| Summary of Significant Accounting Policies | Note
2. Summary of Significant Accounting Policies Basis
of Accounting and Presentation These
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States Foreign
Currency Translation The
reporting currency of the Company is the United States dollar. Assets and liabilities of operations other than those denominated
in U.S. dollars, primarily in Switzerland, the United Kingdom and China, are translated into United States dollars at the rate
of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout
the period. Gains or losses from these translations are reported as a separate component of other comprehensive income
(loss) until all or a part of the investment in the subsidiaries is sold or liquidated. The translation adjustments
do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations. Transaction
gains and losses that arise from exchange-rate fluctuations on transactions denominated in a currency other than the functional
currency are included in general and administrative expenses. Cash Cash
and cash equivalents include bank demand deposit accounts and highly liquid short term investments with maturities of three months
or less when purchased. Cash consists of checking accounts held at financial institutions in the United Kingdom, Switzerland,
Ireland, Singapore, Hong Kong and China which, at times, balances may exceed insured limits. The Company has not experienced
any losses related to these balances, and management believes the credit risk to be minimal. Accounts
Receivable Accounts
receivable result primarily from sale of software and licenses to customers and are recorded at their principal amounts. The categories
of sales and receivables and their terms of payment are as follows:
a) Master
License Agreement (Agreement) deposits these deposits are payable in accordance with the terms of the Agreement.
The deposits are invoiced and recognized when the Agreement is signed providing the deposits are due to be received within
12 months. When the deposits under the Agreement are due in later periods, the later deposits are invoiced when they are due.
b) Maintenance
and operational fees and end user licenses fees these charges are invoiced and recognized when
a customer is due to pay them under the Agreement. In some Agreements, the charges are invoiced and
payable when the service/licenses have been delivered by the Company. In the other cases, the Company
has agreed to payments on revenue share basis whereby the Company will receive an agreed proportion
of a customers revenue from its operation of the Horizon service. On revenue share basis, the
income for maintenance and operational fees together with end user licenses fees are not recognized
until these charges are invoiced and due. In September 2014, the Company reported that it had
converted a significant number of its customers to a revenue share basis of collection (prior revenue
was recognized in accordance with revenue recognition policies - see note in Revenue Recognition) and
the balance outstanding at the point of conversion for those customers will be collected prior
to the commencement of recognizing income on revenue share basis. In addition, on revenue share basis,
the Company also offers a hosted service where a customer can buy vouchers for resale of minutes to
be used over the Public Service Telephone Network ("PTSN"). These voucher sales are recognized when
invoiced and payment terms are 30 days. Accounts
receivable balances from certain customers arose from revenue recognised prior to September 30, 2014. The effective date
as of which many of the companys customers entered into revenue sharing arrangements. Those revenue sharing arrangements
changed the basis under which the customers would pay their existing balances, as described, effective starting as early
as October 1, 2014. Revenue
that has been recognized under category b), prior to the Companys conversion of Tier 2 customers to revenue share
arrangements on October 1, 2014, was based on invoices provided to customers as payments became due. As of December 31,
2015, a significant portion of those receivables remain uncollected, which management attributes in part to the Companys
conversion of those customers to a revenue share arrangement. Considering the effects of the revenue share arrangements
on collection of accounts receivable and the timing of those collections, along with other factors, management has estimated
the amounts they expect to collect within 12 months of the balance sheet date from those customers operating under revenue
share arrangements. The portion of the receivable balance expected to be received in more than 12 months is considered
a non-current receivable. The Company maintains its belief that current and non-current accounts receivable continue to
be due from their customers. Further, management is of the belief that its customers are contractually obligated to pay
the full amount due as provided under the Master License Agreements executed by each of its customers. Regardless, management
has considered the collectability of those receivables classified as long-term in terms of providing an appropriate allowance
for the slow-paying nature of these accounts. For receivables classified as long-term, management believes there is general
uncertainty in the collection of those balances and the timing of those collections, taken as a whole, and has increased
the general provision for doubtful accounts to cover accounts receivable balances expected to be collected beyond 12 months
from the balance sheet date. The slow-pay uncertainties arise from a number of factors, including the effects of revenue
share arrangements, the extended time customers are talking to generate significant revenue under revenue share arrangements,
and general technological changes in the industry.
c) Software
consultancy fees When customers require customization of software, the Company quotes a flat project amount or a daily
rate for the work. When a Customer has confirmed their approval of the quote and the work has been undertaken, the Company
will invoice consultancy fee and recognize the revenue. The terms of payment are fixed terms and normally 30 days of the date
of the invoice.
d) Hardware
fees Hardware fees represent the fees the Company charges for the supply of ancillary equipment which customers occasionally
ask us to source and supply. The Company quotes the price prior to the delivery and upon delivery, invoices the customer
with payment due within stated terms, normally 30 days from the date of the invoice. When
necessary, the Company provides an allowance for doubtful accounts that is based on a review of outstanding receivables, historical
collection information, and current economic conditions. The Company has strong collection history in all categories above except
category b), and generally does not believe that an allowance for doubtful accounts for these categories except category b) is
necessary. For receivables in category b), when the Company becomes aware of a customers inability to meet its financial
obligations, such as in the case of bankruptcy or deterioration in the customers operating results, financial position,
or credit rating, the Company records a specific reserve for bad debts to reduce the related receivable to the amount it believes
to be collectable. The Company records a general allowance for doubtful collections for those accounts receivable considered to
be slow paying, on the basis described above for accounts receivable balances of customers under category (b) above. There was
an allowance of $6,055,000 and $492,000 for doubtful accounts at December 31, 2015 and December 31, 2014, respectively. Receivables
are generally unsecured. Account balances are charged off against the allowance when the Company determines that certain receivable
will probably not be recovered. The Company does not have off-balance sheet credit exposure related to its customers. As of
December 31, 2015 and December 31, 2014, two customers accounted for 24% and 28%, respectively, of the accounts receivable balance. When
a portion of the receivable balances of certain customers under category (b) above, is expected to be received in more than 12
months, the relevant balances are shown as a non current asset. Due to an uncertainty in the timing of the receipt of these balances
the Company has decided to provide a general provision covering these balances. The Company retains it belief that the balances
are recoverable and when recovery is achieved the appropriate reduction in the general provision will be shown. Property
and Equipment Property
and equipment is primarily comprised of leasehold property improvements, motor vehicles and equipment that are recorded at cost
and depreciated or amortized using the straight-line method over their estimated useful lives as follows: motor vehicles
5 years, equipment between 3 and 5 years, leasehold property improvements, over the lesser of the estimated remaining useful
life of the asset or the remaining term of the lease. Repairs
and maintenance are charged to expense as incurred. Expenditures that substantially increase the useful lives of existing
assets are capitalized. Investment Cost-based
investments includes investments in companies for which we do not have the ability to exercise significant influence. The cost-based
investments are analyzed for impairment based on current market and other factors relevant to the investments. No impairment was
considered necessary as of December 31, 2015 or 2014. As of December 31, 2015 and 2014, we had $18,000 and $19,000 respectively
of cost-based investments on our balance sheet. Fair
Value Measurements Fair
value is defined as the exchange price that will be received for an asset or paid to transfer a liability (an exit price) in the
principal. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize
the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on
three levels of inputs, of which the first two are considered to be observable and the third unobservable: Level
1 Quoted prices in active markets for identical assets or liabilities. Level
2 Inputs other than Level 1 that are observable, either directly or indirectly, 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 are supported by little or no market activity and are significant to the fair value of the assets
or liabilities. Intangible
Assets Intangible
assets include software development costs and customer lists and are amortized on a straight-line basis over the estimated useful
lives of five years for customer lists and ten years for software development. The Company periodically evaluates whether
changes have occurred that would require revision of the remaining estimated useful life. The Company performs periodic
reviews of its capitalized intangible assets to determine if the assets have continuing value to the Company. The
Company expenses software development costs as incurred until technological feasibility has been established, at which time those
costs are capitalized until the product is available for general release to customers. Judgement is required in determining when
technological feasibility of a product is established. The Company has determined that after technological feasibility for software
products is reached, the Company continues to address all high risk development issues through coding and testing prior to the
release of the products to customers. The amortization of these costs is included in cost of revenue over the estimated life of
the products. During
the years ended December 31, 2015 and 2014 software development costs of $1,063,000 and $1,122,000, respectively, have been capitalized. Impairment
of Other Long-Lived Assets The
Company evaluates the recoverability of its property and equipment and other long-lived assets whenever events or changes in circumstances
indicate impairment may have occurred. An impairment loss is recognized when the net book value of such assets exceeds
the estimated future undiscounted cash flows attributed to the assets or the business to which the assets relate. Impairment
losses, if any, are measured as the amount by which the carrying value exceeds the fair value of the assets. During
the years ended December 31, 2015 and 2014 the Company identified no impairment losses related to the Companys long-lived
assets. Revenue
Recognition The
Company recognizes revenue when it is realized or realizable and earned. The Company establishes persuasive evidence
of a sales arrangement for each type of revenue transaction based on a signed contract with the customer and that delivery has
occurred or services have been rendered, price is fixed and determinable, and collectability is reasonably assured.
● Software
and licenses revenue from sales of perpetual licenses to telecom entities is recognized at the date of invoices raised
for installments due under the agreement, unless payment terms exceed one year, as described below, presuming all other
relevant revenue recognition criteria are met. Revenue from sales of perpetual licenses to other entities is recognized over
the agreed collection period
● Revenue for user licenses
purchased by customers is recognized when the user license is delivered except as set out below.
● Revenue for maintenance
services is recognized over the period of delivery of the services except as set out below.
● Effective as of October
1, 2014, the Company amended certain existing customer contracts with respect to the terms under which those customers would
pay the Company for perpetual licenses, user licenses and maintenance services provided by the Company. Existing customer
contracts required payments for maintenance services to be made based on contractually specified fixed amounts, which
were billed regularly through September 2014. Through that date the Company recorded revenue for licenses and maintenance
services when those licenses and services were billed. Revenue for user licenses was recorded as earned and revenue for maintenance
services was recorded based on a fixed annual fee, billed quarterly. The Company has modified the payment terms under certain
of those existing customer contracts by entering into Revenue Sharing agreements with those customers. Under the terms of
these Revenue Sharing agreements, future payments will be due from the customer when that customer has generated revenue from
its customers who subscribe to use the Horizon products and services. Effective October 1, 2014 revenue will be recorded by
the Company when it invoices the customer for the revenue share due to the Company. Certain customers who entered into revenue
sharing arrangements had outstanding balances due to the Company as of September 30, 2014, which balances were included in
accounts receivable at that date. Payments received after September 30, 2014, from those customers under revenue sharing agreements
have been applied to the customers existing accounts receivable balances first. For those customers having balances
due at September 30, 2014, revenue related to perpetual and user licenses and maintenance services will be recorded only after
existing accounts receivable balances are fully collected.
● Revenues from Aishuo retail
sales are recognized when the PSTN calls and texts are made by the customer Where
the Company has entered into a Revenue Share with the customer, then all future revenue from granting of user licenses and for
maintenance services will be recognized when the Company has delivered user licenses and is entitled to invoice. The
Company enters into arrangements in which a customer purchases a combination of software licenses, maintenance services and post-contract
customer support (PCS). As a result, judgment is sometimes required to determine the appropriate accounting, including
how the price should be allocated among the deliverable elements if there are multiple elements. PCS may include rights to upgrades,
when and if available, support, updates and enhancements. When vendor specific objective evidence (VSOE) of fair value
exists for all elements in a multiple element arrangement, revenue is allocated to each element based on the relative fair value
of each of the elements. VSOE of fair value is established by the price charged when the same element is sold separately. Accordingly,
the judgments involved in assessing the fair values of various elements of an agreement can impact the recognition of revenue
in each period. Changes in the allocation of the sales price between deliverables might impact the timing of revenue recognition,
but would not change the total revenue recognized on the contract. When elements such as software and services are contained in
a single arrangement, or in related arrangements with the same customer, we allocate revenue to each element based on its relative
fair value, provided that such element meets the criteria for treatment as a separate unit of accounting. In the absence of fair
value for a delivered element, revenue is first allocated to the fair value of the undelivered elements and then allocated to
the residual delivered elements. In the absence of fair value for an undelivered element, the arrangement is accounted for as
a single unit of accounting, resulting in a delay of revenue recognition for the delivered elements until the undelivered elements
are fulfilled. No sales arrangements to date include undelivered elements for which VSOE does not exist. For
purposes of revenue recognition for perpetual licenses, the Company considers payment terms exceeding one year as a presumption
that the fee in the transaction is not fixed and determinable. This presumption however, may be overcome
if persuasive evidence demonstrates that the Company has a business practice of extending payment terms and has been successful
in collecting under the original terms, without providing any concessions. In doing so, the Company considers if the
arrangement is sufficiently similar to historical arrangements in terms of similar customers and products is assessing whether
there is evidence of a history of successful collection. In
order to determine the companys historical experience is based on sufficiently similar arrangements, the Company considers
the various factor including the types of customers and products, product life cycle, elements Included in the arrangement, length
of payment terms and economics of license arrangement. If
the presumption cannot be overcome due to a lack of such evidence, revenue should be recognized as payments become due, assuming
all other revenue recognition criteria has been met. During
2015 78% of the Companys revenue was concentrated in the hands of two major customers. Leases Leases
are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases. Assets
held under finance leases are recognized as assets of the Company at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in
the balance sheet as finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged
directly against income. Rentals
payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits
received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease
term. Advertising
Expenses It
is the Companys policy to expense advertising costs as incurred. Advertising costs totaling $30,000 were incurred during
the year ended December 31, 2015 (2014: $0). Research
and Development Expenses Research
and development expenses include all direct costs, primarily salaries for Company personnel and outside consultants, related to
the development of new products, significant enhancements to existing products, and the portion of costs of development of internal-use
software required to be expensed. Research and development costs are charged to operations as incurred with the exception of those
software development costs that may qualify for capitalization. The Company incurred research and development costs in the amount
of $579,000 and $379,000 in the years ended December 31, 2015 and 2014, respectively. Debt
Issue Costs Debt
issue costs related to long-term debt are capitalized and amortized over the term of the related debt using the effective interest
method. Income
Taxes Deferred
income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets
and liabilities, operating loss, and tax credit carryforwards, and are measured using the enacted income tax rates and laws that
will be in effect when the differences are expected to be recovered or settled. Realization of certain deferred income
tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction. The Company records
a valuation allowance to reduce deferred income tax assets to amounts that are more likely than not to be realized. The
initial recording and any subsequent changes to valuation allowances are based on a number of factors (positive and negative evidence). The
Company considers its actual historical results to have a stronger weight than other, more subjective, indicators when considering
whether to establish or reduce a valuation allowance. The
Company continually evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits
resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest
and penalties are recorded as a component of interest expense and other expense, respectively. Because
tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company
makes certain estimates and assumptions in: (1) calculating its income tax expense, deferred tax assets, and deferred tax liabilities;
(2) determining any valuation allowance recorded against deferred tax assets; and (3) evaluating the amount of unrecognized tax
benefits, as well as the interest and penalties related to such uncertain tax positions. The Companys estimates
and assumptions may differ significantly from tax benefits ultimately realized. Net
Loss per Share Basic
net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of
common shares outstanding in the period. Diluted loss per share takes into consideration common shares outstanding
(computed under basic loss per share) and potentially dilutive securities. For the years ended December 31, 2015
and 2014, outstanding stock options, warrants and convertible debt are antidilutive because of net losses, and as such, their
effect has not been included in the calculation of diluted net loss per share. Common shares issuable are considered
outstanding as of the original approval date for purposes of earnings per share computations. Accumulated
Other Comprehensive Income (Loss) Other
comprehensive income (loss), as defined, includes net income (loss), foreign currency translation adjustment, and all changes
in equity (net assets) during a period from non-owner sources. To date, the Company has not had any significant transactions
that are required to be reported in other comprehensive income (loss), except for foreign currency translation adjustments. Use
of Estimates The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the fiscal year. The
Company makes estimates for, among other items, useful lives for depreciation and amortization, determination of future cash flows
associated with impairment testing for long-lived assets, determination of the fair value of stock options and warrants, valuation
allowance for deferred tax assets, allowances for doubtful accounts, and potential income tax assessments and other contingencies. The
Company bases its estimates on historical experience, current conditions, and other assumptions that it believes to be reasonable
under the circumstances. Actual results could differ from those estimates and assumptions. Financial
Instruments The
carrying amounts of our financial assets and liabilities such as cash, current accounts receivable and accounts payable approximate
their fair values based on level 1 inputs in the fair value hierarchy because of the short maturity of these instruments. Due
to the conversion features and other terms, it is not practical to estimate the fair value of amounts due to related parties and
long term debt. Share-Based
Compensation The
Company accounts for share-based awards at fair value on date of grant and recognizes compensation over the service period for
awards expected to vest. The fair value of stock options is determined using the Black-Scholes option pricing model,
which includes subjective judgements about the expected life of the awards, forfeiture rates and stock price volatility. The Company
issues new shares of common stock to satisfy exercises and vesting of awards, granted under our stock plans. Recently
Issued Accounting Standards In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) No.
2014-09, Revenue from Contracts with Customers In
November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17, Income
Taxes Balance Sheet Reclassification of Deferred Taxes (Topic 740) In
April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends ASC 835-30,
Interest Imputation of Interest. This ASU requires that debt issuance costs related to borrowings be presented
in the balance sheet as a direct deduction from the carrying amount of the borrowing. This treatment is consistent with debt discounts.
The ASU does not affect the amount or timing of expenses for debt issuance costs. The effective date will be the first quarter
of fiscal year 2017 and will be applied retrospectively. The adoption will not have a material effect on the company's consolidated
financial statements. In
August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with
Line-of-Credit Arrangements, which amends ASC 835-30, Interest Imputation of Interest. This ASU clarifies
the presentation and subsequent measurement of debt issuance costs associated with lines of credit. These costs may be presented
as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding
borrowings on the arrangement. The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively.
The adoption will not have a material effect on the company's consolidated financial statements. In
2015, the FASB issued new guidance related to consolidations. The new standard amends the guidelines for determining whether certain
legal entities should be consolidated and reduces the number of consolidation models. The new standard is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. We are evaluating
the impact, if any, of adopting this new accounting guidance on our consolidated financial statements. |
