2. BALANCE SHEET ACCOUNTS

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

2. BALANCE SHEET ACCOUNTS

Capitalized software consists of the following:

The Company began capitalizing the development of the costs associated with its Mobile platform on October 1, 2011.  The Company demonstrated technological feasibility through the presentation of its working model of the software product.  During the nine months ended September 30, 2012, the Company capitalized $749,160 of costs incurred to continue the development of its platform and AppBlocks.  The Company will continue to capitalize costs associated with the further development of additional AppBlocks (functional components) for its 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. 

	September 30, 2012			December 31, 2011
Capitalized software	$	921,670			172,510
Less Accumulated amortization		(48,439	)		-
Capitalized software, net	$	873,231			172,510

Intangible assets consist of the following:

	September 30, 2012			December 31, 2011
Software license	$	108,534			108,534
Patent development costs		26,399			9,151
Less Accumulated amortization		(9,044	)		-
Intangible assets, net	$	125,889			117,685

Amortization expense for the three and nine months ended September 30, 2012 and 2011 were $30,069 and $57,483 for 2012 and $-0- and $-0- for 2011, respectively

Accrued Liabilities

Accrued liabilities, including the accrued liabilities related to the Company’s litigation related to certain Nouri Parties (see Note 4 below), consisted of the following:

	September 30,		December 31,
	2012		2011
Nouri legal fee settlement	$	67,227	$	217,227
Accrued payroll and related costs		40,838		-
Custom accounting development cost		75,436		75,436
Hosting service costs		-		27,444
Professional services		12,430		3,791
Interest payable to IDB and Bondholders (See Note 3)		271,414		179,569
Other accrued items		5,508		17,500
	$	472,853	$	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, and 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 September 30, 2012 and December 31, 2011:

	September 30, 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

	September 30, 2012		December 31, 2011
Settlement related financial instrument liability at fair value:
Fair value of unrestricted shares of common stock	$	2,212,500	$	1,770,000

The following tabular presentation reflects the (loss) in the fair value of financial instruments for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		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	$	-	$	295,000	$	442,500	$	295,000