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RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
9 Months Ended
Sep. 30, 2011
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1A:  RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

Restatement relating to accounting for debt settlement transactions in fiscal year ended December 2009
 
We had restated our consolidated financial statements as of and for the fiscal year ended December 31, 2009 related to the Company’s accounting for the debt settlement transactions. We had accounted for the equity issuance in settlement of $3,181,206 of debt by estimating the fair value from third party debt assignments instead of the quoted market value of the stock. Additionally, in connection with the debt settlement, the Company issued 2,000,000 shares pursuant to a consulting services agreement using a block discount from the quoted value of the stock. Following discussions with the SEC in connection with comments issued by the staff of the SEC, the Company determined that its accounting for debt settlement transactions should be reviewed. As a result, we reviewed GAAP guidance, which states that ‘a quoted market price in an active market is the best evidence of fair value and should be used as the basis for the measurement, if available’. Based on this guidance we concluded that the difference of $13,137,038 between the fair value recognized using the quoted market price and the debt settled amounts should be recognized as loss on debt settlement.
 
We had previously restated the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2009 in the Form 10-K for the fiscal year ended December 31, 2010 relating to the Company’s accounting for the debt settlement with related parties. The components of certain debt settlements that occurred in 2009 with related parties were originally accounted for as a gain on settlement of debt. We had determined that the accounting for the related party debt settlements was not in accordance with Financial Accounting Standards Board (“FASB”) – Accounting Standards Codification (“ASC”) 470-50-40-2, which states that ‘extinguished transactions between related entities may be in essence capital transactions.’ Based on this guidance, we had concluded that the gain from settlement with related parties in the amount of $766,769 would more appropriately be recognized as additional paid-in capital. Following discussions with the SEC in connection with comments issued by the staff of the SEC, the Company determined that its accounting for debt settlement transactions with related parties should be reviewed. As a result of the current restatement, based on GAAP guidance and management’s interpretation, we have accounted for the debt settlement transactions with related parties as loss on debt settlement and reversed the $766,769 amount which was recognized as additional paid-in capital.
 
The adjustment amount of $13,137,038 comprises the fair value of the debt settlement less the book value of the debt less the $766,769 that was reversed in the previous 10-K filed on April 18, 2011.
 
The impact of the restatement on the consolidated balance sheet as of and for the year ended December 31, 2010 is shown in the following table:
 

As reported
in December 31,
2010 10-K filed on
April 18, 2011
  
Adjustment
  
As restated      
Balance sheet data — December 31, 2010
Additional paid-in capital
   $ 27,844,666     $ 12,370,269     $ 40,214,935  
Deficit accumulated during the development stage
     (31,131,496 )     (12,370,269 )     (43,501,765 )
Total stockholders’ equity
   $ (3,272,489 )   $ —     $ (3,272,489 )