Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | ||
Dec. 31, 2013 | Mar. 21, 2014 | Jun. 28, 2013 | |
Document And Entity Information | ' | ' | ' |
Entity Registrant Name | 'MobileSmith, Inc. | ' | ' |
Entity Central Index Key | '0001113513 | ' | ' |
Document Type | '10-K | ' | ' |
Document Period End Date | 31-Dec-13 | ' | ' |
Amendment Flag | 'false | ' | ' |
Current Fiscal Year End Date | '--12-31 | ' | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' | ' |
Is Entity a Voluntary Filer? | 'No | ' | ' |
Is Entity's Reporting Status Current? | 'Yes | ' | ' |
Entity Filer Category | 'Smaller Reporting Company | ' | ' |
Entity Public Float | ' | ' | $27,528,813 |
Entity Common Stock, Shares Outstanding | ' | 19,827,542 | ' |
Document Fiscal Period Focus | 'FY | ' | ' |
Document Fiscal Year Focus | '2013 | ' | ' |
CONDENSED_BALANCE_SHEETS
CONDENSED BALANCE SHEETS (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
ASSETS | ' | ' |
Cash and cash equivalents | $223,514 | $58,458 |
Restricted cash | 131,757 | 131,103 |
Trade accounts receivable, net | 48,885 | 36,050 |
Prepaid expenses and other current assets | 97,957 | 96,670 |
Total current assets | 502,113 | 322,281 |
Property and equipment, net | 140,383 | 149,107 |
Capitalized software, net | 636,061 | 618,560 |
Intangible assets, net | 138,992 | 130,057 |
Assets of discontinued operations | 0 | 15,834 |
Other assets | 15,370 | 19,437 |
Total Other Assets | 930,806 | 932,995 |
TOTAL ASSETS | 1,432,919 | 1,255,276 |
LIABILITIES AND STOCKHOLDERS' DEFICIT | ' | ' |
Trade accounts payable | 58,901 | 217,174 |
Accrued Expenses | 267,425 | 143,854 |
Accrued interest | 290,560 | 220,848 |
Notes payable, Current | 5,026,113 | 5,041,741 |
Financial Liability Related to Settlement Obligation | 0 | 2,065,000 |
Liabilities of discontinued operations | 0 | 5,638 |
Deferred revenue | 163,868 | 88,974 |
Total current liabilities | 5,806,867 | 7,783,229 |
Long-term liabilities: | ' | ' |
Notes payable - Related Party, Net of Discount | 23,512,836 | 19,769,230 |
Notes payable, Non-current | 730,770 | 730,770 |
Capital Lease Obligations | 142,986 | 132,318 |
Deferred Rent | 25,314 | 0 |
Total long-term liabilities | 24,411,906 | 20,632,318 |
Total liabilities | 30,218,773 | 28,415,547 |
Commitments and contingencies | ' | ' |
Stockholders' deficit: | ' | ' |
Preferred Stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2013 and December 31, 2012 | ' | ' |
Common Stock, $0.001 par value, 45,000,000 shares authorized, 19,827,542 and 18,352,542 shares issued and outstanding at December 31, 2013 and December 31, 2012 | 19,828 | 18,353 |
Additional paid-in capital | 93,059,983 | 67,157,841 |
Accumulated deficit | -121,865,665 | -94,336,465 |
Total stockholders' deficit | -28,785,854 | -27,160,271 |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $1,432,919 | $1,255,276 |
CONDENSED_BALANCE_SHEETS_Paren
CONDENSED BALANCE SHEETS (Parenthetical) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Stockholders' equity: | ' | ' |
Preferred stock, par value | $0.00 | $0.00 |
Preferred stock, authorized | 5,000,000 | 5,000,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $0.00 | $0.00 |
Common stock, authorized | 45,000,000 | 45,000,000 |
Common stock, issued | 19,827,542 | 18,352,542 |
Common stock, outstanding | 19,827,542 | 18,352,542 |
CONDENSED_STATEMENTS_OF_OPERAT
CONDENSED STATEMENTS OF OPERATIONS (unaudited) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
REVENUES: | ' | ' |
Total revenues | $339,039 | $147,468 |
COST OF REVENUES | 428,253 | 161,334 |
GROSS PROFIT (LOSS) | -89,214 | -13,866 |
OPERATING EXPENSES: | ' | ' |
Sales and marketing | 892,679 | 866,221 |
Research and development | 951,653 | 541,605 |
General and administrative | 1,506,460 | 1,283,947 |
Impairment of Long Lived Assets, Net | 137,903 | 0 |
Total operating expenses | 3,488,695 | 2,691,773 |
LOSS FROM OPERATIONS | -3,577,909 | -2,705,639 |
OTHER INCOME (EXPENSE): | ' | ' |
Other Income | 60,519 | 620 |
Interest expense, net | -2,299,447 | -1,659,499 |
Loss on debt extinguishment | -21,793,055 | 0 |
Change in market value of settlement related financial instrument | 147,500 | -295,000 |
Total other expense | -23,884,483 | -1,953,879 |
LOSS FROM CONTINUING OPERATIONS | -27,462,392 | -4,659,518 |
Income (loss) from discontinued operations | -52,154 | 260,753 |
Impairment of assets of discontinued operations | -14,654 | 0 |
NET LOSS | ($27,529,200) | ($4,398,765) |
NET LOSS PER COMMON SHARE: | ' | ' |
Basic and fully diluted from continuing operations | ($1.50) | ($0.25) |
Basic and fully diluted from discontinued operations | $0 | $0.01 |
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: | ' | ' |
Basic and fully diluted | 18,356,639 | 18,352,542 |
CONDENSED_STATEMENTS_OF_CASH_F
CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' |
Net loss | ($27,529,200) | ($4,398,765) |
Adjustments to reconcile net loss to net cash used in operating activities: | ' | ' |
Depreciation and amortization | 153,966 | 91,428 |
Loss on disposal of assets and asset impairment | 156,531 | 0 |
Amortization of debt discount | 208,680 | 0 |
Share-based compensation | 62,988 | 39,389 |
Change in Fair Value of Financial Instrument | -147,500 | 295,000 |
Extinguishment of Debt Loss | 21,793,055 | 0 |
Changes in assets and liabilities: | ' | ' |
Accounts receivable | -12,835 | -26,420 |
Prepaid expenses and other current assets | 2,783 | -49,200 |
Accounts Payable | -158,273 | -288,675 |
Deferred revenue | 74,894 | 55,810 |
Accrued and other expenses | 212,959 | -150,627 |
Net cash used in operating activities | -5,181,952 | -4,432,060 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ' | ' |
Payments to Acquire Property, Plant and Equipment | -83,142 | -24,989 |
Payments for Software License | 0 | -75,000 |
Payments to Acquire Intangible Assets | -24,440 | -25,292 |
Investment in Internally Developed Software | -164,797 | -499,850 |
Net cash used in investing activities | -272,379 | -625,131 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 58,458 | ' |
CASH AND CASH EQUIVALENTS, END OF PERIOD | 223,514 | 58,458 |
Supplemental disclosures of cash flow information: | ' | ' |
Cash paid during the period for: Interest | 2,021,735 | 1,617,810 |
Financed purchase of office furniture | 40,000 | 0 |
Recorded debt discount associated with beneficial conversion feature | 2,130,074 | 0 |
Issued 1,475,000 of Common Shares to Settle The Financial Liability | $1,917,500 | $0 |
Statements_of_Stockholders_Def
Statements of Stockholders Deficit (USD $) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, amount at Dec. 31, 2011 | $18,353 | $67,118,452 | ($89,937,700) | ($22,800,895) |
Beginning Balance, shares at Dec. 31, 2011 | 18,352,542 | ' | ' | ' |
Equity-based compensation, amount | ' | 39,389 | ' | 39,389 |
Net loss | ' | ' | -4,398,765 | -4,398,765 |
Ending Balance, amount at Dec. 31, 2012 | 18,353 | 67,157,841 | -94,336,465 | -27,160,271 |
Beginning Balance, shares at Dec. 31, 2012 | 18,352,542 | ' | ' | ' |
Equity-based compensation, amount | ' | 62,988 | ' | 62,988 |
Beneficial Conversion Feature Recorded as a Result of Issuance of June 27, 2013 Debt Modification and Subsequent Issuance of Convertible Debt | ' | 23,923,129 | ' | 23,923,129 |
Issuance of Shares Related to Class Action Settlement, shares | 1,475,000 | ' | ' | ' |
Issuance of Shares Related to Class Action Settlement | 1,475 | 1,916,025 | ' | 1,917,500 |
Net loss | ' | ' | -27,529,200 | -27,529,200 |
Ending Balance, amount at Dec. 31, 2013 | $19,828 | $93,059,983 | ($121,865,665) | ($28,785,854) |
Ending Balance, shares at Dec. 31, 2013 | 19,827,542 | ' | ' | ' |
1_SUMMARY_OF_BUSINESS_AND_DESC
1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONC | 12 Months Ended | |
Dec. 31, 2013 | ||
Accounting Policies [Abstract] | ' | |
1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONC | ' | |
Description of Business and Going Concern | ||
MobileSmith, Inc. was incorporated as Smart Online, Inc. in the State of Delaware in 1993. The Company changed its name to MobileSmith, Inc. effective July 1, 2013. The Company develops and markets software products and services tailored to users of mobile devices. The Company’s flagship product is the MobileSmith™ Platform (“the Platform”). The Platform is an innovative, patents pending mobile app development platform that enables organizations to rapidly create, deploy, and manage custom, native smartphone and tablet apps deliverable across iOS and Android mobile platforms. | ||
The Company’s principal products and services include: | ||
● | Subscription to its Software as a Service (“SaaS”) cloud based mobile app development platform to its customers who design and build their own apps; | |
● | Custom mobile application design and development services provided by the Company; | |
● | Mobile application marketing services; and | |
● | Mobile strategy implementation consulting. | |
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the years ended December 31, 2013 and 2012, the Company incurred net losses as well as negative cash flows, and at December 31, 2013 and 2012, had deficiencies in working capital. These factors indicate that the Company may be unable to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. | ||
The Company’s continuation as a going concern depends upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations and positive cash flows. At December 31, 2013, the Company does have a non-binding commitment from its secured subordinated noteholders to purchase up to an additional $7,135,000 in convertible notes, of which $1,230,000 was issued through March 21, 2014. During 2013, the Company performed an internal analysis of customer utilization of the Platform and conducted internal industry research of the Company’s target markets. As a result of the review, the Company adjusted its pricing strategy to better align the subscription price to the Platform with the value the customers receive from the subscription. The Company increased its focus on the target markets of healthcare, government and large enterprise clients, where the Company’s ability to rapidly produce large volumes of customizable native apps generates significant return of investment for a customer. During 2013, the Company discontinued its legacy operations of domain hosting and e-commerce in an effort to reduce it operating costs, while focusing on the mobile industry as an area of highest growth potential. | ||
2_SIGNIFICANT_ACCOUNTING_POLIC
2. SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Accounting Policies [Abstract] | ' | ||||||||
2. SIGNIFICANT ACCOUNTING POLICIES | ' | ||||||||
Use of Estimates | |||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions in the Company’s financial statements and notes thereto. Significant estimates and assumptions made by management include the determination of the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements, deferral of certain revenues, share-based compensation, allowance for accounts receivable, estimated useful lives of property, equipment, capitalized software asset and other long lived assets and fair value of convertible debt including loss on debt extinguishment. Actual results could differ from those estimates. | |||||||||
Fair Value of Financial Instruments | |||||||||
US GAAP requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Due to the short period of time to maturity, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable reported in the financial statements approximate the fair value. | |||||||||
Cash and Cash Equivalents | |||||||||
All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. | |||||||||
Revenue Recognition | |||||||||
The Company derives revenue primarily from subscription services charged to customers accessing the Platform and, to a much lesser degree, professional services provided in connection with subscription services. | |||||||||
The Company recognizes revenues when the following criteria have been met: | |||||||||
● | persuasive evidence of an arrangement exists; | ||||||||
● | delivery has occurred; | ||||||||
● | the fees are fixed or determinable; and | ||||||||
● | collection is considered reasonably assured. | ||||||||
Subscription Revenues | |||||||||
Subscription revenues are recognized ratably over the contract term of the arrangement beginning on the date that our service is made available to the customer. Amounts that have been invoiced are recorded in revenue or deferred revenue, depending on whether the revenue recognition criteria have been met. | |||||||||
Professional Services Revenues | |||||||||
Professional services revenues consist of fees for professional services, which relate to app design and development, training, system implementation and data integration, mobile application marketing services, and mobile strategy implementation consulting. These revenues are recognized as the services are rendered for time and material contracts and when the milestones are achieved and accepted by the customer for fixed-fee contracts. | |||||||||
Multiple-Element Arrangements | |||||||||
The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. | |||||||||
In determining whether professional service revenues have standalone value, the Company considers availability of professional services from other vendors, the nature of the Company’s professional services, and whether the Company sells professional services to customers without the subscription. | |||||||||
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. | |||||||||
Vendor-specific objective evidence (“VSOE”) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. | |||||||||
If VSOE of selling price is not available, third-party evidence (“TPE”) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (“BESP”) is to be used. VSOE and TPE do not currently exist for any of the Company’s deliverables. Accordingly, the Company uses its BESP to determine the relative selling price. | |||||||||
The Company determines its BESP for its deliverables based on its overall pricing objectives, taking into consideration market conditions and entity-specific factors. The Company evaluates its BESP by reviewing historical data related to sales of its deliverables. Total consideration under the contract is allocated to each of the separate units of accounting through application of the relative selling price method. | |||||||||
Deferred Revenue | |||||||||
Deferred revenue consists of billings or payments received prior to the date when revenue is recognized. | |||||||||
Cost of Revenues | |||||||||
Cost of revenues includes salaries of customer product teams, costs of IT infrastructure that supports the Platform and amortization charges for the Platform. | |||||||||
Concentration of Credit Risk | |||||||||
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. | |||||||||
Allowance for Doubtful Accounts | |||||||||
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure of its customers to make required payments. The need for an allowance for doubtful accounts is evaluated based on specifically identified amounts that management believes to be potentially uncollectible. If actual collections experience changes, revisions to the allowance may be required. | |||||||||
Property and Equipment | |||||||||
The Company records property and equipment at cost and provides for depreciation and amortization using the straight-line method for financial reporting purposes over the estimated useful lives. The estimated useful lives by asset classification are as follows: | |||||||||
Computer hardware and office equipment | 5 years | ||||||||
Computer software | 5 years | ||||||||
Furniture and fixtures | 5 years | ||||||||
Leasehold improvements | Shorter of the estimated useful life or the lease term | ||||||||
During the year ended December 31, 2013, the Company changed its estimate for depreciable life for its newly acquired property and equipment from 10 to five years. The Company believes that a five year depreciable life more accurately reflects the life span of its equipment, software and furniture. Because substantially all old furniture and equipment were impaired and written off during 2013 and new depreciable life was predominantly applicable to new furniture and equipment purchased during the 2013 move to the Company’s new office, the effect of the change on depreciation expense is immaterial. | |||||||||
Software Development Costs | |||||||||
The Company capitalizes certain costs of development and subsequent enhancement of the Platform. The Company capitalizes software development costs when technological feasibility of the Platform or its enhancements is established and application development begins. The Company expenses costs associated with preliminary project stage and research activities. The Company’s policy provides for the capitalization of certain payroll, benefits, and other payroll-related costs for employees who are directly associated with development. | |||||||||
During 2012, the Platform was substantially completed. During 2013, the Company’s development efforts became more driven by market requirements and rapidly changing customers’ needs. As a result, the Company’s development team adopted the Agile iterative approach to software development. Due to Agile’s short development cycles and focus on rapid production, the Company ceased capitalizing software development costs mid-way through 2013 as the documentation produced under the Agile method did not meet requirements necessary to establish technological feasibility prior to start of development activities. The Company does not expect to capitalize substantial development costs in the future. | |||||||||
Intangible Assets | |||||||||
Intangible assets consist of the perpetual license for critical Platform software, costs associated with the Company’s patent filings and other acquired intangible assets. The Company also owns several copyrights and trademarks related to products, names, and logos used throughout its non-acquired product lines. | |||||||||
Impairment of Long-Lived Assets | |||||||||
The Company evaluates the recoverability of its long-lived assets every reporting period or whenever events and circumstances indicate that the value may be impaired. During the year ended December 31, 2013, the Company recorded an impairment and disposal of fixed assets charge of $118,302, net of recoveries, including a $14,654 charge for impairment of fixed assets associated with the discontinued operations. With respect to the charge related to impairment of old furniture and equipment, the furniture and equipment was written off with minimal recoveries. | |||||||||
In addition to furniture and equipment, the Company recorded an impairment charge of approximately $38,000 related to capitalized software. Impairment of certain Platform enhancements resulted from introduction of new more advanced features of the Platform, which made older features obsolete. | |||||||||
Discontinued operations | |||||||||
In May 2013, the Company’s management decided to discontinue the Company’s legacy business of domain hosting and e-commerce effective July 31, 2013. Results of legacy operations are presented as discontinued operations in the Statements of Operations. The Company has impaired all remaining assets associated with the legacy business, which included a number of servers, and recorded an impairment charge in the amount of approximately $14,654. | |||||||||
Advertising Costs | |||||||||
Advertising costs consist primarily of industry related tradeshows and marketing campaigns. Advertising costs are expensed as incurred, or the first time the advertising takes place, applied consistently based on the nature of the advertising activity. The amounts related to advertising during 2013 and 2012 were $227,933 and $137,561, respectively. | |||||||||
Share-Based Compensation | |||||||||
The Company measures share-based compensation cost at the grant date based on the fair value of the award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The compensation cost is recognized net of estimated forfeiture activity. | |||||||||
The fair value of option grants under the Company’s equity compensation plan during the years ended December 31, 2013 and 2012 were estimated using the following weighted-average assumptions: | |||||||||
Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Dividend yield | 0 | % | 0 | % | |||||
Expected volatility | 188 | % | 84.62 | % | |||||
Risk-free interest rate | 1.43 | % | 1.3 | % | |||||
Expected lives (years) | 4 | 4 | |||||||
Net Loss Per Share | |||||||||
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods. Diluted net loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Shares of common stock issuable upon conversion of Convertible Secured Subordinated Promissory Notes (the “Notes”) and exercise of share-based awards are excluded from the calculation of the weighted average number, because the effect of the conversion and exercise would be anti-dilutive. | |||||||||
Recently Issued Accounting Pronouncements | |||||||||
The Company evaluates new significant accounting pronouncements at each reporting period. For the year ended December 31, 2013, the Company did not identify any new pronouncement that had or is expected to have a material effect on Company’s presentation of its financial statements. | |||||||||
Fair Value Measurements | |||||||||
Fair value is defined as the price that would be received to sell 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. The value hierarchy prescribed by the accounting literature contains three levels as follows: | |||||||||
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; quoted prices in markets that are not active; 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 significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimations. | |||||||||
Settlement Related Financial Instrument Liability | |||||||||
In connection with the Company’s Class Action lawsuit settlement approved by the United States District Court for the Middle District of North Carolina on July 1, 2011 (see Note 6, “Commitments and Contingencies – Legal Proceedings”), the Company was required to issue 1,475,000 shares of common stock to the Class Action class. The Company issued the required 1,475,000 shares on December 30, 2013. Prior to the issuance of these shares, this obligation was accounted for as a financial instrument liability on the Company’s balance sheet with changes reflected on the Statements of Operations as losses or gains, as applicable. The value of the liability was determined to be a Level 1 measurement in accordance with the fair value hierarchy prescribed by the ASC 820 (Fair Value Measurements and Disclosures). | |||||||||
3_PROPERTY_AND_EQUIPMENT_AND_C
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE | ' | ||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Computer hardware | $ | 57,585 | $ | 145,350 | |||||
Computer software | 37,884 | 45,986 | |||||||
Furniture and fixtures | 78,405 | 88,946 | |||||||
Office equipment | 7,832 | 15,360 | |||||||
Leasehold improvements | 34,162 | 53,279 | |||||||
215,868 | 348,921 | ||||||||
Less accumulated depreciation | (75,485 | ) | (199,814 | ) | |||||
Property and equipment, net | $ | 140,383 | $ | 149,107 | |||||
Capitalized software consists of the following: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Capitalized software | $ | 793,094 | $ | 672,362 | |||||
Less accumulated amortization | (157,033 | ) | (53,802 | ) | |||||
Capitalized software, net | $ | 636,061 | $ | 618,560 | |||||
During the years ended December 31, 2013 and 2012, the Company recorded depreciation and amortization expense related to its property, equipment and capitalized software of $138,461 and $78,508, respectively. The Company also recorded an impairment charge of $118,302 for its old equipment, furniture and leasehold improvements and an impairment charge of $38,299 related to capitalized software during year ended December 31, 2013 | |||||||||
4_INTANGIBLE_ASSETS
4. INTANGIBLE ASSETS | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||||||||||||||||||
4. INTANGIBLE ASSETS | ' | ||||||||||||||||||||||||
The following table summarizes information about the Company’s intangible assets: | |||||||||||||||||||||||||
31-Dec-13 | 31-Dec-12 | ||||||||||||||||||||||||
Asset Category | Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
Carrying | Amortization | Carrying | Carrying | Amortization | Carrying | ||||||||||||||||||||
Amount | Amount | Amount | Amount | ||||||||||||||||||||||
Acquired license and costs | $ | 108,534 | $ | 28,425 | $ | 80,109 | $ | 108,534 | $ | 12,920 | $ | 95,614 | |||||||||||||
Patent development and application costs | 48,883 | - | 48,883 | 34,443 | - | 34,443 | |||||||||||||||||||
Other | 10,000 | - | 10,000 | - | - | - | |||||||||||||||||||
Total | $ | 167,417 | $ | 28,425 | $ | 138,992 | $ | 142,977 | $ | 12,920 | $ | 130,057 | |||||||||||||
For the years ended December 31, 2013 and 2012, the aggregate amortization expense on the above intangibles was approximately $15,505 and $ 12,920, respectively. | |||||||||||||||||||||||||
The following table presents the estimated future amortization expense related to intangible assets held at December 31, 2013: | |||||||||||||||||||||||||
Year ending December 31: | |||||||||||||||||||||||||
2014 | $ | 16,505 | |||||||||||||||||||||||
2015 | 17,505 | ||||||||||||||||||||||||
2016 | 19,949 | ||||||||||||||||||||||||
2017 | 19,949 | ||||||||||||||||||||||||
2018 | 19,949 | ||||||||||||||||||||||||
Thereafter | 45,135 | ||||||||||||||||||||||||
$ | 138,992 | ||||||||||||||||||||||||
5_DEBT
5. DEBT | 12 Months Ended | |||||||||||||
Dec. 31, 2013 | ||||||||||||||
Debt Disclosure [Abstract] | ' | |||||||||||||
5. DEBT | ' | |||||||||||||
The table below summarizes the Company’s debt at December 31, 2013 and December 31, 2012: | ||||||||||||||
December 31, | December 31, | |||||||||||||
Description | 2013 | 2012 | Maturity | Rate | ||||||||||
IDB Credit Facility | $ | 5,000,000 | $ | 5,000,000 | 14-May | 4 | % | |||||||
Insurance premium note | - | 23,987 | 13-Jun | 7 | % | |||||||||
Capital lease obligations | 169,099 | 150,072 | 19-Aug | 8 | % | |||||||||
Convertible notes - related parties, net of discount | 23,512,836 | 19,769,230 | 16-Nov | 8 | % | |||||||||
Convertible notes | 730,770 | 730,770 | 16-Nov | 8 | % | |||||||||
Total debt | 29,412,705 | 25,674,059 | ||||||||||||
Less: current portion of long term debt | ||||||||||||||
Capital lease obligations | 26,113 | 17,754 | ||||||||||||
IDB Credit Facility | 5,000,000 | 5,000,000 | ||||||||||||
Insurance premium note | - | 23,987 | ||||||||||||
Total current portion of long term debt | 5,026,113 | 5,041,741 | ||||||||||||
Debt - long term | $ | 24,386,592 | $ | 20,632,318 | ||||||||||
Convertible Notes | ||||||||||||||
Since November 14, 2007, the Company has financed its working capital deficiency primarily with the issuance of Notes under the Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007, as amended (as so amended, the “Note Purchase Agreement”). | ||||||||||||||
On June 26, 2013, the Company entered into the Sixth Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement, Fourth Amendment to Convertible Secured Subordinated Promissory Notes and Fifth Amendment and Agreement to Join as a Party to Registration Rights Agreement (the “Sixth Amendment”), with the holders of a majority of the aggregate outstanding principal amount of the Notes issued by the Company under the Note Purchase Agreement, and an additional purchaser of the Notes, Grasford Investments Ltd (“Grasford”) (collective, the “Noteholders”). The modification to the Company’s convertible instrument applied to $23,075,000 of Notes outstanding as of the date of modification and to all future Notes. As amended by the Sixth Amendment, the convertible instrument has the following characteristics: | ||||||||||||||
● | a maturity date of November 14, 2016; | |||||||||||||
● | an interest rate of 8% per year; | |||||||||||||
● | optional conversion upon Noteholder request; | |||||||||||||
● | the borrowing commitment was increased by $10 million to $33.3 million; | |||||||||||||
● | a conversion price that is the greater of (i) 80% of the lowest closing price of the Company’s shares of common stock in the 12-month period immediately preceding the date of conversion or (ii) $0.50; and | |||||||||||||
● | if at the time of any particular requested conversion the Company does not have a sufficient number of shares of its common stock authorized to allow for such conversion, the Noteholder may request that the Company call a special meeting of the stockholders specifically for the purpose of increasing the number of shares of common stock authorized to cover the remaining portion of the Notes outstanding. | |||||||||||||
The modification of the Note Purchase Agreement was accounted for as debt extinguishment. The total value of the convertible instrument immediately after the modification was determined to be $44,868,055, of which $21,793,055 was allocated to the intrinsic value of the embedded conversion feature of the instrument immediately after the modification (beneficial conversion feature) in accordance with ASC 470 “Debt” and recorded as part of additional paid-in capital. | ||||||||||||||
The difference between the fair value of the new convertible instrument and the carrying value of the previously outstanding Notes, in the amount of $21,793,055, was recognized as loss on extinguishment of debt in the Statements of Operations. | ||||||||||||||
Subsequent to modification and through March 21, 2014, the Company sold $4,320,000 in additional Notes to Union Bancaire Privée (“UBP”) under the Note Purchase Agreement at conversion prices ranging between $.72 and $1.12 on the date of sale. The Company recorded a beneficial conversion feature of $2,130,074 and corresponding debt discount, which is being amortized into interest expense through the maturity of the Notes. The unamortized debt discount as of December 31, 2013 was $1,921,394. | ||||||||||||||
The Company is obligated to pay interest on the Notes in quarterly installments commencing three months after the purchase date of the Notes. The Company is not permitted to prepay the Notes without approval of the holders of at least a majority of the principal amount of the Notes then outstanding. | ||||||||||||||
The Note Purchase Agreement contains provisions whereby repayment of the Notes may be accelerated if the Company enters into voluntary or involuntary bankruptcy or insolvency proceedings. This acceleration right was waived by the Noteholders until such time when the promissory note with Israel Discount Bank of New York (“IDB”) is repaid. | ||||||||||||||
Related Party Convertible Notes | ||||||||||||||
Grasford, the Company’s largest stockholder, owns $13,826,282 in principal amount of Notes as of December 31, 2013. Grasford is controlled by Avy Lugassy, a beneficial owner of both debt and equity holdings in the Company by Grasford. | ||||||||||||||
UBP owns $10,877,180 in principle amount of Notes as of December 31, 2013 and is considered a significant beneficial owner. | ||||||||||||||
Fair Value of Modified Convertible Notes | ||||||||||||||
The modified Note facility was recorded at fair value of $44,868,055. The Company used a binomial model to determine the fair value of the instrument. The binomial model method uses significant unobservable inputs and falls within the Level III measurement method under Fair Value Hierarchy under ASC 820 “Fair Value Measurements.” | ||||||||||||||
The significant unobservable inputs and information used to develop those inputs include the following: | ||||||||||||||
● | the volatility of stock price was determined to be 47% and was based on the volatility of the Company’s stock price as quoted on the Over-the-Counter Bulletin Board (the “OTCBB”) for the period of 3.4 years, which approximates the period remaining until maturity of the convertible instrument; | |||||||||||||
● | the risk free rate of 1.41%; | |||||||||||||
● | the credit spread over the risk free rate was determined to be approximately 20%, which was derived from a combination of the credit spread of CCC rated bonds with added premium for lack of marketability of the convertible instrument; | |||||||||||||
● | the nodes of the binomial model were extended for three years, which approximates the time period until maturity of the convertible instrument; and | |||||||||||||
● | the conversion ratio varied from approximately 1.39 to .56 shares per dollar, depending on the node of the conversion tree. The conversion ratio varied due to projected change in value of the stock driven by historical volatility of 47%. | |||||||||||||
Capital Leases | ||||||||||||||
On September 4, 2009, the Company entered into a sale transaction whereby it sold its computer equipment, furniture, fixtures and certain personal property located at its former principal executive offices in Durham, North Carolina (collectively, the “Equipment”) on an “as-is, where-is” basis to the holders of the Company’s Notes, on a ratable basis in proportion to their respective holdings of Notes, for $200,000 (“Purchase Price”). The Purchase Price was paid through a $200,000 reduction, on a ratable basis, in the outstanding aggregate principal amount of the Notes. The Purchase Price represented the fair market value of the Equipment based on an independent appraisal. | ||||||||||||||
The payments on the lease are made monthly. The balance of the lease as of December 31, 2013 was $132,321. | ||||||||||||||
In September 2013 the Company purchased furniture for its new office by execution of a five year non-cancellable lease, which is accounted for as a capital lease. The unpaid balance on the lease as of December 31, 2013 is $36,778. | ||||||||||||||
The table below details future payments under capital leases: | ||||||||||||||
Year: | ||||||||||||||
2014 | $ | 39,259 | ||||||||||||
2015 | 39,259 | |||||||||||||
2016 | 39,259 | |||||||||||||
2017 | 39,259 | |||||||||||||
2018 | 34,189 | |||||||||||||
Thereafter | 19,412 | |||||||||||||
210,637 | ||||||||||||||
Less amount representing interest | (41,538 | ) | ||||||||||||
Capital lease obligations | $ | 169,099 | ||||||||||||
Promissory Note | ||||||||||||||
On December 6, 2010, the Company entered into (i) a $6,500,000 Promissory Note (the “IDB Note”), as borrower, and (ii) a Letter Agreement for the $6,500,000 Term Loan Facility, each with IDB as lender. | ||||||||||||||
The total of all amounts borrowed under the initial IDB Credit Facility had to be drawn by June 10, 2011. The Company borrowed $5,000,000 during the initial term of the loan, which was originally due May 31, 2012. Subsequently the Company extended the loan twice. The current maturity of the loan is May 31, 2014. At each instance of extension the Company was required to deposit $250,000 in a restricted checking account held at IDB. The cash balance is used to pay quarterly interest payments. The balance in the restricted account as of December 31, 2013 was $131,757. | ||||||||||||||
Borrowings under the IDB Credit Facility were guaranteed by Atlas Capital SA (“Atlas”) and subsequent to the merger between Atlas and Mirelis InvesTrust SA (“Mirelis”), by Mirelis. In addition, the IDB Credit Facility is further secured by an extended irrevocable standby letter of credit issued by UBS Private Bank with an expiration date of November 30, 2015. |
6_COMMITMENTS_AND_CONTINGENCIE
6. COMMITMENTS AND CONTINGENCIES | 12 Months Ended | ||||
Dec. 31, 2013 | |||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||
6. COMMITMENTS AND CONTINGENCIES | ' | ||||
Operating Leases | |||||
On July 29, 2013, the Company signed a 65-month lease for new office space in Raleigh, North Carolina, effective October 30, 2013. The landlord built the space to the Company’s specifications and provided the Company with five months free rent as an incentive. Rent expense will be recognized over the entire 65-month term of the lease on a straight-line basis. The lease contains an option to renew for two, three-year terms. Monthly rent is approximately $13,000 per month. | |||||
In addition, on July 17, 2013, the Company leased a vehicle for a period of 36-months with monthly payments of $300. The vehicle is mostly used for transporting equipment to and from tradeshows that often take place within reasonable driving distance from the Company’s office. | |||||
The table below summarizes the Company’s future obligations under the new office and vehicle leases: | |||||
Year: | |||||
2014 | $ | 119,775 | |||
2015 | 162,528 | ||||
2016 | 165,678 | ||||
2017 | 167,786 | ||||
2018 | 172,418 | ||||
Thereafter | 44,082 | ||||
Total | $ | 832,267 | |||
Rent expense for the years ended December 31, 2013 and 2012 was $194,371 and $168,382, respectively. | |||||
Legal Proceedings | |||||
The Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, certain pending patent and privacy matters, including class action lawsuits, as well as inquiries investigations, audits and other regulatory proceedings. | |||||
The Company will record a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company’s judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss in excess of the amount accrued, and such amounts could be material. | |||||
On June 18, 2010, the Company entered into a Stipulation and Agreement of Settlement (the “Stipulation”) with the lead plaintiff in the securities Class Action lawsuit involving the Company in the case captioned Mary Jane Beauregard vs. Smart Online, Inc., et al., filed in the United States District Court for the Middle District of North Carolina (the “District Court”). The Stipulation provided for the settlement of the Class Action on the terms described below. The District Court issued an order preliminarily approving the settlement on January 13, 2011. The final settlement hearing was held on May 11, 2011. | |||||
The Stipulation provided for the certification of a class consisting of all persons who purchased the Company’s publicly traded securities between May 2, 2005 and September 28, 2007, inclusive. As per the terms of the Stipulation, the settlement class has received total consideration of a cash payment of $350,000 made by the Company, and a cash payment of $112,500 made by Maxim Group. In addition, Henry Nouri was required to transfer 25,000 shares of the Company’s common stock to the settlement class and the Company was required to issue 1,475,000 shares of the Company’s common stock to the class. Under the terms of the Stipulation, counsel for the settlement class was allowed to sell some or all of the common stock received in the settlement before distribution to the class, subject to the limitation that it could not sell more than 10,000 shares in one day or 50,000 shares in 30 calendar days. Subject to the terms of the Stipulation, the Company paid the lead plaintiff $75,000 on July 14, 2010, $100,000 on September 15, 2010, $100,000 on December 14, 2010 and $75,000 on March 14, 2011. On July 1, 2011, the District Court issued the Final Judgment and Order of Partial Dismissal with Prejudice in the Class Action lawsuit. The Court approved the Stipulation and directed the terms of how the Stipulation should be consummated. On July 1, 2011, the Company recorded the Class Action obligation as a financial instrument liability. | |||||
On January 13, 2011 (the “Effective Date”), the District Court issued the Order Preliminarily Approving Settlement and Providing Notice. Based upon the Settlement Agreement and the January 13, 2011 District Court Order Preliminarily Approving Settlement and Providing Notice, the Company paid for the benefit of Dennis Michael Nouri, Reza Eric Nouri, Henry Nouri and Ronna Loprete Nouri (collectively, the “Nouri Parties”) a total of $1,332,773 between January 2011 and February 2012. The Company was ordered by a court of proper jurisdiction to withhold $67,227 for future payment of adjudicated debt owed by the Nouri Parties. As of December 31, 2013 the withheld balance was reduced to $30,000 through agreement between the Company and the Nouri Parties. | |||||
The Settlement Agreement also provides for the exchange of mutual releases by the parties. | |||||
On December 30, 2013, the Company issued the required 1,475,000 settlement shares, which were purchased from the Settlement Fund by Grasford at $.50 per share, in accordance with the terms of the Settlement Agreement. |
7_STOCKHOLDERS_EQUITY
7. STOCKHOLDERS EQUITY | 12 Months Ended | ||||||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||||||
Equity [Abstract] | ' | ||||||||||||||||||||||
7. STOCKHOLDERS EQUITY | ' | ||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||
The Company is authorized to issue 45,000,000 shares of common stock, $0.001 par value per share. As of December 31, 2013, the Company had 19,827,542 shares of common stock outstanding. Holders of the Company’s shares of common stock are entitled to one vote for each share held. | |||||||||||||||||||||||
Preferred Stock | |||||||||||||||||||||||
The Board of Directors is authorized, without further stockholder approval, to issue up to 5,000,000 shares of $0.001 par value preferred stock in one or more series and to fix the rights, preferences, privileges, and restrictions applicable to such shares, including dividend rights, conversion rights, terms of redemption, and liquidation preferences, and to fix the number of shares constituting any series and the designations of such series. There were no shares of preferred stock outstanding at December 31, 2013 and 2012. | |||||||||||||||||||||||
Equity Compensation Plans | |||||||||||||||||||||||
2004 Equity Compensation Plan | |||||||||||||||||||||||
The Company adopted its 2004 Equity Compensation Plan (the “2004 Plan”) as of March 31, 2004. The 2004 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, and other direct stock awards to employees (including officers) and directors of the Company as well as to certain consultants and advisors. The total number of shares of common stock reserved for issuance under the 2004 Plan is 5,000,000 shares, subject to adjustment in the event of a stock split, stock dividend, recapitalization, or similar capital change. | |||||||||||||||||||||||
2001 Equity Compensation Plan | |||||||||||||||||||||||
The Company adopted the 2001 Equity Compensation Plan (the “2001 Plan”) as of May 31, 2001. The 2001 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock, and other direct stock awards to employees (including officers) and directors of the Company as well as to certain consultants and advisors. The total number of shares of common stock reserved for issuance under the 2001 Plan is 795,000 shares, subject to adjustment in the event of a stock split, stock dividend, recapitalization, or similar change. The Company cannot make any further grants under the 2001 Plan. | |||||||||||||||||||||||
The exercise price for incentive stock options granted under the above plans is required to be no less than the fair market value of the common stock on the date the option is granted, except for options granted to 10% stockholders, which are required to have an exercise price of not less than 110% of the fair market value of the common stock on the date the option is granted. Incentive stock options typically have a maximum term of 10 years, except for option grants to 10% stockholders, which are subject to a maximum term of five years. Non-statutory stock options have a term determined by either the Board of Directors or the Compensation Committee of the Board of Directors. Options granted under the plans are not transferable, except by will and the laws of descent and distribution. | |||||||||||||||||||||||
A summary of the status of the stock option issuances as of December 31, 2013 and 2012, and changes during the periods ended on these dates is as follows: | |||||||||||||||||||||||
Number of | Weighted | Weighted | Aggregate | ||||||||||||||||||||
Shares | Average | Average | Intrinsic | ||||||||||||||||||||
Exercise Price | Remaining | value | |||||||||||||||||||||
Contractual Term | |||||||||||||||||||||||
Outstanding, December 31, 2011 | 301,900 | $ | 2.25 | ||||||||||||||||||||
Cancelled | (18,500 | ) | 1.18 | ||||||||||||||||||||
Issued | 167,500 | 1.46 | |||||||||||||||||||||
Outstanding, December 31, 2012 | 450,900 | 2.02 | |||||||||||||||||||||
Cancelled | (187,900 | ) | 1.51 | ||||||||||||||||||||
Issued | 267,378 | 1.62 | |||||||||||||||||||||
Outstanding, December 31, 2013 | 530,378 | 1.99 | 4.8 | 24,300 | |||||||||||||||||||
Vested and exercisable, December 31, 2013 | 209,408 | $ | 2.66 | 4.7 | 17,581 | ||||||||||||||||||
At December 31, 2013 and 2012, $270,915 of unvested expense remains to be recorded related to all options outstanding. | |||||||||||||||||||||||
Information regarding the weighted average remaining contractual life and weighted average exercise price of options outstanding and options exercisable as of December 31, 2013, for selected exercise price ranges, is as follows: | |||||||||||||||||||||||
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
Range of | Number | Weighted Average | Weighted Average | Number | Weighted Average | ||||||||||||||||||
Exercise Prices | Outstanding | Remaining Contractual | Exercise Price | Exercisable | Exercise Price | ||||||||||||||||||
Life(in years) | |||||||||||||||||||||||
$ | 0.90-1.95 | 460,378 | 5.35 | $ | 1.46 | 139,408 | $ | 1.24 | |||||||||||||||
3.50-8.61 | 70,000 | 1.01 | 5.5 | 70,000 | 5.5 | ||||||||||||||||||
$ | .90-8.61 | 530,378 | 4.8 | $ | 1.99 | 209,408 | $ | 2.66 | |||||||||||||||
8_INCOME_TAXES
8. INCOME TAXES | 12 Months Ended | |||||||||
Dec. 31, 2013 | ||||||||||
Income Tax Disclosure [Abstract] | ' | |||||||||
8. INCOME TAXES | ' | |||||||||
The Company accounts for income taxes under the asset and liability method in accordance with the requirements of US GAAP. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. | ||||||||||
The balances of deferred tax assets and liabilities are as follows: | ||||||||||
December 31, | December 31, | |||||||||
2013 | 2012 | |||||||||
Net current deferred income tax assets related to: | ||||||||||
Allowance for doubtful accounts | $ | 75,000 | $ | - | ||||||
Depreciation and amortization | 137,000 | 131,000 | ||||||||
Stock-based expenses | 91,000 | 91,000 | ||||||||
Accrued liabilities – litigation expenses | 12,000 | 833,000 | ||||||||
Other liabilities | 62,000 | 7,000 | ||||||||
Other | 7,000 | |||||||||
Net operating loss carryforwards | 28,601,000 | 26,677,000 | ||||||||
Total | 28,985,000 | 27,739,000 | ||||||||
Less valuation allowance | (28,985,000 | ) | (27,739,000 | ) | ||||||
Net current deferred income tax | $ | - | $ | - | ||||||
Under US GAAP, a valuation allowance is provided when it is more likely than not that the deferred tax asset will not be realized. | ||||||||||
Total income tax expense related to continuing operations differs from expected income tax expense (computed by applying the U.S. federal corporate income tax rate of 34% to profit (loss) before taxes) as follows: | ||||||||||
Year Ended | Year Ended | |||||||||
December 31, | December 31, | |||||||||
2013 | 2012 | |||||||||
Tax benefit from continuing operations computed at statutory rate of 34% | $ | -9,337,000 | $ | (1,451,000) | ||||||
State income tax benefit from continuing operations , net of federal effect | (1,251,000) | -204,000 | ||||||||
Permanent differences: | - | |||||||||
Stock based compensation | 24,000 | -13,000 | ||||||||
Loss on debt extinguishment | 8,402,000 | - | ||||||||
Other | 3,000 | 1,000 | ||||||||
Expiration of net operating loss carryforwards | 939,000 | - | ||||||||
Change in valuation allowance - continuing operations | 1,220,000 | 1,667,000 | ||||||||
Totals | $ | - | $ | - | ||||||
Total income tax expense related to discontinued operations differs from expected income tax expense (computed by applying the combined U.S. federal and state corporate income tax rate of 38.55% to profit (loss) before taxes) as follows: | ||||||||||
Year Ended | Year Ended | |||||||||
December 31, | December 31, | |||||||||
2013 | 2012 | |||||||||
Tax expense (benefit) from discontinued operations | $ | -26,000 | $ | 101,000 | ||||||
Change in valuation allowance - discontinued operations | 26,000 | -101,000 | ||||||||
Totals | $ | - | $ | - | ||||||
As of December 31, 2013, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $74 million, which expire between 2014 and 2033. For state tax purposes, the NOL carryforwards expire between 2014 and 2024. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% of the Company within a three-year period can result in an annual limitation on the Company’s ability to utilize its NOL carryforwards that were created during tax periods prior to the change in ownership. | ||||||||||
The Company has reviewed its tax positions and has determined that it has no significant uncertain tax positions at December 31, 2013. |
9_MAJOR_CUSTOMERS_AND_CONCENTR
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | ' |
A customer that individually generates more than 10% of revenue is considered a major customer. | |
For the year ended December 31, 2013, two major customers accounted for a combined 23% of the Company’s revenue. Three customers accounted for 58% of accounts receivable balance as of December 31, 2013. | |
For the year ended December 31, 2012, five major customers accounted for an aggregate 64% of the Company’s revenue. Two customers accounted for 76% of accounts receivable balance as of December 31, 2012. |
10_EMPLOYEE_BENEFIT_PLAN
10. EMPLOYEE BENEFIT PLAN | 12 Months Ended |
Dec. 31, 2013 | |
Compensation and Retirement Disclosure [Abstract] | ' |
10. EMPLOYEE BENEFIT PLAN | ' |
All full time employees who meet certain age and length of service requirements are eligible to participate in the Company’s 401(k) Plan. The plan provides for contributions by the Company in such amounts as the Board of Directors may annually determine, as well as a 401(k) option under which eligible participants may defer a portion of their salaries. The Company contributed a total of $21,032 and $20,928 to the plan during 2013 and 2012, respectively. |
11_SUBSEQUENT_EVENTS
11. SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2013 | |
Subsequent Events [Abstract] | ' |
11. SUBSEQUENT EVENTS | ' |
Subsequent to December 31, 2013, the Company sold four Notes totaling $1,230,000 to UBP on the same terms as outstanding Notes. The Notes mature on November 14, 2016. |
2_SIGNIFICANT_ACCOUNTING_POLIC1
2. SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
Use of Estimates | ' | ||||||||
Use of Estimates | |||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions in the Company’s financial statements and notes thereto. Significant estimates and assumptions made by management include the determination of the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements, deferral of certain revenues, share-based compensation, allowance for accounts receivable, estimated useful lives of property, equipment, capitalized software asset and other long lived assets and fair value of convertible debt including loss on debt extinguishment. Actual results could differ from those estimates. | |||||||||
Fair Value of Financial Instruments | ' | ||||||||
Fair Value of Financial Instruments | |||||||||
US GAAP requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Due to the short period of time to maturity, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable reported in the financial statements approximate the fair value. | |||||||||
Cash and Cash Equivalents | ' | ||||||||
Cash and Cash Equivalents | |||||||||
All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. | |||||||||
Revenue Recognition | ' | ||||||||
Revenue Recognition | |||||||||
The Company derives revenue primarily from subscription services charged to customers accessing the Platform and, to a much lesser degree, professional services provided in connection with subscription services. | |||||||||
The Company recognizes revenues when the following criteria have been met: | |||||||||
● | persuasive evidence of an arrangement exists; | ||||||||
● | delivery has occurred; | ||||||||
● | the fees are fixed or determinable; and | ||||||||
● | collection is considered reasonably assured. | ||||||||
Subscription Revenues | ' | ||||||||
Subscription Revenues | |||||||||
Subscription revenues are recognized ratably over the contract term of the arrangement beginning on the date that our service is made available to the customer. Amounts that have been invoiced are recorded in revenue or deferred revenue, depending on whether the revenue recognition criteria have been met. | |||||||||
Professional Services Revenues | ' | ||||||||
Professional Services Revenues | |||||||||
Professional services revenues consist of fees for professional services, which relate to app design and development, training, system implementation and data integration, mobile application marketing services, and mobile strategy implementation consulting. These revenues are recognized as the services are rendered for time and material contracts and when the milestones are achieved and accepted by the customer for fixed-fee contracts. | |||||||||
Multiple-Element Arrangements | ' | ||||||||
Multiple-Element Arrangements | |||||||||
The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. | |||||||||
In determining whether professional service revenues have standalone value, the Company considers availability of professional services from other vendors, the nature of the Company’s professional services, and whether the Company sells professional services to customers without the subscription. | |||||||||
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. | |||||||||
Vendor-specific objective evidence (“VSOE”) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. | |||||||||
If VSOE of selling price is not available, third-party evidence (“TPE”) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (“BESP”) is to be used. VSOE and TPE do not currently exist for any of the Company’s deliverables. Accordingly, the Company uses its BESP to determine the relative selling price. | |||||||||
The Company determines its BESP for its deliverables based on its overall pricing objectives, taking into consideration market conditions and entity-specific factors. The Company evaluates its BESP by reviewing historical data related to sales of its deliverables. Total consideration under the contract is allocated to each of the separate units of accounting through application of the relative selling price method. | |||||||||
Deferred Revenue | ' | ||||||||
Deferred Revenue | |||||||||
Deferred revenue consists of billings or payments received prior to the date when revenue is recognized. | |||||||||
Cost of Revenues | ' | ||||||||
Cost of Revenues | |||||||||
Cost of revenues includes salaries of customer product teams, costs of IT infrastructure that supports the Platform and amortization charges for the Platform. | |||||||||
Concentration of Credit Risk | ' | ||||||||
Concentration of Credit Risk | |||||||||
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. | |||||||||
Allowance for Doubtful Accounts | ' | ||||||||
Allowance for Doubtful Accounts | |||||||||
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure of its customers to make required payments. The need for an allowance for doubtful accounts is evaluated based on specifically identified amounts that management believes to be potentially uncollectible. If actual collections experience changes, revisions to the allowance may be required. | |||||||||
Property and Equipment | ' | ||||||||
Property and Equipment | |||||||||
The Company records property and equipment at cost and provides for depreciation and amortization using the straight-line method for financial reporting purposes over the estimated useful lives. The estimated useful lives by asset classification are as follows: | |||||||||
Computer hardware and office equipment | 5 years | ||||||||
Computer software | 5 years | ||||||||
Furniture and fixtures | 5 years | ||||||||
Leasehold improvements | Shorter of the estimated useful life or the lease term | ||||||||
During the year ended December 31, 2013, the Company changed its estimate for depreciable life for its newly acquired property and equipment from 10 to five years. The Company believes that a five year depreciable life more accurately reflects the life span of its equipment, software and furniture. Because substantially all old furniture and equipment were impaired and written off during 2013 and new depreciable life was predominantly applicable to new furniture and equipment purchased during the 2013 move to the Company’s new office, the effect of the change on depreciation expense is immaterial. | |||||||||
Software Development | ' | ||||||||
Software Development Costs | |||||||||
The Company capitalizes certain costs of development and subsequent enhancement of the Platform. The Company capitalizes software development costs when technological feasibility of the Platform or its enhancements is established and application development begins. The Company expenses costs associated with preliminary project stage and research activities. The Company’s policy provides for the capitalization of certain payroll, benefits, and other payroll-related costs for employees who are directly associated with development. | |||||||||
During 2012, the Platform was substantially completed. During 2013, the Company’s development efforts became more driven by market requirements and rapidly changing customers’ needs. As a result, the Company’s development team adopted the Agile iterative approach to software development. Due to Agile’s short development cycles and focus on rapid production, the Company ceased capitalizing software development costs mid-way through 2013 as the documentation produced under the Agile method did not meet requirements necessary to establish technological feasibility prior to start of development activities. The Company does not expect to capitalize substantial development costs in the future. | |||||||||
Intangible Assets and Goodwill | ' | ||||||||
Intangible Assets | |||||||||
Intangible assets consist of the perpetual license for critical Platform software, costs associated with the Company’s patent filings and other acquired intangible assets. The Company also owns several copyrights and trademarks related to products, names, and logos used throughout its non-acquired product lines. | |||||||||
Impairment of Long-Lived Assets | ' | ||||||||
Impairment of Long-Lived Assets | |||||||||
The Company evaluates the recoverability of its long-lived assets every reporting period or whenever events and circumstances indicate that the value may be impaired. During the year ended December 31, 2013, the Company recorded an impairment and disposal of fixed assets charge of $118,302, net of recoveries, including a $14,654 charge for impairment of fixed assets associated with the discontinued operations. With respect to the charge related to impairment of old furniture and equipment, the furniture and equipment was written off with minimal recoveries. | |||||||||
In addition to furniture and equipment, the Company recorded an impairment charge of approximately $38,000 related to capitalized software. Impairment of certain Platform enhancements resulted from introduction of new more advanced features of the Platform, which made older features obsolete. | |||||||||
Discontinued operations | ' | ||||||||
Discontinued operations | |||||||||
In May 2013, the Company’s management decided to discontinue the Company’s legacy business of domain hosting and e-commerce effective July 31, 2013. Results of legacy operations are presented as discontinued operations in the Statements of Operations. The Company has impaired all remaining assets associated with the legacy business, which included a number of servers, and recorded an impairment charge in the amount of approximately $14,654. | |||||||||
Advertising Costs | ' | ||||||||
Advertising Costs | |||||||||
Advertising costs consist primarily of industry related tradeshows and marketing campaigns. Advertising costs are expensed as incurred, or the first time the advertising takes place, applied consistently based on the nature of the advertising activity. The amounts related to advertising during 2013 and 2012 were $227,933 and $137,561, respectively. | |||||||||
Stock-Based Compensation | ' | ||||||||
Share-Based Compensation | |||||||||
The Company measures share-based compensation cost at the grant date based on the fair value of the award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The compensation cost is recognized net of estimated forfeiture activity. | |||||||||
The fair value of option grants under the Company’s equity compensation plan during the years ended December 31, 2013 and 2012 were estimated using the following weighted-average assumptions: | |||||||||
Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Dividend yield | 0 | % | 0 | % | |||||
Expected volatility | 188 | % | 84.62 | % | |||||
Risk-free interest rate | 1.43 | % | 1.3 | % | |||||
Expected lives (years) | 4 | 4 | |||||||
Net Loss Per Share | ' | ||||||||
Net Loss Per Share | |||||||||
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods. Diluted net loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Shares of common stock issuable upon conversion of Convertible Secured Subordinated Promissory Notes (the “Notes”) and exercise of share-based awards are excluded from the calculation of the weighted average number, because the effect of the conversion and exercise would be anti-dilutive. | |||||||||
Recently Issued Accounting Pronouncements | ' | ||||||||
Recently Issued Accounting Pronouncements | |||||||||
The Company evaluates new significant accounting pronouncements at each reporting period. For the year ended December 31, 2013, the Company did not identify any new pronouncement that had or is expected to have a material effect on Company’s presentation of its financial statements. | |||||||||
Fair Value Measurement | ' | ||||||||
Fair Value Measurements | |||||||||
Fair value is defined as the price that would be received to sell 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. The value hierarchy prescribed by the accounting literature contains three levels as follows: | |||||||||
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; quoted prices in markets that are not active; 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 significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimations. | |||||||||
Settlement Related Financial Instrument Liability | ' | ||||||||
Settlement Related Financial Instrument Liability | |||||||||
In connection with the Company’s Class Action lawsuit settlement approved by the United States District Court for the Middle District of North Carolina on July 1, 2011 (see Note 6, “Commitments and Contingencies – Legal Proceedings”), the Company was required to issue 1,475,000 shares of common stock to the Class Action class. The Company issued the required 1,475,000 shares on December 30, 2013. Prior to the issuance of these shares, this obligation was accounted for as a financial instrument liability on the Company’s balance sheet with changes reflected on the Statements of Operations as losses or gains, as applicable. The value of the liability was determined to be a Level 1 measurement in accordance with the fair value hierarchy prescribed by the ASC 820 (Fair Value Measurements and Disclosures). |
2_SIGNIFICANT_ACCOUNTING_POLIC2
2. SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Accounting Policies [Abstract] | ' | ||||||||
Schedule of useful life | ' | ||||||||
Computer hardware and office equipment | 5 years | ||||||||
Computer software | 5 years | ||||||||
Furniture and fixtures | 5 years | ||||||||
Leasehold improvements | Shorter of the estimated useful life or the lease term | ||||||||
Schedule of fair value assumptions for option grants | ' | ||||||||
Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Dividend yield | 0 | % | 0 | % | |||||
Expected volatility | 188 | % | 84.62 | % | |||||
Risk-free interest rate | 1.43 | % | 1.3 | % | |||||
Expected lives (years) | 4 | 4 |
3_PROPERTY_AND_EQUIPMENT_AND_C1
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
Property and equipment | ' | ||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Computer hardware | $ | 57,585 | $ | 145,350 | |||||
Computer software | 37,884 | 45,986 | |||||||
Furniture and fixtures | 78,405 | 88,946 | |||||||
Office equipment | 7,832 | 15,360 | |||||||
Leasehold improvements | 34,162 | 53,279 | |||||||
215,868 | 348,921 | ||||||||
Less accumulated depreciation | (75,485 | ) | (199,814 | ) | |||||
Property and equipment, net | $ | 140,383 | $ | 149,107 | |||||
Capitalized software | ' | ||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Capitalized software | $ | 793,094 | $ | 672,362 | |||||
Less accumulated amortization | (157,033 | ) | (53,802 | ) | |||||
Capitalized software, net | $ | 636,061 | $ | 618,560 |
4_INTANGIBLE_ASSETS_Tables
4. INTANGIBLE ASSETS (Tables) | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||||||||||||||||||
Schedule of intangible assets | ' | ||||||||||||||||||||||||
31-Dec-13 | 31-Dec-12 | ||||||||||||||||||||||||
Asset Category | Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
Carrying | Amortization | Carrying | Carrying | Amortization | Carrying | ||||||||||||||||||||
Amount | Amount | Amount | Amount | ||||||||||||||||||||||
Acquired license and costs | $ | 108,534 | $ | 28,425 | $ | 80,109 | $ | 108,534 | $ | 12,920 | $ | 95,614 | |||||||||||||
Patent development and application costs | 48,883 | - | 48,883 | 34,443 | - | 34,443 | |||||||||||||||||||
Other | 10,000 | - | 10,000 | - | - | - | |||||||||||||||||||
Total | $ | 167,417 | $ | 28,425 | $ | 138,992 | $ | 142,977 | $ | 12,920 | $ | 130,057 | |||||||||||||
Schedule of estimated future amortization expense related to intangible assets | ' | ||||||||||||||||||||||||
Year ending December 31: | |||||||||||||||||||||||||
2014 | $ | 16,505 | |||||||||||||||||||||||
2015 | 17,505 | ||||||||||||||||||||||||
2016 | 19,949 | ||||||||||||||||||||||||
2017 | 19,949 | ||||||||||||||||||||||||
2018 | 19,949 | ||||||||||||||||||||||||
Thereafter | 45,135 | ||||||||||||||||||||||||
$ | 138,992 |
5_DEBT_Tables
5. DEBT (Tables) | 12 Months Ended | |||||||||||||
Dec. 31, 2013 | ||||||||||||||
Debt Disclosure [Abstract] | ' | |||||||||||||
Company's debt | ' | |||||||||||||
December 31, | December 31, | |||||||||||||
Description | 2013 | 2012 | Maturity | Rate | ||||||||||
IDB Credit Facility | $ | 5,000,000 | $ | 5,000,000 | 14-May | 4 | % | |||||||
Insurance premium note | - | 23,987 | 13-Jun | 7 | % | |||||||||
Capital lease obligations | 169,099 | 150,072 | 19-Aug | 8 | % | |||||||||
Convertible notes - related parties, net of discount | 23,512,836 | 19,769,230 | 16-Nov | 8 | % | |||||||||
Convertible notes | 730,770 | 730,770 | 16-Nov | 8 | % | |||||||||
Total debt | 29,412,705 | 25,674,059 | ||||||||||||
Less: current portion of long term debt | ||||||||||||||
Capital lease obligations | 26,113 | 17,754 | ||||||||||||
IDB Credit Facility | 5,000,000 | 5,000,000 | ||||||||||||
Insurance premium note | - | 23,987 | ||||||||||||
Total current portion of long term debt | 5,026,113 | 5,041,741 | ||||||||||||
Debt - long term | $ | 24,386,592 | $ | 20,632,318 | ||||||||||
Schedule of future payments under capital leases | ' | |||||||||||||
Year: | ||||||||||||||
2014 | $ | 39,259 | ||||||||||||
2015 | 39,259 | |||||||||||||
2016 | 39,259 | |||||||||||||
2017 | 39,259 | |||||||||||||
2018 | 34,189 | |||||||||||||
Thereafter | 19,412 | |||||||||||||
210,637 | ||||||||||||||
Less amount representing interest | (41,538 | ) | ||||||||||||
Capital lease obligations | $ | 169,099 |
6_COMMITMENTS_AND_CONTINGENCIE1
6. COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended | ||||
Dec. 31, 2013 | |||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||
Company's future obligation under the new office and vehicle leases | ' | ||||
Year: | |||||
2014 | $ | 119,775 | |||
2015 | 162,528 | ||||
2016 | 165,678 | ||||
2017 | 167,786 | ||||
2018 | 172,418 | ||||
Thereafter | 44,082 | ||||
Total | $ | 832,267 |
7_STOCKHOLDERS_EQUITY_Tables
7. STOCKHOLDERS EQUITY (Tables) | 12 Months Ended | ||||||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||||||
Equity [Abstract] | ' | ||||||||||||||||||||||
Schedule of Stock Options | ' | ||||||||||||||||||||||
Number of | Weighted | Weighted | Aggregate | ||||||||||||||||||||
Shares | Average | Average | Intrinsic | ||||||||||||||||||||
Exercise Price | Remaining | value | |||||||||||||||||||||
Contractual Term | |||||||||||||||||||||||
Outstanding, December 31, 2011 | 301,900 | $ | 2.25 | ||||||||||||||||||||
Cancelled | (18,500 | ) | 1.18 | ||||||||||||||||||||
Issued | 167,500 | 1.46 | |||||||||||||||||||||
Outstanding, December 31, 2012 | 450,900 | 2.02 | |||||||||||||||||||||
Cancelled | (187,900 | ) | 1.51 | ||||||||||||||||||||
Issued | 267,378 | 1.62 | |||||||||||||||||||||
Outstanding, December 31, 2013 | 530,378 | 1.99 | 4.8 | 24,300 | |||||||||||||||||||
Vested and exercisable, December 31, 2013 | 209,408 | $ | 2.66 | 4.7 | 17,581 | ||||||||||||||||||
Schedule of Stock Options Outstanding | ' | ||||||||||||||||||||||
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
Range of | Number | Weighted Average | Weighted Average | Number | Weighted Average | ||||||||||||||||||
Exercise Prices | Outstanding | Remaining Contractual | Exercise Price | Exercisable | Exercise Price | ||||||||||||||||||
Life(in years) | |||||||||||||||||||||||
$ | 0.90-1.95 | 460,378 | 5.35 | $ | 1.46 | 139,408 | $ | 1.24 | |||||||||||||||
3.50-8.61 | 70,000 | 1.01 | 5.5 | 70,000 | 5.5 | ||||||||||||||||||
$ | .90-8.61 | 530,378 | 4.8 | $ | 1.99 | 209,408 | $ | 2.66 |
8_INCOME_TAXES_Tables
8. INCOME TAXES (Tables) | 12 Months Ended | |||||||||
Dec. 31, 2013 | ||||||||||
Income Tax Disclosure [Abstract] | ' | |||||||||
Schedule of deferred tax assets and liabilities | ' | |||||||||
December 31, | December 31, | |||||||||
2013 | 2012 | |||||||||
Net current deferred income tax assets related to: | ||||||||||
Allowance for doubtful accounts | $ | 75,000 | $ | - | ||||||
Depreciation and amortization | 137,000 | 131,000 | ||||||||
Stock-based expenses | 91,000 | 91,000 | ||||||||
Accrued liabilities – litigation expenses | 12,000 | 833,000 | ||||||||
Other liabilities | 62,000 | 7,000 | ||||||||
Other | 7,000 | |||||||||
Net operating loss carryforwards | 28,601,000 | 26,677,000 | ||||||||
Total | 28,985,000 | 27,739,000 | ||||||||
Less valuation allowance | (28,985,000 | ) | (27,739,000 | ) | ||||||
Net current deferred income tax | $ | - | $ | - | ||||||
Schedule of income tax reconciliation | ' | |||||||||
Total income tax expense related to continuing operations differs from expected income tax expense (computed by applying the U.S. federal corporate income tax rate of 34% to profit (loss) before taxes) as follows: | ||||||||||
Year Ended | Year Ended | |||||||||
December 31, | December 31, | |||||||||
2013 | 2012 | |||||||||
Tax benefit from continuing operations computed at statutory rate of 34% | $ | -9,337,000 | $ | (1,451,000) | ||||||
State income tax benefit from continuing operations , net of federal effect | (1,251,000) | -204,000 | ||||||||
Permanent differences: | - | |||||||||
Stock based compensation | 24,000 | -13,000 | ||||||||
Loss on debt extinguishment | 8,402,000 | - | ||||||||
Other | 3,000 | 1,000 | ||||||||
Expiration of net operating loss carryforwards | 939,000 | - | ||||||||
Change in valuation allowance - continuing operations | 1,220,000 | 1,667,000 | ||||||||
Totals | $ | - | $ | - | ||||||
Total income tax expense related to discontinued operations differs from expected income tax expense (computed by applying the combined U.S. federal and state corporate income tax rate of 38.55% to profit (loss) before taxes) as follows: | ||||||||||
Year Ended | Year Ended | |||||||||
December 31, | December 31, | |||||||||
2013 | 2012 | |||||||||
Tax expense (benefit) from discontinued operations | $ | -26,000 | $ | 101,000 | ||||||
Change in valuation allowance - discontinued operations | 26,000 | -101,000 | ||||||||
Totals | $ | - | $ | - | ||||||
2_SIGNIFICANT_ACCOUNTING_POLIC3
2. SIGNIFICANT ACCOUNTING POLICIES (Details) | 12 Months Ended |
Dec. 31, 2013 | |
Computer hardware | ' |
Life | '5 years |
Computer software | ' |
Life | '5 years |
Furniture and fixtures | ' |
Life | '5 years |
Leasehold improvements | ' |
Life | 'Shorter of the estimated useful life or the lease term |
2_SIGNIFICANT_ACCOUNTING_POLIC4
2. SIGNIFICANT ACCOUNTING POLICIES (Details 1) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Significant Accounting Policies Details 1 | ' | ' |
Dividend yield | 0.00% | 0.00% |
Expected volatility | 188.00% | 84.62% |
Risk free interest rate | 1.43% | 1.30% |
Expected lives (years) | '4 years | '4 years |
2_SIGNIFICANT_ACCOUNTING_POLIC5
2. SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Significant Accounting Policies Details Narrative | ' | ' |
Advertising Costs | $227,933 | $137,561 |
3_PROPERTY_AND_EQUIPMENT_AND_C2
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Property gross | $215,868 | $348,921 |
Less accumulated depreciation | -75,485 | -199,814 |
Property and equipment, net | 140,383 | 149,107 |
Computer hardware | ' | ' |
Property gross | 57,585 | 145,350 |
Computer software | ' | ' |
Property gross | 37,884 | 45,986 |
Furniture and fixtures | ' | ' |
Property gross | 78,405 | 88,946 |
Office equipment | ' | ' |
Property gross | 7,832 | 15,360 |
Leasehold improvements | ' | ' |
Property gross | $34,162 | $53,279 |
3_PROPERTY_AND_EQUIPMENT_AND_C3
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Details 1) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Property And Equipment And Capitalized Software Details 1 | ' | ' |
Capitalized software | $793,094 | $672,362 |
Less accumulated amortization | -157,033 | -53,802 |
Capitalized software, net | $636,061 | $618,560 |
3_PROPERTY_AND_EQUIPMENT_AND_C4
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Depreciation and amortization expense | $138,461 | $78,508 |
Old equipment, furniture and leasehold improvements | ' | ' |
Impairment | 118,302 | ' |
capitalized software | ' | ' |
Impairment | $38,299 | ' |
4_INTANGIBLE_ASSETS_Details
4. INTANGIBLE ASSETS (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
INTANGIBLE ASSETS gross carrying amount | $167,417 | $142,977 |
Accumulated amortization INTANGIBLE ASSETS | 28,425 | 12,920 |
INTANGIBLE ASSETS, net carrying amount | 138,992 | 130,057 |
Acquired license and costs | ' | ' |
INTANGIBLE ASSETS gross carrying amount | 108,534 | 108,534 |
Accumulated amortization INTANGIBLE ASSETS | 28,425 | 12,920 |
INTANGIBLE ASSETS, net carrying amount | 80,109 | 95,614 |
Patent development and application costs | ' | ' |
INTANGIBLE ASSETS gross carrying amount | 48,883 | 34,443 |
Accumulated amortization INTANGIBLE ASSETS | 0 | 0 |
INTANGIBLE ASSETS, net carrying amount | 48,883 | 34,443 |
Other | ' | ' |
INTANGIBLE ASSETS gross carrying amount | 10,000 | 0 |
Accumulated amortization INTANGIBLE ASSETS | 0 | 0 |
INTANGIBLE ASSETS, net carrying amount | $10,000 | $0 |
4_INTANGIBLE_ASSETS_Details_1
4. INTANGIBLE ASSETS (Details 1) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Year ending December 31: | ' | ' |
2014 | $16,505 | ' |
2015 | 17,505 | ' |
2016 | 19,949 | ' |
2017 | 19,949 | ' |
2018 | 19,949 | ' |
Thereafter | 45,135 | ' |
Total | $138,992 | $130,057 |
4_INTANGIBLE_ASSETS_Details_Na
4. INTANGIBLE ASSETS (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Intangible Assets Details Narrative | ' | ' |
Intangible asset aggregate amortization expense | $15,505 | $12,920 |
5_DEBT_Details
5. DEBT (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Debt Details | ' | ' |
IDB credit facility | $5,000,000 | $5,000,000 |
Insurance premium note | 0 | 23,987 |
Capital leases obligations | 169,099 | 150,072 |
Convertible notes - related parties, net of discount | 23,512,836 | 19,769,230 |
Convertible notes | 730,770 | 730,770 |
Total debt | 29,412,705 | 25,674,059 |
Less: current portion of long term debt | ' | ' |
Capital lease obligations | 26,113 | 17,754 |
IDB Bank | 5,000,000 | 5,000,000 |
Insurance premium note | 0 | 23,987 |
Total current portion of long term debt | 5,026,113 | 5,041,741 |
Debt - long term | $24,386,592 | $20,632,318 |
5_DEBT_Details_1
5. DEBT (Details 1) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Commitments and Contingencies Disclosure [Abstract] | ' | ' |
2014 | $39,259 | ' |
2015 | 39,259 | ' |
2016 | 39,259 | ' |
2017 | 39,259 | ' |
2018 | 34,189 | ' |
Thereafter | 19,412 | ' |
Capital Leases, Future Minimum Payments Due | 210,637 | ' |
Less amount representing interest | -41,538 | ' |
Capital lease obligations | $169,099 | $150,072 |
6_COMMITMENTS_AND_CONTINGENCIE2
6. COMMITMENTS AND CONTINGENCIES (Details 1) (USD $) | Dec. 31, 2013 |
Commitments and Contingencies Disclosure [Abstract] | ' |
2014 | $119,775 |
2015 | 162,528 |
2016 | 165,678 |
2017 | 167,786 |
2018 | 172,418 |
Thereafter | 44,082 |
Total | $832,267 |
7_STOCKHOLDERS_EQUITY_Details
7. STOCKHOLDERSb EQUITY (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Stockholders Equity Details | ' | ' |
Number of Shares Outstanding, Beginning | 450,900 | 301,900 |
Number of Shares Cancelled | -187,900 | -18,500 |
Number of Shares Issued | 267,378 | 167,500 |
Number of Shares Outstanding, Ending | 530,378 | 450,900 |
Stock Options Vested and Exercisable Number of Shares | 209,408 | ' |
Weighted Average Exercise Price Outstanding, Beginning | $2.02 | $2.25 |
Weighted Average Exercise Price Cancelled | $1.51 | $1.18 |
Weighted Average Exercise Price Issued | $1.62 | $1.46 |
Weighted Average Exercise Price Outstanding, Ending | $1.99 | $2.02 |
Weighted Average Exercise Price Vested and exercisable, Ending | $2.66 | ' |
Weighted Average Remaining Contractual Life (in years) Outstanding | '4 years 9 months 18 days | ' |
Weighted Average Remaining Contractual Life (in years) Vested and expected to vest | '4 years 8 months 12 days | ' |
Aggregate Intrinsic Value Outstanding | $24,300 | ' |
Aggregate Intrinsic Value vested and expected to vest | $17,581 | ' |
7_STOCKHOLDERS_DEFICIT_Details
7. STOCKHOLDERS DEFICIT (Details 1) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Stock Option A | ' |
Stock Options-Exercise Price, lower limit | $0.90 |
Stock Options-Exercise Price, upper limit | $1.95 |
Stock Options-Number of Options Outstanding | 460,378 |
Stock Options-Average Remaining Contractual Life (Years) | '5 years 4 months 6 days |
Stock Options-Weighted Average Excercise Price | $1.46 |
Stock Options-Currently Exercisable Number of Shares | $139,408 |
Stock Options-Weighted Average Excercise Price | $1.24 |
Stock Option B | ' |
Stock Options-Exercise Price, lower limit | $3.50 |
Stock Options-Exercise Price, upper limit | $8.61 |
Stock Options-Number of Options Outstanding | 70,000 |
Stock Options-Average Remaining Contractual Life (Years) | '1 year 4 days |
Stock Options-Weighted Average Excercise Price | $5.50 |
Stock Options-Currently Exercisable Number of Shares | 70,000 |
Stock Options-Weighted Average Excercise Price | $5.50 |
Stock Option Totals | ' |
Stock Options-Exercise Price, lower limit | $0.90 |
Stock Options-Exercise Price, upper limit | $8.61 |
Stock Options-Number of Options Outstanding | 530,378 |
Stock Options-Average Remaining Contractual Life (Years) | '4 years 9 months 18 days |
Stock Options-Weighted Average Excercise Price | $1.99 |
Stock Options-Currently Exercisable Number of Shares | $209,408 |
Stock Options-Weighted Average Excercise Price | $2.66 |
8_INCOME_TAXES_Details
8. INCOME TAXES (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Net current deferred income tax assets related to: | ' | ' |
Allowance for doubtful accounts | $75,000 | $0 |
Depreciation and amortization | 137,000 | 131,000 |
Stock-based expenses | 91,000 | 91,000 |
Accrued liabilities b litigation expenses | 12,000 | 833,000 |
Other liabilities | 62,000 | 7,000 |
Other | 7,000 | 0 |
Net operating loss carryforwards | 28,601,000 | 26,677,000 |
Total | 28,985,000 | 27,739,000 |
Less valuation allowance | -28,985,000 | -27,739,000 |
Net current deferred income tax | $0 | $0 |
8_INCOME_TAXES_Details_1
8. INCOME TAXES (Details 1) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Tax Disclosure [Abstract] | ' | ' |
Tax benefit from continuing operations computed at statutory rate of 34% | ($9,337,000) | ($1,451,000) |
State income tax benefit from continuing operations, net of federal effect | -1,251,000 | -204,000 |
Stock based compensation | 24,000 | -13,000 |
Loss on debt extinguishment | 8,402,000 | 0 |
Other | 3,000 | 1,000 |
Expiration of net operating loss carryforwards | 939,000 | 0 |
Change in valuation allowance - continuing operations | 2,185,000 | 1,566,000 |
Totals | 0 | 0 |
Tax expense (benefit) from discontinued operations | -26,000 | 101,000 |
Change in valuation allowance - discontinued operations | 26,000 | 101,000 |
Net income tax expense, discontinued operations | $0 | $0 |
8_INCOME_TAXES_Details_Narrati
8. INCOME TAXES (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | ||
Income Taxes Details Narrative | ' | |
Federal net operating loss carryforward | $74,000,000 | |
Expiration of carryforward | 1-Jan-14 | [1] |
[1] | expire between 2014 and 2033 |
9_MAJOR_CUSTOMERS_AND_CONCENTR1
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details Narrative) | 12 Months Ended | |||
Dec. 31, 2013 | Dec. 31, 2013 | Dec. 31, 2013 | Dec. 31, 2012 | |
Two customers Revenue | Five customers Revenue | Three customers accounts receivable | Two customers Accounts receivable | |
% Concentration | 23.00% | 64.00% | 58.00% | 76.00% |