RESTATEMENT OF FINANCIAL STATEMENTS |
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 Companys 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 equaled $1.05 for the three months ended June 30, 2011. The use of this method
resulted in 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 Companys derivative liability,
as reflected in its financial statements for the quarter ended June 30, 2011.
The cumulative effect of this change through June
30, 2011 is an increase of $7,067,000 in goodwill, an increase of $32,143 in intangible assets, an increase of $590,860 in current
liabilities, an increase of $7,623,382 in additional paid-in capital, and a decrease of $1,115,100 in the Companys net income;
however, this had no effect on the Companys reported cash flows. Unaudited Tables detailing the effect of the error on the
Companys previously filed financial statements for the quarter ended June 30, 2011 are included below.
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011 |
|
|
|
As Filed |
|
|
Adjustments |
|
|
|
Restated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
693,745 |
|
|
$ |
- |
|
|
|
$ |
693,746 |
|
Cost of revenues |
|
|
258,888 |
|
|
|
- |
|
|
|
|
258,888 |
|
Gross Margin |
|
|
434,857 |
|
|
|
- |
|
|
|
|
434,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative |
|
|
920,443 |
|
|
|
263,406 |
|
(a) |
|
|
1,183,849 |
|
Sales & marketing expense |
|
|
255,679 |
|
|
|
24,331 |
|
(a) |
|
|
280,010 |
|
Engineering, research, & development expense |
|
|
289,862 |
|
|
|
35,902 |
|
(a) |
|
|
325,764 |
|
Depreciation & amortization |
|
|
126,778 |
|
|
|
- |
|
|
|
|
126,778 |
|
Total Operating Expenses |
|
|
1,592,762 |
|
|
|
323,639 |
|
|
|
|
1,916,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations |
|
|
(1,157,905 |
) |
|
|
(323,639 |
) |
|
|
|
(1,481,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/(Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
174 |
|
|
|
- |
|
|
|
|
174 |
|
Interest expense |
|
|
(243,666 |
) |
|
|
- |
|
|
|
|
(243,666 |
) |
Change in fair market value of derivative liabilities |
|
|
206,956 |
|
|
|
(791,462 |
) |
(a) |
|
|
(584,506 |
) |
Total Other Income/(Expense) |
|
|
(36,536 |
) |
|
|
(791,462 |
) |
|
|
|
(827,998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(1,194,441 |
) |
|
|
(1,115,100 |
) |
|
|
|
(2,309,541 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit/(expense) |
|
|
38 |
|
|
|
- |
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(1,194,403 |
) |
|
$ |
(1,115,100 |
) |
|
|
$ |
(2,309,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share - Basic and Diluted |
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
(a) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period - basic and diluted |
|
|
19,534,081 |
|
|
|
19,534,081 |
|
|
|
|
19,534,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) To reflect change due to the change in fair market value of restricted stock in underlying calculations. |
|
|