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BALANCE SHEET ACCOUNTS

3 Months Ended

Mar. 31, 2012

Capitalized software consists of the following:

The Company began capitalizing the development of the costs associated with its SmartOn Mobile platform on October 1, 2011. The Company demonstrated technological feasibility through the presentation of its working model of the software product. During the three months ended March 31, 2012, the Company capitalized $250,481 of costs incurred to continue the development of its platform. The Company will continue to capitalize costs associated with the further development of additional AppBlocks (functional components), for its SmartOn Mobile platform. The Company officially released the product platform on February 28, 2012 and began amortizing the capitalized costs at that date on a straight-line basis over a seven-year period, which is anticipated to approximate the economic life of the current platform.

	March 31, 2012			December 31, 2011
Capitalized software	$	422,991		$	172,510
Less accumulated amortization		(4,015	)		-
Capitalized software, net	$	418,976		$	172,510

Intangible assets consist of the following:

	March 31, 2012			December 31, 2011
Software license	$	108,534		$	108,534
Patent development costs		15,037			9,151
Less accumulated amortization		(1,291	)		-
Intangible assets, net	$	122,280		$	117,685

Amortization expense for the three months ended March 31, 2012 and 2011 was $5,306 and $0, respectively.

Accrued liabilities consisted of the following:

	March 31,		December 31,
	2012		2011
Nouri legal fee settlement (See Note 4)	$	67,227	$	217,227
Accrued payroll and related costs		41,245		-
Custom accounting development cost		75,436		75,436
Hosting service costs		27,444		27,444
Professional services		3,791		3,791
Interest payable to IDB and Bondholders (See Note 3)		189,325		179,569
Other accrued items		13,892		17,500
	$	418,360	$	520,967

Settlement related financial instrument liability:

The Company generally does not use derivative instruments to hedge exposures to cash-flow risks or market risks that may affect the fair values of its financial instruments. However, in connection with the Company’s Class Action lawsuit settlement approved by the District Court on July 1, 2011, we are required to issue 1,475,000 shares of our common stock to the Class Action class. Through July 1, 2011, our liability related to these shares was accounted for as an accrued liability on our balance sheet and changes in the value of the shares were generally not reflected on our statements of operations, absent certain significant events, such as the approval of the settlement. Now that the Class Action has been settled, because we have not yet issued the shares, the liability is now accounted for as a financial instrument liability on our balance sheet and, until the shares are issued, changes in their value will be reflected on our statements of operations as losses or gains, as applicable. The number of shares to be issued will not change, and these losses or gains are not cash items that will impact our income or loss from operations.

The following tabular presentation reflects the components of derivative assets and liabilities as of March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
Shares into which financial instrument liability can be settled:
Unrestricted shares of common stock, when issued		1,475,000		1,475,000

	March 31, 2012		December 31, 2011
Settlement related financial instrument liability at fair value:
Fair value of unrestricted shares of common stock	$	2,050,250	$	1,770,000

The following tabular presentation reflects the (loss) in the fair value of financial instruments for the three months ended March 31, 2012 and 2011:

3 months

ended

March 31,

2012

3 months

ended

March 31

2011

Change in market value of settlement related financial instruments in the accompanying statement of operations is related to the Class Action settlement approved by the District Court on July 1, 2011

Unrestricted shares of common stock

(280,250

)