SUMMARY OF ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2023

NOTE 3 – SUMMARY OF ACCOUNTING POLICIES

Fiscal Year end

The Company has selected December 31 as its fiscal year end.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with GAAP, and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished in the consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the SEC’s rules and regulations. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2022 Form 10-K as filed with the SEC on April 18, 2023 and Form 10-K/A as filed on May 2, 2023.

Basis of Consolidation

These consolidated financial statements include the accounts of the Company and its 100% controlled Israeli subsidiary, Stratford Ltd (“Stratford”) as of June 30, 2023 and December 31, 2022. All significant intercompany accounting transactions have been eliminated as a result of consolidation. Effective July 1, 2023, operations of Stratford Ltd. have been deconsolidated as a result of liquidation proceedings commenced in Israel whereunder the Company ceased to have effective control over Stratford effective July 20, 2023 as a result of the appointment of a Trustee and the commencement liquidation proceedings.

Cash and Cash Equivalents

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

Foreign Currency Translation

The Company uses the U.S. Dollar as the reporting currency for its financial statements. Functional currency is the currency of the primary economic environment in which an entity operates. The functional currency of the Company’s wholly owned subsidiary is the Israeli Shekel.

Assets and liabilities of the Company’s subsidiary are translated into U.S. Dollars at period-end foreign exchange rates, and revenues and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in “Accumulated other comprehensive income” as a separate component of stockholders’ equity, and in the “Effect of exchange rate changes on cash and cash equivalents,” on the Company’s consolidated statements of cash flows. Transaction gains and losses are included in “General and Administrative” expenses on the Company’s consolidated statements of operations.

Translation of amounts from Israeli Shekel (ILS) into U.S. Dollar has been made at the following exchange rates for the six months ended June 30, 2023 and the nine months ended September 30, 2022

June 30,

2023

September 30,

2022

Period-end ILS: U.S. dollar exchange rate

0.2696

0.28045

Period average ILS: U.S. dollar exchange rate

0.2785

0.3020

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes foreign currency translation adjustments related to the Company’s subsidiary in Israel and is excluded from the accompanying consolidated statements of operations.

Property and Equipment

Property and equipment, including leasehold improvements, are recorded at cost net of accumulated depreciation. Maintenance and repairs are expensed as incurred. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Computer and telephone equipment

3 years

Intangible Assets

The Company recognizes assets for customer relationships, developed technology, post-technological feasibility software development costs, patents and finite-lived trade names. Finite-lived intangible assets are carried at acquisition cost less accumulated amortization. Such amortization is recorded on a straight-line basis over the estimated useful lives of the respective assets, generally from 3 to 8 years. Amortization for developed technology is recognized in cost of revenue. Amortization for customer relationships and trade names is recognized in sales and marketing expenses.

In the year ended December 31, 2021, the Company recorded assets acquired in the cumulative amount of approximately $3.4 million (cash proceeds, share based consideration and the assumption of certain repayable grants issued by the government of Israel which financed certain development activities related to the intellectual property) purchased through a liquidation proceeding from the trustee for Royal App Ltd., an Israeli corporation, which we recorded as intangible assets. Intangible assets acquired included intellectual property and trademarks, including rights

Intangible Assets (Cont’d)

in patents in so far as they exist and rights of claim (if and in so far as they exist and are transferrable) for infringement of the aforementioned intellectual property and the future estimated value of certain customer relationships. We initially record acquired intangible assets at their estimated fair values and we review these assets periodically for impairment. The Company is amortizing these assets over a five-year straight-line basis, or their estimated useful life. Effective July 1, 2023, the Company ceased to have any capitalized intangible assets as a result of the deconsolidation of subsidiary Stratford Ltd.

Software Research and Development Expenditures

Software development expenditures consist primarily of costs associated with the on-going modifications to certain software acquired from Royal App including employee compensation and certain stock-based compensation associated with certain employee contracts, as well as other expenses for research and development, personnel, supplies and development materials, costs for consultants and related contract research and facility costs. Expenditures relating to research and development incurred pre-technological feasibility are expensed as incurred. Post-technological feasibility expenditures are capitalized as incurred. In the period ended December 31, 2021, the company recorded assets acquired in the cumulative amount of approximately $3.4 million purchased through a liquidation proceeding from the trustee for Royal App Ltd., an Israeli corporation, which we recorded as intangible assets. During the year ended December 31, 2021, we capitalized approximately $990,000 in ongoing development expenditures incurred post-technological feasibility, and $28,483 in patent related expenditures.

During the year ended December 31, 2022, we capitalized an additional $1 million in ongoing development expenditures as we continued to complete the programming required for the transfer of iOS and Android operating systems to Flutter and integrate our SaaS product with the major online retailing platforms Shopify and WooCommerce. The Company is amortizing these assets over a five-year straight-line basis. Effective July 1, 2023, the Company ceased to incur any additional research and development expenditures as a result of the deconsolidation of subsidiary Stratford Ltd.

Impairment

We account for intangible assets using the accounting guidance in ASC 350. The Company tests for impairment annually, or more frequently if events or circumstances indicate the asset might be impaired, by comparing the fair value of the assets to their carrying amount. Alternatively, the Company’s management may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative assessment. The Company presently has one reporting unit; and all intangible assets are included in this single reporting unit, therefore, all of its intangible assets are associated with the entire company. As a result, the Company presently has the option to bypass the qualitative assessment and perform the quantitative assessment.

The Company reviews the valuation of long-lived assets, including property and equipment and finite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The recoverability of long-lived assets or asset groups is calculated based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. Impairment testing is performed at the asset group level. There was no impairment of assets at December 31, 2022 or 2021. Effective July 1, 2023, the Company fully impaired its intangible assets as a result of the deconsolidation of subsidiary Stratford Ltd. and liquidation proceedings which raised significant doubt about the recoverability of such assets.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value for applicable assets and liabilities, we consider the principal or most advantageous market in which we would transact and we consider assumptions market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

●

Level 1: Observable inputs such as quoted prices in active markets;

●

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

●

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s financial instruments include cash, accounts payable, related party loans and short term promissory notes. The carrying amounts of cash and accounts payable approximate their fair value, due to the short-term nature of these items.

Revenue Recognition

The Company has adopted the requirement of Accounting Standards Update, or ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).

Through July 1, 2023, our revenues were primarily derived from subscription fees for access to our software offerings, collected monthly, as well as from limited sales of customized professional services. We recognize revenues when a contract exists between the Company and a customer and upon transfer of control of promised products or services to such customer in an amount that reflects the consideration we expect to receive in exchange for those products or services. Revenues are recognized net of allowances and any taxes collected from customers, which are subsequently remitted to governmental authorities.

We determine revenue recognition through the following steps:

	●	Identification of the contract, or contracts, with a customer;
	●	Identification of the performance obligations in the contract;
	●	Determination of the transaction price;
	●	Allocation of the transaction price to the performance obligations in the contract; and
	●	Recognition of revenues when, or as, the Company satisfies a performance obligation.

Subscription Revenues

Subscription revenues primarily consist of monthly fees for providing customers access to our software offerings including feature-based pricing models, where distinct packages are aligned to a specific type of customer persona based on its size, market segment and physical/online store presence. Each package is very different than the next with prices increasing as the functionality increases.

Revenue Recognition (Cont’d)

Subscription Revenues (Cont’d)

Monthly subscriptions to our software packages include routine customer support and unspecified software updates and upgrades released when and if available during the term. Revenues are generally recognized monthly over the contract term beginning on the date that our service is made available to the customer, which we believe best reflects the manner in which our customers utilize our subscription offerings. Customers pay monthly for the services in advance, and if payments are not collected, the access to the service terminates. Arrangements with customers do not provide the customer with the right to take possession of the software supporting application service at any time and, as a result, are accounted for as a service contract.

Customized Service Revenues

Customized service contract revenues primarily consist of fees for deployment, configuration, and optimization services, and potentially, training. The majority of our professional services contracts are billed on a fixed price basis, and revenues are recognized over time based on a proportional performance methodology which utilizes input methods. A portion of our customized service contracts may be billed on a time and materials basis and revenues are recognized over time as the services are performed.

Stock-Based Compensation

We account for stock options granted to employees, non-employees, and directors using the accounting guidance in ASC 718 “Stock Compensation” (“ASC 718”). In accordance with ASC 718, we estimate the fair value of service-based options and performance-based options on the date of grant, using the Black-Scholes pricing model.

Compensation expense is recognized on a graded-vesting method over the requisite service period. Forfeitures are accounted for as they occur.

For the three and nine months ended September 30, 2023 and 2022, stock-based compensation and other equity instrument related expenses and expenditures recognized in the consolidated statements of operations is as follows:

	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023			2022
Capitalized as software research and development expenditure	$	-	$	104,580	$	-		$	369,836
Research and development expense		-		-		4,009			-
Cost of revenue		-		-		(870	)		-
Sales and marketing				1,165		11,909			5,132
General and administrative expenses		-		50,952		246,059			435,939
Total stock-based compensation expense	$	-	$	156,697	$	261,107		$	810,907

Leases

The Company determines if a contractual arrangement represents or contains a lease at inception. Operating leases with lease terms greater than 12 months are included in Operating lease right-of-use assets and Operating lease liabilities in the Consolidated Balance Sheets.

Leases (Cont’d)

Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. The Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is derived from information available at the lease commencement date and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The right-of-use assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company has lease arrangements that include both lease and non-lease components. The Company accounts for non-lease components separately from the lease component.

Income Taxes

Income taxes are recognized in accordance with ASC 740, “Income Taxes”, whereby deferred income tax liabilities or assets at the end of each period are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized.

Basic and Diluted Net Income (Loss) Per Share

In accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive.

Potential common stock consists of the incremental common stock issuable upon convertible notes, stock options and warrants and classes of shares with conversion features. The computation of basic loss per share for the nine months ended September 30, 2023 and 2022 excludes potentially dilutive securities because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted losses per share. The Company had a total of 413,595 and 460,740 potentially dilutive securities outstanding at September 30, 2023 and 2022, respectively, in relation to vested and exercisable stock options and exercisable share purchase warrants.

Recent Accounting Pronouncements

The Company has reviewed all recently issued accounting pronouncements. The pronouncements that have already been adopted, did not have a material effect on our financial condition, results of operations, cash flows or reporting thereof. Since the fiscal year end December 31, 2022, there have been no recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to the Company.

METRO ONE TELECOMMUNICATIONS INC 10-Q