Annual report pursuant to Section 13 and 15(d)

Restatement

v2.4.0.6
Restatement
 12 Months Ended
Dec. 31, 2011
Restatement [Text Block]
15.
Restatement
 
On or about March 26, 2012, management and the Company concluded that the Company should restate goodwill related charges in connection with its three acquisitions that were completed during the year ended December 31, 2011. The Company’s method of valuing the restricted common stock issued in the acquisitions at the price paid by investors for Company shares in a number of private offerings around the time of the acquisitions was incorrect, and a revised discounted restricted common stock valuation be used, as required under FAS 157/ASC 820.  This change in valuation method of securities also affected share based compensation expense and certain derivative liabilities and related expenses.
 
Under ASC 820 Fair Value Measurements & Disclosures, a quoted stock price in an active market is considered primary (Type I) indicator of fair value of restricted stock issued in consideration for the acquisitions completed in 2011.  The Company believed that the infrequent and low volume of initial trading of its common stock did not constitute an active market.  Alternatively, throughout the year the company conducted a private placement in which units comprised of shares of restricted common stock and attached warrants were sold at $1.50 per share.  This price per share was bifurcated for the value of the common stock, the warrant, an embedded derivative related to down round protection on common stock, and an embedded derivative related to down round protection on the warrant.  The price per common share that was determined by this valuation ranged between $1.00 and $1.10 in the first three quarters of the year 2011.  The use of this method resulted in understated goodwill for each of the three acquisitions, understated asset value for certain intangible assets, understated stock based compensation expense, an understatement of certain derivative liabilities and an understatement of the related expense related to the Company’s derivative liability, as reflected in its financial statements for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011.
 
The cumulative effect of this change through September 30, 2011 is $8,346,836 increase in goodwill and intangible assets, $739,606 in current liabilities, $993,119 in non-current liabilities, $8,177,272 in additional paid-in capital, and $1,913,161 decrease in the Company’s net income, however had no effect on the Company\'s reported cash flows.  Unaudited Tables detailing the effect of the error on the Company’s previously filed financial statements for the quarters ended March 31, June 30, and September 30, 2011 are included below.
   
   
   
                   
   
March 31, 2011
 
   
As Filed
 
Adjustments
     
Restated
 
                   
Current Assets
                 
     Cash
  $ 205,191   $ -       $ 205,191  
     Accounts Receivable
    50,227     -         50,227  
     Other Current Assets
    91,708     -         91,708  
Total Current Assets
    347,126     -         347,126  
                         
Equipment, Net
    2,737     -         2,737  
Intangible Assets, Net
    77,105     32,142  
  (a)
    109,247  
Other Assets
    46,317     -         46,317  
       TOTAL ASSETS
  $ 473,285   $ 32,142       $ 505,427  
                         
                         
Current Liabilities
                       
     Accounts Payable
  $ 233,307   $ -       $ 233,307  
     Accrued Interest
    64,499     -         64,499  
     Accrued and Deferred Personnel Compensation
    113,285     -         113,285  
     Deferred Revenue - related party
    200,000     -         200,000  
     Deferred Revenue and Customer Deposits
    86,677     -         86,677  
     Notes Payable, net of discount
    71,984     -         71,984  
     Convertible notes payable, net of discount
    817,299     (1,617 )
  (a)
    815,682  
     Derivative Liabilities
    371,298     397,881  
  (a)
    769,179  
     Other Current Liabilities
    68,692     -         68,692  
Total Current Liabilities
    2,027,041     396,264         2,423,305  
                         
Stockholders\' Deficit
                       
     Common Stock, $0.001 par value; 150,000,000
                       
         shares authorized; 17,854,286 and 17,700,000 shares
                       
        issued and outstanding as of March 31, 2011 and
                       
        December 31, 2010, respectively
    17,854     -         17,854  
     Additional Paid-in Capital
    7,202,830     347,208  
  (a)
    7,550,038  
     Common Stock Liability
    128,030     (128,030 )
  (b)
    -  
     Accumulated Deficit
    (8,902,470 )   (583,300 )
  (a)
    (9,485,770 )
Total Stockholders\' Deficit
    (1,553,756 )   (364,122 )       (1,917,878 )
       TOTAL LIABILITIES & STOCKHOLDERS\' DEFICIT
  $ 473,285   $ 32,142       $ 505,427  
 
(a) To reflect change due to the change in fair market value of restricted stock in underlying calculations
 
(b) To reflect reclassification of common stock liabilities from Q1 sale of private placement shares
       
                           
 
   
           
           
           
                     
   
Three months ended March 31, 2011
 
   
As Filed
   
Adjustments
     
Restated
 
Revenues
                   
                     
     Revenues
  $ 140,638     $ -       $ 140,638  
     Cost of revenues
    79,837       -         79,837  
Gross Margin
    60,801       -         60,801  
                           
Operating Expenses
                         
     Sales & marketing expense
    57,851       6,074  
(a)
    63,925  
     Engineering, research, & development expense
    128,571       17,920  
(a)
    146,491  
     General & administrative
    545,039       81,212  
(a)
    626,251  
Total Operating Expenses
    731,461       105,206         836,667  
                           
Loss From Operations
    (670,660 )     (105,206 )       (775,866 )
                           
Other Income/(Expense)
                         
     Interest income
    158       -         158  
     Interest expense
    (105,408 )     -         (105,408 )
     Change in fair market value of derivative liabilities
    47,693       (478,095 )
(a)
    (430,402 )
     Gain on debt extinguishment
    -       -         -  
Total Other Income/(Expense)
    (57,557 )     (478,095 )       (535,652 )
                           
Net Loss
  $ (728,217 )   $ (583,301 )     $ (1,311,518 )
                           
Net Loss Per Share - Basic and Diluted
  $ (0.04 )   $ (0.03 )
(a)
  $ (0.07 )
                           
Weighted average number of shares
                         
    during the period - basic and diluted
    17,711,048       17,711,048         17,711,048  
 
(a) To reflect change due to the change in fair market value of restricted stock in underlying calculations
 
 
   
   
   
                     
   
June 30, 2011
 
   
As Filed
   
Adjustments
     
Restated
 
                     
Current Assets
                   
     Cash
  $ 23,195     $ -       $ 23,195  
     Accounts Receivable
    154,978       -         154,978  
     Other Current Assets
    43,852       -         43,852  
Total Current Assets
    222,025       -         222,025  
                           
Equipment, Net
    31,865       -         31,865  
Goodwill
    1,996,763       7,067,000  
  (a)
    9,063,763  
Intangible Assets, Net
    2,319,240       32,143  
  (a)
    2,351,383  
Other Assets
    67,750       -         67,750  
       TOTAL ASSETS
  $ 4,637,643     $ 7,099,143       $ 11,736,786  
                           
                           
Current Liabilities
                         
     Accounts Payable
  $ 304,088     $ -       $ 304,088  
     Accrued Interest
    91,628       -         91,628  
     Accrued and Deferred Personnel Compensation
    127,802       -         127,802  
     Deferred Revenue - related party
    200,000       -         200,000  
     Deferred Revenue and Customer Deposits
    143,639       -         143,639  
     Notes Payable, net of discount
    580,895       -         580,895  
     Convertible notes payable, net of discount
    867,111       (2,944 )
  (a)
    864,167  
     Cash payment obligation, net of discount
    219,424       -         219,424  
     Derivative Liabilities
    329,479       593,804  
  (a)
    923,283  
     Other Current Liabilities
    98,488       -         98,488  
Total Current Liabilities
    2,962,554       590,860         3,553,414  
                           
Non-Current Liabilities
                         
     Notes Payable
    31,807       -         31,807  
Total Non-Current Liabilities
    31,807       -         31,807  
Total Liabilities
    2,994,361       590,860         3,585,221  
                           
Stockholders\' Deficit
                         
     Common Stock, $0.001 par value; 150,000,000
                         
         shares authorized; 21,509,620 and 17,700,000 shares
                         
        issued and outstanding as of June 30, 2011 and
                         
        December 31, 2010, respectively
    21,509       -         21,509  
     Additional Paid-in Capital
    10,990,429       7,623,382  
(a)
    18,613,811  
     Accumulated Deficit
    (9,368,656 )     (1,115,100 )
(a)
    (10,483,756 )
Total Stockholders\' Deficit
    1,643,282       6,508,283         8,151,565  
       TOTAL LIABILITIES & STOCKHOLDERS\' DEFICIT
  $ 4,637,643     $ 7,099,143       $ 11,736,786  
                           
(a) To reflect change due to the change in fair market value of restricted stock in underlying calculations
       
                 
                     
                     
           
                     
   
Three months ended June 30, 2011
 
   
As Filed
   
Adjustments
     
Restated
 
Revenues
                   
                     
     Revenues
  $ 553,108     $ -       $ 553,108  
     Cost of revenues
    179,051       -         179,051  
Gross Margin
    374,057       -         374,057  
                           
Operating Expenses
                         
     General & administrative
    374,448       185,187  
(a)
    559,635  
     Sales & marketing expense
    200,822       15,263  
(a)
    216,085  
     Engineering, research, & development expense
    161,291       17,982  
(a)
    179,273  
     Depreciation & amortization
    124,741       -         124,741  
Total Operating Expenses
    861,302       218,432         1,079,734  
                           
Loss From Operations
    (487,245 )     (218,432 )       (705,677 )
                           
Other Income/(Expense)
                         
     Interest income
    16       -         16  
     Interest expense
    (138,258 )     -         (138,258 )
     Change in fair market value of derivative liabilities
    159,263       (313,367 )
(a)
    (154,104 )
Total Other Income/(Expense)
    21,021       (313,367 )       (292,346 )
                           
Loss before income taxes
    (466,224 )     (531,799 )       (998,023 )
                           
Income tax benefit/(expense)
    38       -         38  
                           
Net Loss
  $ (466,186 )   $ (531,799 )     $ (997,985 )
                           
Net Loss Per Share - Basic and Diluted
  $ (0.02 )   $ (0.02 )
(a)
  $ (0.05 )
                           
Weighted average number of shares
                         
    during the period - basic and diluted
    21,336,579       21,336,579         21,336,579  
                           
             
(a) To reflect change due to the change in fair market value of restricted stock in underlying calculations
       
 
   
   
   
                     
   
September 30, 2011
 
   
As Filed
   
Adjustments
     
Restated
 
                     
Current Assets
                   
     Cash
  $ 1,152     $ -       $ 1,152  
     Accounts Receivable
    318,919       -         318,919  
     Other Current Assets
    52,689       (1,834 )       50,855  
Total Current Assets
    372,760       (1,834 )       370,926  
                           
Equipment, Net
    31,714       -         31,714  
Goodwill
    5,120,712       8,316,527  
  (a)
    13,437,239  
Intangible Assets, Net
    2,835,611       32,143  
  (a)
    2,867,754  
Other Assets
    49,650       125,846  
(c)
    175,496  
       TOTAL ASSETS
  $ 8,410,447     $ 8,472,682       $ 16,883,129  
                           
                           
Current Liabilities
                         
     Accounts Payable
  $ 581,392     $ -       $ 581,392  
     Accrued Interest
    120,923       -         120,923  
     Accrued and Deferred Personnel Compensation
    160,763       -         160,763  
     Deferred Revenue - related party
    200,000       -         200,000  
     Deferred Revenue and Customer Deposits
    166,277       -         166,277  
     Notes Payable, net of discount
    837,245       -         837,245  
     Convertible notes payable, net of discount
    980,030       (2,944 )
  (a)
    977,086  
     Cash payment obligation, net of discount
    147,414       -         147,414  
     Derivative Liabilities
    582,443       742,550  
  (a)
    1,324,993  
     Other Current Liabilities
    143,722       -         143,722  
Total Current Liabilities
    3,920,209       739,606         4,659,815  
                           
Non-Current Liabilities
                         
     Settlement payable
    -       125,846  
  (c)
    125,846  
     Earn-out payable
    2,664,466       993,119  
(a)
    3,657,585  
Total Non-Current Liabilities
    2,664,466       1,118,965         3,783,431  
Total Liabilities
    6,584,675       1,858,571         8,443,246  
                           
Stockholders\' Deficit
                         
     Common Stock, $0.001 par value; 150,000,000
                         
shares authorized; 22,360,793 and 17,700,000 shares
                   
        issued and outstanding as of June 30, 2011 and
                         
        December 31, 2010, respectively
    22,361       -         22,361  
     Common Stock Liability
    -       350,000  
  (b)
    350,000  
     Additional Paid-in Capital
    11,947,645       8,177,272  
  (a)
    20,124,917  
     Accumulated Deficit
    (10,144,234 )     (1,913,161 )
  (a)
    (12,057,395 )
Total Stockholders\' Deficit
    1,825,772       6,614,111         8,439,883  
       TOTAL LIABILITIES & STOCKHOLDERS\' DEFICIT
  $ 8,410,447     $ 8,472,682       $ 16,883,129  
                           
(a) To reflect change due to the change in fair market value of restricted stock in underlying calculations
       
(b) To reflect shares owed at Sept 30, 2011 not issued until Q4 2011.
                   
(c) To reflect net working capital of Boomtext obligation payout
                   
 
                     
                         
                         
               
                         
   
Three months ended September 30, 2011
 
   
As Filed
   
Adjustments
         
Restated
 
Revenues
                       
                         
     Revenues
  $ 842,885     $ -           $ 842,885  
     Cost of revenues
    311,717       -             311,717  
Gross Margin
    531,168       -             531,168  
                               
Operating Expenses
                             
     General & administrative
    523,513       437,623       (a,b)       961,136  
     Sales & marketing expense
    245,810       (5,088 )  
(a)
      240,722  
     Engineering, research, & development expense
    156,851       17,951    
(a)
      174,802  
     Depreciation & amortization
    191,783       -               191,783  
Total Operating Expenses
    1,117,957       450,486               1,568,443  
                                 
Loss From Operations
    (586,789 )     (450,486 )             (1,037,275 )
                                 
Other Income/(Expense)
                               
     Interest expense
    (133,055 )     -               (133,055 )
     Change in fair market value of derivative liabilities
    (54,134 )     (347,576 )  
(a)
      (401,710 )
Total Other Income/(Expense)
    (187,189 )     (347,576 )             (534,765 )
                                 
Loss before income taxes
    (773,978 )     (798,062 )             (1,572,040 )
                                 
Income tax benefit/(expense)
    (1,600 )     -               (1,600 )
                                 
Net Loss
  $ (775,578 )   $ (798,062 )           $ (1,573,640 )
                                 
Net Loss Per Share - Basic and Diluted
  $ (0.04 )   $ (0.04 )  
(a)
    $ (0.07 )
                                 
Weighted average number of shares
                               
    during the period