$DIRV Form 10-K

Overview

The 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. (“DirectView Security”) and in July 2007 we formed DirectView Video. DirectView Security began offering services and products immediately from inception.

Two divisions conduct our operations:

? Our security division which provides surveillance systems, digital video recording and services to businesses and organizations, and ? our video conferencing division which is a full-service provider of teleconferencing products and services to businesses and organizations.

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

We provide our customers with the latest technologies in surveillance systems, digital video recording and services. The systems provide onsite and remote video and audio surveillance. We generate revenue through the sale and installation of surveillance systems and the sale of service plans. We source our products from a variety of different suppliers and our product and service offerings include:

  DVR Recorders and Cameras               Video Intercoms

  NVR Recorders and IP Cameras            Laser and Video Beam Perimeter Security

  Motion Detection and Thermal Imagery    Security Design and Consulting

  Remote Control Device Management        Equipment Maintenance Service Plans

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

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

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

Our Outlook

Our net sales are currently not sufficient to fund our operating expenses. We have relied upon funds from the issuance of notes, the sale of common stock and advances from our executive officers to provide working capital to our company. These funds, however, are not sufficient to pay all of our expenses nor to provide the additional capital we believe is necessary to permit us to properly market our company in an effort to increase our sales. We are always looking for opportunities with new dealers to expand our IP based surveillance products offerings and plan to evaluate the market for our products throughout 2015 to determine whether we should hire additional employees in our sales force. We seek to leverage our current customer base which includes major international hotel chains, well known real estate development companies, and respected educational facilities, to build our reputation as a trusted security provider and generate customer referrals. Beginning in 2014 we also began targeting our marketing efforts toward the cannabis industry. We see the specific security needs of this industry, representing a significant opportunity for sales growth. Each state has specific requirements for security which includes extensive video surveillance and perimeter security. Additionally, some larger security companies have been hesitant to enter this market up to this point, we believe this will help reduce competitive pressures. While we believe our strategy for growth will result in an increase demand for our products and service and generate revenues, no assurance can be provided that we will successfully implement our strategy. We are subject to significant business risks and may need to raise additional capital in order to realize and effectuate the above strategy.

Our net cash used in financing activities was $453,155 in 2014, however, our experience has demonstrated that our ability to raise capital has been generally limited. While we continue to seek capital to support our business expansion efforts, the uncertainty in the capital markets, the small size of our company and the low barriers to entry in our market may make our company less attractive to prospective investors and we may not be successful in raising the needed capital to adequately operate and expand our business. 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.

Results of Operations

Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

Net Sales

Overall, our net sales for the year ended December 31, 2014 increased
approximately 105% from the comparable period in 2013. The following table
provides comparative data regarding the source of our net sales in each of these
periods and the change from 2014 to 2013:

                                  Year Ended December 31, 2014      Year Ended December 31, 2013
                                      $             % of Total          $             % of Total       Variance
Sale of product                      316,140                 62 %      182,341                 73 %          73%
Service                              194,704                 38 %       67,002                 27 %          191 %
Total                                510,844                100 %      249,343                100 %          105 %

Net sales increased due to marketing efforts and customer relations. In an effort 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 year ended December 31, 2014, 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 155% for the year ended
December 31, 2014 compared to December 31, 2013. The following table provides
comparative data regarding the breakdown of the cost of sales in each of these
periods and the change from 2013 to 2014:

                                  Year Ended December 31, 2014      Year Ended December 31, 2013       Change in costs
                                      $             % of Total          $             % of Total          Variance
Cost of product                      279,766                 60 %      101,422                 56 %                 176 %
Cost of service                      182,925                 40 %       80,341                 44 %                 128 %
Total                                462,691                100 %      181,763                100 %                 155 %

Total operating expenses for the year ended December 31, 2014 were $1,453,285, an increase of $806,999, or approximately 125%, from total operating expenses for the comparable year ended December 31, 2013 of $646,286. This increase is primarily attributable to an increase in stock based compensation and a decline in administrative salaries attributed to loss of an employee which is offset with increased professional fees categorized under other selling, general and administrative expenses.

Loss from Operations

We reported a loss from operations of $1,405,132 for the year ended December 31, 2014, as compared to a loss from operations of $578,706 for the year ended December 31, 2013. An increase of $826,426 or 143% for the year ended December 31, 2014.

Other Income (Expenses)

Total other expense was ($1,338,199) for the year ended December 31, 2013 as compared to total other income of $171,081 for the year ended December 31, 2014. A decrease of other expense of $1,509,280, for the year ended December 31, 2014 is primarily attributable to the write off of accounts payable for the year ended December 31, 2014 compared to $0 written off for the year ended December 31, 2013, and the fair value of the derivative liability.

Net loss

We reported a net loss of $1,234,051 for the year ended December 31, 2014 as compared to a net loss of $1,916,905 for the year ended December 31, 2013.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At December 31, 2014, we had a cash balance of $13,158. Our working capital deficit is $4,630,116 at December 31, 2014.

We reported a net decrease in cash for the year ended December 31, 2014 of $10,311. While we currently have no material commitments for capital expenditures, at December 31, 2014 we owed approximately $176,692 under various notes payable. During the year ended December 31, 2014, we have raised $521,796 from debts.

During the quarter ended June 30, 2012, the Company issued notes payable with an interest rate of 3% to the CFO amounting to $429,439 related to the accrued salaries. As of December 31, 2014 the balance on the notes payable related to the accrued salaries remained at $429,439.

Additionally, the Company has a due on demand note payable with an interest rate of 12% as of December 31, 2014 totaling $10,843 payable to Mr. Ralston and a due on demand note payable with an interest rate of 3% as of December 31, 2014 totaling $52,347 payable to Mrs. Ralston.

Accrued liabilities were $1,565,139 as of December 31, 2014 which consisted of the following:

? Accrued salaries to our officers and certain employees amounting to $981,908 ? Accrued sales tax of $25,674
? Accrued general and administrative expenses of $8,700 ? Accrued commissions to certain employees amounting to $60,590 ? Accrued payroll liabilities including penalties of $110,419 ? Lease abandonment charges of $164,375 ? Accrued interest of $213,473

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 $1,234,051 during the year ended December 31, 2014. At December 31, 2014 we had a working capital deficit of $4,630,116. We do not anticipate we will be profitable in 2015. Therefore our operations will be dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. The trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Furthermore we have debt obligations, which must be satisfied. If we are successful in securing additional working capital, we intend to increase our marketing efforts to grow our revenues. We do not presently have any firm commitments for any additional capital and our financial condition as well as the uncertainty in the capital markets may make our ability to secure this capital difficult. There are no assurances that we will be able to continue our business, and we may be forced to cease operations in which event investors could lose their entire investment in our company. Included in our Notes to the financial statements for the year ended December 31, 2014 is a discussion regarding Going Concern.

Operating activities

Net cash flows used in operating activities for the year ended December 31, 2014 amounted to $453,155 and was primarily attributable to our net loss of $1,234,051, offset by depreciation of $3,112, $470,100 of common stock issued for compensation, and net derivative expenses of $329,535, add back of amortization of debt issuance cost and debt discount of $329,565. Net cash flows used in operating activities for the year ended December 31, 2013 amounted to $236,835 and was primarily attributable to our net losses of $1,916,905, offset by depreciation of $153, bad debt expense of $38,000, and amortization of debt issuance cost and debt discount of $74,181.

Financing activities

Net cash flows provided by financing activities was $455,292 for the year ended December 31, 2014. We received proceeds from notes payable of $521,796, proceeds from short term advances of $0 and net proceeds due to related parties of $29,745. Net cash flows provided by financing activities was $257,353 for the year ended December 31, 2013. We received proceeds from notes payable of $60,500 offset by payments due to related parties of $160,974, and proceeds from short term advances of $35,879.

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 December 31, 2014, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

                                                                Payments Due by Period
                                                   Less than
                                      Total           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     $ 171,439        201,184                 -                 -                 -
Operating Leases                    $ 164,375        164,375                 -                 -                 -
Purchase Obligations                $       -              -                 -                 -                 -
Total Contractual Obligations:      $ 481,829        481,829                 -                 -                 -

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.

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.

Revenue Recognition

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

? Revenue is recognized upon completion of conferencing services. We generally do not charge up-front fees and bill our customers based on usage.

? Revenue for video equipment sales and security surveillance equipment sales is recognized upon delivery and installation.

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

Stock Based Compensation

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

Use of Estimates

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

Account Receivable

We have a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Property and Equipment

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets.

Income Taxes

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

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

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

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

Pursuant to accounting standards related to the accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized . . .