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.
For financial reporting purposes, the assets, liabilities, historical earnings (deficits), and additional paid in capital of the acquired subsidiaries are reflected in the Company’s financial statements.
The Company has the following four subsidiaries: DirectView Video Technologies Inc., Ralston Communication Services Inc., Meeting Technologies Inc. and DirectView Security Systems 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 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’s, three wholly-owned subsidiaries, and a subsidiary with a majority voting interest of approximately 58% (42% is owned by non-controlling interests with 23% owned by the Company’s CEO who is a majority shareholder of the Parent Company) as of March 31, 2013, and 100% prior to January 2011.
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, 2012.
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 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.
In the opinion of management, all adjustments (consisting of normal recurring items) necessary to present fairly the Company's financial position as of March 31, 2013, and the results of operations and cash flows for the three months ending March 31, 2013 have been included. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Certain amounts for the have been reclassified within the three month period ended March 31, 2012 to conform with the presentation of the three month period ended March 31, 2013. Included is the presentation of non-controlling interests in the statement of cash flows. This reclassification has no effect on net loss for the period.
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, valuation of stock-based compensation, accrued expenses pertaining to abandoned lease office space, the useful life of property and equipment, the assumptions used to calculate beneficial conversion on notes payable, valuation of common stock issued for services and derivative liabilities.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 March 31, 2013, the Company recorded a non-controlling interest of $7,788 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. In addition to the basic insurance deposit coverage, the FDIC is providing temporary unlimited coverage for non-interest bearing transaction accounts through December 31, 2012. For the three months ended March 31, 2013 and for the year ended December 31, 2012, 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 March 31, 2013 and December 31, 2012. 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.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 March 31, 2013 and December 31, 2012, management determined that an allowance is necessary which amounted to $99,215 and $99,215, respectively. During the three months ended March 31, 2013 and 2012, the Company had expense (recovery) of $0 and $(29,675), respectively of uncollectible accounts receivable.
Advertising
Advertising is expensed as incurred. Advertising expenses for the three months ended March 31, 2013 and 2012 were deemed to be not material.
Shipping costs
Shipping costs are included in other selling, general and administrative expenses and were deemed to be not material for the three months ended March 31, 2013 and 2012, 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 March 31, 2013 and December 31, 2012.
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.
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 three months ended March 31, 2013 and 2012.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 three months ended March 31, 2013, two customers accounted for 98% of revenues. The following is a list of percentage of revenue generated by the two customers:
Customer 1 87%
Customer 2 11%
During the three months ended March 31, 2012, one customer accounted for 78% of the Company’s revenues.
During the three months ended March 31, 2013, two customers accounted for 95% of total accounts receivable. The following is a list of percentage of accounts receivable owed by the two customers:
Customer 1 78%
Customer 2 17%
As of December 31, 2012, three customers accounted for 79% of total accounts receivable. The following is a list of percentage of accounts receivable owed by the three customers:
Customer 1 18%
Customer 2 28%
Customer 3 33%
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 March 31, 2013, the Company has 47,275,262 shares equivalent issuable pursuant to embedded conversion features. As of March 31, 2012, the Company had 10,344,828 shares equivalently issuable pursuant to embedded conversion features.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2012-02, Intangibles-Goodwill and Other (Topic 350)-Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of
this ASU is not expected to have a material impact on the Company's financial statements.
In December 2011, the FASB issued FASB ASU No. 2011-11, Balance Sheet (Topic 210)-Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross
and net information about these instruments. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU did not have a material impact on the Company's financial statements.
In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU expands the presentation of changes in accumulated other comprehensive income. The new guidance requires an entity to disaggregate the total change of each component of other
comprehensive income either on the face of the net income statement or as a separate disclosure in the notes. ASU 2013-02 is effective for fiscal years beginning after December 15, 2012. The Company does not believe that the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations or
cash flows.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE 2 – GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. At March 31, 2013, the Company had an accumulated deficit of approximately $15.7 million, a stockholders’ deficit of approximately $2.3 million and a working capital deficiency of $2,320,296. Additionally, for the three months March 31, 2013, the Company incurred net losses of $130,960 and had negative cash flows from operations in the amount of $31,225. 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 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 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.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| |
Estimated life
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
Furniture and fixtures
|
3 years
|
|
$
|
2,771
|
|
|
$
|
2,771
|
|
|
Less: Accumulated depreciation
|
|
|
|
(2,693
|
)
|
|
|
(2,618
|
)
|
| |
|
|
$
|
78
|
|
|
$
|
153
|
|
For the three months ended March 31, 2013 and 2012, depreciation expense amounted to $75 and $75, respectively.
NOTE 4 – NOTES PAYABLE
Senior secured promissory notes aggregating an original principal of $85,500 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 be 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. The balance of the senior secured promissory note amounted to $17,000 as of March 31, 2013 and December 31, 2012. The notes are in default at March 31, 2013. The Company is currently in negotiations with the note holder to extend the maturity date once again.
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 March 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 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. The Company may prepay these notes in cash or equivalent securities at any time without penalty. 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 March 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. The balance of these unsecured notes payable is $20,000 as of March 31, 2013 and December 31, 2012.
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 March 31, 2013 and December 31, 2012 the notes amounted to $116,792 and $116,792.
As of March 31, 2013 and December 31, 2012, notes payable - amounted to $198,792 and $198,792, respectively.
Accrued interest on the notes payable amounted to approximately $118,000 and $113,000 as of March 31, 2013 and December 31, 2012, respectively and is included in accrued expenses.
NOTE 5 – SHORT TERM ADVANCES
During the year ended December 31, 2012, an unrelated party advanced a total of $110,136 to the Company. This advance is payable in cash and is non interest bearing and due on demand. During the three months ended March 31, 2013 the unrelated party advanced additional funds, the balance as of March 31, 2013 totaled $146,015.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 6 – CONVERTIBLE PROMISSORY NOTES
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.
Convertible promissory note consisted of the following:
| |
|
March 31,
2013
|
|
|
December 31, 2012
|
|
|
Secured convertible promissory note
|
|
$
|
46,650
|
|
|
$
|
51,750
|
|
| |
|
|
|
|
|
|
|
|
|
Less: debt discount
|
|
|
( 2,850
|
)
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
Secured convertible promissory note – net
|
|
$
|
43,800
|
|
|
$
|
51,750
|
|
As of March 31, 2013 and December 31, 2012, amortization of debt discount amounted to $15,150 and $0, respectively, and is included in interest expense.
NOTE 7 – DERIVATIVE LIABILITY
In June 2008, a FASB approved guidance related to the determination of whether a freestanding equity-linked instrument should be classified as equity or debt under the provisions of FASB ASC Topic No. 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Stock. The adoption of this requirement will affect accounting for convertible instruments and warrants with provisions that protect holders from declines in the stock price ("down-round" provisions). Warrants with such provisions will no longer be recorded in equity and would have to be reclassified to a liability. The Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Earlier application by an entity that has previously adopted an alternative accounting policy is not permitted.
Instruments with down-round protection are not considered indexed to a company's own stock under ASC Topic 815, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.
ASC Topic 815 guidance is to be applied to outstanding instruments as of the beginning of the fiscal year in which the Issue is applied. The cumulative effect of the change in accounting principle shall be recognized as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) for that fiscal year, presented separately. If an instrument is classified as debt, it is valued at fair value, and this value is re-measured on an ongoing basis, with changes recorded on the statement of operations in each reporting period. The Company did not have outstanding instruments with down-round provisions as of the beginning of fiscal 2009 thus no adjustment will be made to the opening balance of retained earnings.
In connection with the convertible promissory notes outstanding as of March 31, 2013, the Company has determined that the terms of the convertible promissory notes issued include provisions whereby after 180 days from the date of issuance the holders can convert at prices range between 30% and 58% of the average of three lowest trading prices during the 10 trading day period of the Company’s common stock prior to the conversion date. Accordingly, the convertible instrument is accounted for as a derivative liability as of March 31, 2013 and adjusted to fair value through earnings at each reporting date. The Company has recognized a derivative liability of $79,772 and $37,969 as of March 31, 2013 and December 31, 2012 respectively. The loss resulting from the increase in fair value of these convertible instruments was $657 for the three months ended March 31, 2013 and $156 for the three months ended March 31, 2012.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 7 – DERIVATIVE LIABILITY (continued)
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2013 to March 31, 2013:
| |
|
Conversion feature
|
|
| |
|
derivative liability
|
|
|
Balance at December 31, 2012
|
|
$ |
37,969 |
|
|
Recognition of derivative liability
|
|
|
46,983 |
|
|
Effect of conversion
|
|
|
(5,837 |
) |
|
Change in fair value included in earnings
|
|
|
657 |
|
|
Balance at March 31, 2013
|
|
$ |
79,772 |
|
Total derivative liability at March 31, 2013 amounted to $79,772.
The Company used the following assumptions for determining the fair value of the convertible instruments granted under the Black-Scholes option pricing model:
| |
March 31, 2013
|
|
Expected volatility
|
|
|
Expected term
|
3 months
|
|
Risk-free interest rate
|
0.02% - 0.09%
|
|
Expected dividend yield
|
0%
|
NOTE 8 – STOCKHOLDERS’ DEFICIT
In March 2013, the Company issued 3,000,000 shares in connection with the conversion of the convertible promissory note issued in September 2012 for a total amount of $5,100. Pursuant to the terms of the convertible promissory notes the Company valued these common shares at a 58% discount to the quoted market price or $0.0017 per share.
NOTE 9 – RELATED PARTY TRANSACTIONS
Due to Related Parties
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. The amount due to such related party at March 31 2013 and December 31, 2012 was $52,347 and $52,347, respectively. As of March 31, 2013 and December 31, 2012, this note was included in due to related party. 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.
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. The balance of the note was at $10,843 as of March 31 2013 and December 31, 2012.
Accrued interest on the notes payable to the Chief Executive Officer of the Company amounted to $19,507 and $18,799 as of March 31, 2013 and December 31, 2012, 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 March 31, 2013 and December 31, 2012, the Company had a payable to the Chief Executive Officer of the Company amounting to $32,516 and $32,091, respectively. These advances are included in Due to Related Parties on the Company’s financial statements and are short-term in nature and non-interest bearing.
Directview Holdings, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2013
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
The Chief Financial Officer of the Company, from time to time, provided advances to the Company for operating expenses. At March 31, 2013 and December 31, 2012, the Company had a payable to the Chief Financial Officer of the Company amounting to $8,119 and $8,119, respectively. These advances are included in Due to Related Parties on the Company’s financial statements and 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 March 31, 2013 and December 31, 2012 the balance on the notes payable related to the accrued salaries remained at $429,439.
NOTE 10 – ACCRUED PAYROLL TAXES
As of March 31, 2013 and December 31, 2012, the Company recorded a liability related to unpaid payroll taxes of $246,072 and $227,060. 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. Such amount also includes current payroll tax liabilities and has been included in accrued expenses in the accompanying consolidated financial statements.
NOTE 11 – SUBSEQUENT EVENTS
On May 20, 2013 a note holder of the Company assigned its note to third parties. In connection with the assignment, the Company agreed to modify the terms of conversion with respect to the new note holders.
Overview
Our operations are conducted within two divisions:
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●
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Our video conferencing divisions which is a full-service provider of teleconferencing products and services to businesses and organizations, and
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| |
●
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Our security division which provides surveillance systems, digital video recording and services to businesses and organizations.
|
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.
We are 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. We generate revenue through the sale and installation of surveillance systems and the sale of maintenance agreements.
Our company was formed in October 2006. 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. and in July 2007 we formed DirectView Video. Directview Security began offering services and products immediately from inception.
Our net sales are 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 or to provide the additional capital we believe is necessary to permit us to market our company in an effort to increase our sales. We are always looking for opportunities with new dealers, and plan to evaluate the market for our products throughout 2013 to determine whether we should hire additional employees in our sales force. We seek to establish brand identity for our company, communicate our brand and its values to investors and customers, build a relationship and reinforce existing relationships and further trigger recognition through telemarketing and hiring additional sales people to our sales staff. We believe that these strategies will provide an avenue for us to increase consumer usage of our technology, increase demand for our products 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.
Our experience has demonstrated that our ability to raise capital is generally limited. Following the effectiveness of our registration statement in fiscal 2009, we became subject to the reporting obligations of the Securities Exchange Act of 1934 and require us to file quarterly and annual reports, among other filings, with the Securities and Exchange Commission, and we hope to obtain a quotation of our common stock on the OTC Bulletin Board. We believe that both of these actions will increase our opportunities to raise the necessary capital to continue our business in that there will be public information available on our company and our financial condition and a trading market for our common stock. There are no assurances, however, that our assumption is correct. We may not be successful in obtaining the quotation of our common stock on the OTC Bulletin Board and even if we are successful there are no assurances a meaningful market for our common stock will develop. The uncertainty in the capital markets, the small size of our company and the low barriers to entry in our market make our company less attractive to prospective investors and we may never be successful in raising the needed capital. In addition, our operating expense increased because we incurred higher professional fees to comply with the reporting requirements of the Securities Exchange Act of 1934. If we are unable to raise the necessary capital, we will not be able to expand our business and our ability to continue as a going concern will be in jeopardy.
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
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, valuation of stock-based compensation, accrued expenses pertaining to abandoned lease office space, the useful life of property and equipment, the assumptions used to calculate beneficial conversion on notes payable, valuation of common stock issued for services and derivative liabilities.
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 March 31, 2013 and December 31, 2012, management determined that an allowance is necessary which amounted to $99,215 and $99,215, respectively. During the three months ended March 31, 2013 and 2012, the Company had expense (recovery) of $0 and $29,675, respectively of uncollectible accounts receivable.
Property and equipment
Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets.
Income Taxes
Income taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”). 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.
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.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2012-02, Intangibles-Goodwill and Other (Topic 350)-Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company's financial statements.
In December 2011, the FASB issued FASB ASU No. 2011-11, Balance Sheet (Topic 210)-Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU is not expected to have a material impact on the Company's financial statements.
In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU expands the presentation of changes in accumulated other comprehensive income. The new guidance requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the net income statement or as a separate disclosure in the notes. ASU 2013-02 is effective for fiscal years beginning after December 15, 2012. The Company does not believe that the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations or cash flows.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Results of Operations
Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012
Net Sales
Overall, our net sales for the three months ended March 31, 2013 increased approximately 285% from the comparable period in 2012. The following table provides comparative data regarding the source of our net sales in each of these periods and the change from 2012 to 2013:
| |
|
Three Months Ended March 31, 2013
|
|
|
Three Months Ended March 31, 2012
|
|
|
|
|
| |
|
$ |
|
|
% of Total
|
|
|
$ |
|
|
% of Total
|
|
|
Variance
|
|
|
Sale of product
|
|
|
59,940 |
|
|
|
68 |
% |
|
|
15,567 |
|
|
|
64 |
% |
|
|
285 |
% |
|
Service
|
|
|
27,624 |
|
|
|
32 |
% |
|
|
8,670 |
|
|
|
36 |
% |
|
|
219 |
% |
|
Total
|
|
|
87,564 |
|
|
|
100 |
% |
|
|
24,237 |
|
|
|
100 |
% |
|
|
261 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of product for the three months ended March 31, 2013 increased approximately 285% as compared to the three months ended March 31, 2012. Services revenue increased by approximately 219% due to marketing efforts and one customer in 2013 increasing its service needs over 2012.
Net sales increased due to one customer increasing its product and service needs. In an effort to continue to increase our sales in future periods, we need to hire additional sales staff to initiate a telemarketing campaign and we need 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 sales during the three months ended March 31, 2013, 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 91% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The following table provides comparative data regarding the breakdown of the cost of sales in each of these periods and the change from 2012 to 2013:
| |
|
Three Months Ended March 31, 2013
|
|
|
Three Months Ended March 31, 2012
|
|
|
|
|
| |
|
$ |
|
|
% of Total
|
|
|
$ |
|
|
% of Total
|
|
|
Variance
|
|
|
Cost of product
|
|
|
35,944 |
|
|
|
68 |
% |
|
|
22,310 |
|
|
|
81 |
% |
|
|
61 |
% |
|
Cost of service
|
|
|
16,857 |
|
|
|
32 |
% |
|
|
5,380 |
|
|
|
19 |
% |
|
|
213 |
% |
|
Total
|
|
|
52,801 |
|
|
|
100 |
% |
|
|
27,690 |
|
|
|
100 |
% |
|
|
91 |
% |
During the three months ended March 31, 2013, our cost of product increased approximately 61% as compared to the three months ended March 31, 2012. During the three months ended March 31, 2013, our cost of services increased 213% as compared to the three months ended March 31, 2012. The increase of cost of sales is due to increased net sales.
Total operating expenses for the three months ended March 31, 2013 were $137,156, an increase of $3,983, or approximately 3%, from total operating expenses for the comparable three months ended March 31, 2012 of $133,173.
Loss from operations
We reported a loss from operations of $102,393 for the three months ended March 31, 2013 compared to a loss from operations of $136,626 for the three months ended March 31, 2012. A decrease of $34,233, or 25% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.
Other Income (Expenses)
Total other (expense) income was ($28,567) and ($9,147) for the three months ended March 31, 2013 and March 31, 2012. An increase of other (expense) income of $19,420 or 212% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase in other (expense) income is primarily attributable to increase interest expense related to convertible note payable.
Net loss
We reported a net loss of $130,960 for the three months ended March 31, 2013 compared to a net loss of $145,773 for the three months ended March 31, 2012. We reported a net gain attributable to non-controlling interest of $8,537 during the three months ended March 31, 2013. We reported a net loss attributable to non-controlling interest of $9,063 during the three months ended March 31, 2012.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At March 31, 2013 we had a cash balance of $8,030 and a working capital deficit of $2,320,296.
We reported a net decrease in cash for the three months ended March 31, 2013 of $5,079. While we currently have no material commitments for capital expenditures, at March 31, 2013 we owed approximately $199,000 under various notes payable and $44,000 under convertible promissory notes. We do not presently have any external sources of working capital.
At March 31, 2013 the Company owed the executive officer and director of the Company $40,635 for amounts they have advanced to the Company for working capital. These amounts are non interest bearing and due upon demand. The Company also has outstanding notes payable to the officers totaling $492,629; of which $481,786 bears interest at 3%, and the remaining $10,843, bears interest at 12%. The terms of the promissory notes are due on demand.
At March 31, 2013 the Company owed $146,015 to Regal Capital, formerly a related party, which is due upon demand and bears 0% interest. The Company also owed Regal Capital $116,792 in notes payable which bear a 12% interest rate.
Accrued liabilities were $1,017,104 as of March 31, 2013 consist of the following:
· Accrued salaries for certain employees amounting to $365,365
· Accrued commissions for certain employees amounting to $60,590
· Sales tax payable of $18,759
· Lease abandonment charges of $164,375
· Accrued interest of $159,843
· Accrued payroll liabilities and taxes of $246,072
· Other accrued expenses of $2,100
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 $130,960 and net loss attributable to DirectView Holdings Inc. of $139,497 during the three months ended March 31, 2013. At March 31, 2013 we had a working capital deficit of $$2,320,296. We will need to raise significant additional capital to fund our operating expenses, pay our obligations, and grow our company. We do not anticipate we will be profitable during the remainder of fiscal 2013. Therefore our operations will be dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. The trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Furthermore we have debt obligations, which must be satisfied. If we are successful in securing additional working capital, we intend to increase our marketing efforts to grow our revenues. 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 three months ended March 31, 2013 is a discussion regarding Going Concern.
Operating activities
Net cash flows used in operating activities for the three months ended March 31, 2013 amounted to $31,225 and was primarily attributable to our net loss of $130,960, offset by depreciation of $75, debt discount of $15,150, total changes in assets and liabilities of $83,854 and offset by change in fair value of derivative liability of $657. Net cash flows used in operating activities for the three months ended March 31, 2012 amounted to $32,938 and was primarily attributable to our net loss of $145,773, offset by depreciation of $75, debt discount of $2,038, bad debt expense (gain) of ($29,376), total changes in assets and liabilities of $139,942 and offset by change in fair value of derivative liability of $156.
Financing activities
Net cash flows provided by financing activities was $36,304 for the three months ended March 31, 2013. We had proceeds from related party advances of $36,304. Net cash flows provided by financing activities was $25,923 for the three months ended March 31, 2012. We received net proceeds from related party advances of $25,141 and a bank overdraft of $782.
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 tables summarize our contractual obligations as of March 31, 2013, 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
|
|
$ |
40,635 |
|
|
|
40,635 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Operating Leases
|
|
$ |
164,375 |
|
|
|
164,375 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchase Obligations
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total Contractual Obligations:
|
|
$ |
351,025 |
|
|
|
351,025 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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.
Not required for smaller reporting companies.
Disclosure Controls and Procedures
Our management, including Roger Ralston, our chief executive officer, and Michele Ralston, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2013.
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 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.
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, our management, including Roger Ralston, our Chief Executive Officer, and Michele Ralston, our Chief Financial Officer, concluded that because of the significant deficiencies in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2013.
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”) on an annual basis. As previously reported on our Form 10-K for the year ended December 31, 2012, management identified significant deficiencies related to (i) our internal audit functions and (ii) a lack of segregation of duties within accounting functions.
Management has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal 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.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
Not required for smaller reporting companies.
None.
None.
None.
None.
| 31.1 |
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer |
| 31.2 |
Rule 13a-14(a)/15d-14(a) certificate of Principal Financial Officer |
| 32.1 |
Section 1350 certification of Chief Executive Officer and Chief Financial Officer |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
DIRECTVIEW HOLDINGS, INC.
|
|
| |
|
|
|
|
Date: May 24, 2013
|
By:
|
/s/ Roger Ralston
|
|
| |
|
Roger Ralston
|
|
| |
|
Chief Executive Officer
|
|
|
Date: May 24, 2013
|
By:
|
/s/ Michele Ralston
|
|
| |
|
Michele Ralston
|
|
| |
|
Chief Financial Officer
|
|
26