| Summary of Significant Accounting Policies | Note
2. Summary of Significant Accounting Policies Reclassification Certain
amounts in the 2015 financial statements have been reclassified to conform to the 2016 financial presentation. These reclassifications
have no impact on net loss. 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, Ireland, 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
b) Software
consultancy and hardware fees
c) Maintenance
and operational fees and end user licenses fees The
revenue share agreement was introduced in October 2014, and at that time the Company reported that it had converted a significant
number of its customers to a revenue share basis of collection. Accounts receivable balances from certain customers arose from
revenue recognised prior to September 30, 2014 (prior revenue was recognized in accordance with revenue recognition policies in
place at that time - see Revenue Recognition note). Those revenue share arrangements changed the basis under which the customers
would pay their existing balances, as described, effective starting as early as October 1, 2014. At
December 31, 2015 a significant portion of those receivables that will be paid under the revenue share agreement remained uncollected.
Considering the effects of the revenue share arrangements on collection of accounts receivable and the timing of those collections,
along with other factors, management estimated the amount of existing accounts receivable 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 collected in more than 12 months was considered a non-current receivable. The Company maintains its opinion that
current and non-current accounts receivable continue to be due from their customers. Further, management is of the opinion 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. At
December 31, 2015, management believed there was general uncertainty in the collection of those balances considered long-term
and increased the general provision for doubtful accounts by $5.7 million to cover those balances. 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. At
June 30, 2016, due to continuing uncertainty in the timing of collections of amounts due from certain customers, management reassessed
the collectability of its accounts receivable balances and has decided to write off balances where there is significant uncertainty
over the timing of the collection against the allowance previously recorded. As
a result of the management decision the amount of the gross accounts receivable has been reduced by $6.0 million and the allowance
for doubtful accounts has been similarly reduced. As at June 30, 2016 the remaining allowance for doubtful accounts is at $238,000
of which $200,000 has been provided in 2016. For
any future collections of amounts written off, the Company will account for those as recoveries of written-off receivables, and
will include those amounts in other income (non-operating income). The
Company has strong collection history in category a) and category b) and generally does not believe that an allowance for doubtful
accounts for these categories is necessary. For accounts receivable in category c) the Company records an allowance for doubtful
accounts for the receivable balance that is expected to be collected under revenue share arrangements in more than 12 months.
There was an allowance of $238,000 and $6,055,000 for doubtful accounts at June 30, 2016 and December 31, 2015, 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. 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. 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 all costs related to the development of internal-use software as incurred, other than those incurred during the
application development stage, after achievement of technological feasibility. Costs incurred in the application development
stage are capitalized and amortized over the estimated useful life of the software. Internally developed software costs
are amortized on a straight-line basis over the estimated useful life of the software. The Company performs periodic
reviews of its capitalized software development costs to determine if the assets have continuing value to the Company. Costs
for assets that are determined to be of no continuing value are written off. The amortization of these costs is included in cost
of revenue over the estimated life of the products. During
the six months ended June 30, 2016 and 2015, software development costs of $207,000 and $560,000, 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 six months ended June 30, 2016 and 2015, 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 a customer and that a delivery has
occurred or services have been rendered, the 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.
●
Revenues for user licenses
purchased by customers are recognized when the user license is delivered.
●
Revenues for maintenance
services are recognized over the period of delivery of the services.
●
Effective
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. Hosted services are offered to customers on revenue share
arrangements whereby the Company can provide fully terminated services and sells vouchers for minutes
which can be resold by the customer. Sales for this service are recognized when the supply is made
and the invoice raised. Effective
October 1, 2014, revenue has been 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 as 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 are 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. 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. We
enter into arrangements with telecommunication entities 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 multiple deliverable 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 factors including the types of customers and products, product life cycle, elements Included in the arrangement, length
of payment terms and economics of license arrangement. During
the three months ended June 30, 2016, $272,000 or 74% of the Companys revenue was concentrated in the hands of one major
customer. In the three months ended June 30, 2015 the equivalent amount was $35,000 or 32% of the revenue. During the six months
ended June 30, 2016, $795,000 or 81% of the Companys revenue was concentrated in the hands of one major customer. In the
six months ended June 30, 2015, $500,000 or 59% of the Companys revenue was concentrated in the hands of one major customer Advertising
Expenses It
is the Companys policy to expense advertising costs as incurred. Advertising costs incurred during the six month
periods ended June 30, 2016 and 2015 were $39,000 and $nil respectively. Research
and Development Expenses Research
and development expenses include all direct costs, primarily salaries for Company personnel and outside consultants, costs 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 expensed research and
development costs in the six month period ended June 30, 2016 and 2015 of $374,000 and $322,000 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 three and six month periods ended
June 30, 2016 and 2015, 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 loss, foreign currency translation adjustments, 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, determining
fair values of assets acquired and liabilities assumed in business combinations, 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 value of our financial assets and liabilities such as cash, 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 stock-based awards at fair value on date of grant and recognition of compensation over the service period
for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model,
which includes subjective judgments about the expected life of the awards, forfeiture rates and stock price volatility. Recently
Issued Accounting Standards Not Yet Adopted In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09
Revenue From Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S.
GAAP. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs
incurred to obtain or fulfill a contract. The
original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter 2017. In July
2015, the FASB voted to amend ASU 2014-09 by approving a one year deferral of the effective date as well as providing the option
to early adopt the standard on the original effective date. Accordingly, the Company may adopt the standard in either its first
quarter of 2017 or 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively
with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the timing of its adoption
and the impact of adopting the new revenue standard on its consolidated financial statements. Recently
Issued Accounting Standards Adopted There
have been no significant changes to the Companys significant accounting policies as described in the Companys Annual
Report on Form 10-K for the year-ended December 31, 2015. During the three months ended March 31, 2016, the Company adopted Accounting
Standards Update (ASU) ASU 2015-03, Simplifying the Presentation of Debt Issuance Cost |
