31, 2014.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – CONVERTIBLE PROMISSORY NOTES (continued)

 

Senior secured promissory notes aggregating an original principal of $85,500 were issued in 2008. These notes are payable either in cash or security equivalent at the option of the Company. The notes payable bear 8% interest per annum and are payable on April 1, 2011. The principal and accrued interest is convertible at the option of the note holder into shares of our common stock at a conversion price of $0.50 per share. In July 2013, the Company reclassified the balance of these notes totaling $17,000 to Convertible Promissory Notes from Notes Payable. 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 $17,000 which has been fully amortized as of December 31, 2013. In July 2013 the note holder converted $764 into 254,667 common shares. In March 2014 the note holder converted an additional $990 into common shares at the contractual rate of $.003 per share. In May 2015 the note holder converted the remaining balance of $15,246 into common shares at the contractual rate of $.003 per share. The balance of the unsecured note payable amounted to $0 as of December 31, 2015 and $15,246 as of December 31, 2014.

 

August 30, 2013 the Company issued an $8,000 6% convertible debenture with a one year maturity date. This convertible debenture converts at $.0001. 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 April 2014 the note holder converted $1,500 into common shares at the contractual rate of $.0001 per share. In June 2015 the note holder converted the remaining balance of $6,500 into common shares at the contractual rate of $.00096 per share. The balance of the convertible debenture is $0 as of December 31, 2015 and as of December 31, 2014.

 

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 7). The balance of the convertible debenture is $10,000 as of December 31, 2015 and as of December 31, 2014. 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 December 31, 2015 and as of December 31, 2014.

 

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 December 31, 2015 and as of December 31, 2014.

 

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. The balance of these three notes was $150,000 as of December 31, 2015 and as of December 31, 2014.

 

On April 11, 2014 the Company issued an 8% original issue discount (OID) senior secured convertible promissory note with a principal balance of $367,754 with a one year maturity date. This convertible debenture converts at $.0175. 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 $266,285 and a debt discount of $271,285 (see Note 8). The Company also recorded OID of $28,965. The OID and debt discount are being 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 December 2014 the note holder assigned $25,000 of the principal balance of the note to a third party. In February 2015 the note holder assigned $25,000 and $50,000 of the principal balance of the note to two different third party entities. In the period of January through March 2015 the note holder converted $47,651 into 4,918,166 common shares at the contractual rate ranging from $.0072 to $.027 per share.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – CONVERTIBLE PROMISSORY NOTES (continued)

 

In the period of April through June 2015 the note holder converted $171,961 into 104,386,160 common shares at the contractual rate ranging from $.00186 to $.00216 per share. After assignment of $75,000 and the conversions into common shares the balance of this convertible debenture as of June 30, 2015 is $6,142. The balance of the convertible debenture as of December 31, 2014 is $300,754. The balance net of debt discount and deferred financing is $0 and $240,820 as of June 30, 2015 and December 31, 2014, respectively.

 

On October 8, 2014 the Company issued an 8% original issue discount (OID) senior secured convertible promissory note with a principal balance of $81,522 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 $84,250 and a debt discount of $75,000 (see Note 8). The Company also recorded OID of $6,522. The OID and debt discount are being amortized over the term of the note. In April 2015 the note holder assigned $15,000 of the principal balance of the note to a third party. In July 2015 the note holder converted $66,522 into 26,373,441 common shares at the contractual rate of $.00258 per share. The balance of this convertible debenture as of September 30, 2015 is $0 and $81,522 as of December 31, 2014. The balance net of debt discount and deferred financing is $0 and $3,130 as of September 30, 2015 and December 31, 2014, respectively.

 

In May 2015 a note holder converted a $15,000 assigned note balance into 9,722,222 common shares at a contractual rate ranging from $.0012 to $.00216 leaving the note balance at $0 as of September 30, 2015.

 

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 are being amortized over the term of the note. The balance of this convertible debenture as of December 31, 2015 and as of December 31, 2014 is $21,600. The balance net of debt discount and deferred financing is $21,600 and $4,934 as of December 31, 2015 and December 31, 2014, respectively.

 

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 are being amortized over the term of the note. The balance of this convertible debenture as of December 31, 2015 and as of December 31, 2014 is $27,174. The balance net of debt discount and deferred financing is $27,174 and $20,926 as of December 31, 2015 and December 31, 2014, respectively.

 

On December 19, 2014 a note holder assigned $25,000 to another note holder. On December 29, 2014 $10,773 was converted into 664,973 shares of common stock at a contractual rate of $.0162. In February 2015 a note holder assigned an additional $25,000 to the same assignee. The note holder converted $13,831 into 4,619,339 common shares at the contractual rate ranging from $.0054 to $.027 per share. In September 2015 the balance of the convertible debenture was written off leaving a balance of $0 and $14,227 as of September 30, 2015 and December 31, 2014, respectively.

 

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 333,333 common shares at the contractual rate of $.003. In March 2015 the note holder converted $1,300 into 1,300,000 common shares at the contractual rate of $.001. In April and May 2015 the note holder converted $17,200 into 13,900,000 common shares at the contractual rate ranging from $.0008 to $.00156 per share. The balance of the unsecured note payable amounted to $4,989 and $24,489 as of December 31, 2015 and December 31, 2014, respectively.

 

47 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – CONVERTIBLE PROMISSORY NOTES (continued)

 

In February 2015 a note holder assigned $50,000 of principal balance of a convertible debenture to a third party. In March 2015 the note holder converted $4,125 of principal balance, $3,375 of accrued interest and $1,220 of fees into 4,844,633 common shares at the contractual rate of $.0072. In the period of April through May 2015 the note holder converted $38,250 of principal balance, $909 of accrued interest and $7,320 of fees into 37,148,448 common shares at the contractual rate ranging from $.00096 to $.075 per share. In August 2015 the note holder converted $7,625 of principle balance, $50 of accrued interest and $156 of fees into 2,900,325 common shares at the contractual rate of $.0027per share. The balance of the unsecured note payable amounted to $0 as of September 30, 2015.

 

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 7,246,377 common shares at the contractual rate of $.00138 per share. In September 2015 the note holder converted $24,000 of principle balance into 17,391,304 common shares at the contractual rate of $.00138 per share. In October 2015 the note holder converted an additional $10,000 of principle balance into 7,936,508 common shares at the contractual rate of $.00126 per share. The balance of the unsecured note payable amounted to $14,696 as of December 31, 2015.

 

On April 8, 2015 the Company issued a 5% original issue discount (OID) senior secured convertible promissory note with a principal balance of $52,500 with a one year maturity date. This convertible debenture converts at 55% 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 $86,506, a debt discount of $50,000 (see Note 8), and derivative expense of $36,506. The Company also recorded OID of $2,500 and deferred financing of $5,000. The OID, deferred financing and debt discount are being amortized over the term of the note. In October 2015 the note holder converted $26,250 of principle balance into 23,494,259 common shares at contractual rates ranging from $.00116 to $.0023 per share. In November the note holder converted $10,000 of principle balance into 8,658,009 common shares at the contractual rate of $.00116 per share. In December 2015 the note holder converted the remaining principle balance of $16,250 into 14,628,623 common shares at contractual rates ranging from $.00127 to $.00132 per share. The balance of the senior secured convertible promissory note amounted to $0 as of December 31, 2015.

 

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 14,285,174 common shares at the contractual rate of $.00161 per share. The balance of the convertible promissory note amounted to $92,789 as of December 31, 2015. The balance of the convertible promissory note net of debt discount, deferred financing and OID as of December 31, 2015 amounted to $45,619.

 

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 December 31, 2015. The balance of the convertible promissory note net of debt discount and OID as of December 31, 2015 amounted to $32,895.

 

48 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – CONVERTIBLE PROMISSORY NOTES (continued)

 

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 December 31, 2015. The balance of the convertible promissory note net of debt discount and OID as of December 31, 2015 amounted to $31,433.

 

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 December 31, 2015. 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 of $1,500. 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 $157,895 as of December 31, 2015. 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 December 31, 2015. 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 December 31, 2015. 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. The balance of the convertible promissory note amounted to $429,439 as of December 31, 2015. The balance of the convertible promissory note net of debt discount as of December 31, 2015 amounted to $278,767.

 

49 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – CONVERTIBLE PROMISSORY NOTES (continued)

 

On August 12, 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 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 $237,303, a debt discount of $142,500 (see Note 8), and derivative expense of $95,197. The Company also recorded OID of $7,500. The OID and debt discount are being amortized over the term of the note. This note was assigned to a third party in October 2015 leaving the balance of the convertible promissory note at $0 as of December 31, 2015.

 

On September 11, 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 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 $286,284, a debt discount of $142,500 (see Note 8), and derivative expense of $144,179. 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, 2015. This note was assigned to a third party in October 2015 leaving the balance of the convertible promissory note at $0 as of December 31, 2015.

 

On October 7, 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 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 $245,920, a debt discount of $142,500 (see Note 8), and derivative expense of $103,814. The Company also recorded OID of $7,500. The OID and debt discount are being amortized over the term of the note. This note was assigned to a third party in October 2015 leaving the balance of the convertible promissory note at $0 as of December 31, 2015.

 

On October 9, 2015 the three convertible promissory notes mentioned above were assigned to a third party note holder with the same terms and balances. The balance of the convertible promissory note amounted to $473,684 as of December 31, 2015. 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 December 31, 2015. The balance of the convertible promissory note net of debt discount and OID 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 December 31, 2015. The balance of the convertible promissory note net of debt discount and OID as of December 31, 2015 amounted to $26,250.

 

50 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – CONVERTIBLE PROMISSORY NOTES (continued)

 

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 December 31, 2015. The balance of the convertible promissory note net of debt discount and OID as of December 31, 2015 amounted to $23,575.

 

During the twelve months ended December 31, 2015 and 2014, amortization of debt discount amounted to $919,034 and $329,565, 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.

 

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, 2013 to December 31, 2015:

 

   Conversion feature 
   derivative liability 
Balance at December 31, 2013  $1,503,531 
Gain on extinguishment of derivative liability due to conversions and repayments   (10,995,882)
Recognition of initial derivative liability   719,063 
Change in fair value included in earnings   10,236,272 
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 

 

51 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 – DERIVATIVE LIABILITY (continued)

 

Total derivative liability at December 31, 2015 and December 31, 2014 amounted to $3,718,242 and $1,462,984, respectively. The change in fair value included in earnings as income of $40,494 is due in part to the quoted market price of the Company’s common stock decreasing from $.027 at December 31, 2014 to $.0036 at December 31, 2015 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:

 

   December 31, 2015 
     
Expected volatility   192 % - 304%
Expected term   3 – 12 months 
Risk-free interest rate   0.0 2% - 0.09%
Expected dividend yield   0%

 

NOTE 9 – STOCKHOLDERS’ DEFICIT

 

Pursuant to the terms of a promissory note issued in October 2013 the Company issued 333,333 common shares in February 2014 and an additional 333,333 common shares in March 2014 and another 333,333 common shares in April 2014. The three issuances were at contractual rate of $.003 per share for conversion totaling $3,000.

 

Pursuant to the terms of convertible promissory notes issued in May 2013 the Company issued 254,667 common shares in February 2014 upon conversion at the contractual rate of $.003 per share totaling $764.

 

Pursuant to the terms of convertible promissory notes issued in May 2013 the Company issued 330,936 common shares in March 2014 upon conversion at the contractual rate of $.003 per share totaling $993.

 

Pursuant to the terms of a convertible promissory note issued in June 2012 the Company issued 233,333 common shares in March 2014 upon conversion at the contractual rate of $.03 per share totaling $7,000.

 

Pursuant to the terms of a convertible promissory note issued in June 2012 the Company issued 188,007 common shares in March 2014 upon conversion at the contractual rate of $.224 per share totaling $42,200.

 

Pursuant to the terms of a convertible promissory note renegotiated in May 2013 the Company issued 330,000 common shares in March 2014 upon conversion at the contractual rate of $.003 per share totaling $990.

 

Pursuant to the terms of a convertible promissory note renegotiated in May 2013 the Company issued 330,000 common shares in March 2014 upon conversion at the contractual rate of $.003 per share totaling $990.

 

Pursuant to the board of directors meeting in March 2014 the Company issued 833,333 common shares to the CEO for services rendered. The shares were issued at the fair market value rate of $.47 at the time of issuance, resulting in an expense of $387,500.

 

Pursuant to the terms of a convertible promissory note the Company issued 500,000 common shares in April 2014 upon conversion at the contractual rate of $.003 per share totaling $1,500.

 

Pursuant to the terms of a convertible promissory note issued in August 2013 the Company issued 500,000 common shares in April 2014 upon conversion at the contractual rate of $.003 per share totaling $1,500.

 

Pursuant to the board of directors meeting in March 2014 the Company issued 100,000 common shares to an employee for services rendered. The shares were issued at the fair market value rate of $.44 at the time of issuance, resulting in an expense of $44,100.

 

52 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 – STOCKHOLDERS’ DEFICIT (continued)

 

Pursuant to the board of directors meeting in July 2014 the Company issued 166,667 common shares to a company for consulting services rendered. The shares were issued at the fair market value rate of $.19 at the time of issuance, resulting in an expense of $31,000.

 

Pursuant to the terms of a convertible promissory note issued in April 2014 the Company issued 308,642 common shares in October 2014 upon conversion at the contractual rate of $.049 per share totaling $15,000. In November 2014 the Company issued 320,513 common shares upon conversion at the contractual rate of $.047 per share totaling $15,000 and in December 2014 the Company issued 555,556 common shares upon conversion at the contractual rate of $.0216 per share totaling $12,000.

 

Pursuant to the board of directors meeting in December 2014 the Company issued 100,000 common shares to an employee for services rendered. The shares were issued at the fair market value rate of $.036 at the time of issuance, resulting in an expense of $3,600.

 

Pursuant to the board of directors meeting in December 2014 the Company issued 16,667 common shares to an employee for services rendered. The shares were issued at the fair market value rate of $.036 at the time of issuance, resulting in an expense of $600.

 

Pursuant to the board of directors meeting in December 2014 the Company issued 8,333 common shares to an employee for services rendered. The shares were issued at the fair market value rate of $.036 at the time of issuance, resulting in an expense of $300.

 

Pursuant to the board of directors meeting in December 2014 the Company issued 83,333 common shares to a company for consulting services rendered. The shares were issued at the fair market value rate of $.036 at the time of issuance, resulting in an expense of $3,000.

 

Pursuant to the terms of a convertible promissory note issued in December 2014 the Company issued 664,973 common shares in December 2014 upon conversion at the contractual rate of $.0162 per share totaling $10,773.

 

In March 2015 the Company approved a 1-30 Reverse Stock Split (see Note 1).

 

In January 2015 the Company made four issuances of common shares related to the same convertible note payable. The Company issued 600,000; 633,333; 633,333 and 666,667 shares of common stock at the contractual rate of $.0108 for the reduction of $6,480; at the contractual rate of $.0108 for the reduction of 6,840; at $.0108 for the reduction of $6,840 and at $.009 for an additional reduction of $6,000 in principal of notes payable.

 

In January 2015 the Company issued 333,333 shares of common stock at the contractual rate of $.003 for the reduction of $1,000 in principal of convertible notes payable.

 

In January 2015 the Company issued 699,667 shares of common stock at the contractual rate of $.0108 for the reduction of $7,556 in principal of convertible notes payable.

 

In February 2015 the Company issued 700,000; 766,667 and 833,333 shares of common stock at the contractual rate of $.009 for the reduction of $6,300; at the contractual rate of $.009 for the reduction of $6,900; and at the contractual rate of $.0072 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 741,226; 946,793; 1,033,333 and 1,097,767 shares of common stock at $.009 for the reduction of $6,671; at $.009 for the reduction of 8,521; at $.0072 for the reduction of $7,440 and at $.0054 for an additional reduction of $5,928 in principal of notes payable.

 

In February 2015 the Company issued 116,667 shares of common stock at fair market value of $.018 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 41,500 and 43,333 shares of common stock at $.027 for the reduction of $1,121 and at $.027 for the reduction of $1,170 in principal of notes payable.

 

53 
 

 

DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 – STOCKHOLDERS’ DEFICIT (continued)

 

In March 2015 the Company made issuances of common shares at contractual rates related to the same convertible note payable. The Company issued 4,844,633 shares of common stock at $.0072 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 45,833 and 54,780 shares of common stock at $.027 for the reduction of $1,238 and at $.027 for the reduction of $1,479 in principal of notes payable.

 

In March 2015 the Company issued 1,300,000 shares of common stock at the contractual rate of $.001 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 174,227,554 shares of common stock at contractual rates ranging from $.00096 to $.075 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 3,000,000 shares of common stock at fair market value of $.014 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 71,280,788 shares of common stock at contractual rates ranging from $.00138 to $.003 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).

 

In the period of October 1, 2015 through December 31, 2015 the Company issued 69,003,110 shares of common stock at contractual rates ranging from $.00116 to $.0023 for the reduction of $85,500 in principal of convertible notes payable and $5,250 in the reduction 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. Additionally, as of December 31, 2015 $48,478 of accrued interest due to related parties has been included in accrued expenses.

 

During 2007 and 2006, the Company’s Chief Financial Officer (CFO) loaned $39,436 and $14,400, respectively to the Company for working capital purposes. This debt carries 3% interest per annum and matured in July 2010. In March 2012, the Company and the CFO of the Company agreed to change the term of this promissory note into a demand note. In May and June 2015 the Company repaid $16,881 in the principal of this note. During the period of July 1, 2015 through September 30, 2015 the Company repaid the remaining balance of $35,465. The amount due to such related party at September 30, 2015 and December 31, 2014 amounted to $0 and $52,347, respectively. In October 2015 the Company paid its CFO $4,189 in accrued interest. As of December 31, 2014, this note was reflected as due to related party. Accrued interest related to these notes amounted to $0 and $4,716 as of December 31, 2015 and December 31, 2014, respectively and is included in accrued expenses in the Company’s balance sheet.

 

In June 2009, the Company issued a promissory note amounting $22,000 to the Chief Executive Officer of the Company. This note is payable either in cash or security equivalent at the option of the note holder. The note payable bears 12% interest per annum and was payable in June 2010. During 2012, the Company repaid the Chief Executive Officer $11,157 and in July and August 2015 the Company repaid the Chief Executive Officer $10,843 related to this note leaving the balance of the note at $0 as of September 30, 2015. As of December 31, 2014 the balance on this promissory note amounted to $10,843.

 

The Company paid the Chief Executive Officer $29,728 in accrued interest during the period of October through December 2015 leaving the balance of accrued interest payable to the Chief Executive Officer at $0 and $21,999 as of December 31, 2015 and December 31, 2014, respectively and is included in accrued expenses in the Company’s balance sheet.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 – RELATED PARTY TRANSACTIONS (continued)

 

The Chief Executive Officer of the Company, from time to time, provided advances to the Company for operating expenses. The Company repays the advances when funds are available. The Company repaid $13,819 to the Chief Executive Officer in the first quarter of 2015. The Chief Executive Officer of the Company loaned the Company $20,984 in the first quarter of 2015. In March 2015 the Company issued the Chief Executive Officer 100,000,000 shares of common stock for the retirement of $10,000 of loans.

 

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. At December 31, 2015 and December 31, 2014 the Company had a payable to the Chief Executive Officer of the Company amounting to $12,560 and $163,320, respectively. These advances are short-term in nature and non-interest bearing.

 

The Chief Financial Officer of the Company, from time to time, provided advances to the Company for operating expenses. The Company repaid $8,119 to the Chief Financial Officer in the second quarter of 2015. At September 30, 2015 and December 31, 2014, the Company had a payable to the Chief Financial Officer of the Company amounting to $0 and $8,119, respectively. These advances are short-term in nature and non-interest bearing.

 

During the quarter ended June 30, 2012, the Company issued notes payable to the CFO amounting to $429,439 related to the accrued salaries. In July 2015 the Company repaid the CFO $429,439. As of September 30, 2015 and December 31, 2014 the balance on the notes payable related to the accrued salaries amounted to $0 and $429,439, respectively.

 

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 year ended December 31, 2015 totaled $18,047. The barter revenue for the year ended December 31, 2014 totaled $5,893.

 

NOTE 12 – ACCRUED PAYROLL TAXES

 

As of December 31, 2015 and December 31, 2014 the Company recorded a liability related to unpaid payroll taxes which includes interest and penalties of approximately $84,000 and $110,000, 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 the years of 2011 through 2015 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 year ended December 31, 2015 and the year ended December 31, 2014 all material assets and revenues of the Company were in the United States.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 14 – INCOME TAXES

 

The Company accounts for income taxes under ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company estimates its net operating loss carry forward for tax purposes to be approximately $6 million at December 31, 2015, expiring through the year 2035. As noted below, the Company is delinquent in its income tax filings and has not reported its losses to the taxing authorities since 2010. Therefore, utilization of tax losses may be limited due to non-filing of returns for 2011, 2012, 2013 and 2014. Also, Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carry forwards after certain ownership shifts.

 

The Company last filed an income tax return for the year ended December 31, 2010. Tax years ending December 31, 2014, 2013, 2012 and 2011 will be subject to IRS examination for a period of three years after the file dates, and the Company’s tax net operating loss carryforwards have not yet been established with the taxing authorities due to non-filing.

 

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for the year ended December 31, 2015 and 2014:

 

   2015   2014 
Tax benefit computed at “expected” statutory rate  $(1,531,000)  $(432,000)
State income taxes, net of benefit   (153,000)   (43,000)
Stock based compensation and other permanent differences   1,037,000    101,000 
Increase in valuation allowance   647,000    374,000 
Net income tax benefit  $-   $- 

 

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset is as follows:

 

   December 31, 2015   December 31, 2014 
Deferred tax assets:        
Net operating loss carryforwards  $2,302,000   $1,655,000 
Accrued lease abandonment costs   63,000    63,000 
Allowance for doubtful accounts   15,000    61,000 
Accrued salaries   608,000    562,000 
Total Deferred tax assets   2,988,000    2,341,000 
Less: Valuation allowance   (2,988,000)   (2,341,000)
   $-   $- 

 

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2015 and 2014, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by $647,000 and $374,000 during 2015 and 2014, respectively.

 

NOTE 15 – SUBSEQUENT EVENTS

 

Subsequent to the December 31, 2015 the Company issued 146,667,412 shares of common stock in satisfaction of $224,659 of convertible promissory notes and $15,753 of accrued interest. These notes were converted at contractual rates ranging from $.00138 to $.00203.

 

Subsequent to the December 31, 2015 the Company entered into a Settlement Agreement and paid a note holder $91,338 in three equal installments of $30,445 from January 6, 2016 through March 4, 2016 in satisfaction of outstanding notes payable and accrued interest of $91,338.

 

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DIRECTVIEW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 15 – SUBSEQUENT EVENTS (continued)

 

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 traded price 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 $141,697, a debt discount of $95,000, 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.

 

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 traded price 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 $201,359, a debt discount of $142,500, 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.

 

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 traded price 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 $151,213, a debt discount of $112,940, 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.

 

On April 1, 2016, the Company entered into a Securities Purchase Agreement (the “SPA”) to issue and sell a 5% Original Issue Discount Convertible Promissory Note (the “Note” and together with the SPA, the “Transaction Documents”) to an institutional investor (the “Investor”), in the principal amount of $105,263 (the “Principal Amount”). Pursuant to the Transaction Documents, on or about April 1, 2016, the Company received $100,000 (before expenses and fees) in funding from the Investor. The Company’s issuance of the securities to the Investor pursuant to the SPA are exempt from registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.

 

The Note shall mature on March 31, 2017 (the “Maturity Date”) and shall accrue interest at an annual rate equal to 10%. The Principal Amount shall be paid on the Maturity Date (or sooner as provided in the Note) in cash. The interest shall be paid on the Maturity Date (or sooner as provided in the Note) in cash or in shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). In accordance with the terms of the Note, the Investor shall be entitled to convert a portion or all of the Principal Amount and interest due and outstanding under the Note into shares of Common Stock equal to 70% of the lowest traded price in the prior thirty (30) trading days.

 

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.

 

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.

 

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