Summary of Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2015

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Significant estimates inherent in the preparation of our financial statements include developing fair value measurements upon which to base our accounting for acquisitions of intangible assets and issuances of financial instruments, including our common stock. Our estimates also include developing useful lives for our tangible and intangible assets and cash flow projections upon which we determine the existence of, or the measurements for, impairments, allowance for billing adjustments, doubtful accounts and allocation of prices between device and telecom services.

Our estimates and assumptions are based on experience, historical trends identified by management, telecommunications industry trends and the overall economic condition in the United States and abroad. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.

Risks And Uncertainties [Policy Text Block]

Risk and Uncertainties

Our future results of operations and financial condition will be affected by many factors including the following: dependence on the worldwide telecommunication markets characterized by intense competition and rapidly changing technology, on third-party manufacturers and subcontractors, on third-party distributors in certain markets and on the successful development and marketing of new products in new and existing markets. Generally, we are unable to predict the future status of these areas of risk and uncertainty.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Revenue is generated from product sales, telecom services, mobile app sales, shipping and handling charges and leasing cell tower and co-location rack space in our operations center. All revenues are recognized in accordance with ASC 605, Revenue Recognition and SAB 104 as follows: when evidence of an arrangement exists, in the case of products, when the product is shipped to a customer, or in the case of telecom services, when the service is used by the consumer, when the fee is fixed or determinable and amounts are collectible from the customers.

Revenue is recognized for a device sale when the product is shipped and the customer is invoiced for retail sales and when the customer completes the transaction for internet sales. Revenue for telecom service is recognized prorata monthly as the service is used. Revenue for shipping costs billed to customers are included as a component of product sales. The associated cost of shipping is included as a component of cost of product sales.

Deferred Revenue [Policy Text Block]

Deferred Revenue

The initial sale of our device includes telecom service ranging from 1 month to 12 months. The revenue that is telecom is recognized ratably monthly as the service is used. The portion of the telecom service prepaid is recorded as deferred revenue. Subsequent renewals for telephone service are amortized over the corresponding number of months in the call plan.

International calls are billed as earned from our customers. International calls are prepaid and customers account is debited as minutes are used and earned.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

We consider all highly liquid cash balances and debt instruments with an original maturity of three months or less to be cash equivalents. We maintain cash balances only in domestic bank accounts, which at times, may exceed FDIC limits of $250,000. Our cash balances occasionally exceed the FDIC limits during the year but did not exceed the FDIC limit at June 30, 2015.

Inventory, Policy [Policy Text Block]

Inventory

Inventories are stated at the lower of cost or market. Cost is determined using the first-in first-out method. Obsolete inventory is reserved for, if necessary, and there is zero reserve at June 30, 2015 and December 31, 2014.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment includes assets acquired which consist of network equipment, computer hardware, furniture and purchased and internally developed software. All of our equipment is stated at cost with depreciation expense calculated using the straight line method over the estimated useful lives of related assets, which range from three to thirty-five years. The costs of repairs and maintenance is charged to operating expenses unless it increases the assets useful life more than one year.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Intangible Assets

Intangible assets includes trademarks, patents and employee agreements. All of our intangible assets are stated at cost with amortization expense calculated using the straight line method over the estimated useful lives of related assets, which range from two to twenty years. The costs of repairs and maintenance is charged to operating expenses unless it increases the asset’s useful life more than one year.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Impairments and Disposals

We evaluate our tangible and definite-lived intangible assets for impairment annually or more frequently in the presence of circumstances or trends that may be indicators of impairment. Our evaluation is a two-step process. The first step is to compare our undiscounted cash flows, as projected over the remaining useful lives of the assets, to their respective carrying values. In the event that the carrying values are not recovered by future undiscounted cash flows, as a second step, we compare the carrying values to the related fair values and, if lower, record an impairment adjustment. For purposes of fair value, we generally use replacement costs for tangible fixed assets and discounted cash flows, using risk-adjusted discount rates for intangible assets.

Research, Development, and Computer Software, Policy [Policy Text Block]

Software Development Costs

The Company develops software for both internal and external use. The following describes netTALK’s policies and procedures regarding expensing versus capitalizing software development costs.

We capitalize costs of software to be sold, leased or marketed in accordance with FASB ASC 985-20. We account for our software development costs as costs incurred internally in creating a computer software product and are charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or completion of a working model. Capitalization of costs stops when the product is available for general release to customers at which point the capitalized costs are amortized over the software’s useful life.

We capitalize costs for internally developed software in accordance with FASB ASC 350-40. Costs incurred in the preliminary project stage are expensed as incurred. Preliminary project stage includes conceptual formulations and evaluation of alternatives, determination of existence of needed technology and final selection of alternatives. Costs incurred in the application development stage are capitalized as incurred and includes design of chosen path, configuration, coding, installation of hardware, and testing. Capitalization of costs stops after software implementation at which point the capitalized costs are amortized over the software’s useful life.

As of June 30, 2015 and 2014, the Company had development costs of $265,583 and $377,172, respectively.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain reclassifications have been made to prior year financial statements in order to conform to the current year’s presentation.

Share Based Payment Arrangements [Policy Text Block]

Share-Based Payment Arrangements

NetTalk adopted a 2010 Stock Option Plan, a 2011 Stock Option Plan, a 2012 Stock Option Plan and a 2015 Stock Option Plan (the "Plans") which are intended to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, retain and motivate key individuals by providing such persons with equity ownership opportunities and performance-based incentives, thereby better aligning the interests of our employees and consultants with those of the Company. All of the Company’s employees, officers, and directors, and those Company’s consultants and advisors (i) that are natural persons and (ii) who provide bona fide services to the Company not connected to a capital raising transaction or the promotion or creation of a market for the Company’s securities, are eligible to be granted options or restricted stock awards under the Plans. The shares are compensatory in nature and are fully vested upon issuance. We value the shares consistent with fair value at the time of issuance including adjustments for certain restrictions and limitations.

Share–based compensation cost to employees is recorded as compensation expense and is recognized over the service period. Share–based payments to non–employees are recorded as consulting expense and is recognized over the service period.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy 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 the valuation methodology are unobservable and significant to the fair value measurement.

Financial instruments, as defined in the Accounting Standards Codification 825, Financial Instruments, consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, secured convertible debentures, and derivative financial instruments. The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.

We carry cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities at historical costs since their respective estimated fair values approximate carrying values due to their current nature. We also carry convertible debentures and redeemable preferred stock at historical cost.

Derivative financial instruments, as defined in Accounting Standards Codification 815-10-15-83, Derivatives and Hedging, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Certain risks and concentration

Our primary manufacturer accounted for approximately 13% and 23% of our cost of goods sold for the six months ended June 30, 2015 and 2014, respectively. Our primary telecom service provider for the six months ended June 30, 2015 accounted for approximately 22% of cost of goods sold. Our primary telecom service provider for the six months ended June 30, 2014 accounted for approximately 27% of cost of goods sold.

One of our customers presently operates under a consignment agreement. Under the agreement we sell and ship merchandise to our customer, and collect payments upon the sale of our product to the ultimate (final) consumer.

Stockholders' Equity Note, Redeemable Preferred Stock, Issue, Policy [Policy Text Block]

Redeemable Preferred Stock

Redeemable preferred stock is initially evaluated for possible classification as liabilities under Accounting Standard Codification 480, Distinguishing Liabilities from Equity. Redeemable preferred stock that does not, in its entirety, require liability classification is evaluated for embedded features that may require bifurcation and separate classification as derivative liabilities under Accounting Standards Codification 815. In all instances, the classification of the redeemable preferred stock host contract that does not require liability classification is evaluated for equity classification or mezzanine classification based upon the nature of the redemption features. Generally, any feature that could require cash redemption for matters not within our control, irrespective of probability of the event occurring, requires classification outside of stockholders’ equity.

Earnings Per Share, Policy [Policy Text Block]

Loss per Common Share

Basic loss per common share represents our loss applicable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted loss per common share gives effect to all potentially dilutive securities. We compute the effects on diluted loss per common share arising from warrants and options using the treasury stock method or, in the case of liability classified warrants, the reverse treasury stock method. We compute the effects on diluted loss per common share arising from convertible securities using the if-converted method. The effects are all anti-dilutive and are excluded.

Patent Costs [Policy Text Block]

Patent Costs

Assets are probable future economic benefits obtained as a result of past transactions or events. Legal fees and other costs incurred for successfully defending a patent from infringement are considered deferred legal costs in the sense that they are part of the cost of retaining and obtaining the future economic benefit of the patent as per Statement of Accounting Concept No. 6. If defense of the patent lawsuit is expected to be successful, costs may be capitalized to the extent of an evident increase in the value of the patent per TIS Section 2260. On February 27, 2015, all claims and counterclaims have been dismissed and, as a result, the previously deferred legal costs incurred to defend our patent were expensed as of December 31, 2014.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In May 2014, the FASB issued standard ASU 2014-09, Revenue from Contracts with Customers that provides a single, comprehensive revenue recognition model for all contracts with customers. The standard is principle-based and provides a five-step model to determine the measurement of revenue and timing of when it is recognized. The core principle is that a company will recognize revenue to reflect the transfer of goods or services to customers at an amount that the company expects to be entitled to in exchange for those goods or services. This standard is effective for our interim and annual reporting periods beginning after December 15, 2016 and allows for either full retrospective adoption or modified retrospective adoption. We will adopt this guidance on January 1, 2017, and are currently evaluating the impact on our financial statements.

NET TALK.COM, INC. 10-Q