2. SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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 periods ended March 31, 2012, common stock equivalents related to the conversion of preferred rights have not been included in calculation of diluted earnings per share because they are anti-dilutive.   

Following is a reconciliation of the income (loss) per share for the three months ended March 31, 2013 and 2012, respectively:

	March 31,
	2013		2012
Numerator:
Income (loss) before extraordinary items	$	705,714	$	(141,620	)
Income from extraordinary items, net of tax		–		–
Net income (loss)	$	705,714	$	(141,620	)
Denominator:
Weighted-average common shares outstanding
Basic		47,410,624		45,432,031
Conversion of preferred rights		20,386,119		–
Diluted		67,796,743		45,432,031
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	)

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.  The Company achieved technological feasibility with regard to its mobile phone technology during the fourth quarter of 2010. The Company had $291,343 of capitalized software development costs as of March 31, 2013 and December 31, 2012, respectively.

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 March 31, 2013 and December 31, 2012. There has been no significant change in the unrecognized tax benefit through March 31, 2013.  The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company has not identified any uncertain tax positions for which it is reasonably possible that the total amount of liability for unrecognized tax positions will significantly increase or decrease within the next 12 months.

The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period.  Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws.

Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset.  Any change in the valuation allowance will be included in income in the year of the change in estimate.

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.

From inception through March 31, 2013, the Company has incurred net losses and, therefore, had no federal income tax liability.  To date, the Company has incurred the statutory minimum tax liability for state taxes and has accrued for its uncertain state tax position described above. The net deferred tax asset generated by the loss carry-forwards has been fully reserved.  The cumulative federal net operating loss carry-forward is approximately $14.0 million as of March 31, 2013, and will expire in the years 2015 through 2032. The cumulative state net operating loss carry-forward is approximately $4.8 million as of March 31, 2013, and will expire in the years 2015 through 2027.

Research and Development

The Company continues to develop its 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 to provide "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.

During the three months ended March 31, 2013 and 2012, the Company incurred costs of $860 and $1,567 respectively, for research and development of its technologies.

Fair Value of Financial Instruments

The FASB provides the framework for measuring fair value. 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.

The carrying amounts reported in the accompanying balance sheets as of March 31, 2013 and December 31, 2012 for cash, fixed assets, intangibles 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 approximates fair value because negotiated terms and conditions are consistent with current market rates as of March 31, 2013 and December 31, 2012.