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 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 $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 Companys
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 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 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 |
|
|