2. SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions in the Company’s financial statements and notes thereto. Significant estimates and assumptions made by management include the determination of performance obligations and the allocation of consideration among performance obligations, and the determination of when the Company has met the requirements to recognize revenue related to the performance obligations, share-based compensation, allowance for accounts receivable, estimated useful lives of property and equipment, recoverability of capitalized software asset and other long lived assets. Actual results could differ from those estimates.

Fair Value of Financial Instruments

US GAAP requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Due to the short period of time to maturity, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable reported in the financial statements approximate the fair value.

Cash and Cash Equivalents 

All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.  The Federal Deposit Insurance Corporation (FDIC) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits.

Revenue Recognition: General Overview and Performance Obligations to Customers

The Company derives revenue primarily from contracts for subscription to the suite of e-health mobile solutions and, to a much lesser degree, ancillary services provided in connection with subscription services.

The Company’s contracts include the following performance obligations:

● Access to the content available on the App Blueprint Catalog, including hosting of the deployed apps;

● App Build and Managed Services; and

● Custom development work.

The majority of the Company’s contracts are for a subscription to a catalog of mobile App Blueprints, and hosting of the deployed apps and related services. Custom work for specific deliverables is documented in statements of work or separate contracts. Customers may enter into subscription and various statements of work concurrently or consecutively. Most of the Company’s performance obligations are not considered to be distinct from the subscription to Blueprints, hosting of deployed apps and related services and are combined into a single performance obligation. New statements of work and modifications of contracts are reviewed each reporting period and significant judgment is applied as to nature and characteristics of the new or modified performance obligations on a contract by contract basis.

Revenue Recognition: Transaction Price of the Contract and Satisfaction of Performance Obligations

The transaction price of the contract is an aggregate amount of consideration payable by customer for delivery of contracted services. The transaction price is impacted by the terms of a contracted agreement with the customer. Such terms range from one to three years.  The transaction price excludes  any marketing or sales discounts or  any future renewal periods, unless the renewal periods represent a material right given to customer to extend the agreement. The transaction price may include a significant financing component in instances where Company offers discounts for accelerated payments on the long-term contracts.  Significant financing components are recorded in other assets and amortized as interest expense in the Company’s Statement of Operations over the term of the contract. 

The transaction price is predominantly allocated to a single performance obligation of access to the Blueprints, hosting and related services and, to a lesser degree, allocated between the access and other distinct performance obligations based on the stand-alone selling price. The subscription revenue is then recognized over time over the term of the contract, using the output method of time elapsed. Other performance obligations identified are evaluated based on the specific terms of the agreement are usually recognized at a point in time upon delivery of a specific documented output. Management believes that such chosen methods faithfully depict satisfaction of Company performance obligations and transfer of benefit to the customers.

The full transaction price of the contract may be billed in its entirety or in agreed upon installments.  Billed transaction price in excess of revenue recognized results in the recording of a contract liability.  The unbilled portion of transaction price related to revenue earned represents contracted consideration receivable by the Company that was not yet billed. 

Incremental Costs of Obtaining a Contract

The Company’s incremental costs of obtaining a contract include sales commissions.  Sales commissions are recognized as other assets on the balance sheet for the contracts with a term exceeding 12 months. These costs are amortized through the term of the contract and are recorded as sales and marketing expense. As of December 31, 2018 the Company’s other assets include approximately $73,000 of such costs. 

Contract Liabilities

A new contract liability is created every time the Company records receivables due from its customers. The contract liability represents the Company’s obligation to transfer services for which the Company has already invoiced.  Most of the contract liabilities will be recognized in revenue over a period of 12 to 36 months.

Customer Credit Risk

Most of Company's receivables (billings) are collected within 30-45 days.  The majority of Company's customers are healthcare organizations, which historically have had low credit risk. 

Use of practical expedients in application of the Topic 606

The newly adopted recognition standard prescribes the application of accounting standards to individual contracts with customers, but allows for the application of the guidance to a portfolio of contracts (or performance obligations) with similar characteristics if the effect of such application is immaterial.  The Company applies practical expedients in following instances:

● The Company does not adjust the promised amount of consideration for the effects of a significant financing component if, at contract inception, the period between when the Company transfers its services to a customer and when the customer pays services will be one year or less.

● The Company recognizes incremental costs of obtaining a contract as expenses when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.

● In instances where a customer had been granted a material option which in essence is a right to renew under the terms of the original contract, the Company uses a practical alternative to estimating the standalone selling price of the option: the alternative includes allocation of the transaction price to the optional goods or services by reference to the goods or services expected to be provided and the corresponding expected consideration

Transition Disclosures in the Period of  Adoption of Topic 606

The Company applied the transition guidance in Topic 606 to the contracts that were not substantially completed as of January 1, 2018. 

The Company selected a modified retrospective approach at the time of adoption, at which time the cumulative effect of initially adopting the standard is recognized in retained earnings as of the date of adoption and additional footnote disclosures will be included in the financial statements.  The impact of adoption on the selected accounts is as follows:

The cumulative effects of the changes made to the Company's Consolidated Balance Sheet at January 1, 2018 due to the adoption of Topic 606 were as follows:

	Balance at					Balance at
	December 31, 2017			Adjustments		January 1, 2018
Assets
Prepaid Expenses and Other Current Assets	$	71,992		$	65,277	$	137,269
Equity
Accumulated Deficit	$	(150,501,642	)	$	65,277	$	(150,436,365	)

The following tables summarize the current period impacts of adopting Topic 606  on our Consolidated Financial Statements:

Consolidated Balance Sheet:

	As Reported as of 12/31/2018			Balances without Adoption of Topic 606			Effect of Adoption
Assets
Prepaid Expenses and Other Current Assets	$	125,798		$	52,995		$	72,802
Liabilities
Contract Liability		1,702,995			1,673,521			29,474
Equity
Accumulated Deficit	$	(158,771,112	)	$	(158,836,389	)	$	65,277

Consolidated Statement of Operations:

	As Reported for the Period Ended 12/31/2018			Balances without Adoption of Topic 606			Effect of Adoption
REVENUES:
Subscription and Support	$	2,323,121		$	2,302,557		$	20,564
OPERATING EXPENSES:
Sales and Marketing	$	1,647,602		$	1,623,333		$	24,269
OTHER INCOME (EXPENSE)
Interest Expense, Net	$	(4,138,030	)	$	(4,119,786	)	$	(18,244	)

Cost of Revenues

Cost of revenues includes salaries of customer support teams, costs of infrastructure, expenses for outsourced work to fulfill the contracted work, and amortization charges for capitalized software.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure of its customers to make required payments. The need for an allowance for doubtful accounts is evaluated based on specifically identified amounts that management believes to be potentially uncollectible. If actual collections experience changes, revisions to the allowance may be required.

Property and Equipment

The Company records property and equipment at cost and provides for depreciation and amortization using the straight-line method for financial reporting purposes over the estimated useful lives. The estimated useful lives by asset classification are as follows:

Computer hardware and office equipment	5 years
Computer software	5 years
Furniture and fixtures	5 years
Leasehold improvements	Shorter of the estimated useful life or the lease term

Software Development Costs

The Company capitalized certain costs of development and subsequent enhancement of our platform that supports the deployment of mobile apps created from Blueprints (the "Platform") through the middle of 2013. The Company started capitalizing software development costs when technological feasibility of the Platform or its enhancements had been established. The Company expensed costs associated with the preliminary project stage and research activities. The Company’s policy provided for the capitalization of certain payroll, benefits, and other payroll-related costs for employees who were directly associated with development.

During 2012, the Platform was substantially completed. During 2013, the Company’s development efforts became more driven by market requirements and rapidly changing customers’ needs. As a result, the Company’s development team adopted iterative approach to software development (the "agile methodology"). Due to agile methodology short development cycles and focus on rapid production, the Company ceased capitalizing software development costs mid-way through 2013 as the documentation produced under the agile methodology did not meet requirements necessary to establish technological feasibility. No development costs were capitalized in 2018 or 2017 and the Company does not expect to capitalize substantial development costs in the future.

Intangible Assets

Intangible assets consist of the perpetual license for critical Platform software, costs associated with the Company’s patent filings and other acquired intangible assets. The Company also owns several copyrights and trademarks related to products, names, and logos used throughout its non-acquired product lines.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets every reporting period or whenever events and circumstances indicate that the value may be impaired.

Advertising Costs

Advertising costs consist primarily of industry related tradeshows and marketing campaigns. Advertising costs are expensed as incurred, or the first time the advertising takes place, applied consistently based on the nature of the advertising activity. The amounts related to advertising during the years ended December 31, 2018 and 2017 were $404,882 and $268,133, respectively.

Share-Based Compensation

The Company measures share-based compensation cost at the grant date based on the fair value of the award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The compensation cost is recognized net of estimated expected forfeiture activity. The Company re-evaluates its expected forfeiture rate periodically.  Historically the Company's forfeiture rate used in calculation of share-based compensation expense ranged between 20% and 30%.

The Company uses simplified method allowed by SAB 107 for estimating expected term of the options in calculating the fair value of the awards that have a term of more than 7 years because the Company does not have reliable historical data on exercise of its options.  The simplified method was used for options granted in 2018.

The fair value of option grants under the Company’s equity compensation plan during the years ended December 31, 2018 and 2017 was estimated using Black-Scholes pricing model using the following weighted-average assumptions:

	2018			2017
Dividend yield		0.00	%		0.00	%
Expected volatility		108.48	%		102.80	%
Risk-free interest rate		2.75	%		1.9	%
Expected lives (years)		6.5			7.0

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods. Diluted net loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Shares of common stock issuable upon conversion of Convertible Subordinated Promissory Notes (the “Notes”) and exercise of share-based awards are excluded from the calculation of the weighted average number, because the effect of the conversion and exercise would be anti-dilutive.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard is effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application, as permitted by the guidance. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. 

We expect the adoption of this standard will have a material effect on our financial statements.  The Company is substantially complete with its implementation and believes the most significant effects relate to the recognition of additional new ROU asset and lease liability on our balance sheet for our Raleigh office operating lease and providing significant new disclosures about our leasing activities. We do not expect a significant change in our leasing activities between now and adoption.

On adoption, we currently expect to recognize additional operating liabilities of between $800,000 and $850,000, with corresponding ROU asset of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing lease.

The new standard also provides practical expedients for an entity’s ongoing accounting. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.  

In June 2018, the FASB announced ASU 2018-07 Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. ASU 2018-07 is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company elected to adopt ASU 2018-07 as of January 1, 2018.

In August 2018, the FASB announced ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.  This amendment removes, modifies or adds certain dislcosure requirements for Fair Value Measurements.   For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The Company doesn't expect that the ASU will have material impact on its financial statements.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimations.

As of December 31, 2018 and 2017, we believe that the fair value of our financial instruments other than cash and cash equivalents, such as, accounts receivable, our line of credit, notes payable, and accounts payable approximate their carrying amounts.