Quarterly report pursuant to Section 13 or 15(d)

RESTATEMENT OF FINANCIAL STATEMENTS (Tables)

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RESTATEMENT OF FINANCIAL STATEMENTS (Tables)
6 Months Ended
Jun. 30, 2012
Restatement Of Financial Statements Tables  
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 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 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 Company’s 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 Company’s net income; however, this 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 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.