| Summary of Significant Accounting Policies | 2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES This
summary of significant accounting policies of CloudCommerce is presented to assist in understanding the Company’s Condensed
Consolidated Financial Statements Consolidated Financial
Statements Consolidated Financial Statements The
Condensed Consolidated Financial Statements include the Company and its wholly owned subsidiaries, CLWD Operations, Inc., a Delaware
corporation (“CLWD Ops”, formerly Indaba Group, Inc.), Parscale Digital, Inc., a Nevada corporation (“Parscale
Digital”), WebTegrity, Inc., a Nevada corporation (“WebTegrity”), Data Propria, Inc., a Nevada corporation (“Data
Propria”), Parscale Media, LLC, a Texas limited liability company (“Parscale Media”), and Giles Design Bureau,
Inc., a Nevada corporation (“Giles Design Bureau”). All significant inter-company transactions are eliminated in consolidation. Accounts
Receivable The
Company extends credit to its customers, who are located nationwide. Accounts receivable are customer obligations due under normal
trade terms. The Company performs continuing credit evaluations of its customers’ financial condition. Management reviews
accounts receivable on a regular basis, based on contracted terms and how recently payments have been received to determine if
any such amounts will potentially be uncollected. The Company includes any balances that are determined to be uncollectible in
its allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off. The
balance of the allowance account at March 31, 2019 On
November 30, 2016, CLWD Operations entered into a 12-month agreement wherein amounts due from our customers were pledged to a
third party, in exchange for a borrowing facility in amounts up to a total of $400,000. The agreement was amended on March 23,
2017, which increased the allowable borrowing amount by $100,000, to a maximum of $500,000. On November 30, 2017, the agreement
auto renewed for another twelve months. The proceeds from the facility are determined by the amounts we invoice our customers.
We record the amounts due from customers in accounts receivable and the amount due to the third party as a liability, presented
as a “Lines of credit” on the Balance Sheet. During the term of this facility, the third-party lender has a first
priority security interest in CLWD Operations, and therefore, we will require such third-party lender’s written consent
to obligate CLWD Operations further or pledge our assets against additional borrowing facilities. Because of this position, it
may be difficult for CLWD Operations to secure additional secured borrowing facilities. The cost of this secured borrowing facility
is 0.05% of the daily balance. As of March
31 , 2019,
the balance due from this arrangement was $38,619. On
October 19, 2017, Parscale Digital entered into a 12-month agreement wherein amounts due from our customers were pledged to a
third party, in exchange for a borrowing facility in amounts up to a total of $500,000. The proceeds from the facility are determined
by the amounts we invoice our customers. The Company evaluated this facility in accordance with ASC 860, classifying it as a secured
borrowing arrangement. We record the amounts due from customers in accounts receivable and the amount due to the third party as
a liability, presented as a “Lines of credit” on the Balance Sheet. During the term of this facility, the third-party
lender has a first priority security interest in the Company, and will, therefore, we will require such third-party lender’s
written consent to obligate the Company further or pledge our assets against additional borrowing facilities. Because of this
position, it may be difficult for the Company to secure additional secured borrowing facilities. The cost of this secured borrowing
facility is 0.05% of the daily balance. On April 12, 2018, the Company amended the secured borrowing arrangement, which increased
the maximum allowable balance by $250,000, to a total of $750,000. As of March
31, 2019 ,
the balance due from this arrangement was $186,726. On
August 2, 2018, Giles Design Bureau, WebTegrity, and Data Propria entered into 12-month agreements wherein amounts due from our
customers were pledged to a third-party, in exchange for borrowing facilities in amounts up to a total of $150,000, $150,000 and
$600,000, respectively. The proceeds from the facility are determined by the amounts we invoice our customers. We evaluated these
facilities in accordance with ASC 860, classifying as secured borrowing arrangements. We record the amounts due from customers
in accounts receivable and the amount due to the third party as a liability, presented as a “Lines of credit” on the
Balance Sheet. During the term of these facilities, the third-party lender has a first priority security interest in the respective
entities, and will, therefore, we will require such third-party lender’s written consent to obligate the entities further
or pledge our assets against additional borrowing facilities. Because of this position, it may be difficult for the entities to
secure additional secured borrowing facilities. The cost of this secured borrowing facilities is 0.056%, 0.056% and 0.049%, respectively,
of the daily balance. As of March
31, 2019 ,
the combined balance due from these arrangement was $121,771. Use
of Estimates The
preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining
the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Estimates are primarily used in our revenue recognition,
the allowance for doubtful account receivable, fair value assumptions in accounting for business combinations and analyzing goodwill,
intangible assets and long-lived asset impairments and adjustments, the deferred tax valuation allowance, and the fair value of
stock options and warrants. Cash
and Cash Equivalents The
Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of
March 31, 2019 Research
and Development Research
and development costs are expensed as incurred. Total research and development costs were zero for the three months ended March
31, 2019 and 2018. Advertising
Costs The
Company expenses the cost of advertising and promotional materials when incurred. Total advertising costs were $2,934 and $2,599
for the three months ended March 31, 2019 and 2018 Fair
value of financial instruments The
Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities are carried at cost, which approximates their fair value, due to the relatively short maturity of these instruments.
As of March 31, 2019 and December 31, 2018, the Company’s notes payable have stated borrowing rates that are consistent
with those currently available to the Company and, accordingly, the Company believes the carrying value of these debt instruments
approximates their fair value. Fair
value is defined as the price to sell an asset or transfer a liability, between market participants at the measurement date. Fair
value measurements assume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in
the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and
willing to transact an exchange. Fair value accounting and reporting establishes a framework for measuring fair value by creating
a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value
measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the
estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use
of different market assumptions and/or estimation methods could have a material effect on the estimated fair value. As
of March 31, 2019, and December 31, 2018 ,
the Company had no assets or liabilities that are required to be valued on a recurring basis. Impairment
of Long-Lived Assets The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable. To determine recoverability of a long-lived asset, management evaluates whether the
estimated future undiscounted net cash flows from the asset are less than its carrying amount. If impairment is indicated, the
long-lived asset would be written down to fair value. Fair value is determined by an evaluation of available price information
at which assets could be bought or sold, including quoted market prices, if available, or the present value of the estimated future
cash flows based on reasonable and supportable assumptions. Indefinite
Lived Intangibles and Goodwill Assets The
Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business
Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and
liabilities assumed based on their estimated fair values. Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market
participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from
acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions
to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired
less liabilities assumed is recognized as goodwill. The
Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events
or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance
with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at December 31,
2018 and determined there was no impairment of indefinite lived intangibles and goodwill. Business
Combinations The
acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate
of the fair value, at the acquisition date, of assets received, liabilities incurred or assumed, and equity instruments issued
by the Company in exchange for control of the acquiree. Any costs directly attributable to the business combination are expensed
in the period incurred. The acquiree’s identifiable assets and liabilities are recognized at their fair values at the acquisition
date. Goodwill
arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business
combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities
recognized. Concentrations
of Business and Credit Risk The
Company operates in a single industry segment. The Company markets its services to companies and individuals in many industries
and geographic locations. The Company’s operations are subject to rapid technological advancement and intense competition.
Accounts receivable represent financial instruments with potential credit risk. The Company typically offers its customers credit
terms. The Company makes periodic evaluations of the credit worthiness of its enterprise customers and other than obtaining deposits
pursuant to its policies, it generally does not require collateral. In the event of nonpayment, the Company has the ability to
terminate services. As of March 31, 2019, the Company held cash and cash equivalents in the amount of $225,096, which was held
in the operating bank accounts. Of this amount, none was held in any one account, in amounts exceeding the FDIC insured limit
of $250,000. Stock-Based
Compensation The
Company addressed the accounting for share-based payment transactions in which an enterprise receives employee services in exchange
for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such equity instruments. The transactions are accounted for using a fair-value-based
method and recognized as expenses in our statement of operations. Stock-based
compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the consolidated statement of operations during the three months
ended March 31, 2019, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as
of March 31, 2019 based on the grant date fair value estimated. Stock-based compensation expense recognized in the statement of
operations for the three months ended March 31, 2019 is based on awards ultimately expected to vest or has been reduced for estimated
forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. The stock-based compensation expense recognized in the consolidated statements of operations during
the three months ended March 31, 2019 and 2018 were $81,370 and $160,072, respectively. Basic
and Diluted Net Income (Loss) per Share Calculations Income
(Loss) per Share dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share
are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number
of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. The shares for employee options, warrants and convertible notes were used in the calculation of the
income per share. For
the three months ended March 31, 2019, the Company has excluded 151,475,799 shares of common stock underlying options, 10,000
Series A Preferred shares convertible into 100,000,000 shares of common stock, 18,025 Series B Preferred shares convertible into
450,625,000 shares of common stock, 14,425 Series C Preferred shares convertible into 144,250,000 shares of common stock, 90,000
Series D Preferred shares convertible into 225,000,000 shares of common stock, 10,000 Series E Preferred shares convertible into
20,000,000 shares of common stock and 61,086,140 shares of common stock underlying $502,067 in convertible notes, because their
impact on the loss per share is anti-dilutive. For
the three months ended March 31, 2018, the Company has excluded 154,800,000 shares of common stock underlying options, 10,000
Series A Preferred shares convertible into 100,000,000 shares of common stock, 18,025 Series B Preferred shares convertible into
450,625,000 shares of common stock, 14,425 Series C Preferred shares convertible into 144,250,000 shares of common stock, 90,000
Series D Preferred shares convertible into 225,000,000 shares of common stock, 10,000 Series E Preferred shares convertible into
20,000,000 shares of common stock and 24,660,068 shares of common stock underlying $98,640 in convertible notes, because their
impact on the loss per share is anti-dilutive. Dilutive
per share amounts are computed using the weighted-average number of common shares outstanding and potentially dilutive securities,
using the treasury stock method if their effect would be dilutive. Recently
Adopted Accounting Pronouncements Management
reviewed accounting pronouncements issued during the quarter ended March 31, 2019, and the following pronouncements were adopted
during the period. In
February 2016, the FASB issued ASU No. 2016-02, Leases (“ASC
842”). Under ASC 842, lessees are recognized as a right-of-use asset and a liability
for all , other than those that meet the definition of a short-term .
For income statement purposes, are classified as either operating
or finance. Operating are expensed on a straight-line basis, similar
to current operating , while finance result
in a front-loaded pattern, similar to current capital . Management
reviewed accounting pronouncements issued during the year ended December 31, 2018, and the following pronouncements were adopted
during the period. In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ASU
2014-09 supersedes existing guidance on revenue recognition with a five-step model for recognizing and measuring revenue from
contracts with customers. The objective of the new standard is to provide a single, comprehensive revenue recognition model for
all contracts with customers to improve comparability within industries, across industries, and across capital markets. The underlying
principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that
the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures
regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows. The guidance can be applied retrospectively
to each prior reporting period presented (full retrospective method) or retrospectively with a cumulative effect adjustment to
retained earnings for initial application of the guidance at the date of initial adoption (modified retrospective method). The
Company adopted the new standard effective January 1, 2018 using the modified retrospective method applied to those contracts
that were not completed or substantially completed as of January 1, 2018. The timing and measurement of revenue recognition under
the new standard is not materially different than under the old standard. The adoption of the new standard had an immaterial impact
on the Company’s Condensed Consolidated Financial Statements Recently
Issued Accounting Pronouncements Not Yet Adopted In
June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit
losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected
loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting
periods, and interim periods within those years, beginning after December 15, 2019. We are currently in the process of evaluating
the impact of the adoption of ASU 2016-13 on our consolidated financial statements. In
January 2017, the FASB issued 2017-04, Intangibles - Goodwill and Other Income
Taxes The
Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities
is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation
allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized. The three months
ended March 31, 2019, we used the federal tax rate of 21% in our determination of the deferred tax assets and liabilities balances.
For the 3 months ended
March 31, 2019
Current tax provision:
Federal
Taxable income $ —
Total current tax provision $ —
Deferred tax provision:
Federal
Loss carryforwards $ 2,825,579
Change in valuation allowance (2,825,579 )
Total deferred tax provision $ — |
