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Document and Entity Information

v2.4.0.8
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 19, 2014
Document And Entity Information    
Entity Registrant Name DIRECTVIEW HOLDINGS INC  
Entity Central Index Key 0001441769  
Document Type 10-Q  
Document Period End Date Jun. 30, 2014  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   366,487,404
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2014  

Consolidated Balance Sheets (Unaudited)

v2.4.0.8
Consolidated Balance Sheets (Unaudited) (USD $)
Jun. 30, 2014
Dec. 31, 2013
ASSETS    
Cash $ 132,069 $ 23,469
Accounts Receivable - net 38,433 40,066
Other Current Assets 10,000 383
Total Current Assets 180,502 63,918
PROPERTY AND EQUIPMENT - Net 12,448 0
OTHER ASSETS 1,231 3,154
Total Assets 194,181 67,072
LIABILITIES AND STOCKHOLDERS' DEFICIT    
Convertible Promissory Notes, Net of Debt Discounts 360,937 115,748
Short Term Advances 146,015 146,015
Notes Payable 126,692 126,692
Accounts Payable 221,847 163,021
Accrued Expenses 1,394,765 1,285,994
Due to Related Parties 661,369 693,813
Derivative Liability 10,026,367 1,503,531
Total Current Liabilities 12,937,992 4,034,814
Total Liabilities 12,937,992 4,034,814
STOCKHOLDERS' DEFICIT:    
Preferred Stock ($0.0001 Par Value; 5,000,000 Shares Authorized; None Issued and Outstanding) 0 0
Common Stock ($0.0001 Par Value; 500,000,000 Shares Authorized; 366,487,404 and 228,479,134 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively) 36,649 22,848
Additional Paid-in Capital 13,928,302 13,451,565
Accumulated Deficit (26,666,420) (17,421,808)
Total DirectView Holdings, Inc. Stockholders' Deficit (12,701,469) (3,947,395)
Non-Controlling Interest in Subsidiary (42,342) (20,347)
Total Stockholders' Deficit (12,743,811) (3,967,742)
Total Liabilities and Stockholders' Deficit $ 194,181 $ 67,072

Consolidated Balance Sheets (Unaudited) (Parenthetical)

v2.4.0.8
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Stockholders equity:    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized shares 5,000,000 5,000,000
Preferred stock, issued shares 0 0
Preferred stock, outstanding shares 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized shares 500,000,000 500,000,000
Common stock, issued shares 366,487,404 228,479,134
Common stock, outstanding shares 366,487,404 228,479,134

Consolidated Statements of Operations (Unaudited)

v2.4.0.8
Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
NET SALES        
Sales of Product $ 97,938 $ 61,703 $ 197,115 $ 121,643
Service 14,510 13,718 58,279 41,342
Total Net Sales 112,448 75,421 255,394 162,985
COST OF SALES        
Cost of Product 130,561 20,415 148,319 56,359
Cost of Service 49,365 23,484 84,277 38,907
Total Cost of Sales 179,926 43,899 232,596 95,266
GROSS PROFIT (67,478) 31,522 22,798 67,719
OPERATING EXPENSES:        
Marketing & Public Relations 52,539 0 104,351 0
Depreciation 0 75 0 150
Compensation and Related Taxes 140,414 89,330 616,014 176,922
Other Selling, General and Administrative 166,673 79,428 252,357 130,354
Total Operating Expenses 359,626 168,833 972,722 307,426
LOSS FROM OPERATIONS (427,104) (137,311) (949,924) (239,707)
OTHER INCOME (EXPENSES):        
Other Income (Expense) (922) 146 44,104 146
Gain on Extinguishment of Derivative Liabilities 10,995,882 0 10,995,882 0
Change in Fair Falue of Derivative Liabilities 14,819,099 5,134 (19,200,585) 4,478
Derivative Expense 0 0 (26,848) 0
Amortization of Debt Discount (88,240) 0 (114,853) 0
Interest Expense 944 (15,156) (14,382) (43,066)
Total Other Income (Expense) 25,726,763 (9,876) (8,316,682) (38,442)
NET INCOME (LOSS) 25,299,659 (147,187) (9,266,606) (278,149)
Less: Net Income (Loss) Attributable to Non-Controlling Interest 2,526 (4,445) 21,994 (12,982)
Net Income (Loss) Attributable to DirectView Holdings, Inc. $ 25,302,185 $ (151,632) $ (9,244,612) $ (291,131)
NET LOSS PER COMMON SHARE:        
Basic and Diluted $ 0.06 $ 0 $ (0.02) $ 0
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - Basic and Diluted 351,976,293 167,527,046 300,994,648 167,659,024

Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.8
Consolidated Statements of Cash Flows (Unaudited) (USD $)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (9,266,606) $ (278,149)
Adjustments to Reconcile Net Loss to Net Cash Flows Used in Operating Activities:    
Depreciation 0 150
Common stock issued for compensation 431,600 0
Change in fair value of derivative liability 19,200,586 (4,478)
Gain on extinguishment of derivative liabilities (10,995,882) 0
Derivative liability expense 26,848 0
Amortization of debt discount 114,853 18,000
Amortization of deferred financing costs 10,936  
Noncash interest charges 0 2,000
(Increase) Decrease in:    
Accounts receivable 1,633 (56,168)
Other current assets (9,617) 4,090
Other assets 1,923 0
Increase (Decrease) in:    
Accounts payable 58,825 19,543
Accrued expenses 129,319 203,240
Net Cash (Used in) Operating Activities (295,582) (91,772)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchase of leasehold improvements (12,448) 0
Net Cash (Used in) Investing Activities (12,448) 0
CASH FLOWS FROM FINANCING ACTIVITIES:    
Net proceeds from note payable 485,833 0
Payments of convertible notes payable (36,759) 0
Net proceeds from short term advances 0 35,879
Proceeds from (payments to) related parties (32,444) 54,157
Net Cash Flows Provided by Financing Activities 416,630 90,036
Net Increase (Decrease) in Cash 108,600 (1,736)
Cash - Beginning of Period 23,469 2,951
Cash - End of Period 132,069 1,215
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Interest 12,953 0
Income Taxes 0 0
NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Issuance of common stock in connection with conversion of promissory note 17,301 12,740
Beneficial conversion and derivative liabilities on convertible notes payable 25,000 46,983
Initial recognition of derivative liability $ 0 $ 51,982

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUTNING POLICIES

v2.4.0.8
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUTNING POLICIES
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
Basis of Presentation and 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 are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").  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 June 30, 2014.

 

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.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes as of and for the year ended December 31, 2013.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited consolidated financial statements and notes included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the SEC on April 15, 2014.  

 

In the opinion of management, all adjustments (consisting of normal recurring items) necessary to present fairly the Company's financial position as of June 30, 2014, and the results of operations and cash flows for the six months ending June 30, 2014 have been included. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year.

 

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 date 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 and the assumptions used to calculate derivative liabilities.

 

Non-controlling Interests in Consolidated Financial Statements

 

In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51,” (“SFAS No. 160”).  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. This statement is effective for fiscal years beginning after December 15, 2008, with presentation and disclosure requirements applied retrospectively to comparative financial statements.  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 June 30, 2014, the Company recorded a non-controlling interest of ($42,342) in connection with our majority-owned subsidiary, DirectView Security Systems Inc. as reflected in the accompanying consolidated balance sheets.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000.  For the six months ended June 30, 2014 and the year ended December 31, 2013, the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

 

Fair Value of Financial Instruments

 

Effective January 1, 2008, the Company adopted 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. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

 

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 June 30, 2014 and December 31, 2013. 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 was effective for January 1, 2008. ASC 825-10-25 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 June 30, 2014 and December 31, 2013, management determined that an allowance is necessary which amounted to $137,215 and $137,215, respectively. During the six months ended June 30, 2014 and 2013, the Company did not have any expense related to uncollectible accounts receivable.

 

Advertising

 

Advertising is expensed as incurred. Advertising expenses for the six months ended June 30, 2014 and 2013 was $104,351 and $0, respectively.

 

Shipping costs

 

Shipping costs are included in other selling, general and administrative expenses and was deemed to be not material for the six months ended June 30, 2014 and 2013, 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.  There was no inventory at June 30, 2014 and December 31, 2013.

 

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 six months ended June 30, 2014 and 2013.

 

Income Taxes

 

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

 

Pursuant to ASC Topic 740-10: Income Taxes related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.  The adoption had no effect on the Company’s consolidated financial statements.  

 

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 condensed 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 $431,600 and $0 during the six months ended June 30, 2014 and 2013, 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.

 

The following policies reflect specific criteria for the various revenues 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.

 

Revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectibility of the related receivable is probable.

 

Cost of sales includes cost of products and cost of service.  Product cost includes the cost of products and freight costs.  Cost of services includes labor and fuel expenses.

 

Concentrations of Credit Risk and Major Customers

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions. Almost all of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

 

During the six months ended June 30, 2014, one customer accounted for 64% of revenues.

 

During the six months ended June 30, 2013, one customer accounted for 82% of revenues.

 

As of June 30, 2014 there was not a single customer that accounted for more than 10% of total accounts receivable.

 

As of December 31, 2013, three customers accounted for 69% of total accounts receivable. The following is a list of percentage of accounts receivable owed by the three customers:

 

 Customer 1        12 %
 Customer 2      12 %
 Customer 3      45 %

 

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 June 30, 2014 the Company had 1,161,569,275 shares equivalent issuable pursuant to embedded conversion features.  At June 30, 2013, the Company had 9,335,489 shares equivalent issuable pursuant to embedded conversion features.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

2. GOING CONCERN CONSIDERATIONS

v2.4.0.8
2. GOING CONCERN CONSIDERATIONS
6 Months Ended
Jun. 30, 2014
Text Block [Abstract]  
2. GOING CONCERN CONSIDERATIONS

The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern.  At June 30, 2014, the Company had an accumulated deficit of approximately $27 million, a stockholders’ deficit of approximately $12.7 million and a working capital deficiency of $12,757,490. Additionally, for the six months ended June 30, 2014, the Company incurred net losses of $9,266,606 and had negative cash flows from operations in the amount of $295,582. 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.  During the six months ended June 30, 2014, the Company received net proceeds from issuance of notes of $485,833 for working capital purposes.  Management intends to attempt to raise additional 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.

3. PROPERTY AND EQUIPMENT

v2.4.0.8
3. PROPERTY AND EQUIPMENT
6 Months Ended
Jun. 30, 2014
Property, Plant and Equipment [Abstract]  
3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

 

  Estimated life  

June 30,

2014

   

December 31,

2013

 
Leasehold Improvements 2 years   $ 12,448     $ 0  
Furniture and fixtures 3 years     2,771       2,771  
Less: Accumulated depreciation       (2,771)     (2,771)
      $ 12,448     $ 0  


For the six months ended June 30, 2014 and 2013, depreciation expense amounted to $0 and $150, respectively.

 

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

 

4. NOTES PAYABLE

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4. NOTES PAYABLE
6 Months Ended
Jun. 30, 2014
Debt Disclosure [Abstract]  
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, 2014 and as of December 31, 2013.  The Company is currently in negotiations 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 October 2013 $10,100 was assigned to three different note holders.  The new notes totaling $10,100 are included in Convertible Notes Payable.  The remaining balance of this note is $9,900 as of June 30, 2014 and as of December 31, 2013.

 

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 June 30, 2014 and December 31, 2013 the notes amounted to $116,792 and $116,792 respectively.

 
 As of June 30, 2014 and December 31, 2013, all of the notes payable - amounted to $126,692.

 

Accrued interest on the notes payable amounted to approximately $35,788 and $28,500 as of June 30, 2014 and December 31, 2013, respectively and is included in accrued expenses.

5. SHORT TERM ADVANCES

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5. SHORT TERM ADVANCES
6 Months Ended
Jun. 30, 2014
Debt Disclosure [Abstract]  
5. SHORT TERM ADVANCES

During the six months ended June 30, 2014 and the year ended December 31, 2013, 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 June 30, 2014 and December 31, 2013.

6. CONVERTIBLE PROMISSORY NOTES

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6. CONVERTIBLE PROMISSORY NOTES
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
6. CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consisted of the following:

 

   

June 30,

2014

   

December 31,

2013

 
Secured convertible promissory notes   $ 637,311     $ 175,138  
                 
Less: debt discount     (276,374 )     (59,390 )
                 
Secured convertible promissory notes– net   $ 360,937     $ 115,748  

 

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 is currently in negotiations 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 7).  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 $.0001per share.  The balance of the unsecured note payable amounted to $43,246 as of June 30, 2014 and $44,236 as of December 31, 2013.

 

On June 1, 2012 convertible promissory notes of $60,000 were assigned by the note holder to a third party and included the note balance and accrued interest amounting to $80,750. Upon the assignment and conversion of this note we recorded an additional beneficial conversion feature of $15,026 which was expensed immediately as interest relating to the new note for accrued interest. Subsequent to the assignment of the note, the note holders converted $47,000 of such notes into 10,047,470 shares of the Company’s common stock, at the contractual rate of $.005.  In July 2012 a note holder converted $9,250 in accrued interest related to a convertible promissory note into 2,569,444 shares of the Company’s common stock, at the contractual rate of $.004.  During the three months ended March 31, 2013, note holders’ converted $5,100 of convertible notes payables into 3,000,000 shares of the Company’s common stock at the contract rate of 58% of the fair market value on the date of conversion or $.0017 per share.  In March 2014 the note holders’ converted $7,000 of convertible notes payables into 7,000,000 shares of the Company’s common stock at the contract rate of 58% of the fair market value on the date of conversion or $.001 per share.  The note holders’ also converted $42,200 which was $21,650 of the remaining balance of the convertible notes payables and $20,550 of accrued interest into 5,640,203 shares of the Company’s common stock at the contract rate of $.007482 per share.  The balance of the convertible note payable amounted to $0 as of June 30, 2014 and $28,650 as of December 31, 2013.   

 

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 7).  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 7,640,000 common shares. In March 2014 the note holder converted an additional $990 into common shares at the contractual rate of $.0001per share.  The balance of the unsecured note payable amounted to $15,246 as of June 30, 2014 and $16,236 as of December 31, 2013.

 

In May 2013 a note holder assigned it’s $20,000 note to two third party entities.  In July 2013, the note holders’ converted $1,528 of convertible notes payables into 15,280,000 shares of the Company’s common stock at the contractual rate of $.0001 per share. In February 2014 the note holder converted an additional $764 into common shares at the contractual rate of $.0001per share.  In March 2014 the note holder converted an additional $993 into common shares at the contractual rate of $.0001per share.  In April 2014 the Company paid the balance of the note in full leaving a $0 balance as of June 30, 2014.  The balance of these notes totaled $18,472 as of December 31, 2013.

 

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 is 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 7).  In April 2014 the note holder converted $1,500 into common shares at the contractual rate of $.0001per share.  The balance of the convertible debenture, net of debt discount, is $5,881 and $2,667 as of June 30, 2014 and December 31, 2013, respectively.

 

In September 2013, the Company issued a $7,500 6% convertible debenture with a one year maturity date.  This convertible debenture converts at $.0001.  The Company recorded a debt discount of $5,625 upon issuance of this note.  The debt discount is 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 7).   In April 2014 the Company paid the balance of the note in full leaving a $0 balance as of June 30, 2014.  The balance of the convertible debenture, net of debt discount, was $1,875 as of December 31, 2013.

 

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 is 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 7).  The balance of the convertible debenture, net of debt discount, is $7,494 and $1,667 as of June 30, 2014 and December 31, 2013, respectively.  In connection herewith, the Company recorded a derivative liability and an offsetting debt discount of $8,333 (see Note 7).

 

On October 7, 2013 the Company issued a $10,000 6% convertible debenture with a one year maturity date.  This convertible debenture converts at $.0001.  The Company recorded a debt discount of $8,333 upon issuance of this note.  The debt discount is 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 7).  In February 2014 the note holder converted $1,000 into common shares; in March 2014 the note holder converted an additional $1,000 into common shares, and in April 2014 the note holder converted another $1,000 into common shares.  The three conversions were at the contractual rate of $.0001per share.  In April 2014, the Company paid the remaining balance of the note in full leaving a $0 balance as of June 30, 2014.  The balance of the convertible debenture, net of debt discount, was $903 as of December 31, 2013.

 

On October 14, 2013 the Company issued a convertible promissory note payable in the amount of $5,100.  The note bears 6% interest per annum and has a one year term with a maturity date of October, 14 2014.  This convertible promissory note payable converts at $ .0001.   The Company recorded a debt discount of $4,336 upon issuance of this note.  The debt discount is 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 7).  On November 13, 2013 $764 was converted into 7,640,000 shares of common stock at a contractual rate of $.0001. In April 2014 the note holder converted $1,500 into 1,500,000 shares of common stock at a contractual rate of $.0001.  After the conversion, the Company paid the remaining balance of the note in full leaving a $0 balance as of June 30, 2014.  The balance of the convertible debenture, net of debt discount, was $0 as of December 31, 2013.

 

On October 17, 2013 the Company issued a convertible promissory note payable in the amount of $2,500.  The note bears 6% interest per annum and has a one year term with a maturity date of October, 17 2014.  This convertible promissory note payable converts at $ .0001.   The Company recorded a debt discount of $1,736 upon issuance of this note.  The debt discount is 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 7).  On October 24, 2013 $764 was converted into 7,640,000 shares of common stock at a contractual rate of $.0001. The Company paid the balance of the note in full leaving a $0 balance as of June 30, 2014.  The balance of the convertible debenture, net of debt discount, was $0 as of December 31, 2013.

 

On October 18, 2013 the Company issued a convertible promissory note payable in the amount of $2,500 from a note holder.  The note bears 6% interest per annum and has a one year term with a maturity date of October, 18 2014.  This convertible promissory note payable converts at $ .0001.   The Company recorded a debt discount of $1,736 upon issuance of this note.  The debt discount is 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 7).  On November 14, 2013 $764 was converted into 7,640,000 shares of common stock at a contractual rate of $.0001. The Company paid the balance of the note in full leaving a $0 balance as of June 30, 2014.  The balance of the convertible debenture, net of debt discount, was $0 as of December 31, 2013.

 

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 is 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 7).  In connection herewith, the Company recorded a derivative liability and an offsetting debt discount of $23,958 (see Note 7). The balance of this convertible debenture, net of debt discount, is $13,525 and $1,042 as of June 30, 2014 and December 31, 2013, respectively.

 

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.  The debt discount is 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 7).  In connection herewith, the Company recorded a derivative liability and an offsetting debt discount of $51,848 (see Note 7). The balance of this convertible debenture, net of debt discount, is $14,566 as of June 30, 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 June 30, 2014.

 

On April 11, 2014 the Company issued an 8% original issue discount (OID) senior secured convertible promissory note with a principal balance of $362,319 with a one year maturity date.  This convertible debenture converts at $.02, 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 $266,285 and a debt discount of $266,285 (see Note 7).  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 7).  The balance of this convertible debenture, net of debt discount and deferred financing is $110,980 as of June 30, 2014.

 

During the six months ended June 30, 2014 and 2013, amortization of debt discount amounted to $114,853 and $0, respectively.

7. DERIVATIVE LIABILITY

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7. DERIVATIVE LIABILITY
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
7. DERIVATIVE LIABILITY

The Company enters into financing arrangements that contain embedded derivative features due to down round (“Ratchet”) provisions (See note 6).  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 June 30, 2014:

 

   

Conversion feature

derivative liability

 
Balance at December 31, 2013   $ 1,503,531  
Gain on extinguishment of derivative liability     (10,995,882)  
Recognition of derivative liability     318,133  
Change in fair value included in earnings     19,200,585  
Balance at June 30, 2014   $ 10,026,367  
         

 

Total derivative liability at June 30, 2014 and December 31, 2013 amounted to $10,026,367 and $1,503,531, respectively.  The net increase of $8,522,836 is due to the quoted market price of the Company’s common stock increasing from $.0017 at December 31, 2013 to $.0088 at June 30, 2014 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:

 

 

  June 30, 2014
Expected volatility 192% - 289%
Expected term   3 – 12 months
Risk-free interest rate  0.02% - 0.09%
Expected dividend yield  0%

8. STOCKHOLDERS DEFICIT

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8. STOCKHOLDERS DEFICIT
6 Months Ended
Jun. 30, 2014
Equity [Abstract]  
8. STOCKHOLDERS’ DEFICIT

In March 2013, the Company issued 3,000,000 shares in connection with the conversion of a convertible promissory note issued in September 2012 for a total amount of $5,100.  The contractual conversion price was based on a 58% discount to the quoted market price or $0.0017 per share.

 

Pursuant to the terms of a promissory note issued in October 2013 the Company issued 10,000,000 common shares in February 2014 and an additional 10,000,000 common shares in March 2014 and another 10,000,000 common shares in April 2014.  The three issuances were at contractual rate of $.0001 per share totaling $3,000.

 

Pursuant to the terms of convertible promissory notes issued in May 2013 the Company issued 7,640,000 common shares in February 2014 upon conversion at the contractual rate of $.0001 per share totaling $764.

 

Pursuant to the terms of convertible promissory notes issued in May 2013 the Company issued 9,928,067 common shares in March 2014 upon conversion at the contractual rate of $.0001 per share totaling $993.

 

Pursuant to the terms of a convertible promissory note issued in June 2012 the Company issued 7,000,000 common shares in March 2014 upon conversion at the contractual rate of $.001 per share totaling $7,000.

 

Pursuant to the terms of a convertible promissory note issued in June 2012 the Company issued 5,640,203 common shares in March 2014 upon conversion at the contractual rate of $.007482 per share totaling $42,200.

 

Pursuant to the terms of a convertible promissory note renegotiated in May 2013 the Company issued 9,900,000 common shares in March 2014 upon conversion at the contractual rate of $.0001 per share totaling $990.

 

Pursuant to the terms of a convertible promissory note renegotiated in May 2013 the Company issued 9,900,000 common shares in March 2014 upon conversion at the contractual rate of $.0001 per share totaling $990.

 

Pursuant to the board of directors meeting in March 2014 the Company issued 25,000,000 common shares to the CEO for services rendered.  The shares were issued at the fair market value rate of $.0155 at the time of issuance, resulting in an expense of $387,500.

 

Pursuant to the terms of a convertible promissory note the Company issued 15,000,000 common shares in April 2014 upon conversion at the contractual rate of $.0001 per share totaling $1,500.

 

Pursuant to the terms of a convertible promissory note issued in August 2013 the Company issued 15,000,000 common shares in April 2014 upon conversion at the contractual rate of $.0001 per share totaling $1,500.

 

Pursuant to the board of directors meeting in March 2014 the Company issued 3,000,000 common shares to an employee for services rendered.  The shares were issued at the fair market value rate of $.0147 at the time of issuance, resulting in an expense of $44,100.

9. RELATED PARTY TRANSACTIONS

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9. RELATED PARTY TRANSACTIONS
6 Months Ended
Jun. 30, 2014
Related Party Transactions [Abstract]  
9. 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 June 30, 2014 $55,878 of accrued interest due to related parties has been included in accrued expenses.

 

During 2007 and 2006, the Company’s principal 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 at June 30, 2014 and December 31, 2013 was $52,347 and $52,347, respectively.  As of June 30, 2014 and December 31, 2013, this note was reflected as due to related party.  Accrued interest related to these notes amounted to $3,925 and $3,148 as of June 30, 2014 and December 31, 2013, 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 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 June 30, 2014 and December 31, 2013.

 

Accrued interest on the notes payable to the Chief Executive Officer of the Company amounted to $21,342 and $20,695 as of June 30, 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. The Company repays the advances when funds are available.  The Company repaid $32,444 to the Chief Executive Officer in the second quarter on 2014.  At June 30, 2014 and December 31, 2013 the Company had a payable to the Chief Executive Officer of the Company amounting to $160,621 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 June 30, 2014 and December 31, 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 June 30, 2014 and December 31, 2013 the balance on the notes payable related to the accrued salaries remained at $429,439.

 

10. ACCRUED PAYROLL TAXES

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10. ACCRUED PAYROLL TAXES
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
10. ACCRUED PAYROLL TAXES

As of June 30, 2014 and December 31, 2013 the Company recorded a liability related to unpaid payroll taxes which includes interest and penalties of $171,913 and $215,442, 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 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.

 

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUTNING POLICIES (Policies)

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1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUTNING POLICIES (Policies)
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
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 are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").  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 June 30, 2014.

 

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.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes as of and for the year ended December 31, 2013.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited consolidated financial statements and notes included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the SEC on April 15, 2014.

 

In the opinion of management, all adjustments (consisting of normal recurring items) necessary to present fairly the Company's financial position as of June 30, 2014, and the results of operations and cash flows for the six months ending June 30, 2014 have been included. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year.

 

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 date 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 and the assumptions used to calculate derivative liabilities.

Non-controlling Interests in Consolidated Financial Statements

In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51,” (“SFAS No. 160”).  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. This statement is effective for fiscal years beginning after December 15, 2008, with presentation and disclosure requirements applied retrospectively to comparative financial statements.  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 June 30, 2014, the Company recorded a non-controlling interest of ($42,342) in connection with our majority-owned subsidiary, DirectView Security Systems Inc. as reflected in the accompanying consolidated balance sheets.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000.  For the six months ended June 30, 2014 and the year ended December 31, 2013, the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted 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. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

 

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 June 30, 2014 and December 31, 2013. 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 was effective for January 1, 2008. ASC 825-10-25 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 June 30, 2014 and December 31, 2013, management determined that an allowance is necessary which amounted to $137,215 and $137,215, respectively. During the six months ended June 30, 2014 and 2013, the Company did not have any expense related to uncollectible accounts receivable.

Advertising

Advertising is expensed as incurred. Advertising expenses for the six months ended June 30, 2014 and 2013 was $104,351 and $0, respectively.

Shipping Costs

Shipping costs are included in other selling, general and administrative expenses and was deemed to be not material for the six months ended June 30, 2014 and 2013, 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.  There was no inventory at June 30, 2014 and December 31, 2013.

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 six months ended June 30, 2014 and 2013.

Income Taxes

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

 

Pursuant to ASC Topic 740-10: Income Taxes related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.  The adoption had no effect on the Company’s consolidated financial statements.  

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 condensed 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 $431,600 and $0 during the six months ended June 30, 2014 and 2013, 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.

 

The following policies reflect specific criteria for the various revenues 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.

 

Revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectibility of the related receivable is probable.

 

Cost of sales includes cost of products and cost of service.  Product cost includes the cost of products and freight costs.  Cost of services includes labor and fuel expenses.

Concentrations of Credit Risk and Major Customers

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions. Almost all of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

 

During the six months ended June 30, 2014, one customer accounted for 64% of revenues.

 

During the six months ended June 30, 2013, one customer accounted for 82% of revenues.

 

As of June 30, 2014 there was not a single customer that accounted for more than 10% of total accounts receivable.

 

As of December 31, 2013, three customers accounted for 69% of total accounts receivable. The following is a list of percentage of accounts receivable owed by the three customers:

 

 Customer 1        12 %
 Customer 2      12 %
 Customer 3      45 %

 

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 June 30, 2014 the Company had 1,161,569,275 shares equivalent issuable pursuant to embedded conversion features.  At June 30, 2013, the Company had 9,335,489 shares equivalent issuable pursuant to embedded conversion features.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

v2.4.0.8
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
6 Months Ended
Jun. 30, 2014
Basis Of Presentation And Summary Of Significant Accounting Policies Tables  
Major Customers
 Customer 1        12 %
 Customer 2      12 %
 Customer 3      45 %

3. PROPERTY AND EQUIPMENT / LEASEHOLD IMPROVEMENTS (Tables)

v2.4.0.8
3. PROPERTY AND EQUIPMENT / LEASEHOLD IMPROVEMENTS (Tables)
6 Months Ended
Jun. 30, 2014
Property, Plant and Equipment [Abstract]  
Property and Equipment
  Estimated life  

June 30,

2014

   

December 31,

2013

 
Leasehold Improvements 2 years   $ 12,448     $ 0  
Furniture and fixtures 3 years     2,771       2,771  
Less: Accumulated depreciation       (2,771)     (2,771)
      $ 12,448     $ 0  

6. CONVERTIBLE PROMISSORY NOTES (Tables)

v2.4.0.8
6. CONVERTIBLE PROMISSORY NOTES (Tables)
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
Convertible Promissory Notes
   

June 30,

2014

   

December 31,

2013

 
Secured convertible promissory notes   $ 637,311     $ 175,138  
                 
Less: debt discount     (276,374 )     (59,390 )
                 
Secured convertible promissory notes– net   $ 360,937     $ 115,748  

7. DERIVATIVE LIABILITY (Tables)

v2.4.0.8
7. DERIVATIVE LIABILITY (Tables)
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
Schedule for reconciliation of the derivative liability measured at fair value on a recurring basis
   

Conversion feature

derivative liability

 
Balance at December 31, 2013   $ 1,503,531  
Gain on extinguishment of derivative liability     (10,995,882)  
Recognition of derivative liability     318,133  
Change in fair value included in earnings     19,200,585  
Balance at June 30, 2014   $ 10,026,367  
         
Assumptions for Pricing Model to Fair Value Derivatives
  June 30, 2014
Expected volatility 192% - 289%
Expected term   3 – 12 months
Risk-free interest rate  0.02% - 0.09%
Expected dividend yield  0%

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)

v2.4.0.8
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)
Dec. 31, 2013
Customer 1
 
Major customer percentage of accounts receivable 12.00%
Customer 2
 
Major customer percentage of accounts receivable 12.00%
Customer 3
 
Major customer percentage of accounts receivable 45.00%

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)

v2.4.0.8
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Basis Of Presentation And Summary Of Significant Accounting Policies Details Narrative    
Accounts receivable allowance for doubtful accounts $ 137,215 $ 137,215

2. GOING CONCERN CONSIDERATIONS (Details Narrative)

v2.4.0.8
2. GOING CONCERN CONSIDERATIONS (Details Narrative) (USD $)
Jun. 30, 2014
Going Concern Considerations Details Narrative  
Working capital deficiency $ (12,757,490)

3. PROPERTY AND EQUIPMENT / LEASEHOLD IMPROVEMENTS (Details)

v2.4.0.8
3. PROPERTY AND EQUIPMENT / LEASEHOLD IMPROVEMENTS (Details) (USD $)
6 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Property And Equipment Leasehold Improvements Details    
Leasehold Improvements $ 12,448 $ 0
Furniture and fixtures 2,771 2,771
Less: Accumulated depreciation (2,771) (2,771)
Property and Equipment $ 12,448 $ 0
Estimated Life - Leasehold impovements 2 years  
Estimated life - Furniture and fixtures 3 years  

6. CONVERTIBLE PROMISSORY NOTES (Details)

v2.4.0.8
6. CONVERTIBLE PROMISSORY NOTES (Details) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Convertible Promissory Notes Details    
Secured convertible promissory notes $ 637,311 $ 175,138
Less: debt discount (276,374) (59,390)
Secured convertible promissory notes - net $ 360,937 $ 115,748

7. DERIVATIVE LIABILITY (Details)

v2.4.0.8
7. DERIVATIVE LIABILITY (Details) (USD $)
6 Months Ended
Jun. 30, 2014
Derivative Liability Details  
Derivative Liability, beginning $ 1,503,531
Gain on extinguishment of derivative liability (10,995,882)
Recognition of derivative liability 318,133
Change in fair value included in earnings 19,200,585
Derivative Liability $ 10,026,367

7. DERIVATIVE LIABILITY (Details 1)

v2.4.0.8
7. DERIVATIVE LIABILITY (Details 1)
6 Months Ended
Jun. 30, 2014
Expected dividend yield 0.00%
Minimum
 
Expected volatility 192.00%
Expected term 3 months
Risk-free interest rate 0.02%
Maximum
 
Expected volatility 289.00%
Expected term 1 year
Risk-free interest rate 0.09%