Quarterly report pursuant to Section 13 or 15(d)

Restatement

v2.4.0.6
Restatement
9 Months Ended
Sep. 30, 2012
Notes to Financial Statements  
NOTE 15 - Restatement

 

On or about March 26, 2012, the Company's management 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 $110 for the three months ended September 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 September 30, 2011.

 

The cumulative effect of this change through September 30, 2011 is an increase of  $8,316,527 in goodwill, an increase of $32,143 in intangible assets,  a decrease of ($1,834) in other current assets, an increase of $739,606 in current liabilities, an increase of $993,119 in earn-out payable, an increase of  $8,177,272 in additional paid-in capital, and a decrease of  ($1,913,161) 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 September 30, 2011 are included below.

 

Balance Sheet

 

    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 )     (a)       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                                
     Long term note 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 underlyging 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

 

Statement of Operations

 

    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 - basic and diluted     22,048,802       22,048,802               22,048,802  

 

 

(a) To reflect change due to the change in fair market value of restricted stock in underlyging calculations
(b) To reflect shares owed at Sept 30, 2011 not issued until Q4 2011.

 

Statement of Operations

 

    Nine months ended September 30, 2011
    As Filed   Adjustments       Restated
Revenues                                
                                 
     Revenues   $ 1,536,630     $ —               $ 1,536,630  
     Cost of revenues     570,605       —                 570,605  
Gross Margin     966,025       —                 966,025  
                                 
Operating Expenses                                
     General & administrative     1,448,955       704,022       (a,b)       2,152,977  
     Sales & marketing expense     497,936       16,249       (a)       514,185  
     Engineering, research, & development expense     445,267       53,853       (a)       499,120  
     Depreciation & amortization     318,560       —                 318,560  
Total Operating Expenses     2,710,718       774,124               3,484,842  
                                 
Loss From Operations     (1,744,693 )     (774,124 )             (2,518,817 )
                                 
Other Income/(Expense)                                
     Interest expense     (376,548 )     —                 (376,548 )
     Change in fair market value of derivative liabilities     152,822       (1,139,038 )     (a)       (986,216 )
Total Other Income/(Expense)     (223,726 )     (1,139,038 )             (1,362,764 )
                                 
Loss before income taxes     (1,968,419 )     (1,913,162 )             (3,881,581 )
                                 
Income tax benefit/(expense)     (1,562 )     —                 (1,562 )
                                 
Net Loss   $ (1,969,981 )   $ (1,913,162 )           $ (3,883,143 )
                                 
Net Loss Per Share - Basic and Diluted   $ (0.10 )   $ (0.09 )     (a)     $ (0.19 )
                                 
Weighted average number of shares during the period - basic and diluted     20,381,533       20,381,533               20,381,533