8-K 1 v203668_8k.htm Unassociated Document
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported):  November 19, 2010
 
 
CYBERDEFENDER CORPORATION
(Exact name of Company as specified in Charter)
 
Delaware
  
333-138430
  
65-1205833
(State or other jurisdiction of
incorporation or organization)
  
(Commission File No.)
  
(IRS Employee Identification No.)
 
617 West 7th Street, Suite 1000
Los Angeles, California 90017
 (Address of Principal Executive Offices)
 
213-689-8631
(Issuer Telephone number)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Company under any of the following provisions (see General Instruction A.2 below).
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR240.14a-12)
 
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).
 
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13(e)-4(c))
 
 
Item 4.02a    Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
 
During the course of preparing our September 30, 2010 Form 10-Q the following adjustments were identified :  (i) the Black Scholes value of the warrants issued by the Registrant in March 2009 pursuant to a Media and Marketing Services Agreement should have been classified as an operating expense rather than interest expense and that the Black Scholes value of such warrants should be measured as of each monthly vesting date rather than the grant date starting from March 2009 through September 2010; (ii) certain warrants issued to consultants must be revalued as of their respective vesting dates rather than the grant date, using the Black Scholes method; and (iii) all of the Registrant’s advertising expenses starting in the fourth quarter of 2009 should have been expensed as incurred rather than capitalized and amortized against revenues for a period of 12 months under ASC 340-20  (collectively, the “Adjustments”).
 
On November 19, 2010, the Audit Committee of the Registrant’s Board of Directors determined to restate the Company’s financial statements for the year ended December 31, 2009 and the quarters ended March 31, 2009 and 2010, June 30, 2009 and 2010 and September 30, 2009 in order to make the Adjustments.  Accordingly, the financial statements contained in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the SEC on March 31, 2010, and the Registrant’s Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2009, which were filed with the SEC on May 15, 2009, August 14, 2009 and November 12, 2009, respectively, and March 31 and June 30, 2010, which were filed with the SEC on May 17, 2010 and August 9, 2010, respectively, should no longer be relied upon.
 
Management believes the Adjustments will not cause any changes to revenues, net sales or gross profit for the periods to be restated, however, the Registrant’s financial statements have not been re-reviewed or re-audited. On October 11, 2010, the Registrant engaged Grant Thornton LLP as the Registrant’s independent registered public accounting firm to perform a review of the September 30, 2010 10Q and to perform a re-audit of the December 31, 2009 and 2008 financial statements.   The Registrant expects this process to be completed as soon as practicable, whereupon the Registrant plans to file an amendment to its Form 10-K for the year ended December 31, 2009 and amendments to its Form 10-Qs for all quarterly periods of 2009 and for the quarters ended March 31 and June 30, 2010.
 
As a result of the pending Adjustments, the Registrant is unable to file its Form 10-Q for the quarter ended September 30, 2010 until the foregoing amendments and restatements are filed.

The effects of the identified Adjustments are illustrated below.
 
2
 
   
December 31, 2009
    
March 31, 2010
    
June 30, 2010
  
   
Restated
    
Adjustments
    
As Filed
    
Restated
    
Adjustments
    
As Filed
    
Restated
    
Adjustments
    
As Filed
  
ASSETS
                                                      
CURRENT ASSETS:
                                                      
Cash
   $ 3,357,510           $ 3,357,510     $ 6,922,888           $ 6,922,888     $ 4,896,518           $ 4,896,518  
Restricted Cash
     1,565,841             1,565,841       1,918,606             1,918,606       2,059,028             2,059,028  
Accounts receivable, net
     489,464             489,464       617,843             617,843       1,146,705             1,146,705  
Deferred financing costs, current
     191,566             191,566       217,075             217,075       25,509             25,509  
Prepaid expenses
     302,291             302,291       281,027             281,027       215,885             215,885  
Deferred charges, current
     3,316,535       (2,312,753 )(1)     5,629,288       3,342,608       (3,985,002 )(1)     7,327,610       2,700,504       (6,085,844 )(1)     8,786,348  
                                                                         
Total Current Assets
     9,223,207       (2,312,753 )     11,535,960       13,300,047       (3,985,002 )     17,285,049       11,044,149       (6,085,844 )     17,129,993  
                                                                         
PROPERTY AND EQUIPMENT, net
     242,927               242,927       753,251               753,251       852,705               852,705  
DEFERRED FINANCING COSTS, net of current portion
     47,892               47,892       25,509               25,509       19,132               19,132  
DEFERRED CHARGES, net of current portion
     609,904               609,904       627,058               627,058       510,252               510,252  
OTHER ASSETS
     67,605               67,605       109,903               109,903       110,028               110,028  
                                                                         
Total Assets
   $ 10,191,535     $ (2,312,753 )   $ 12,504,288     $ 14,815,768     $ (3,985,002 )   $ 18,800,770     $ 12,536,266     $ (6,085,844 )   $ 18,622,110  
                                                                         
LIABILITIES AND STOCKHOLDERS' DEFICIT
                                                                        
CURRENT LIABILITIES:
                                                                        
Accounts payable
   $ 4,893,186             $ 4,893,186     $ 5,697,170             $ 5,697,170     $ 6,281,488             $ 6,281,488  
Accrued expenses
     862,023               862,023       498,598               498,598       1,446,760               1,446,760  
Deferred revenue, current
     9,662,030               9,662,030       10,285,308               10,285,308       10,112,645               10,112,645  
Capital lease obligations, current
     9,410               9,410       56,886               56,886       90,992               90,992  
                                                                         
Total Current Liabilities
     15,426,649               15,426,649       16,537,962               16,537,962       17,931,885               17,931,885  
                                                                         
DEFFERRED RENT
     65,938               65,938       147,835               147,835       254,197               254,197  
DEFERRED REVENUE, less current portion
     1,117,116               1,117,116       1,334,452               1,334,452       1,968,789               1,968,789  
CONVERTIBLE NOTES PAYABLE, net of discount
     1,593,000               1,593,000       5,808,629               5,808,629       4,242,500               4,242,500  
CAPITAL LEASE OBLIGATION, less current portion
     9,708               9,708       129,047               129,047       137,536               137,536  
                                                                         
Total Liabilities
     18,212,411               18,212,411       23,957,925               23,957,925       24,534,907               24,534,907  
                                                                         
COMMITMENTS AND CONTINGENCIES
                                                                        
                                                                         
STOCKHOLDERS' DEFICIT:
                                                                        
Common stock
     16,595,314               16,595,314       16,760,914               16,760,914       27,024               27,024  
Additional paid-in capital
     21,349,026       4,860,538       16,488,488       27,418,391       8,663,608       18,754,783       53,435,734       13,806,792       39,628,942  
Accumulated deficit
     (45,965,216 )     (7,173,291 )     (38,791,925 )     (53,321,462 )     (12,648,610 )     (40,672,852 )     (65,461,399 )     (19,892,636 )     (45,568,763 )
                                                                         
Total Stockholders' Deficit
     (8,020,876 )     (2,312,753 )     (5,708,123 )     (9,142,157 )     (3,985,002 )     (5,157,155 )     (11,998,641 )     (6,085,844 )     (5,912,797 )
                                                                         
Total Liabilities and Stockholders' Deficit
   $ 10,191,535     $ (2,312,753 )   $ 12,504,288     $ 14,815,768     $ (3,985,002 )   $ 18,800,770     $ 12,536,266     $ (6,085,844 )   $ 18,622,110  
 
(1)
Decrease is a result of expensing direct-response advertising costs as incurred rather than capitalizing and amortizing them under ASC 340-20.
 
3
 
   
For the Year Ended
  
   
December 31, 2009
  
   
Restated
    
Adjustments
    
As Filed
  
                   
REVENUES:
                  
Net sales
   $ 18,841,893           $ 18,841,893  
                       
COST OF GOODS SOLD
     4,182,462             4,182,462  
                       
GROSS PROFIT
     14,659,431             14,659,431  
                       
OPERATING EXPENSES:
                      
Media and marketing services
     22,343,333       9,261,824 (1)     13,081,509  
Product development
     1,851,931               1,851,931  
Selling, general and administrative
     6,566,661               6,566,661  
Investor relations and other related consulting
     2,473,345       (730,443 )(2)     3,203,788  
Depreciation and amortization
     37,117               37,117  
Total Operating Expenses
     33,272,387       8,531,381       24,741,006  
                         
INCOME/LOSS FROM OPERATIONS
     (18,612,956 )     (8,531,381 )     (10,081,575 )
                         
OTHER (INCOME)/EXPENSE:
                        
Change in the value of derivative liabilities
     (109,058 )             (109,058 )
Interest expense
     2,371,724       (1,358,090 )(2)     3,729,814  
Total Other (Income)/Expenses
     2,262,666       (1,358,090 )     3,620,756  
                         
LOSS BEFORE INCOME TAX EXPENSE
     (20,875,622 )     (7,173,291 )     (13,702,331 )
                         
INCOME TAX EXPENSE
     800               800  
                         
NET LOSS
   $ (20,876,422 )   $ (7,173,291 )   $ (13,703,131 )
                         
Basic and fully diluted net loss per share
   $ (0.95 )   $ (0.33 )   $ (0.63 )
                         
Weighted Average Shares Outstanding:
                        
Basic and fully diluted
     21,890,656               21,890,656  
 
(1)
Increase of $2.3 million is a result of expensing direct-response advertising costs as incurred rather than capitalizing and amortizing them under ASC 340-20 and increase of $7.0 is a result of reclassifying and revaluing warrants.
 
(2)
Decrease is a result of reclassifying and revaluing warrants.
 
4
 
   
For the Three Months Ended
    
For the Nine Months Ended
  
   
September 30, 2009
    
September 30, 2009
  
   
Restated
    
Adjustments
    
As Filed
    
Restated
    
Adjustments
    
As Filed
  
                                     
REVENUES:
                                    
Net sales
   $ 4,427,404           $ 4,427,404     $ 11,305,678           $ 11,305,678  
                                             
COST OF GOODS SOLD
     1,018,370             1,018,370       2,451,398             2,451,398  
                                             
GROSS PROFIT
     3,409,034             3,409,034       8,854,280             8,854,280  
                                             
OPERATING EXPENSES:
                                            
Media and marketing services
     4,565,758       1,020,617 (1)     3,545,141       13,246,407       2,549,265 (1)     10,697,142  
Product development
     464,761               464,761       1,129,995               1,129,995  
Selling, general and administrative
     1,612,330               1,612,330       4,429,880               4,429,882  
Investor relations and other related consulting
     515,993       25,716 (1)     490,277       2,046,696       (1,009,790 )(1)     3,056,486  
Depreciation and amortization
     8,980               8,980       29,076               29,076  
Total Operating Expenses
     7,167,822       1,046,333       6,121,489       20,882,054       1,539,475       19,342,581  
                                                 
INCOME/LOSS FROM OPERATIONS
     (3,758,788 )     (1,046,333 )     (2,712,455 )     (12,027,774 )     (1,539,475 )     (10,488,301 )
                                                 
OTHER (INCOME)/EXPENSE:
                                                
Change in the value of derivative liabilities
     -               -       (109,058 )             (109,058 )
Interest expense
     445,458       (397,638 )(1)     843,096       2,164,189       (644,337 )(1)     2,808,526  
Total Other (Income)/Expenses
     445,458       (397,638 )     843,096       2,055,131       (644,337 )     2,699,468  
                                                 
LOSS BEFORE INCOME TAX EXPENSE
     (4,204,246 )     (648,695 )     (3,555,551 )     (14,082,905 )     (895,138 )     (13,187,769 )
                                                 
INCOME TAX EXPENSE
     200               200       600               600  
                                                 
NET LOSS
   $ (4,204,446 )   $ (648,695 )   $ (3,555,751 )   $ (14,083,505 )   $ (895,138 )   $ (13,188,369 )
                                                 
Basic and fully diluted net loss per share
   $ (0.18 )   $ (0.03 )   $ (0.15 )   $ (0.51 )   $ 0.13     $ (0.64 )
                                                 
Weighted Average Shares Outstanding:
                                                
Basic and fully diluted
     23,619,718               23,619,718       20,688,198               20,688,198  
 
(1)
Adjustment is a result of reclassifying and revaluing warrants.
 
5
 
   
For the Three Months Ended
    
For the Six Months Ended
    
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2010
    
June 30, 2010
    
June 30, 2009
    
June 30, 2009
  
   
Restated
    
Adjustments
    
As Filed
    
Restated
    
Adjustments
    
As Filed
    
Restated
    
Adjustments
    
As Filed
    
Restated
    
Adjustments
    
As Filed
  
                                                                         
REVENUES:
                                                                        
Net sales
   $ 9,712,586           $ 9,712,586     $ 19,189,916           $ 19,189,916     $ 3,686,644           $ 3,686,644     $ 6,878,274           $ 6,878,274  
                                                                                         
COST OF GOODS SOLD
     4,013,801             4,013,801       7,168,851             7,168,851       753,324             753,324       1,433,028             1,433,028  
                                                                                         
GROSS PROFIT
     5,698,785             5,698,785       12,021,065             12,021,065       2,933,320             2,933,320       5,445,246             5,445,246  
                                                                                         
OPERATING EXPENSES:
                                                                                        
Media and marketing services
     12,107,101       8,699,862 (1)     3,407,239       21,751,631       15,276,499 (2)     6,475,132       4,186,055       777,748 (3)     3,408,307       8,680,649       1,528,648 (3)     7,152,001  
Product development
     963,392               963,392       1,715,519               1,715,519       365,497               365,497       665,234               665,234  
Selling, general and administrative
     3,722,377               3,722,377       6,599,590               6,599,590       1,565,995               1,565,995       2,817,552               2,817,552  
Investor relations and other related consulting
     -               -       165,045       -       165,045       918,825       (427,382 )(3)     1,346,207       1,425,470       (1,140,739 )(3)     2,566,209  
Depreciation and amortization
     54,903               54,903       75,145               75,145       9,760               9,760       20,096               20,096  
Total Operating Expenses
     16,847,773       8,699,862       8,147,911       30,306,930       15,276,499       15,030,431       7,046,132       350,366       6,695,766       13,609,001       387,909       13,221,092  
                                                                                                 
INCOME/LOSS FROM OPERATIONS
     (11,148,988 )     (8,699,862 )     (2,449,126 )     (18,285,865 )     (15,276,499 )     (3,009,366 )     (4,112,812 )     (350,366 )     (3,762,446 )     (8,163,755 )     (387,909 )     (7,775,846 )
                                                                                                 
OTHER (INCOME)/EXPENSE:
                                                                                                
Change in the value of derivative liabilities
                             -               -       -               -       (109,058 )             (109,058 ) 
Interest expense
     990,749       (1,455,836 )(3)     2,446,585       1,209,917       (2,557,155 )(3)     3,767,072       841,838       (211,083 )(3)     1,052,921       1,718,732       (246,698 )(3)     1,965,430  
Total Other (Income)/Expenses
     990,749       (1,455,836 )     2,446,585       1,209,917       (2,557,155 )     3,767,072       841,838       (211,083 )     1,052,921       1,609,674       (246,698 )     1,856,372  
                                                                                                 
LOSS BEFORE INCOME TAX EXPENSE
     (12,139,737 )     (7,244,026 )     (4,895,711 )     (19,495,782 )     (12,719,344 )     (6,776,438 )     (4,954,650 )     (139,283 )     (4,815,367 )     (9,773,429 )     (141,211 )     (9,632,218 )
                                                                                                 
INCOME TAX EXPENSE
     200               200       400               400       200               200       400               400  
                                                                                                 
NET LOSS
   $ (12,139,937 )   $ (7,244,026 )   $ (4,895,911 )   $ (19,496,182 )   $ (12,719,344 )   $ (6,776,838 )   $ (4,954,850 )   $ (139,283 )   $ (4,815,567 )   $ (9,773,829 )   $ (141,211 )   $ (9,632,618 )
                                                                                                 
Basic and fully diluted net loss per share
   $ (0.46 )   $ (0.27 )   $ (0.19 )   $ (0.75 )   $ (0.49 )   $ (0.26 )   $ (0.24 )   $ (0.01 )   $ (0.24 )   $ (0.51 )   $ (0.04 )   $ (0.47 )
                                                                                                 
Weighted Average Shares Outstanding:
                                                                                                
Basic and fully diluted
     26,427,048               26,427,048       26,094,502               26,094,502       20,392,487               20,392,487       20,688,198               20,688,198  
 
(1)
Increase of $2.1 million is a result of expensing direct-response advertising costs as incurred rather than capitalizing and amortizing them under ASC 340-20 and increase of $6.6 is a result of reclassifying and revaluing warrants.
 
(2)
Increase of $3.8 million is a result of expensing direct-response advertising costs as incurred rather than capitalizing and amortizing them under ASC 340-20 and increase of $11.5 is a result of reclassifying and revaluing warrants.
 
(3)
Adjustment is a result of reclassifying and revaluing warrants.
 
6
 
   
For the Three Months Ended
    
For the Three Months Ended
  
   
March 31, 2010
    
March 31, 2009
  
   
Restated
    
Adjustments
    
As Filed
    
Restated
    
Adjustments
    
As Filed
  
                                     
REVENUES:
                                    
Net sales
   $ 9,477,330           $ 9,477,330     $ 3,191,630           $ 3,191,630  
                                             
COST OF GOODS SOLD
     3,155,050             3,155,050       679,704             679,704  
                                             
GROSS PROFIT
     6,322,280             6,322,280       2,511,926             2,511,926  
                                             
OPERATING EXPENSES:
                                            
Media and marketing services
     9,644,531       6,576,638 (1)     3,067,893       4,494,595       750,901 (2)     3,743,694  
Product development
     752,127               752,127       299,737               299,737  
Selling, general and administrative
     2,877,213               2,877,213       1,251,557               1,251,557  
Investor relations and other related consulting
     165,045               165,045       506,644               1,220,002  
Depreciation and amortization
     20,242               20,242       10,336               10,336  
Total Operating Expenses
     13,459,158       6,576,638       6,882,520       6,562,869       750,901       6,525,326  
                                                 
INCOME/LOSS FROM OPERATIONS
     (7,136,878 )     (6,576,638 )     (560,240 )     (4,050,943 )     (750,901 )     (4,013,400 )
                                                 
OTHER (INCOME)/EXPENSE:
                                                
Change in the value of derivative liabilities
     -               -       (109,058 )             (109,058 )
Interest expense
     219,169       (1,101,318 )(2)     1,320,487       876,894       (35,615 )(2)     912,509  
Total Other (Income)/Expenses
     219,169       (1,101,318 )     1,320,487       767,836       (35,615 )     803,451  
                                                 
LOSS BEFORE INCOME TAX EXPENSE
     (7,356,047 )     (5,475,320 )     (1,880,727 )     (4,818,779 )     (715,286 )     (4,816,851 )
                                                 
INCOME TAX EXPENSE
     200               200       200               200  
                                                 
NET LOSS
   $ (7,356,247 )   $ (5,475,320 )   $ (1,880,927 )   $ (4,818,979 )   $ (715,286 )   $ (4,817,051 )
                                                 
Basic and fully diluted net loss per share
   $ (0.29 )   $ (0.21 )   $ (0.07 )   $ (0.27 )   $ (0.00 )   $ (0.27 )
                                                 
Weighted Average Shares Outstanding:
                                                
Basic and fully diluted
     25,758,260               25,758,260       17,990,516               17,990,516  
 
(1)
Increase of $1.7 million is a result of expensing direct-response advertising costs as incurred rather than capitalizing and amortizing them under ASC 340-20 and increase of $4.9 is a result of reclassifying and revaluing warrants.
 
(2)
Adjustment is a result of reclassifying and revaluing warrants.
 
7
 
The Registrant’s Audit Committee and Chief Financial Officer are assessing the effect of the restatements on the Registrant’s internal control over financial reporting and its disclosure controls and procedures.  The Registrant’s Audit Committee and Chief Financial Officer will not reach a final conclusion on the effect of the restatements on internal control over financial reporting and disclosure controls and procedures until completion of the restatement process.
 
The Registrant's Audit Committee and Chief Financial Officer have discussed the matters disclosed in this filing with Grant Thornton LLP.

Item 9.01    Financial Statements and Exhibits
 
None

8

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Current Report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated:  November 22, 2010
 
  CYBERDEFENDER CORPORATION  
       
 
By:
/s/ Kevin Harris  
    Kevin Harris, Chief Financial Officer