| 3. RESTATEMENT |
During
the audit for year ended December 31, 2013, it was determined that the previously issued financial statements for the three and
six months ended June 30, 2013 required corrections for errors described below:
|
a) |
Amortization
expense as previously reported for the three and six months ended June 30, 2013, in the
amounts of $573,325 and $951,492, respectively, was in error. Based on the restated value
of assets purchased from PhytoSPHERE, intangible assets totaled $4,110,000. Restated
amortization on those assets for the three and six months ended June 30, 2013 is $205,500
and $342,500, respectively. This resulted in an overstatement of amortization expense
and operating expenses of $367,825 and $608,992 for the three and six months ended June
30, 2013, respectively. |
|
b) |
Intangible
assets previously reported in the financial statements as of June 30, 2013 were in error.
The financial statements previously reported $5,947,387 of intangible assets acquired
in connection with the PhytoSPHERE Transaction. As determined by the valuation of the
assets purchased under the PhytoSPHERE Agreement, intangible assets totaled $4,110,000.
This overstatement of $1,837,387 was partially offset by an overstatement of accumulated
amortization of $608,992 as noted above. The resulting overstatement of intangible assets
at June 30, 2013 was $1,228,395. |
|
c) |
Goodwill
previously reported in the financial statements at June 30, 2013 was overstated by $25,142,613.
The goodwill reported was $26,998,125, previously determined based on a transaction amount
of $35,000,000 for the PhytoSPHERE Transaction. The valuation of acquired assets set
a value of goodwill of $1,855,512. The difference of $25,142,613 represents the difference
between these two amounts.
|
|
d) |
The
amount previously reported as due to PhytoSPHERE pursuant to the PhytoSPHERE Agreement
at June 30, 2013 was reported as $23,750,000. This was calculated based on a Transaction
amount of $35,000,000 and a set per share price between $4.50 and $6.00 under the PhytoSPHERE
Agreement. In reviewing the price that the Company’s common stock was trading at
during the year, subsequent to June 30, 2013, management determined that using a per
share price to value the Transaction may not represent a true measure of the fair market
value of the Transaction and that obtaining a valuation of the assets purchased from
PhytoSPHERE would be required in order to determine the fair market value of the business
acquired. Accordingly, management determined that the valuation of $8,020,000 represented
a more reliable measure of the fair value of the Transaction. As a result of that valuation,
the per share price for shares of common stock issued to PhytoSPHERE was adjusted to
$1.21 to reflect the revised value of the Transaction. Accordingly, the amount recorded
upon issuance of the shares of common stock to PhytoSPHERE and the total amount due to
PhytoSPHERE was adjusted to reflect the value of the Transaction. As a result, the amount
due to PhytoSPHERE was revised to $4,963,906 and the value of common stock reflected
for the shares of common stock issued as payment in the Transaction was $2,306,094. As
a result, the amount shown as due to PhytoSPHERE at June 30, 2013 was overstated by $18,786,094
and the amount recorded for the shares of common stock issued to PhytoSPHERE through
June 30, 2013 was overstated by $8,193,906. |
|
e) |
The
amounts recorded as changes to inventory and accounts receivable on the statement of
cash flows for the six months ended June 30, 2013 were adjusted by $1 to reflect rounding
adjustments. |
The
effect of these adjustments on the condensed consolidated balance sheet as of June 30, 2013 is summarized below (the letters included
in brackets below refer to the lettered paragraphs above):
| |
|
As
previously reported |
|
|
Adjustment |
|
|
As
restated |
|
| Intangible assets (net) (a)(b) |
|
$ |
4,995,895 |
|
|
$ |
(1,228,395 |
) |
|
$ |
3,767,500 |
|
| Goodwill (c) |
|
|
26,998,125 |
|
|
|
(25,142,613 |
) |
|
|
1,855,512 |
|
| Amount due under the PhytoSPHERE Agreement (d) |
|
|
23,750,000 |
|
|
|
(18,786,094 |
) |
|
|
4,963,906 |
|
| Additional paid in capital (d) |
|
|
10,643,257 |
|
|
|
(8,193,906 |
) |
|
|
2,449,351 |
|
| Retained earnings (accumulated deficit)
(a) |
|
|
(418,809 |
) |
|
|
608,992 |
|
|
|
190,183 |
|
The
effect of theses adjustments on the condensed consolidated statement of operations for the three months ended June 30, 2013 is
as follows:
| |
|
As
previously reported |
|
|
Adjustment |
|
|
As
restated |
|
| General and administrative expenses
(a) |
|
$ |
1,131,660 |
|
|
$ |
(712,658 |
) |
|
$ |
419,002 |
|
| Net income (loss) (a) |
|
|
(1,060,792 |
) |
|
|
712,658 |
|
|
|
(348,134 |
) |
| Earnings (loss) per share (a) |
|
|
(0.12 |
) |
|
|
0.08 |
|
|
|
(0.04 |
) |
The
effect of theses adjustments on the condensed consolidated statement of operations for the six months ended June 30, 2013 is as
follows:
| |
|
As
previously reported |
|
|
Adjustment |
|
|
As
restated |
|
| General and administrative expenses
(a) |
|
$ |
1,222,386 |
|
|
$ |
(608,992 |
) |
|
$ |
613,394 |
|
| Net income (loss) (a) |
|
|
(274,593 |
) |
|
|
608,992 |
|
|
|
334,399 |
|
| Earnings (loss) per share (a) |
|
|
(0.03 |
) |
|
|
0.07 |
|
|
|
0.04 |
|
The effect of theses adjustments on the condensed consolidated statement of cash flows for the six months ended June 30, 2013
is as follows:
| |
|
As
previously reported |
|
|
Adjustment |
|
|
As
restated |
|
| Net income (loss) (a) |
|
$ |
(274,593 |
) |
|
$ |
608,992 |
|
|
$ |
334,399 |
|
| Amortization expense (a) |
|
|
951,492 |
|
|
|
(608,992 |
) |
|
|
342,500 |
|
| Inventory (e) |
|
|
(1,832,345 |
) |
|
|
(1 |
) |
|
|
(1,832,346 |
) |
| Accounts receivable (e) |
|
|
(1,165,059 |
) |
|
|
1 |
|
|
|
(1,165,058 |
) |
|