| Summary of Significant Accounting Policies | Note
2. Summary of Significant Accounting Policies Liquidity
and Capital Resources As
we continue to pursue our operations and our business plan, we expect to incur further losses in 2017, which when combined with
our continued investment in our intellectual property, will generate negative cash flows. As of March 31, 2017, the Company did
not have any available credit facilities. As a result, we are in the process of seeking new financing by way of sale of either
convertible debt or equities. Whilst we have been successful in the past in obtaining the necessary capital to support our investment
and operations there is no assurance that we will be able to obtain additional financing under acceptable terms and conditions,
or at all. In the event, we are unable to obtain sufficient additional funding when needed in order to fund our ongoing research
and development activities as well as our operations, we would not be able to continue as a going concern and maybe forced to
severely curtail or cease operations and liquidate the Company. The
condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of
assets or amounts of liabilities that might result from the outcome of these uncertainties. Our current independent registered
public accounting firm included a paragraph emphasizing this going concern uncertainty in their audit report dated April 10, 2017,
regarding our 2016 financial statements. 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. 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 Receivables
are generally unsecured. The
Company does not have off-balance sheet credit exposure related to its customers. As of March 31, 2017 and December 31, 2016,
two customers accounted for 55% and 61%, respectively, of the accounts receivable balance. 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. Based on these valuations, no impairment
charges were recognized during the three months ended March 31, 2017. 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. Judgment 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 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 three months ended March 31, 2017 and 2016 software development costs of $129,000 and $116,000 respectively, have been capitalized. 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 when payments are due under extended payment term arrangements. 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.
● Revenue for maintenance services is recognized
over the period of delivery of the services.
● Revenues from Aishuo retail sales are recognized
when the Public Switched Telephone Network (“PSTN”) calls and texts are made. 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. During
the three months ended March 31, 2017, $287,000 or 30% of the Company’s revenue was concentrated in the hands of one major
customer. In the three months ended March 31, 2016 the equivalent amount was $523,000 or 86% of the revenue. 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. Debt
Issue Costs Debt
issue costs related to long-term debt are shown as a reduction of debt outstanding 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 Company’s estimates and assumptions
may differ significantly from tax benefits ultimately realized. Historically the Company has not filed income tax returns and
the related required informational filings in the US. Certain informational filings if not filed contain penalties. The Company
is currently addressing this issue with advisors to determine the amount, if any, of potential payments due. Given the complexity
of the issue the Company is unable to quantify a range of potential loss, if any. Accordingly no liability has been recorded in
the accompanying condensed consolidated balance sheets in respect of this matter 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 month periods ended March 31,
2017 and 2016, 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. 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 option pricing model,
which includes subjective judgements about the expected life of the awards, forfeiture rates and stock price volatility. |
