NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2012

Significant Accounting Policies [Text Block]

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Earnings Per Common Share

In accordance with ASC 260, Earnings Per Share (“ASC 260”), 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. Common stock equivalents have been included in the computations for the periods ended March 31, 2011 as shown in the table below.  

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

	Three Months Ending March 31,
	2012			2011
Numerator:		(Restated)
Income (loss) before extraordinary items	$	(141,620	)	$	27,383
Income from extraordinary items, net of tax		–			–
Net income (loss)	$	(141,620	)	$	27,383
Denominator:
Weighted-average common shares outstanding
Basic		45,432,031			45,476,036
Conversion of preferred rights		–			16,739,800
Diluted		45,432,031			62,215,836
Income (loss) per share
Basic
Income (loss) before extraordinary items	$	(0.00	)	$	0.00
Income from extraordinary items, net of tax		–			–
Net income (loss)	$	(0.00	)	$	0.00
Diluted
Income (loss) before extraordinary items	$	(0.00	)	$	0.00
Income from extraordinary items, net of tax		–			–
Net income (loss)	$	(0.00	)	$	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 $217,343 and $191,120 of capitalized software development costs as of March 31, 2012 and December 31, 2011, respectively.

Intangibles

Intangible assets, consisting of patents and trademarks, are amortized on a straight-line basis over periods ranging from 10-14 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 March 31, 2012, intangible assets have a cost of $810,901, accumulated amortization of $775,045, and had a net book value of $35,856.  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

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, 2012 and December 31, 2011. 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. There has been no significant change in the unrecognized tax benefit associated with the Company’s net operating losses through March 31, 2012. 

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 2008 to current remain open to examination by U.S. federal and state tax authorities.

From inception through March 31, 2012, 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 to its uncertain state tax position described above. The net deferred tax asset generated by the loss carry-forwards has been fully reserved.  The cumulative net operating loss carry-forward is approximately $17.1 million as of March 31, 2012, and will expire in the years 2015 through 2029.

Research and Development

The Company continues to develop its technology which facilitates the use of in-store advertising, product promotion and digital coupon redemption 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, 2012 and 2011, the Company incurred costs of $1,567 and $3,917 respectively, for research and development costs associated with developing its technologies.

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.

The carrying amounts reported in the accompanying balance sheets as of March 31, 2012 and December 31, 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 approximates fair value because negotiated terms and conditions are consistent with current market rates as of March 31, 2012 and December 31, 2011.

Reclassification

During the quarter ended March 31, 2011, the Company received back 1,150,000 shares of common stock valued at $168,000 and $9,000 of cash in connection with cancelling certain agreements with an investor and an investment banking firm. In the Company’s March 31, 2011 Form 10-Q, the Company recorded these transactions as reductions of “General and Administrative” expense in its Statement of Operations. Management reevaluated the classification of these transactions during their year-end audit and determined that they should be classified as “Other Income” within the Company’s Statement of Operations for the year ended December 31, 2011. As a result of the above, the Company has made a similar reclassification in the March 31, 2011 Statement of Operations presented in these financial statements to conform to the presentation of the Form 10-K Statement of Operations for the year ended December 31, 2011. Neither net income nor total equity changed as a result of this reclassification as of and for the three months ended March 31, 2011