2. SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Accounting Method

Accounting Method

The Company’s financial statements are prepared in accordance with US GAAP and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of the financial statements.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.  The Company did not have any cash equivalents as of and for the years ended December 31, 2012 and 2011.

Valuation of Long-Lived Assets

Valuation of Long-Lived Assets

Long-lived assets such as property and equipment, software, and intangible assets with definite useful lives are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or in the period in which the held for sale criteria are met. For assets held and used, this analysis consists of comparing the asset’s carrying value to the expected future cash flows to be generated from the asset on an undiscounted basis. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. Long-lived assets are reviewed for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified.

Fixed Assets

Fixed Assets

Fixed assets consist of property and equipment and capitalized software costs and computer equipment as of December 31, 2012 and 2011.

Property and Equipment

Property and Equipment

Depreciation and amortization are computed using the straight-line method over the estimated economic useful lives of the related assets as follows:

Computer equipment	3 years
Office furniture and fixtures	5-7 years

Upon sale or other disposition of property and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is included in the determination of income or loss.

Expenditures for maintenance and repairs are charged to expense as incurred.  Major overhauls and betterments are capitalized and depreciated over their estimated economic useful lives.  Depreciation expense was $319 and $0 for the years ended December 31, 2012 and 2011.

Capitalized Software Development

Capitalized Software Development

The Company capitalizes software development costs incurred from the time technological feasibility has been obtained until the product is generally released to customers.  Amortization of capitalized software begins when the products are available to customers and is done using the straight-line method over the remaining estimated economic life of the product. The Company achieved technological feasibility with regard to its mobile phone technology during the fourth quarter of 2010.  As of December 31, 2012 and 2011, the Company had capitalized software development costs of $291,343 and $191,120, respectively.  No amortization was recorded for the years ended December 31, 2012 and 2011.

Revenue Recognition

Revenue Recognition

The Company is currently in the development stage and has no revenues from its operations.

Concentration of Credit Risk

Concentration of Credit Risk

The Company has no significant concentrations of credit risk.

Earnings Per Common Share

Earnings Per Common Share

The computations of basic and fully diluted earnings per share of common stock are based on the weighted average number of common shares outstanding during the period of the financial statements, plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding during the period, or the exercise of convertible preferred stock. For the period ended December 31, 2011, common stock equivalents related to the conversion of preferred rights have been included in calculation of diluted earnings per share as shown in the table below.  Common stock equivalents have not been included in the computations for the period ended December 31, 2012 because they are anti-dilutive.

Following is a reconciliation of the income (loss) per share for the years ended December 31, 2012 and 2011, respectively:

	December 31,
	2012			2011
Numerator:
Income (loss) before extraordinary items	$	(450,571	)	$	179,540
Income from extraordinary items, net of tax		–			–
Net income (loss)	$	(450,571	)	$	179,540
Denominator:
Weighted-average common shares outstanding
Basic		46,043,507			45,150,293
Conversion of preferred rights		–			18,192,859
Diluted		46,043,507			63,343,152
Income (loss) per share
Basic
Income (loss) before extraordinary items	$	(0.01	)	$	0.00
Income from extraordinary items, net of tax		–			–
Net income (loss)	$	(0.01	)	$	0.00
Diluted
Income (loss) before extraordinary items	$	(0.01	)	$	0.00
Income from extraordinary items, net of tax		–			–
Net income (loss)	$	(0.01	)	$	0.00

Intangibles

Intangibles

Intangible assets, consisting of patents and trademarks, are amortized on a straight-line basis over periods ranging from 5-20 years from the date the patent or trademark is issued. Intangible assets with indefinite lives are tested for impairment on an annual basis or when the facts and circumstances suggest that the carrying amount of the assets may not be recovered. At December 31, 2012, intangible assets have a cost of $65,721, accumulated amortization of $3,051, and had a net book value of $62,670.  During the year ended December 31, 2012, the Company wrote off intangible assets totaling $775,045 that were fully amortized that were no longer being utilized by the Company. As of December 31, 2011, intangible assets had a cost of $803,169, accumulated amortization of $775,045 and had a net book value of $28,124.

Income Taxes

Income Taxes

The Company accounts for income taxes pursuant to ASC 740, Income Taxes (“ASC 740”).  Under this accounting standard, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes.  The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.  Given the Company’s history of losses, the Company maintains a full valuation allowance with respect to any deferred tax assets.

ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the uncertain tax position to determine the amount to recognize in the financial statements. Our uncertain tax positions relate to certain state tax issues for which we have recorded an estimated current liability for in the accompanying financial statements at December 31, 2012 and December 31, 2011. There has been no significant change in the unrecognized tax benefit through December 31, 2012.  

The Company did not have any uncertain tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes.  As of December 31, 2012 and 2011, the Company had $5,328 and $636 of accrued interest and penalties related to uncertain tax positions.

The components of income tax expense are as follows for the years ended December 31, 2012 and 2011, respectively.

	December 31,
	2012		2011
Current	$	6,328	$	30,001
Deferred		–		–
Total	$	6,328	$	30,001

The Company’s deferred income tax asset and the related valuation allowance are as follows at December 31, 2012 and 2011, respectively.  The deferred tax asset was calculated using a U.S. statutory tax rate of 34%.

	December 31,
	2012			2011
Deferred tax assets - current:
Accrued interest	$	49,846		$	35,239
Accrued compensation		154,142			100,990
		203,988			136,229
Deferred tax assets - long-term:
Net operating loss carryforwards		5,287,836			5,645,717
Total deferred income tax assets		5,491,824			5,781,946
Valuation allowance		(5,491,824	)		(5,781,946	)
Total	$	–		$	–

A reconciliation of provision (benefit) for income taxes provided at the federal statutory rate (34% for fiscal years 2012 and 2011) to actual provision for income taxes is as follows:

	December 31,
	2012			2011
Benefit (provision) for income taxes computed at federal statutory rate	$	151,043		$	(71,244	)
State income taxes, net of federal benefit		14,660			(6,915	)
Other		118,091			331,503
Valuation allowance		(290,122	)		(283,345	)
Provision for Income taxes	$	(6,328	)	$	(30,001	)
Effective tax rate		1.42%			14.32%

As of December 31, 2012, the Company had net operating loss carry-forwards for federal income tax reporting purposes of approximately $14.9 million that may be offset against future taxable income through 2032.  The Company has state net operating loss carry-forwards of $5.7 million. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs.  Therefore, the amount available to offset future taxable income may be limited.  No tax benefit has been reported in the financial statements because the Company believes there is a 50% or greater chance that the carry-forwards will expire unused.  Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.

The Company files income tax returns in the U.S. federal and Utah jurisdictions.  Tax years 2009 to current remain open to examination by U.S. federal and state tax authorities.

Research and Development

Research and Development

The Company continues to develop additional technology which facilitates the use of in-store advertising and coupon services through various technologies.  As time and technology have progressed, the system being developed by the Company comprises mobile and other state of the art technology that facilitates retailers and package good companies providing "product specific" point-of-purchase advertising to its customers using proprietary software.  The Company is currently developing mobile smart phone technology that will provide similar functionality to the Klever-Kart System.

For the years ended December 31, 2012 and 2011, the Company incurred costs of $7,833 and $27,063 respectively, for research and development of the technology involved with developing its technologies.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company has adopted ASC 820-10-50, Fair Value Measurements. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

In determining fair value, the Company utilizes observable market data when available, or models that incorporate observable market data. In addition to market information, the Company incorporates transaction-specific details that, in management’s judgment, market participants would take into account in measuring fair value.

In arriving at fair-value estimates, the Company utilizes the most observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based upon the lowest level of input that is significant to the fair-value measurement.

The carrying amounts reported in the accompanying balance sheets as of December 31, 2012 and 2011 for cash and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and expected realization and their current market rate of interest. The carrying value of notes payable does not materially value because negotiated terms and conditions are consistent with current market rates as of December 31, 2012 and 2011.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In July, 2012 the FASB issued ASU 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU gives an entity the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test for indefinite-lived intangible assets other than goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.