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18. Restatement of financial statements | 3 Months Ended
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Mar. 31, 2013
Accounting Changes and Error Corrections [Abstract] |
18. Restatement of financial statements | 18. Restatement of financial statements On May 24, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with eight investors (collectively, the “Investors”) pursuant to which the Company sold 8,700 shares of a new series of convertible preferred stock designated as Series E Convertible Preferred Stock (“Original Series E”), the terms of which are set forth in the Certificate of Designations of Series E Preferred Stock (the “Certificate”), for $1,000 per share, or $8,700,000. In October 2012, the Company sold 1,000 shares of Series E for $1,000,000 (“New Series E”). The Original Series E and New Series E together are referred to herein as “Series E”. These Series E contain “full ratchet-down” liquidity protection that provides that if the Company issues securities for less than the existing conversion price for the Series E Preferred Stock or the strike price of the Series E warrants, then the conversion price for Series E Preferred Stock will be lowered to that lower price. Also, the strike price for Series E warrants will be decreased to that lower price and the number of Series E warrants will be increased such that the product of the original strike price times the original quantity equals the lower strike price times the higher quantity. In preparing the financial statements for 2012, the Company has determined that the warrants for these financings included certain embedded derivative features as set forth in ASC 815, “Derivatives and Hedging,” (“ASC 815”) and that this conversion feature of the Series E was not an embedded derivative because this feature was clearly and closely related to the host (Series E) as defined in ASC 815. These derivative liabilities were initially recorded at their estimated FV on the date of issuance and are subsequently adjusted each quarter to reflect the estimated fair value at the end of each period, with any decrease or increase in the estimated fair value of the derivative liability for each period being recorded as other income or expense. Since the value of the embedded derivative feature for the related warrants was higher than the value of both Series E transactions, there was no beneficial conversion feature recorded for either transaction, and the excess of the value of the embedded derivative feature over the value of the transaction was recorded in each period on the Statement of Operations. As the result of this determination, the Company had incorrectly accounted for the derivative liabilities embedded in the Series E and related warrants issued in the year 2011. The consolidated balance sheet as of March 31, 2012 and the related consolidated statements of operations for the three months then ended were restated to reflect the correct treatment. The flowing table presents the effect of the restatement adjustment on the accompanying consolidated balance sheet as of March 31, 2012:
|  |  | As of March 31, 2012 |
Consolidated Balance Sheet as of March 31, 2012 |  |  | As Previously Reported |  |  |  | Restated |  |  |  | Net Adjustment |
Derivative liability |  | $ | – |  |  | $ | 13,841,450 |  |  | $ | 13,841,450 |
Other current liabilities |  |  | 5,768,527 |  |  |  | 5,768,527 |  |  |  | – |
Total current liabilities |  | $ | 5,768,527 |  |  | $ | 19,609,977 |  |  | $ | 13,841,450 |
Shareholder's deficit |  |  |  |  |  |  |  |  |  |  |  |
Series D 10% Preferred Stock |  | $ | 19 |  |  | $ | 19 |  |  | $ | – |
Series E 5% Preferred Stock |  |  | 9 |  |  |  | 9 |  |  |  | – |
Common stock |  |  | 88,157 |  |  |  | 88,157 |  |  |  | – |
Additional paid-in capital |  |  | 42,315,939 |  |  |  | 33,615,948 |  |  |  | (8,699,991 | )
Accumulated deficit |  |  | (44,541,282 | ) |  |  | (49,682,741 | ) |  |  | (5,141,459 | )
Total Shareholder's deficit |  | $ | (2,137,158 | ) |  | $ | (15,978,608 | ) |  | $ | (13,841,450 | )
The flowing table presents the effect of the restatement adjustment on the accompanying consolidated statement of operations for the three months ended March 31, 2012:
|  |  | Three Months Ended March 31, 2012 |
|  |  | As |  |  |  |  |  |  |  |  |
Consolidated Statement of Operations |  |  | Previously |  |  |  |  |  |  |  | Net |
for Three Months Ended March 31, 2012 |  |  | Reported |  |  |  | Restated |  |  |  | Adjustment |
Loss from operations |  | $ | 2,352,168 |  |  | $ | 2,352,168 |  |  | $ | – |
Other (income)/expenses |  |  |  |  |  |  |  |  |  |  |  |
Adjustments to fair value of derivative securities |  |  | – |  |  |  | (2,047,405 | ) |  |  | (2,047,405 | )
Other (income)/expenses |  |  | – |  |  |  | – |  |  |  | – |
Interest expense |  |  | 126,573 |  |  |  | 2,405 |  |  |  | (124,168 | )
Total other (income)/expenses |  |  | 126,573 |  |  |  | (2,045,000 | ) |  |  | (2,171,573 | )
Net loss |  |  | (2,478,742 | ) |  |  | (307,168 | ) |  |  | 2,171,573 |
Preferred dividends |  |  | – |  |  |  | 124,168 |  |  |  | 124,168 |
Net loss attributable to common shareholders |  | $ | (2,478,742 | ) |  | $ | (431,336 | ) |  | $ | 2,047,405 |
Basic and diluted loss attributable to common shareholders per share |  | $ | (0.03 | ) |  | $ | – |  |  | $ | 0.03 |
Basic weighted average shares outstanding |  |  | 88,157,055 |  |  |  | 88,157,055 |  |  |  | – |
Fully-diluted weighted average shares outstanding |  |  | 88,157,055 |  |  |  | 109,407,055 |  |  |  | 21,250,000 |
The FV of these derivative liabilities is calculated using the Black Scholes pricing model that is based on the closing price of the common stock, the strike price of the underlying instrument, the risk-free interest rate for the applicable remaining life of the underlying instrument (i.e., the U.S. treasury rate for that period) and the historical volatility of the Company’s common stock. These FV results are extremely sensitive to all these input variables, particularly the closing price of the company’s common stock and the volatility of the Company’s common stock. Accordingly, the FV of these derivative liabilities are subject to significant changes.

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- Definition The entire disclosure for reporting accounting changes and error corrections. It includes the conveyance of information necessary for a user of the Company's financial information to understand all aspects and required disclosure information concerning all changes and error corrections reported in the Company's financial statements for the period. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6801783&loc=d3e22499-107794 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB TOPIC 1.N.Q3) -URI http://asc.fasb.org/extlink&oid=6369664&loc=d3e30840-122693 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=6801783&loc=d3e22644-107794 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 1 -Section N Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -SubTopic 10 -Section 45 -Paragraph 23 -URI http://asc.fasb.org/extlink&oid=6368906&loc=d3e21914-107793 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6801783&loc=d3e22595-107794 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 154 -Paragraph 17, 22, 25, 26 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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