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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2014
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of the “Company” and its wholly-owned subsidiary, SWK Technologies, Inc. (“SWK”). These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant inter-company transactions and accounts have been eliminated in consolidation. On February 4, 2015 the Company effected the Reverse Stock Split and every thirty (30) shares of outstanding Common Stock decreased to one (1) share of Common Stock. Similarly, the number of shares of Common Stock into which each outstanding option and warrant to purchase Common Stock is to be exercisable decreased on 1-for-30 basis and the exercise price of each outstanding option and warrant to purchase Common Stock increased proportionately. The impact of this reverse stock split has been retroactively applied to the financial statements and the related notes. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Goodwill Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. Revenue Recognition Revenue is recognized when products are shipped, or services are rendered, evidence of a contract exists, the price is fixed or reasonably determinable, and collectability is reasonably assured. Product Revenue Software product revenue is recognized when the product is shipped to the customer. The Company treats the software component and the professional services consulting component as two separate arrangements that represent separate units of accounting. The arrangement consideration is allocated to each unit of accounting based upon that unit’s proportion of the fair value. In a situation where both components are present, software sales revenue is recognized when collectability is reasonably assured and the product is delivered and has stand-alone value based upon vendor specific objective evidence. Service Revenue Service revenue is comprised of primarily professional service consulting revenue, maintenance revenue and other ancillary services provided. Professional service revenue is recognized as service time is incurred. With respect to maintenance services, upon the completion of one year from the date of sale, the Company offers customers an optional annual software maintenance and support agreement for subsequent periods not exceeding one year. Maintenance and support agreements are recorded as deferred revenue and recognized over the respective terms of the agreements, which typically range from three months to one year and are included in services revenue in the Consolidated Statements of Income. Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of sales. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts. Concentrations The Company maintains its cash and cash equivalents with various institutions, which exceed federally insured limits throughout the year. At December 31, 2014, the company had cash on deposit of approximately $1,029,941 in excess of the federally insured limits of $250,000. For the years ended December 31, 2014 and 2013, our top ten customers accounted for 16% ($3,381,090) and 19% ($3,159,000), respectively, of our total revenues. The Company does not rely on any one specific customer for any significant portion of our revenue base. For the years ended December 31 2014 and 2013, purchases from one supplier through a “channel partner” agreement were approximately 26% and 31% of cost of revenues, respectively. This channel partner agreement is for a one year term and automatically renews for an additional one year term on the anniversary of the agreements effective date. For the years ended December 31, 2014 and 2013, one supplier represented approximately 37% and 52% of total accounts payable, respectively. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable and cash and cash equivalents. As of December 31, 2014 the Company believes it has no significant risk related to its concentration of accounts receivable. Unbilled Services The Company recognizes revenue on its professional services as those services are performed or certain obligations are met. Unbilled services represents the revenue recognized but not yet invoiced. Accounts Receivable Accounts receivable consist primarily of invoices for maintenance and professional services. Full payment for software ordered by customers is due in advance of ordering from the software supplier. Payments for maintenance and support plan renewals are due before the beginning of the maintenance period. Terms under our professional service agreements are generally 50% due in advance and the balance on completion of the services. The Company maintains an allowance for bad debt estimated by considering a number of factors, including the length of time the amounts are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations. Property and Equipment Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, generally three to seven years. Maintenance and repairs that do not materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in the Consolidated Statements of Income. Deferred Revenues Deferred revenues consist of maintenance service, customer support services, including telephone support and deposits for future consulting services which will be earned as services are performed over the contractual or stated period, which generally ranges from three to twelve months. At December 31, 2014 and December 31, 2013 the customer deposits held for future services were $1,605,970 and $1,103,736 respectively. At December 31, 2014 and December 31, 2013 the deferred maintenance and support revenue was $609,144 and $611,819 respectively. Income Taxes Deferred income taxes reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating loss carryforwards. Deferred tax assets and liabilities are classified as current or non-current based on the classification of the related assets or liabilities for financial reporting, or according to the expected reversal dates of the specific temporary differences, if not related to an asset or liability for financial reporting. Valuation allowances are established against deferred tax assets if it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in operations in the period that includes the enactment date. The Company has federal net operating loss (“NOL”) carryforwards which are subject to limitations under Section 382 of the Internal Revenue Code. The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions if the weight of available evidence indicates that it is more likely than not that the position will not be sustained upon a tax examination with a tax examination being presumed to occur. The Company recognizes interest and penalties as incurred in finance income (expense), net in the Consolidated Statements of Income. There were no liabilities for uncertain tax positions at December 31, 2014 and 2013. Fair Value Measurement The accounting standards define fair value and establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is as follows: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. The Company’s current financial assets and liabilities approximate fair value due to their short term nature and include cash, accounts receivable, accounts payable, and accrued liabilities. The carrying value of longer term lease and debt obligations approximate fair value as their stated interest rates approximate the rates currently available. Definite Lived Intangible Assets and Long-lived Assets The purchased intangible assets are recorded at fair value using an independent valuation at the date of acquisition and are amortized over the useful lives of the asset using the straight-line amortization method. The Company assesses potential impairment of its intangible assets and other long-lived assets when there is evidence that recent events or changes in circumstances have made recovery of an asset’s carrying value unlikely. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. No impairment losses were identified or recorded in the years ended December 31, 2014 and 2013. Stock-Based Compensation Compensation expense related to share-based transactions, including employee stock options, is measured and recognized in the financial statements based on a determination of the fair value. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For employee stock options, the Company recognizes expense over the requisite service period on a straight-line basis (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Earnings per Share The Company’s basic income per common share is based on net income for the relevant period, divided by the weighted average number of common shares outstanding during the period. Diluted income per common share is based on net income, divided by the weighted average number of common shares outstanding during the period, including common share equivalents, such as outstanding stock options and warrants to the extent they are dilutive. Diluted income per share does not include common stock equivalents, stock options and warrants, as these shares would have an anti-dilutive effect as their exercise prices were above the market price of the Company’s common stock at December 31, 2014 and 2013. The computation of EPS is approximately as follows:
|  | Year Ended December 31, 2014 |  |  | Year Ended December 31, 2013 |
Basic net income per share: |  |  |  |  |  |
Net income attributable to common stockholders |  | $ | 192,901 |  |  | $ | 322,548 |
Weighted-average common shares outstanding |  |  | 3,942,836 |  |  |  | 3,902,008 |
Basic net income per share attributable to common stockholders |  | $ | 0.05 |  |  | $ | 0.08 |
Diluted net income per share: |  |  |  |  |  |  |  |
Net income attributable to common stockholders |  | $ | 192,901 |  |  | $ | 322,548 |
Weighted-average common shares outstanding |  |  | 3,942,836 |  |  |  | 3,902,008 |
Incremental shares attributable to warrants and convertible promissory note |  |  | - |  |  |  | - |
Total adjusted weighted-average shares |  |  | 3,942,836 |  |  |  | 3,902,008 |
Diluted net income per share attributable to common stockholders |  | $ | 0.05 |  |  | $ | 0.08 |
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share.
|  | 2014 |  |  | 2013 |
Stock options |  |  | 163,846 |  |  |  | 89,116 |
Warrants |  |  | - |  |  |  | 25,000 |
Total potential dilutive securities not included in loss per share |  |  | 163,846 |  |  |  | 114,116 |
Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standard Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. This ASU is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. Accordingly, the Company will adopt this ASU on January 1, 2017. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and management is currently evaluating which transition approach to use. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures. No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial statements.

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