Document_And_Entity_Informatio
Document And Entity Information | 3 Months Ended | |
Mar. 31, 2015 | 14-May-15 | |
Document And Entity Information | ||
Entity Registrant Name | VERTICAL COMPUTER SYSTEMS INC | |
Entity Central Index Key | 1099509 | |
Current Fiscal Year End Date | -19 | |
Entity Filer Category | Smaller Reporting Company | |
Trading Symbol | VCSY | |
Entity Common Stock, Shares Outstanding | 1,003,545,134 | |
Document Type | 10-Q | |
Amendment Flag | FALSE | |
Document Period End Date | 31-Mar-15 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2015 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes |
Consolidated_Balance_Sheets
Consolidated Balance Sheets (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Current assets | ||
Cash | $119,071 | $117,866 |
Accounts receivable, net of allowance for bad debts of $131,562 and $97,419 | 120,155 | 560,879 |
Prepaid expenses and other current assets | 49,134 | 41,387 |
Total current assets | 288,360 | 720,132 |
Property and equipment, net of accumulated depreciation of $1,042,715 and $1,026,654 | 2,279 | 28,089 |
Intangible assets, net of accumulated amortization of $312,467 and $302,016 | 789,662 | 657,978 |
Deposits and other assets | 24,138 | 24,388 |
Total assets | 1,104,439 | 1,430,587 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 10,788,043 | 10,603,879 |
Accounts payable to related parties | 94,059 | 92,191 |
Bank overdraft | 32,257 | 7,699 |
Deferred revenue | 2,053,316 | 2,321,044 |
Derivative liabilities | 51,719 | |
Convertible debenture | 30,000 | 30,000 |
Current portion - notes payable | 4,644,924 | 4,545,239 |
Current portion - notes payable to related parties | 348,666 | 348,666 |
Total current liabilities | 17,991,265 | 18,000,437 |
Total liabilities | 17,991,265 | 18,000,437 |
Convertible Cumulative Preferred stock | 9,902,024 | 9,902,024 |
Stockholders' Deficit | ||
Common Stock; $.00001 par value; 2,000,000,000 shares authorized; 1,003,545,134 and 999,735,151 issued and outstanding as of March 31, 2015 and December 31, 2014 | 10,036 | 9,998 |
Additional paid-in capital | 20,075,422 | 19,925,061 |
Accumulated deficit | -47,854,216 | -47,174,557 |
Accumulated other comprehensive income - foreign currency translation | 380,586 | 145,808 |
Total Vertical Computer Systems, Inc. stockholders' deficit | -27,388,172 | -27,093,690 |
Noncontrolling interest | 599,322 | 621,816 |
Total stockholders' deficit | -26,788,850 | -26,471,874 |
Total liabilities and stockholders' deficit | 1,104,439 | 1,430,587 |
Series A Preferred Stock [Member] | ||
Current liabilities: | ||
Convertible Cumulative Preferred stock | 9,700,000 | 9,700,000 |
Series B Preferred Stock [Member] | ||
Current liabilities: | ||
Convertible Cumulative Preferred stock | 246 | 246 |
Series C Preferred Stock [Member] | ||
Current liabilities: | ||
Convertible Cumulative Preferred stock | 200,926 | 200,926 |
Series D Preferred Stock [Member] | ||
Current liabilities: | ||
Convertible Cumulative Preferred stock | $852 | $852 |
Consolidated_Balance_Sheets_Pa
Consolidated Balance Sheets (Parenthetical) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2015 | Dec. 31, 2014 | |
Allowance for bad debts (in dollars) | $131,562 | $97,419 |
Accumulated depreciation, property and equipment (in dollars) | 1,042,715 | 1,026,654 |
Accumulated amortization (in dollars) | $312,467 | $302,016 |
Common stock, par value (in dollars per share) | $0.00 | $0.00 |
Common stock, shares authorized | 2,000,000,000 | 2,000,000,000 |
Common stock, shares issued | 1,003,545,134 | 999,735,151 |
Common stock, shares, outstanding | 1,003,545,134 | 999,735,151 |
Series A Preferred Stock [Member] | ||
Preferred stock, dividend rate, percentage | 4.00% | 4.00% |
Temporary equity, par value (in dollars per share) | $0.00 | $0.00 |
Temporary equity, shares authorized | 250,000 | 375,000 |
Temporary equity, shares issued | 48,500 | 48,500 |
Temporary equity, shares outstanding | 48,500 | 48,500 |
Series B Preferred Stock [Member] | ||
Preferred stock, dividend rate, percentage | 10.00% | 10.00% |
Temporary equity, par value (in dollars per share) | $0.00 | $100 |
Temporary equity, shares authorized | 375,000 | 200,000 |
Temporary equity, shares issued | 7,200 | 7,200 |
Temporary equity, shares outstanding | 7,200 | 7,200 |
Series C Preferred Stock [Member] | ||
Preferred stock, dividend rate, percentage | 4.00% | 4.00% |
Temporary equity, par value (in dollars per share) | $100 | $0.00 |
Temporary equity, shares authorized | 200,000 | 300,000 |
Temporary equity, shares issued | 50,000 | 50,000 |
Temporary equity, shares outstanding | 50,000 | 50,000 |
Series D Preferred Stock [Member] | ||
Preferred stock, dividend rate, percentage | 15.00% | 15.00% |
Temporary equity, par value (in dollars per share) | $0.00 | $0.00 |
Temporary equity, shares authorized | 300,000 | 250,000 |
Temporary equity, shares issued | 25,000 | 25,000 |
Temporary equity, shares outstanding | 25,000 | 25,000 |
Consolidated_Statements_of_Ope
Consolidated Statements of Operations and Comprehensive Loss (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Revenues | ||
Licensing and software | $875,000 | |
Software maintenance | 890,729 | 1,026,363 |
Cloud-based offering | 85,247 | 109,916 |
Consulting services | 63,859 | 78,100 |
Other | 15,000 | 14,639 |
Total Revenues | 1,054,835 | 2,104,018 |
Cost of Revenues | 425,862 | 586,718 |
Gross Profit | 628,973 | 1,517,300 |
Operating Expenses: | ||
Selling, general and administrative expenses | 873,893 | 1,432,953 |
Depreciation and amortization | 31,365 | 11,919 |
Bad debt expense | 36,190 | |
Impairment of software costs | 192,955 | |
Total operating expenses | 941,448 | 1,637,827 |
Operating loss | -312,475 | -120,527 |
Other Income (Expense): | ||
Interest income | 4 | 8 |
Gain (loss) on derivative liability | -78,680 | 4,741 |
Forbearance fees | -73,301 | |
Interest expense | -255,496 | -213,522 |
Net loss before noncontrolling interest and income tax expense | -646,647 | -402,601 |
Income tax expense | 25,506 | |
Net loss before noncontrolling interest | -672,153 | -402,601 |
Net loss attributable to noncontrolling interest | -7,506 | -656 |
Net loss attributable to Vertical Computer Systems, Inc. | -679,659 | -403,257 |
Dividend applicable to preferred stock | -147,000 | -147,000 |
Net loss applicable to common stockholders | -826,659 | -550,257 |
Basic and diluted loss per share | $0 | $0 |
Basic and diluted weighted average of common shares outstanding | 1,000,055,816 | 999,125,151 |
Comprehensive loss | ||
Net loss | -672,153 | -402,601 |
Translation adjustments | 234,778 | 112,238 |
Comprehensive loss | -437,375 | -290,363 |
Comprehensive loss attributable to noncontrolling interest | -7,506 | -656 |
Comprehensive loss attributable to Vertical Computer Systems, Inc. | ($444,881) | ($291,019) |
Consolidated_Statement_of_Stoc
Consolidated Statement of Stockholders' Deficit (USD $) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Other Comprehensive Interest | Non-Controlling Interest | Total |
Begining balance, amount at Dec. 31, 2014 | $9,998 | $19,925,061 | ($47,174,557) | $145,808 | $621,816 | ($26,471,874) |
Begining balance, shares at Dec. 31, 2014 | 999,735,151 | |||||
Shares issued for resolutions of derivative liabilities, shares | 3,309,983 | |||||
Shares issued for resolutions of derivative liabilities, amount | 33 | 130,366 | 130,399 | |||
Shares issued for reimbursement of stock, shares | 500,000 | |||||
Shares issued for reimbursement of stock, amount | 5 | 19,995 | 20,000 | |||
Dividends paid to non-controlling interest | -30,000 | 30,000 | ||||
Other comprehensive income translation adjustment | 234,778 | 234,778 | ||||
Net loss | -679,659 | 7,506 | -672,153 | |||
Ending balance, amount at Mar. 31, 2015 | $10,036 | $20,075,422 | ($47,854,216) | $380,586 | $599,322 | ($26,788,850) |
Ending balance, shares at Mar. 31, 2015 | 1,003,545,134 |
Consolidated_Statements_of_Cas
Consolidated Statements of Cash Flows (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Cash flows from operating activities | ||
Net loss | ($672,153) | ($402,601) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 31,365 | 11,919 |
Bad debt expense | 36,190 | |
Impairment of software development costs | 192,955 | |
Loss (gain) on derivatives | 78,680 | -4,741 |
Stock reimbursement expense | 20,000 | |
Write-off of property and equipment | 5,015 | |
Changes in operating assets and liabilities: | ||
Accounts receivable | 390,856 | -439,805 |
Prepaid expenses and other assets | 6,183 | -5,417 |
Accounts payable and accrued liabilities | 186,028 | 793,313 |
Deferred revenue | -267,728 | 48,275 |
Net cash provided by (used in) operating activities | -185,564 | 193,898 |
Cash flow from investing activities: | ||
Software development | -142,253 | -33,200 |
Net cash used in investing activities | -142,253 | -33,200 |
Cash flows from financing activities: | ||
Borrowings on notes payable | 100,000 | |
Payments of notes payable | -23,644 | |
Payments of related party debt | -20,992 | |
Dividends paid to non-controlling interest | -30,000 | |
Bank overdraft | 24,558 | 32,419 |
Net cash provided by (used in) financing activities | 94,558 | -12,217 |
Effect of changes in exchange rates on cash | 234,464 | 112,767 |
Net change in cash and cash equivalents | 1,205 | 261,248 |
Cash and cash equivalents, beginning of period | 117,866 | 162,709 |
Cash and cash equivalents, end of period | 119,071 | 423,957 |
Supplemental disclosures of cash flow information: | ||
Cash paid for interest | 68,960 | 89,989 |
Non-cash investing and financing activities: | ||
Common shares issued for accrued stock compensation | $7,900 |
Organization_Basis_of_Presenta
Organization, Basis of Presentation and Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] | Note 1. Organization, Basis of Presentation and Significant Accounting Policies |
The accompanying unaudited interim consolidated financial statements of Vertical Computer Systems, Inc. (‘we”, “our”, the “Company” or “Vertical”) have been prepared in accordance with accounting principles generally accepted in the United States of America and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Vertical’s annual report on Form 10-K for the year ended December 31, 2014. The consolidated financial statements include the accounts of the Company and its subsidiaries (collectively, “our”, “we”, the “Company” or “VCSY”, as applicable). Vertical’s subsidiaries which currently maintain daily business operations are NOW Solutions, a 75% owned subsidiary, and SnAPPnet, Inc. (“SnAPPnet”), a 80% owned subsidiary of Vertical. Vertical’s subsidiaries which have minimal operations are Vertical do Brasil, Taladin, Inc. (“Taladin"), Ploinks, Inc. (“Ploinks”) (formerly, OptVision Research, Inc.), Vertical Healthcare Solutions, Inc. (“VHS”), each a wholly-owned subsidiary of Vertical, as well as Priority Time Systems, Inc. (“Priority Time”) a 70% owned subsidiary, and Government Internet Systems, Inc. (“GIS”), an 84.5% owned subsidiary, Vertical’s subsidiaries which are inactive include EnFacet, Inc. (“ENF”), Globalfare.com, Inc. (“GFI”), Pointmail.com, Inc. and Vertical Internet Solutions, Inc. (“VIS”), each of which is a wholly-owned subsidiary of Vertical. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the 2014 annual report on Form 10-K have been omitted. | |
Earnings per share | |
Basic earnings per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. “Diluted earnings per share” reflects the potential dilution that could occur if our share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of our share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted EPS calculation. The dilutive effect of our convertible preferred stock and convertible debentures is computed using the if-converted method, which assumes conversion at the beginning of the year. | |
For the three months ended March 31, 2015 and 2014, common stock equivalents related to the convertible debentures, convertible debt and preferred stock and stock derivative liability were not included in the calculation of the diluted earnings per share as their effect would be anti-dilutive. | |
Reclassifications | |
Certain reclassifications have been made to the prior periods to conform to the current period presentation. | |
Capitalized Software Costs | |
Software costs incurred internally in creating computer software products are expensed until technological feasibility has been established upon completion of a detailed program design. Thereafter, all software development costs are capitalized until the point that the product is ready for sale, and are subsequently reported at the lower of unamortized cost or net realizable value. The Company considers annual amortization of capitalized software costs based on the ratio of current year revenues by product to the total estimated revenues by the product, subject to an annual minimum based on straight-line amortization over the product’s estimated economic useful life, not to exceed five years. The Company periodically reviews capitalized software costs for impairment where the fair value is less than the carrying value. | |
During the three months ended March 31, 2015, the Company capitalized an aggregate of $142,253 related to software development. | |
Recently Issued Accounting Pronouncements | |
The Company does not expect the adoption of any recently issued accounting pronouncements to have a material impact on the Company’s financial position, operations or cash flows. |
Going_Concern
Going Concern | 3 Months Ended |
Mar. 31, 2015 | |
Going Concern Disclosure [Abstract] | |
Going Concern Disclosure [Text Block] | Note 2. Going Concern |
The accompanying unaudited consolidated financial statements for the three months ended March 31, 2015 and 2014 have been prepared assuming that we will continue as a going concern, and accordingly realize our assets and satisfy our liabilities in the normal course of business. | |
The carrying amounts of assets and liabilities presented in the consolidated financial statements do not purport to represent realizable or settlement values. As of March 31, 2015, we had negative working capital of approximately $17.7 million and defaulted on substantially all of our debt obligations. These conditions raise substantial doubt about our ability to continue as a going concern. | |
Our management is continuing its efforts to attempt to secure funds through equity and/or debt instruments for our operations, expansion and possible acquisitions, mergers, joint ventures, and/or other business combinations. The Company will require additional funds to pay down its liabilities, as well as finance its expansion plans consistent with anticipated changes in operations and infrastructure. However, there can be no assurance that the Company will be able to secure additional funds and that if such funds are available, whether the terms or conditions would be acceptable to the Company and whether the Company will be able to turn into a profitable position and generate positive operating cash flow. The consolidated financial statements contain no adjustment for the outcome of this uncertainty. |
Notes_Payable
Notes Payable | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
Debt Disclosure [Abstract] | |||||
Debt Disclosure [Text Block] | Note 3. Notes Payable | ||||
The following table reflects our third party debt activity, including our convertible debt, for the three months ended March 31, 2015: | |||||
31-Dec-14 | $ | 4,575,239 | |||
Issuance of third party notes | 100,000 | ||||
Effect of currency exchange | (315 | ) | |||
31-Mar-15 | 4,674,924 | ||||
Lakeshore Financing | |||||
On January 9, 2013, NOW Solutions completed a financing transaction in the aggregate amount of $1,759,150, which amount was utilized to pay off existing indebtedness of the Company and NOW Solutions to Tara Financial Services and Robert Farias, a former employee of the Company, and all security interests granted to Tara Financial Services and Mr. Farias were cancelled. | |||||
In connection with this financing, the Company and several of its subsidiaries entered into a loan agreement (the “Loan Agreement”), dated as of January 9, 2013 with Lakeshore Investment, LLC (“Lakeshore”) under which NOW Solutions issued a secured 10-year promissory note (the “Lakeshore Note”) bearing interest at 11% per annum to Lakeshore in the amount of $1,759,150 payable in equal monthly installments of $24,232 until January 31, 2022. Upon the payment of any prepayment principal amounts, the monthly installment payments shall be proportionately adjusted proportionately on an amortized rata basis. | |||||
The Lakeshore Note is secured by the assets of the Company’s subsidiaries, NOW Solutions, Priority Time, SnAPPnet, Inc. (“SnAPPnet”) and the Company’s SiteFlash technology and cross-collateralized. Upon the aggregate principal payment of $290,000 toward the Lakeshore Note, the Company has the option to have Lakeshore release either the Priority Time collateral or the SiteFlash collateral. Upon payment of the aggregate principal of $590,000 toward the Lakeshore Note, Lakeshore shall release either the Priority Time collateral or the SiteFlash collateral (whichever is remaining). Upon payment of the aggregate principal of $890,000 toward the Lakeshore Note, Lakeshore shall release the SnAPPnet collateral and upon full payment of the Lakeshore Note, Lakeshore shall release the NOW Solutions collateral. | |||||
As additional consideration for the loan, the Company granted a 5% interest in Net Claim Proceeds (less any attorney’s fees and direct costs) from any litigation or settlement proceeds related to the SiteFlash technology to Lakeshore. In addition, until the Note is paid in full, NOW Solutions agreed to pay a Lakeshore royalty of 6% of its annual gross revenues in excess of $5 million dollars up to a maximum of $1,759,150. Management has estimated the fair value of the royalty to be nominal as of its issuance date and no royalty was owed as of March 31, 2015 or December 31, 2014. | |||||
Pursuant to the Loan Agreement, as amended, the Company also agreed to make certain principal payments toward the Lakeshore Note of (a) $90,000 by February 15, 2013, which was secured by 15% interest in the Company’s ownership of Priority Time and this payment was timely made to Lakeshore and (b) $600,000 by March 15, 2013, which was secured by 25% of the Company’s ownership interest in NOW Solutions and this payment was not made to Lakeshore. As of September 30, 2013, the common shares of NOW Solutions representing a 25% ownership interest in NOW Solutions were in Lakeshore’s possession, but Lakeshore had not taken action to transfer the shares in Lakeshore’s name due to forbearance agreements that have been entered into between March and August 2013. In connection with these forbearance agreements, the Company increased the 5% interest in Net Claim Proceeds to an 8% interest, paid a $100,000 transaction fee and made other payments including the issuance of 1,000,000 common shares valued at $47,000 and $5,000 weekly payments whereby such $5,000 payments are to be applied toward a bonus of 25% of NOW Solutions’ profits for the period that runs from March 15, 2013 through September 30, 2013. The aggregate forbearance fees paid to Lakeshore for the year ended December 31, 2014 and 2013 were $197,156 and $327,867, respectively. The last forbearance agreement expired on September 30, 2013 and on October 1, 2013, Lakeshore became a 25% minority owner of NOW Solutions. While there was an October 1, 2013 amendment to the Loan Agreement that the Company believed was in effect, whereby shares of common stock representing a 25% ownership interest of NOW Solutions (the “NOW shares”) in Lakeshore’s possession were to be returned to the Company, certain terms of the amendment were not fulfilled, resulting in the Company recognizing Lakeshore as the owner of the NOW Shares. The initial recognition of this noncontrolling interest in NOW Solutions resulted in a loss on loan remedy of $1,457,240 during the year ended December 31, 2013. | |||||
In December 2014, the Company and Lakeshore entered into an amendment of the Lakeshore Note and the Loan Agreement. Under the terms of the amendment, NOW Solutions agreed to make $2,500 weekly advance payments to Lakeshore to be applied to the 25% dividend of NOW Solutions’ net income after taxes. Within 10 business days after the Company files its periodic reports with the SEC, NOW Solutions will also make quarterly payment advances to Lakeshore based on 60% of Lakeshore’s 25% share of NOW Solutions estimated quarterly net income after taxes, less any weekly payment advances received by Lakeshore during the then-applicable quarter and the weekly $2,500 payments shall be increased or decreased based only upon any increases or decreases of maintenance and SaaS fees during the then-completed quarter (but will not decrease below a minimum of $2,500 per week). NOW Solutions shall pay Lakeshore the balance of Lakeshore’s 25% of NOW’s yearly net income after taxes (less any advances) within 10 business days after the Company files it annual 10-K report with the SEC and any payments in excess of Lakeshore’s 25% of NOW yearly profit shall be credited towards future weekly advance payments. The Company also agreed to pay attorney fees of $40,000 and pay $80,000 to a former consultant and employee of the Company who is a member of Lakeshore. In consideration of the extension to cure the default under the Note and Loan Agreement, the Company transferred a 20% ownership interest in Priority Time Systems, Inc., a 90% owned subsidiary of VCSY, and in SnAPPnet, Inc., a 100% owned subsidiary of VCSY, to Lakeshore. This resulted in an additional noncontrolling interest recognized in the equity of the Company of $391,920 and $99,210 for Priority Time Systems, Inc. and SnAPPnet, Inc., respectively, during 2014. The Company had an option to buy back Lakeshore’s ownership interest in NOW Solutions, Priority Time and SnAPPnet, Inc. (which expired on January 31, 2015). The Note is currently in default and the Company is in discussions with Lakeshore to cure the default and buy back Lakeshore’s ownership interests in our subsidiaries. During the three months ended March 31, 2015, the Company paid dividends to Lakeshore of $30,000. | |||||
In February 2015, the Company and a third party lender entered into a loan agreement under which the lender loaned Vertical $100,000. Pursuant to the loan agreement, Taladin, Inc., a subsidiary of the Company, issued a promissory note in the principal amount of $100,000 bearing interest at 12% per annum and is due on demand. |
Derivative_liability_and_fair_
Derivative liability and fair value measurements | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Text Block] | Note 4. Derivative liability and fair value measurements | ||||||||||||
Derivative liabilities | |||||||||||||
In March 2015, pursuant to an indemnity and reimbursement agreement executed between Mr. Valdetaro and the Company, we issued 1,000,000 shares of our common stock to reimburse Mr. Valdetaro for 1,000,000 shares of common stock transferred to Lakeshore on the Company’s behalf in connection with an extension granted by Lakeshore in August 2013. The issuance of these shares eliminated the derivative liability associated with the value of these shares. The fair market value of these shares on the date of issuance was $38,000 and resulted in the resolution of derivative liabilities. | |||||||||||||
In March 2015, pursuant to two indemnity and reimbursement agreements executed between Mountain Reservoir Corporation (“MRC”) and the Company, we issued a total of 2,809,983 shares of our common stock to reimburse MRC. Of these shares, the Company was obligated to reimburse MRC with 1,309,983 shares of common stock that had been pledged by MRC and sold by a third party lender in 2009, 500,000 shares of common stock that had been wrongfully converted by the same lender in 2014, and 1,000,000 shares of common stock that had been transferred to another third party lender in 2013 on the Company’s behalf for a loan made by the lender. MRC has assigned its claim against the third party lender for the lender’s wrongful conversion of 500,000 common shares to the Company and we are pursuing the claim in the third party lender’s bankruptcy proceeding. The issuance of these shares eliminated the derivative liability associated with the value of these shares. The fair market value of these shares on the date of issuance was $112,399 of which $92,399 resulted in the resolution of derivative liabilities and $20,000 was recognized as stock reimbursement expense during the three months ended March 31, 2015. | |||||||||||||
In March 2015, 1,000,000 shares of common stock pledged by an officer of the company (through a company he controls) to secure payment of a $50,000 past due loan by a third party lender were eliminated as part of the derivative liability as the lender did not exercise their rights to obtain the stock. The derivative liability associated with this obligation of $12,000 was written-off to (gain) loss on derivative liability during the three months ended March 31, 2015. | |||||||||||||
These contractual commitments to replace all of the shares associated with the derivative liability in 2014 was evaluated under FASB ASC 815-40, Derivatives and Hedging and was determined to have characteristics of a liability and therefore constituted a derivative liability under the above guidance. Each reporting period, this derivative liability is marked-to-market with the non-cash gain or loss recorded in the period as a gain or loss on derivatives. As of March 31, 2015, the derivative liability has been eliminated since the shares have been issued or the obligation to issue the shares has been resolved. As of December 31, 2014, the aggregate fair value of the derivative liabilities was $51,719. | |||||||||||||
The aggregate change in the fair value of derivative liabilities was a loss of $78,680 and a gain of $4,741 for the three months ended March 31, 2015 and March 31, 2014, respectively. | |||||||||||||
The valuation of our embedded derivatives was determined by using the VCSY stock price at December 31, 2014 and the resolution dates. As such, our derivative liabilities were classified as Level 1. | |||||||||||||
Fair value measurements | |||||||||||||
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value: | |||||||||||||
Level 1 – Quoted prices in active markets for identical assets or liabilities. | |||||||||||||
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |||||||||||||
Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. | |||||||||||||
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument. | |||||||||||||
The following table provides a summary of the fair value of our derivative liabilities as of March 31, 2015 and December 31, 2014: | |||||||||||||
Fair value measurements on a recurring basis | |||||||||||||
Level 1 | Level 2 | Level 3 | |||||||||||
As of March 31, 2015: | |||||||||||||
Liabilities | |||||||||||||
Stock derivative – 0 shares | $ | - | $ | - | $ | - | |||||||
As of December 31, 2014: | |||||||||||||
Liabilities | |||||||||||||
Stock derivative – 4,309,983 shares | $ | 51,719 | $ | - | $ | - | |||||||
The estimated fair value of short-term financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities and deferred revenue approximates their carrying value due to their short-term nature. The estimated fair value of our long-term borrowings approximates carrying value since the related rates of interest approximate current market rates. |
Common_and_Preferred_Stock_Tra
Common and Preferred Stock Transactions | 3 Months Ended |
Mar. 31, 2015 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Equity Note Disclosure [Text Block] | Note 5. Common and Preferred Stock Transactions |
In February 2015, after holding an annual stockholder meeting, the Company filed an amendment of its certificate of incorporation in the state of Delaware to increase the authorized number of shares of common stock to 2,000,000,000. | |
In March 2015, pursuant to an indemnity and reimbursement agreement executed between Mr. Valdetaro and the Company, we issued 1,000,000 shares of our common stock to reimburse Mr. Valdetaro for 1,000,000 shares of common stock transferred to Lakeshore on the Company’s behalf in connection with an extension granted by Lakeshore in August 2013. The issuance of these shares eliminated the derivative liability associated with the value of these shares. The fair market value of these shares on the date of issuance was $38,000 and resulted in the resolution of derivative liabilities. | |
In March 2015, pursuant to two indemnity and reimbursement agreements executed between Mountain Reservoir Corporation (“MRC”) and the Company, we issued a total of 2,809,983 shares of our common stock to reimburse MRC. Of these shares, the Company was obligated to reimburse MRC with 1,309,983 shares of common stock that had been pledged by MRC and sold by a third party lender in 2009, 500,000 shares of common stock that had been wrongfully converted by the same lender in 2014, and 1,000,000 shares of common stock that had been transferred to another third party lender in 2013 on the Company’s behalf for a loan made by the lender. MRC has assigned its claim against the third party lender for the lender’s wrongful conversion of 500,000 common shares to the Company and we are pursuing the claim in the third party lender’s bankruptcy proceeding. The issuance of these shares eliminated the derivative liability associated with the value of these shares. The fair market value of these shares on the date of issuance was $112,399 of which $92,399 resulted in the resolution of derivative liabilities and $20,000 was recognized as stock reimbursement expense during the three months ended March 31, 2015. | |
We have evaluated our convertible cumulative preferred stock under the guidance set out in FASB ASC 470-20 and have accordingly classified these shares as temporary equity in the consolidated balance sheets. |
Related_Party_Transactions
Related Party Transactions | 3 Months Ended |
Mar. 31, 2015 | |
Related Party Transactions [Abstract] | |
Related Party Transactions Disclosure [Text Block] | Note 6. Related Party Transactions |
In March 2015, pursuant to an indemnity and reimbursement agreement executed between Mr. Valdetaro and the Company, we issued 1,000,000 shares of our common stock to reimburse Mr. Valdetaro for 1,000,000 shares of common stock transferred to Lakeshore on the Company’s behalf in connection with an extension granted by Lakeshore in August 2013. The issuance of these shares eliminated the derivative liability associated with the value of these shares. The fair market value of these shares on the date of issuance was $38,000 and resulted in the resolution of derivative liabilities. | |
In March 2015, pursuant to two indemnity and reimbursement agreements executed between Mountain Reservoir Corporation (“MRC”) and the Company, we issued a total of 2,809,983 shares of our common stock to reimburse MRC. Of these shares, the Company was obligated to reimburse MRC with 1,309,983 shares of common stock that had been pledged by MRC and sold by a third party lender in 2009, 500,000 shares of common stock that had been wrongfully converted by the same lender in 2014, and 1,000,000 shares of common stock that had been transferred to another third party lender in 2013 on the Company’s behalf for a loan made by the lender. MRC has assigned its claim against the third party lender for the lender’s wrongful conversion of 500,000 common shares to the Company and we are pursuing the claim in the third party lender’s bankruptcy proceeding. The issuance of these shares eliminated the derivative liability associated with the value of these shares. The fair market value of these shares on the date of issuance was $112,399 of which $92,399 resulted in the resolution of derivative liabilities and $20,000 was recognized as stock reimbursement expense during the three months ended March 31, 2015. | |
As of March 31, 2015 and December 31, 2014, the Company had accounts payable to employees for unreimbursed expenses and related party contractors in an aggregate amount of $94,059 and $92,191, respectively. The payables are unsecured, non-interest bearing and due on demand. |
Legal_Proceedings
Legal Proceedings | 3 Months Ended |
Mar. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
Legal Matters and Contingencies [Text Block] | Note 7. Legal Proceedings |
We are involved in the following ongoing legal matters: | |
On December 31, 2011, the Company and InfiniTek corporation (“Infinitek”) entered into a settlement agreement to dismiss an action filed by the Company against InfiniTek in the Texas State District Court in Fort Worth, Texas, for breach of contract and other claims, a counter claim filed by InfiniTek against the Company for non-payment of amounts claimed the Company owed to InfiniTek, and an action filed by InfiniTek against the Company in California Superior Court in Riverside, California seeking damages for breach of contract and lost profit. Pursuant to the terms of the settlement agreement, Vertical agreed to pay InfiniTek $82,500 in three equal installments with the last payment due by or before August 5, 2012. Upon full payment, InfiniTek shall transfer and assign ownership of the NAVPath software developed by InfiniTek for use with NOW Solutions emPath® software application and Microsoft Dynamics NAV (formerly Navision) business solution platform. The amounts in dispute were included in our accounts payable and accrued liabilities and have been adjusted to the settlement amount of $82,500 at December 31, 2011. The Company has made $37,500 in payments due under the settlement agreement as of the date of this Report and each party is alleging the other party is in breach of the settlement agreement. We are currently seeking to resolve all disputes with InfiniTek. | |
On February 4, 2014, Victor Weber filed a lawsuit against Vertical Mountain Reservoir Corporation (“MRC”), and Richard Wade in the District Court of Clark County, Nevada for failure to make payment of the outstanding balance due under a $275,000 promissory note issued by Vertical to Mr. Weber. The plaintiff seeks payment of the principal balance due under the note $275,000, default interest at the rate of 18% per annum, attorney’s fees and court costs, and punitive damages. On July 24 2014, the court granted plaintiff’s motion for summary judgment against defendants. The judgment was filed on September 18, 2014. We are currently seeking to resolve this matter with Mr. Weber. Mr. Wade is the President and CEO of Vertical and the President of MRC. MRC is a corporation controlled by the W5 Family Trust. Mr. Wade is the trustee of the W5 Family Trust. | |
On October 20, 2014, Michael T. Galvan and Michelle Bates (“Galvan & Bates”) filed a lawsuit in the Court of Chancery in the State of Delaware seeking to have the court compel the Company to hold a shareholder meeting for the purpose of electing all directors of the Company, designating the time and place of a meeting and other details reasonably necessary to hold such a meeting, attorney costs and fees (including reasonable attorney’s fees), and such other relief as the court deems proper. Galvan and Bates are stockholders of the Company. This case is styled Michael T. Galvan and Michelle Bates v. Vertical Computer Systems, Inc., No. 10234. The Company held an annual meeting of shareholders on February 25, 2015. This matter is resolved. |
Organization_Basis_of_Presenta1
Organization, Basis of Presentation and Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Earnings Per Share, Policy [Policy Text Block] | Earnings per share |
Basic earnings per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. “Diluted earnings per share” reflects the potential dilution that could occur if our share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of our share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted EPS calculation. The dilutive effect of our convertible preferred stock and convertible debentures is computed using the if-converted method, which assumes conversion at the beginning of the year. | |
For the three months ended March 31, 2015 and 2014, common stock equivalents related to the convertible debentures, convertible debt and preferred stock and stock derivative liability were not included in the calculation of the diluted earnings per share as their effect would be anti-dilutive. | |
Reclassification, Policy [Policy Text Block] | Reclassifications |
Certain reclassifications have been made to the prior periods to conform to the current period presentation. | |
Capitalized Software Costs | |
Software costs incurred internally in creating computer software products are expensed until technological feasibility has been established upon completion of a detailed program design. Thereafter, all software development costs are capitalized until the point that the product is ready for sale, and are subsequently reported at the lower of unamortized cost or net realizable value. The Company considers annual amortization of capitalized software costs based on the ratio of current year revenues by product to the total estimated revenues by the product, subject to an annual minimum based on straight-line amortization over the product’s estimated economic useful life, not to exceed five years. The Company periodically reviews capitalized software costs for impairment where the fair value is less than the carrying value. | |
During the three months ended March 31, 2015, the Company capitalized an aggregate of $142,253 related to software development. | |
Recently Issued Accounting Pronouncements, Policy [Policy Text Block] | Recently Issued Accounting Pronouncements |
The Company does not expect the adoption of any recently issued accounting pronouncements to have a material impact on the Company’s financial position, operations or cash flows. |
Notes_Payable_Tables
Notes Payable (Tables) | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
Debt Disclosure [Abstract] | |||||
Third Party Debt Activity and Convertible Debt [Table Text Block] | The following table reflects our third party debt activity, including our convertible debt, for the three months ended March 31, 2015: | ||||
31-Dec-14 | $ | 4,575,239 | |||
Issuance of third party notes | 100,000 | ||||
Effect of currency exchange | (315 | ) | |||
31-Mar-15 | 4,674,924 |
Derivative_Liabilities_and_Fai
Derivative Liabilities and Fair Value Measurements (Tables) | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||
Schedule of Derivative Liabilities at Fair Value [Table Text Block] | The following table provides a summary of the fair value of our derivative liabilities as of March 31, 2015 and December 31, 2014: | ||||||||||||
Fair value measurements on a recurring basis | |||||||||||||
Level 1 | Level 2 | Level 3 | |||||||||||
As of March 31, 2015: | |||||||||||||
Liabilities | |||||||||||||
Stock derivative – 0 shares | $ | - | $ | - | $ | - | |||||||
As of December 31, 2014: | |||||||||||||
Liabilities | |||||||||||||
Stock derivative – 4,309,983 shares | $ | 51,719 | $ | - | $ | - |
Organization_Basis_of_Presenta2
Organization, Basis of Presentation and Significant Accounting Policies (Details Textual) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Organization, Basis of Presentation and Significant Accounting Policies [Line Items] | ||
Payments To Software Development | $142,253 | $33,200 |
Government Internet Systems Inc [Member] | ||
Organization, Basis of Presentation and Significant Accounting Policies [Line Items] | ||
Noncontrolling Interest, Ownership Percentage by Parent | 84.50% | |
Priority Time Systems [Member] | ||
Organization, Basis of Presentation and Significant Accounting Policies [Line Items] | ||
Noncontrolling Interest, Ownership Percentage by Parent | 70.00% | |
Now Solutions [Member] | ||
Organization, Basis of Presentation and Significant Accounting Policies [Line Items] | ||
Noncontrolling Interest, Ownership Percentage by Parent | 75.00% | |
Subsidiary of Vertical [Member] | ||
Organization, Basis of Presentation and Significant Accounting Policies [Line Items] | ||
Noncontrolling Interest, Ownership Percentage by Parent | 80.00% |
Going_Concern_Uncertainty_Deta
Going Concern Uncertainty (Details Textual) (USD $) | Mar. 31, 2015 |
Going Concern Disclosure [Abstract] | |
Working Capital Deficit | $17,700,000 |
Notes_Payable_and_Convertible_
Notes Payable and Convertible Debts (Details) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Debt Disclosure [Abstract] | |
Third party debt activity, Beginning | $4,575,239 |
Issuance of third party notes | 100,000 |
Effect of currency exchange | -315 |
Third party debt activity, Ending | $4,575,239 |
Notes_Payable_and_Convertible_1
Notes Payable and Convertible Debts (Details Textual) (USD $) | 3 Months Ended | 1 Months Ended | 12 Months Ended | 3 Months Ended | ||||||
Mar. 31, 2015 | Dec. 31, 2014 | Mar. 15, 2013 | Feb. 15, 2013 | Jan. 09, 2013 | Dec. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Sep. 30, 2013 | Feb. 28, 2015 | |
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Attorney fees | $40,000 | |||||||||
Payments to former consultant and employee | 80,000 | |||||||||
Priority Time Systems [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Noncontrolling Interest, Ownership Percentage by Parent | 70.00% | |||||||||
Income (Loss) Attributable to Noncontrolling Interest | 391,920 | |||||||||
SnAPPnet [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Noncontrolling Interest, Ownership Percentage by Parent | 90.00% | 90.00% | ||||||||
Income (Loss) Attributable to Noncontrolling Interest | 99,210 | |||||||||
Lakeshore Investments Llc [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Debt Instrument, Face Amount | 1,759,150 | |||||||||
Debt Instrument, Periodic Payment | 24,232 | 1,759,150 | ||||||||
Debt Instrument, Interest Rate During Period | 11.00% | |||||||||
Debt Instrument, Periodic Payment, Principal | 600,000 | 90,000 | ||||||||
Promissory Note Maturity Year | 10 | |||||||||
Interest in Net Claim Proceeds | 5.00% | |||||||||
Percentage of Royalty on Gross Sales | 6.00% | |||||||||
Annual Threshold for Payment of Royalties | 5,000,000 | |||||||||
Remedy for Principal Payment | 25.00% | 15.00% | 25.00% | |||||||
Forbearance Fees for Return of Common Stock | 197,156 | 327,867 | ||||||||
Forbearance Fees Paid With Common Stock Shares | 1,000,000 | |||||||||
Forbearance Fees Paid With Common Stock | 47,000 | |||||||||
Weekly Payment of Forbearance Fees | 5,000 | |||||||||
Income (Loss) Attributable to Noncontrolling Interest | 1,457,240 | |||||||||
Lakeshore Investments Llc [Member] | Stage Three [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Principal Payments to Release Collateral | 890,000 | |||||||||
Lakeshore Investments Llc [Member] | Stage Two [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Principal Payments to Release Collateral | 590,000 | |||||||||
Lakeshore Investments Llc [Member] | Stage One [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Principal Payments to Release Collateral | 290,000 | |||||||||
Now Solutions [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Percentage of Bonus on Profit | 25.00% | |||||||||
Noncontrolling Interest, Ownership Percentage by Parent | 75.00% | |||||||||
VCSY [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Noncontrolling Interest, Ownership Percentage by Parent | 90.00% | 90.00% | ||||||||
Lakeshore [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Debt Instrument, Periodic Payment | 2,500 | |||||||||
Dividend paid | 30,000 | |||||||||
Now Solutions [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Debt Instrument, Periodic Payment | 2,500 | |||||||||
Percentage quarterly payments of advances | 60% of Lakeshore’s 25% | |||||||||
Lakeshore Note [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Debt Instrument, Periodic Payment | 2,500 | |||||||||
Dividend percentage | 25.00% | |||||||||
Third Party Lender [Member] | ||||||||||
Notes Payable and Convertible Debts [Line Items] | ||||||||||
Debt Instrument, Face Amount | $100,000 | |||||||||
Debt Instrument, Interest Rate, Effective Percentage | 12.00% |
Derivative_liability_and_fair_1
Derivative liability and fair value measurements (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Level 1 [Member] | ||
Stock derivative | $0 | $51,719 |
Level 2 [Member] | ||
Stock derivative | 0 | 0 |
Level 3 [Member] | ||
Stock derivative | $0 | $0 |
Derivative_Liabilities_and_Fai1
Derivative Liabilities and Fair Value Measurements (Details Narrative) (USD $) | 3 Months Ended | 1 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Dec. 31, 2014 | |
Stock reimbursement expense | $20,000 | |||
Written-off to (gain) loss on derivative liability | 12,000 | |||
Fair value of the derivative liabilities | 51,719 | |||
Change in the fair value of derivative liabilities | -78,680 | 4,741 | ||
MRC [Member] | ||||
Shares issued for reimbursement of stock | 2,809,983 | |||
Pledged common stock | 1,309,983 | |||
Number of Shares of Common Stock Transferred | 1,000,000 | |||
Fair market value of shares | 112,399 | |||
Resolution of derivative liabilities | 92,399 | |||
Stock reimbursement expense | 20,000 | |||
Wrongful Conversion of Shares | 500,000 | |||
Mr. Valdetaro [Member] | ||||
Shares issued for reimbursement of stock | 1,000,000 | |||
Fair market value of shares | 38,000 | |||
Officer [Member] | ||||
Pledged common stock | 1,000,000 |
Common_and_Preferred_Stock_Tra1
Common and Preferred Stock Transactions (Details Narrative) (USD $) | 1 Months Ended | 3 Months Ended | 1 Months Ended | |
Feb. 28, 2015 | Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | |
Increase in authorized number of common stock | 2,000,000,000 | |||
Stock reimbursement expense | $20,000 | |||
MRC [Member] | ||||
Number of Shares of Common Stock Transferred | 1,000,000 | |||
Shares issued for reimbursement of stock | 2,809,983 | |||
Pledged common stock | 1,309,983 | |||
Fair market value of shares | 112,399 | |||
Resolution of derivative liabilities | 92,399 | |||
Stock reimbursement expense | 20,000 | |||
Wrongful Conversion of Shares | 500,000 | |||
Mr. Valdetaro [Member] | ||||
Shares issued for reimbursement of stock | 1,000,000 | |||
Fair market value of shares | 38,000 |
Related_Party_Transactions_Det
Related Party Transactions (Details Narrative) (USD $) | 3 Months Ended | 1 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Dec. 31, 2014 | |
Stock reimbursement expense | $20,000 | |||
Accounts payable to employees for unreimbursed expenses and related party contractors | 94,059 | 94,059 | 92,191 | |
MRC [Member] | ||||
Shares issued for reimbursement of stock | 2,809,983 | |||
Pledged common stock | 1,309,983 | |||
Number of Shares of Common Stock Transferred | 1,000,000 | |||
Fair market value of shares | 112,399 | |||
Resolution of derivative liabilities | 92,399 | |||
Stock reimbursement expense | 20,000 | |||
Wrongful Conversion of Shares | 500,000 | |||
Mr. Valdetaro [Member] | ||||
Shares issued for reimbursement of stock | 1,000,000 | |||
Fair market value of shares | 38,000 |
Legal_Proceedings_Details_Narr
Legal Proceedings (Details Narrative) (USD $) | 0 Months Ended | 3 Months Ended | 0 Months Ended | |
Feb. 04, 2014 | Mar. 31, 2015 | Nov. 16, 2012 | Aug. 05, 2012 | |
Victor Weber [Member] | ||||
Loss Contingency, Damages Sought, Value | $275,000 | |||
Litigation Settlement, Accrued Interest Rate | 18.00% | |||
Infinitek Corporation [Member] | ||||
Litigation Settlement, Amount | 82,500 | |||
Loss Contingency Accrual, Carrying Value, Payments | $37,500 |