| 3. RESTATEMENT |
During
the audit for year ended December 31, 2013, it was determined that the previously issued financial statements for the three and
nine months ended September 30, 2013 required corrections for errors described below:
|
a) |
Amortization
expense as reported in the financial statements for the three and nine months ended September
30, 2013, in the amount of $529,230 and $1,480,722, 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 months ended September
30, 2013 is $205,500, representing a decrease in amortization expense and operating expenses
of $323,730 for the period. Amortization expense for the nine months ended September
30, 2013 was $548,000 representing a decrease in amortization expense and operating expenses
of $932,722 for the period. |
|
b) |
Intangible
assets as presented in the financial statements as of September 30, 2013 were in error.
The financial statements previously reported $4,466,666 in net intangible assets acquired
in connection with the PhytoSPHERE Transaction. As restated, the amount of net intangible
assets is $3,562,000. The decrease of $904,666 is a result of a difference of $1,837,387
between $5,947,387 in intangible assets originally recorded and $4,110,000 in intangible
assets determined by the valuation of assets purchased from PhytoSPHERE. This was partially
offset by a difference of $932,722 of accumulated amortization recorded as of September
30, 2013. |
|
c) |
Goodwill
reported in the financial statements at September 30, 2013, was understated by $1,855,512.
The goodwill as originally reported was $26,998,125, previously determined based on a
transaction amount of $35,000,000 for the PhytoSPHERE Transaction, which was offset by
an impairment to goodwill of $26,998,125 for a net carrying value of $0. The valuation
of acquired assets, discussed below, set a value of goodwill of $1,855,512, with no impairment
being recorded. |
|
d) |
The
amount previously reported as due to PhytoSPHERE pursuant to the PhytoSPHERE Agreement
at September 30, 2013 was reported as $6,499,998. 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 September 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 $1,314,878 and the value of common
stock reflected for the shares of common stock issued as payment in the Transaction was
$5,755,122. As a result, the amount shown as due to PhytoSPHERE at September 30, 2013
was overstated by $5,185,120 and the amount recorded for the shares of common stock issued
to PhytoSPHERE through September 30, 2013 was overstated by $21,794,880. |
|
e) |
General
and administrative expenses originally reported for the three and nine months ended September
30, 2013 were overstated by $461,226 and $1,070,218, respectively. Amortization expense
was overstated by $323,730 for the three months ended September 30, 2013 and $932,722
for the nine months ended September 30, 2013 due to a difference in the value of intangible
assets originally recorded of $5,947,387 and $4,110,000, as determined based on the valuation
of assets acquired by PhytoSPHERE discussed above. In addition, $137,496 in research
and development expenses were originally included in general and administrative expenses
for both the three and nine months ended September 30, 2013 which have been reclassified
as research and development expenses. |
|
f) |
For
the three and nine months ended September 30, 2013, the Company originally reported impairment
to goodwill in the amount of $26,998,125, which represented the entire amount of goodwill
originally reported. As determined in the valuation of assets purchased from PhytoSPHERE
discussed above, goodwill was determined to be $1,855,512. The Company has determined
that there should no impairment to goodwill, as adjusted, at September 30, 2013. |
The
effect of these adjustments on the condensed consolidated balance sheet as of September 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) |
|
$ |
4,466,666 |
|
|
$ |
(904,666 |
) |
|
$ |
3,562,000 |
|
| Goodwill (c) |
|
|
– |
|
|
|
1,855,512 |
|
|
|
1,855,512 |
|
| Amount due under the PhytoSPHERE Agreement (d) |
|
|
6,499,998 |
|
|
|
(5,185,120 |
) |
|
|
1,314,878 |
|
| Additional paid in capital (d) |
|
|
28,330,375 |
|
|
|
(21,794,880 |
) |
|
|
6,535,495 |
|
| Accumulated deficit (a)(e)(f) |
|
|
(28,551,425 |
) |
|
|
27,930,846 |
|
|
|
(620,579 |
) |
The
effect of theses adjustments on the condensed consolidated statement of operations for the three months ended September 30, 2013
is as follows:
| |
|
As
previously reported |
|
|
Adjustment |
|
|
As
restated |
|
| General and administrative expenses
(a) (e) |
|
$ |
1,115,098 |
|
|
$ |
(461,226 |
) |
|
$ |
653,872 |
|
| Impairment of goodwill (f) |
|
|
26,998,125 |
|
|
|
(26,998,125 |
) |
|
|
– |
|
| Research and development expenses (e) |
|
|
– |
|
|
|
137,496 |
|
|
|
137,496 |
|
| Net income (loss) (a) |
|
|
(28,132,616 |
) |
|
|
27,321,855 |
|
|
|
(810,761 |
) |
| Earnings per share (a) |
|
|
(2.81 |
) |
|
|
2.73 |
|
|
|
(0.08 |
) |
The
effect of theses adjustments on the condensed consolidated statement of operations for the nine months ended September 30, 2013
is as follows:
| |
|
As
previously reported |
|
|
Adjustment |
|
|
As
restated |
|
| General and administrative expenses
(a) (e) |
|
$ |
2,337,484 |
|
|
$ |
(1,070,218 |
) |
|
$ |
1,267,266 |
|
| Impairment of goodwill (f) |
|
|
26,998,125 |
|
|
|
(26,998,125 |
) |
|
|
– |
|
| Research and development expenses (e) |
|
|
– |
|
|
|
137,496 |
|
|
|
137,496 |
|
| Net income (loss) (a) (f) |
|
|
(28,407,209 |
) |
|
|
27,930,847 |
|
|
|
(476,362 |
) |
| Earnings per share (a) |
|
|
(3.21 |
) |
|
|
3.16 |
|
|
|
(0.05 |
) |
The effect of theses adjustments on the condensed consolidated statement of cash flows for the nine months ended September 30,
2013 is as follows:
| |
|
As
previously reported |
|
|
Adjustment |
|
|
As
restated |
|
| Net income (loss) (a) |
|
$ |
(28,407,209 |
) |
|
$ |
27,930,847 |
|
|
$ |
(476,362 |
) |
| Amortization expense (a) |
|
|
1,480,722 |
|
|
|
(932,722 |
) |
|
|
548,000 |
|
| Impairment of goodwill (f) |
|
|
26,998,125 |
|
|
|
(26,998,125 |
) |
|
|
– |
|
|