SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 2, 2013. Interim results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of future results for the full year. Certain amounts from the 2012 period have been reclassified to conform to the presentation used in the current period.

The condensed consolidated financial statements include the accounts of the Company and 800 Commerce, until May 10, 2012 when 800 Commerce sold shares of its common stock to third parties resulting in the Company no longer holding a controlling interest in 800 Commerce.All material intercompany balances and transactions have been eliminated

NONCONTROLLING INTEREST AND DECONSOLIDATION

On January 1, 2011, the Company adopted authoritative accounting guidance that requires the ownership interests in subsidiaries held by parties other than the parent, and income attributable to those parties, be clearly identified and distinguished in the parent’s consolidated financial statements. The Company’s noncontrolling interest is now disclosed as a separate component of the Company’s consolidated equity deficiency on the balance sheets. Earnings and other comprehensive income are separately attributed to both the controlling and noncontrolling interests.  Earnings per share are calculated based on net income attributable to the Company’s controlling interest.

From January 1, 2011 through May 31, 2011, the Company owned 100% of 800 Commerce. From June 1, 2011 through October 1, 2011 800 Commerce sold 465,000 shares of its common stock and issued 3,534,000 shares of its common stock to its officers as compensation. After these transactions, the Company owned 60% of 800 Commerce. On May 10, 2012, 800 Commerce sold 3,150,000 shares of its common stock, reducing the Company’s ownership to 45%. On May 18, 2012, 800 Commerce sold 1,500,000 shares of its common stock, reducing the Company’s ownership to 40%. On June 10, 2012 issued 1,500,000 shares of common stock pursuant to a consulting agreement and 1,851,000 shares of common stock for legal services and in lieu of compensation, and since June 30, 2012, 800 Commerce has sold 500,000 shares of its common stock and issued 500,000 shares of its common stock pursuant to a consulting agreement. Subsequent to these issuances the Company currently owns approximately 32% of the outstanding common stock of 800 Commerce. Effective May 10, 2012, the Company is no longer consolidating 800 Commerce in its’ financial statements. The noncontrolling interest included in the Company’s consolidated statement of operations is a result of noncontrolling interest investments in 800 Commerce up to the date of deconsolidation of May 10, 2012. Noncontrolling interests through May 10, 2012 are classified in the condensed consolidated statements of operations as part of consolidated net loss.

Subsequent to May 10, 2012, the Company’s investment in 800 Commerce is accounted for using the equity method and was reduced to zero.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE

The Company records accounts receivable from amounts due from its processors and customers. The records accounts receivable upon the shipment of products. The Company charges certain merchants for processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. The Company charges other merchant customers a flat fee per transaction, and may also charge miscellaneous fees to our customers, including fees for returns, monthly minimums, and other miscellaneous services. All the charges and collections thereon flow through our processors who then remit the fee due the Company within the month following the actual charges.

DEFERRED FINANCING COSTS

The costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method through the maturities of the related debt.  

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REVENUE RECOGNITION

The Company recognizes revenue in accordance with FASB ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

The Company recognizes revenue during the month in which products are shipped or commissions are earned.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”).

Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The three hierarchy levels are defined as follows:

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

The Company's financial instruments consist primarily of cash, accounts payable and accrued expenses, and convertible debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.  The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company has not been assessed, nor paid, any interest or penalties.

Uncertain tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. The Company’s tax years subsequent to 2005 remain subject to examination by federal and state tax jurisdictions.

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EARNINGS (LOSS) PER SHARE

Earnings (loss) per share are computed in accordance with ASC 260, "Earnings per Share". Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities, if any, outstanding during the period. There were 3,000,000 outstanding warrants as of June 30, 2013. There were no outstanding warrants or options as of June 30, 2012. As of June 30, 2013, the Company’s outstanding convertible debt is convertible into 5,667,304 shares of common stock and 1,000,000 shares of Class B convertible preferred stock is convertible into 222,728,359 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.

ACCOUNTING FOR STOCK-BASED COMPENSATION 

The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of the Company’s common stock and recognized as expense during the period in which services are provided.

For the three and six months ended June 30, 2013, the Company recorded stock and warrant based compensation of $3,116,681 and $3,221,015, respectively. For the three and six months ended June 30, 2012, there was no stock based compensation expense (See Notes 7 and 8).

USE OF ESTIMATES

The preparation of consolidated 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 disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.