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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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12 Months Ended | ||
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Sep. 30, 2011
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| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation: The accompanying consolidated
financial statements represent the consolidated financial position
and results of operations of the Company and include the accounts
and results of operations of the Company, LiveDeal, Local Marketing
Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing
Inc., Telco Billing, Inc. and Telco of Canada, Inc., the
Company’s wholly owned subsidiaries, for the years ended
September 30, 2011 and 2010, as applicable. All
intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates: The preparation of the consolidated
financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Significant
estimates made in connection with the accompanying consolidated
financial statements include the estimate of dilution and fees
associated with LEC billings, the estimated reserve for doubtful
accounts receivable, estimated forfeiture rates for stock-based
compensation, fair values in connection with the analysis of
goodwill and long-lived assets for impairment, valuation allowances
against net deferred tax assets and estimated useful lives for
intangible assets and property and
equipment.
Financial Instruments: Financial instruments consist
primarily of cash, cash equivalents, accounts receivable, advances
to affiliates and obligations under accounts payable, accrued
expenses and notes payable. The carrying amounts of
cash, cash equivalents, accounts receivable, accounts payable,
accrued expenses and notes payable approximate fair value because
of the short maturity of those instruments.
Cash and Cash Equivalents: This includes all
short-term highly liquid investments that are readily convertible
to known amounts of cash and have original maturities of three
months or less. At times, cash deposits may exceed
government-insured limits.
Property and Equipment: Property and equipment is
stated at cost less accumulated depreciation. Depreciation is
recorded on a straight-line basis over the estimated useful lives
of the assets ranging from three to five years. Depreciation
expense was $214,796 and $240,798 for the years ended September 30,
2011 and 2010, respectively.
Revenue Recognition:
Directory Services
Revenue
is billed and recognized monthly for services subscribed in that
specific month. The Company has historically utilized
outside billing companies to perform billing services through two
primary channels:
• direct
ACH withdrawals; and
• inclusion
on the customer’s local telephone bill provided by their
Local Exchange Carriers, or LECs.
For
billings via ACH withdrawals, revenue is recognized when such
billings are accepted. For billings via LECs, the Company
recognizes revenue based on net billings accepted by the
LECs. Due to the periods of time for which adjustments
may be reported by the LECs and the billing companies, the Company
estimates and accrues for dilution and fees reported subsequent to
year-end for initial billings related to services provided for
periods within the fiscal year. Such dilution and fees
are reported in cost of services in the accompanying consolidated
statements of operations. Customer refunds are recorded
as an offset to gross revenue.
The
Company continues to service some wholesale accounts through LEC
billing channels and is rebuilding its customer base billed through
LECs through its Velocity Marketing Concepts, Inc.
subsidiary.
Revenue
for billings to certain customers that are billed directly by the
Company and not through the outside billing companies is recognized
based on estimated future collections. The Company continuously
reviews this estimate for reasonableness based on its collection
experience.
Direct Sales
The
Company’s direct sales contracts typically involve upfront
billing for an initial payment followed by monthly billings over
the contractual period. The Company recognizes revenue
on a straight line basis over the contractual
period. Billings in excess of recognized revenue are
included as deferred revenue in the accompanying consolidated
balance sheets.
Deferred Revenues
In
some instances, the Company receives payments in advance of
rendering services, whereupon such revenues are deferred until the
related services are rendered. Deferred revenue was
$14,553 and $87,574 at September 30, 2011 and 2010,
respectively.
Allowance for Doubtful Accounts: The Company
maintains an allowance for doubtful accounts, which includes
allowances for customer refunds, dilution and fees from LEC billing
aggregators and other uncollectible accounts. The
Company has decreased its allowances for doubtful accounts to 61.3%
of gross accounts receivable at September 30, 2011 as compared to
63.5% of gross accounts receivable at September 30,
2010. The determination of the allowance for doubtful
accounts is dependent on many factors, including regulatory
activity, changes in fee schedules by LEC service providers and
recent historical trends.
Legal Costs: The Company expenses legal costs
associated with loss contingencies as they are
incurred.
Income Taxes: Income taxes are accounted for using the asset
and liability method. Under this method, deferred income tax assets
and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which these temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation
allowance would be provided for those deferred tax assets for which
if it is more likely than not that the related benefit will not be
realized. The Company classifies tax-related penalties
and interest as a component of income tax expense for financial
statement presentation.
Stock-Based Compensation: The Company from time
to time grants restricted stock awards and options to employees and
executives. Such awards are valued based on the grant
date fair-value of the instruments, net of estimated forfeitures.
The value of each award is amortized on a straight-line basis over
the vesting period.
The
Company accounts for stock awards issued to non-employees in
accordance with the provisions of FASB Accounting Standards
Codification (“ASC”) 718, “Compensation –
Stock Compensation” and FASB ASC 505, “Equity”,
and accordingly, stock awards to non-employees are accounted for at
fair value at their respective measurement date.
Net Income (Loss) Per Share: Net income (loss) per share is
calculated in accordance with FASB ASC 260, “Earnings Per
Share”. Under ASC 260 basic net income (loss) per
share is computed using the weighted average number of common
shares outstanding during the period except that it does not
include unvested restricted stock subject to cancellation. Diluted
net income (loss) per share is computed using the weighted average
number of common shares and, if dilutive, potential common shares
outstanding during the period. Potential common shares consist of
the incremental common shares issuable upon the exercise of
warrants, restricted shares and convertible preferred stock. The
dilutive effect of outstanding restricted shares and warrants is
reflected in diluted earnings per share by application of the
treasury stock method. Convertible preferred stock is reflected on
an if-converted basis.
Internally Developed Software and Website Development
Costs: The Company incurs internal and external
costs to develop software and websites to support its core business
functions. The Company capitalizes internally generated
software and website development costs in accordance with the
provisions of the FASB ASC 350, “Intangibles – Goodwill
and Other”.
Impairment of Long-lived Assets: The Company assesses
long-lived assets for impairment in accordance with the provisions
of FASB ASC 360 “Property, Plant and Equipment”. A
long-lived asset (asset group) shall be tested for recoverability
whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. The carrying
amount of a long lived asset is not recoverable if it exceeds the
sum of the undiscounted net cash flows expected to result from the
use and eventual disposition of the asset. The amount of impairment
loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value. For purposes of
these tests, long-lived assets must be grouped with other assets
and liabilities for which identifiable cash flows are largely
independent of the cash flows of other assets and
liabilities. During the 2011 second fiscal quarter,
$367,588 in net intangible assets were written off which were
previously used in the discontinued Direct Sales
business. An independent third party valuation company
performed an analysis of Intangible Assets for impairment testing
under Accounting Standards Codification Topic No. 360 (formerly
SFAS 144 – Accounting for the Impairment or Disposal of
Long-Lived Assets). The report concluded that the
Intangible Assets were not impaired and a write down of the
Intangible Assets was not required.
Effects of Stock Splits: Effective on September 7, 2010, the
Company implemented a 1-for-10 reverse stock split with respect to
issued and outstanding shares of its common
stock. Additionally, the Company’s authorized
shares of common stock were reduced to 10,000,000
shares.
Effective
August 10, 2011, the Company implemented a 20-for-19 stock split
with respect to issued and outstanding shares of its common stock.
The stock split was in the form of a stock dividend, with one (1)
share of the Company’s common stock issued in respect of
every 19 shares of common stock issued and outstanding as of July
29, 2011, the record date for the stock split. Any fractional
shares otherwise issuable as a result of the stock split were
rounded up to the nearest whole share.
All
share and per share amounts have been retroactively restated for
the effects of the stock splits described above.
Recently Issued Accounting Pronouncements:
In
October 2009, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2009-13, “Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements—a
consensus of the FASB Emerging Issues Task Force” (“ASU
2009-13”), which provides guidance on whether multiple
deliverables exist, how the arrangement should be separated, and
the consideration allocated. ASU 2009-13 requires an entity to
allocate revenue in an arrangement using estimated selling prices
of deliverables if a vendor does not have vendor-specific objective
evidence or third-party evidence of selling price. ASU 2009-13 is
effective for the first annual reporting period beginning on or
after June 15, 2010 and may be applied retrospectively for all
periods presented or prospectively to arrangements entered into or
materially modified after the adoption date. Early adoption is
permitted provided that the revised guidance is retroactively
applied to the beginning of the year of adoption. ASU 2009-13 is
effective for the Company on October 1, 2010. The adoption of
this amendment did not impact the Company’s financial
position or results of operations.
In
December 2010, the FASB issued ASU 2010-28, When to Perform Step 2
of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts (Topic
350)—Intangibles—Goodwill and Other (ASU2010-28). ASU
2010-28 amends the criteria for performing Step 2 of the goodwill
impairment test for reporting units with zero or negative carrying
amounts and requires performing Step 2 if qualitative factors
indicate that it is more likely than not that a goodwill impairment
exists. The Company will adopt ASU 2010-28 in fiscal 2012 and
management does not believe it will have a material impact on the
Company’s consolidated financial statements.
In
May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic
820): Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements (“ASU 2011-04”) in GAAP
and International Financial Reporting Standards
(“IFRS”). Under ASU 2011-04, the guidance amends
certain accounting and disclosure requirements related to fair
value measurements to ensure that fair value has the same meaning
in GAAP and in IFRS and that their respective fair value
measurement and disclosure requirements are the same. ASU 2011-04
is effective for public entities during interim and annual periods
beginning after December 15, 2011. Early adoption by public
entities is not permitted. The Company does not believe that the
adoption of this guidance will have a material impact on the
financial statements.
In
June 2011, the FASB issued ASU 2011-05, “Presentation of
Comprehensive Income” (“ASU 2011-05”). ASU
2011-05 requires companies to present the total of comprehensive
income, the components of net income and the components of other
comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements.
The provisions of ASU 2011-05 are effective for fiscal years, and
interim periods within those years, beginning after
December 15, 2011. Since ASU 2011-05 only amends the
disclosure requirements concerning comprehensive income, the
adoption of ASU 2011-05 will not affect the consolidated financial
position, results of operations or cash flows of the
Company.
In September 2011, the FASB issued ASU 2011-08,
“Testing Goodwill for Impairment” (“ASU
2011-08”). ASU 2011-08 allows a company to first assess
qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying
amount as a basis for determining whether it is necessary to
perform the two-step goodwill impairment test. The more likely than
not threshold is defined as having a likelihood of more than 50
percent. The provisions of ASU 2011-08 are effective for annual and
interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011 with early adoption
permitted. The adoption of the provisions of ASU 2011-08 is not
expected to have a material effect on the consolidated financial
position, results of operations or cash flows of the
Company.
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