| Summary of Significant Accounting Policies | The condensed consolidated financial statements have been prepared
in accordance with GAAP. Loans Receivable and Accounts Receivable The Company extends credit to its licensees in the normal course
of business and performs credit evaluations of its customers. Loans and accounts receivable are stated at amounts due from customers
net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are considered
past due. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of
time loan and accounts receivable are past due and the customer's current ability to pay its obligation to the Company. The Company
writes off loans and accounts receivable when they become uncollectible. Use of Estimates The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities, fair value of financial instruments, at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially
differ from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements
include recoverability and useful lives of intangible assets, the valuation allowance related to the Company's deferred tax assets,
the allowance for doubtful accounts related and notes and accounts receivable, the fair value of stock options and warrants granted
to employees, consultants, directors, investors and placement agents, and notes and warrant tender offer. Revenue Recognition The Company generates revenues primarily in the form of set
up fees, license fees, messaging, equipment and marketing services fees and value added mobile marketing and mobile commerce services. License
fees are charged monthly for support services. Set-up fees primarily consist of fees for website development services
(including support and unspecified upgrades and enhancements when and if they are available), training and professional services
that are not essential to functionality. The Company offers two licenses consisting of our Engage license and our Thrive license. The
revenues for Engage and Thrive license set-up fees are recognized over the training and implementation periods of one month, respectively. The Company recognizes revenues when all of the following conditions
are met:
● there is persuasive evidence of an arrangement;
● the products or services have been delivered to the customer;
● the amount of fees to be paid by the customer is fixed or determinable; and
● The collection of the related fees is probable. Signed agreements are used as evidence of an arrangement. Electronic
delivery occurs when we provide the customer with access to the software. The Company assesses whether a fee is fixed or determinable
at the outset of the arrangement, primarily based on the payment terms associated with the transaction. The Company offered extended
payment terms with regards to the setup fee with typical terms of payment due between one and three years from delivery of license.
The Company assesses collectability of the set-up fee based on a number of factors such as collection history and creditworthiness
of the licensee. If the Company determines that collectability is not probable, revenue is deferred until collectability becomes
probable, generally upon receipt of cash. License arrangements may also include set-up
fees for website development, delivery of tablets, professional services and training services, which are typically delivered within
30-60 days of the contract term. In determining whether set-up fee revenues should be accounted for separately from license revenues,
we evaluate whether the set-up fees are considered essential to the functionality of the license using factors such as the nature
of our products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which
typically do not involve significant customization to or development of the underlying software code; the availability of services
from other vendors; whether the timing of payments for license revenues is coincident with performance of services; and whether
milestones or acceptance criteria exist that affect the realizability of the license fee. Substantially all of our set-up fee arrangements
are recognized as the services are performed. Payments received in advance of services performed are deferred and recognized when
the related services are performed. We do not offer refunds and therefore have not recorded any
sales return allowance for any of the periods presented. Upon a periodic review of outstanding accounts and notes receivable, amounts
that are deemed to be uncollectible are written off against the allowance for doubtful accounts. Deferred revenue consists substantially of amounts invoiced
in advance of revenue recognition for our products and services described above. We recognize deferred revenue as revenue only
when the revenue recognition criteria are met. Cash and cash equivalents The Company considers all investments with an original maturity
of three months or less to be cash equivalents. Cash equivalents primarily represent funds invested in money market funds, bank
certificates of deposit and U.S. government debt securities whose cost equals fair market value. From time to time, the Company has maintained
bank balances in excess of insurance limits . The Company has not experienced any losses with respect to cash. Management believes
the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents. Property and Equipment Property and equipment had been recorded
at cost and depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to
five years). Costs incurred for maintenance and repairs are expensed as incurred and expenditures for major replacements and improvements
are capitalized and depreciated over their estimated remaining useful lives. Depreciation expense for the three months ended March
31, 2016 and 2015 was $0 and $39,680, respectively. Property and equipment has been fully depreciated as of March 31,
2016. Software Capitalization The Company accounts for computer software
used in the business in accordance with ASC 350 Intangibles-Goodwill and Other. ASC 350 requires computer software
costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are met.
Costs incurred during the preliminary project stage and the post-implementation stages are expensed as incurred. Certain qualifying
costs incurred during the application development stage are capitalized as property, equipment and software. These costs generally
consist of internal labor during configuration, coding, and testing activities. Capitalization begins when (i) the preliminary
project stage is complete, (ii) management with the relevant authority authorizes and commits to the funding of the software project,
and (iii) it is probable both that the project will be completed and that the software will be used to perform the function intended. We
capitalized $179,646 and $241,384, respectively, in software development related to programming and coding for new product development
for the three months ended March 31, 2016 and 2015. Software depreciation expense for the three months ended March 31,
2016 and 2015 was $110,365 and $35,481, respectively. Valuation of Long-Lived Assets The Company records impairment losses
on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to
be generated by those assets are less than the assets carrying amount. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the estimated fair value
of the assets. There has not been any impairment recorded during the quarter ended March 31, 2016. Income Tax Expense Estimates and Policies As part of the income tax provision process of preparing the
Companys financial statements, the Company is required to estimate the Companys provision for income taxes. This process
involves estimating current tax liabilities together with assessing temporary differences resulting from differing treatments
of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Management then assesses
the likelihood that the Company deferred tax assets will be recovered from future taxable income and to the extent believed that
recovery is not likely, a valuation allowance is established. Further, to the extent a valuation allowance is established and
changes occur to this allowance in a financial accounting period, such changes are recognized in the Companys tax provision
in the Companys condensed consolidated statement of operations. The Companys use of judgment in making estimates to
determine the Companys provision for income taxes, deferred tax assets and liabilities and any valuation allowance is recorded
against our net deferred tax assets. The Company recognizes the benefit of an uncertain tax position
taken or expected to be taken on the Companys income tax returns if it is more likely than not that such tax
position will be sustained based on its technical merits. The Company does not have any unrecognized tax benefits or accrued penalties
and interest. If such matters were to arise, the Company would recognize interest and penalties related to income tax matters in
income tax expense. Stock-Based Compensation The Company accounts for stock based compensation arrangements
through the measurement and recognition of compensation expense for all stock based payment awards to employees and directors based
on estimated fair values. The Company uses the Black-Scholes option valuation model to estimate the fair value of the Companys
stock options and warrants at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions
to calculate the value of options and warrants. The Company uses historical company data among other information to estimate the
expected price volatility and the expected forfeiture rate and not comparable company information. Net Loss per Share The Company calculates basic earnings per share (EPS)
by dividing the Companys net loss and comprehensive net loss applicable to common shareholders by the weighted average number
of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing
net income or net loss and comprehensive net loss applicable to common shareholders by the weighted average number of common shares
outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants.
Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive. Derivatives - Warrant Liability The Company accounts for the common stock warrants granted and
still outstanding as of March 31, 2016 in connection with certain financing transactions (Transactions) in accordance
with the guidance contained in ASC 815-40-15-7D, "Contracts in Entity's Own Equity" whereby under that provision they
do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the warrant
instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is
subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's
statements of operations. The fair value of the warrants issued by the Company in connection with the Transactions has been estimated
using a Monte Carlo simulation. The Company accounts for certain of its
outstanding warrants issued in fiscal 2010, 2012 and 2013 (2010 Warrants, 2012 Warrants and 2013
Warrants, respectively) as derivative liabilities. The 2010 Warrants were determined to be ineligible for equity classification
due to provisions of the respective instruments that may result in an adjustment to their conversion or exercise prices. The Company
recognized gains of $0 and $26,046 in the fair value of derivatives for the three months ended March 31, 2016 and 2015, respectively. These
derivative liabilities which arose from the issuance of the 2010 Warrants resulted in an ending balance of derivative liabilities
of $0 as of March 31, 2016 and December 31, 2015, respectively. In April 2015, the FASB issued ASU 2015-03,
Interest-Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, which requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The ASU is effective for financial statements issued for fiscal
years beginning after December 15, 2015 and interim periods within that fiscal year. Since we did not previously have any debt
issuance costs, there was not a need for retrospective application. The guidance was adopted for the year ended December 31, 2015.
The adoption did not have a material impact on the financial statements. Debt discount and issuance costs Debt issuance costs, including warrants
issued in connection with debt financing and fees or costs paid to lender, are presented in the consolidated balance sheets as
a direct deduction from the carrying amount of that debt. The Company amortizes the discount to interest
expense over the term of the respective debt using the effective interest method. Derivatives Bifurcated Conversion Option in Convertible
Notes The Company does not use derivative financial
instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued Convertible Notes
with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host
contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, Accounting for Derivative Financial
Instruments and Hedging Activities The Convertible Notes issued during the
year ended December 31, 2015 are subject to anti-dilution adjustments that allow for the reduction in the Conversion Price, as
defined in the agreement, in the event the Company subsequently issues equity securities including Common Stock or any security
convertible or exchangeable for shares of Common Stock for a price less than the current conversion price. The Company bifurcated
and accounted for the conversion option in accordance with ASC 815 as a derivative liability, since this conversion feature is
not considered to be indexed to the Companys own stock. The Companys derivative liability
has been measured at fair value at March 31, 2016 using a Monte-Carlo Simulation. Inputs into the model require estimates, including
such items as estimated volatility of the Companys stock, estimated probabilities of additional financing, risk-free interest
rate, and the estimated life of the financial instruments being fair valued. In addition, since the conversion price contains an
anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as the share price decreased was
also incorporated into the valuation calculation. The Company modified two existing Notes
during the first quarter, 2016. According to FASB ASC 470-50, the modification is accounted for as a debt extinguishment,
whereby the new debt instrument is initially recorded at fair value, and that amount is used to determine the debt extinguishment
gain or loss to be recognized and the effective rate of the new instrument. We recognized a loss on the extinguishment
of debt of $288,618 for the quarter, of which $23,180 was related to the repricing of warrants for the three months ended March
31, 2016. The Company recognized a loss of $179 and
a gain of $0 in the fair value of derivatives for the three months ended March 31, 2016 and 2015, respectively. These derivative
liabilities which arose from the issuance of the convertible notes resulted in an ending balance of derivative liabilities of $198,630
and $179 as of March 31, 2016 and December 31, 2015, respectively. Subsequent changes to the fair value of the derivative liabilities
will continue to require adjustments to their carrying value that will be recorded as other income (in the event that their value
decreases) or as other expense (in the event that their value increases). The fair value of these liabilities is estimated using
Monte Carlo pricing models that are based on the individual characteristics of the Companys warrants, preferred and common
stock, as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread. Fair value of assets and liabilities Fair value is defined as the price that would be received from
selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
When determining the fair value for applicable assets and liabilities, we consider the principal or most advantageous market in
which we would transact and we consider assumptions market participants would use when pricing the asset or liability, such as
inherent risk, transfer restrictions, and risk of nonperformance. This guidance also establishes a fair value hierarchy to prioritize
inputs used in measuring fair value as follows:
· Level 1: Observable inputs such as quoted prices in active markets;
· Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
· Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Companys financial instruments
are cash and cash equivalents, accounts receivable, notes receivable, notes payable, accounts payable and derivative liabilities.
The recorded values of cash equivalents and accounts payable approximate their fair values based on their short-term nature. The
fair value of derivative liabilities is estimated using option pricing models that are based on the individual characteristics
of our warrants, preferred and common stock, the derivative liability on the valuation date as well as assumptions for volatility,
remaining expected life, risk-free interest rate and, in some cases, credit spread. The derivative liabilities and earn-out liabilities
are the only Level 3 fair value measures. A summary of quantitative information with respect to valuation
methodology and significant unobservable inputs used for the Companys warrant liabilities that are categorized within Level
3 of the fair value hierarchy as of March 31, 2016 and December 31, 2015 is as follows: A summary of quantitative information with respect to valuation
methodology and significant unobservable inputs used for the Companys warrant liabilities that are categorized within Level
3 of the fair value hierarchy as of March 31, 2016 and December 31, 2015 is as follows:
Date of Valuation March 31, 2016
Stock Price $0.11
Volatility (Annual) 75%
Strike Price $0.75 $0.15 and $0.75
Risk-free Rate 0.91%
Maturity Date 9/30/16 At March 31, 2016 and December 31, 2015, the estimated Level
3 fair values of the liabilities measured on a recurring basis are as follows:
Fair Value Measurements at March 31, 2016:
Carrying Value Level 1 Level 2 Level 3
Derivative liability-warrants liability $ 3,512,570 - - $ 3,512,570
Derivative liability convertible options 198,630 - - $ 198,630
Total securities $ 3,711,200 $ - $ - $ $3,711,200
Fair Value Measurements at December 31, 2015:
Carrying Value Level 1 Level 2 Level 3
Earn-out liability $ - $ - $ - $ -
Derivative liability convertible options 179 $ - $ - $ 179
Total securities $ 179 $ - $ - $ 179 The following tables present the activity for Level 3 liabilities
for the three months ended March 31, 2016:
Fair Value Measurements Using Level 3 Inputs
Warrant Derivative Liability
Notes Conversion
Liability Earn-out Total
Balance - December 31, 2015 $ - 179 - $ 179
Additions during the period 4,015,675 198,630 - 4,214,305
Total Unrealized (gains) or losses include in net loss (503,105 ) (179 ) - (503,284 )
Settlements during the period - - - -
Transfers in and/or out of Level 3 - - - -
Balance - March 31, 2016 $ 3,512,570 198,630 - $ 3,711,200 Advertising The Company expenses advertising costs as incurred. The Company
has no existing arrangements under which the Company provides or receives advertising services from others for any consideration
other than cash. Advertising expenses from continuing operations (primarily in the form of Internet direct marketing) totaled $31,809
and $69,818 for the three months ended March 31, 2016 and 2015, respectively. Litigation From time to time, the Company may become
involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation
where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered
probable. Where a liability is probable and there is a range of estimated losses with no best estimate in the range, the Company
records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions
are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had
been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably
estimated. Goodwill The Company accounts for goodwill under ASC 350 Intangibles Goodwill and Other (ASC 350). ASC 350 requires
an evaluation of impairment by assessing qualitative factors, and if necessary, applying a fair-value based test. The goodwill
impairment test requires qualitative analysis to determine whether is it more likely than not that the fair value of a reporting
unit is less than the carrying amount, including goodwill. An indication of impairment through analysis of these qualitative factors
initiates a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation.
The first step of the process consists of estimating the fair value of the Companys reporting units based on discounted
cash flow models using revenue and profit forecasts and comparing the estimated fair values with the carrying values of the Companys
reporting units which include the goodwill. If the estimated fair values are less than the carrying values, a second step is performed
to compute the amount of the impairment by determining an implied fair value of goodwill. The determination
of the Companys implied fair value requires the Company to allocate the estimated fair value to the assets
and liabilities of the reporting unit. Any unallocated fair value represents the implied fair value of goodwill,
which is compared to the corresponding carrying value. The Company tested goodwill impairment at December 31, 2015 and concluded
that goodwill was fully impaired. Goodwill was written down in the amount of $3,202,276. Intangible assets Intangible assets consist of intellectual
property/technology, customer lists, and trade-name/marks acquired in business combinations under the purchase method of accounting
are recorded at fair value net of accumulated amortization since the acquisition date. Amortization is calculated using the straight
line method over the estimated useful lives at the following annual rates:
Useful Lives
IP/technology 10
Trade-name/marks 10 The Company reviews its finite-lived intangible
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of finite-lived intangible
asset may not be recoverable. Recoverability of a finite-lived intangible asset is measured by a comparison of its carrying amount
to the undiscounted future cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which
is determined based on discounted cash flows. Amortization of intangible assets was $48,285 and $83,899 for the three
months ended March 31, 2016 and 2015, respectively. According to the Financial Accounting Standards
Board Accounting Standards Codification (ASC) 360 (ASC 360), a long-lived asset (group) that is held
and used should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount (book
value) of the long-lived asset (group) might not be recoverable (i.e. information indicates that an impairment might exist). As
a result, companies are not required to perform an impairment analysis (i.e. test the asset (group) for recoverability and potentially
measure an impairment loss) if indicators of impairment are not present. Instead, entities would assess the need the need for an
impairment write-down only if an indicator of impairment is present. Companies are responsible for routinely assessing whether
impairment indicators are present. Based on the impairment analysis completed, it was determined that our Customer lists
were fully impaired. This resulted in the write down of these intangible assets by $1,189,246 at December 31, 2015. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02,
Leases which amended guidance for lease arrangements in order to increase transparency and comparability by providing additional
information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this
objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially
all lease arrangements. The guidance, which is required to be adopted in the first quarter of 2019, will be applied on a modified
retrospective basis beginning with the earliest period presented. Early adoption is permitted. We are currently evaluating
the impact of adopting this guidance on our consolidated financial statements. On May 28, 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), with an effective date for annual reporting periods beginning after December
15, 2016, including interim periods within that reporting period, for public business entities, certain not-for-profit entities,
and certain employee benefit plans. The effective date for ASU 2014-09 was deferred by one year through the issuance of ASU 2015-14,
Revenue from Contracts with Customers Deferral of the Effective Date, to annual reporting periods beginning after December
15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual
reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company
is evaluating the impact, if any, the pronouncement will have on both historical and future financial positions and results of
operations. In August 2014, the FASB issued ASU No. 2014-15, Presentation
of Financial StatementsGoing Concern , On March 30, 2016, the FASB issued ASU 2016-09, CompensationStock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting . Segments The Company operates in one reportable
segment now due to the discontinuance of its Card Division on November 26, 2014. Accordingly, no segment disclosures have
been presented herein. |
