1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONCERN

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Disclosure - 1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONCERN

1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONCERN

Description of Business and Going Concern - Smart Online, Inc. (the “Company”) was incorporated in the State of Delaware in 1993. The Company develops and markets software products and   services tailored to mobile devices that are delivered via a Software-as-a-Service (“SaaS”) model. The Company’s principal products and services include:

- Mobile device applications used to provide specialized communications and e-commerce opportunities for businesses and not-for-profit organizations.

- SaaS applications for business management, web marketing, and e-commerce;

- Software business tools that assist customers in developing written content;

- Services that are designed to complement our product offerings and allow us to create custom business solutions that fit our end users’ and channel partners’ needs;

- Services that assist not-for-profit organizations in their fundraising efforts.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the years ended December 31, 2012 and 2011, the Company incurred net losses as well as negative cash flows, and at December 31, 2012 and 2011, had deficiencies in working capital. These factors indicate that the Company may be unable to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern depends upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations and positive cash flows. At December 31, 2012, the Company does have a commitment from its secured subordinated noteholders to purchase up to an additional $2.8 million in convertible notes, of which $1,260,000 was issued through March 21, 2013 (Note 6). The Company’s future plans include the introduction of its new industry-standard platform, the development of additional new products and applications, and further enhancement of its existing small-business applications and tools.