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RESTATEMENT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015
9 Months Ended
Sep. 30, 2016
Accounting Changes and Error Corrections [Abstract]  
RESTATEMENT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015

NOTE 14 – RESTATEMENT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015

 

During the preparation of its consolidated financial statements for the year ended December 31, 2015, the Company determined that for the three and nine-months ended September 30, 2015 it had previously (1) used incorrect valuations for the fair value of intangible assets acquired; (2) capitalized internal use software, which should have been expensed in accordance with US GAAP; (3) used incorrect valuations for derivative liabilities; (4) used incorrect valuations for stock options issued for compensation; (5) recorded certain costs related to the issuance of its convertible and other notes payable incorrectly as general and administrative expenses; and (6) classified certain expenses and named certain accounts incorrectly. The Company has adjusted those intangible assets, derivative liabilities and compensation related to stock options using correct valuations. In addition and in accordance with US GAAP, the Company has now capitalized the costs related to the issuance of its convertible and other notes payable as debt issuance costs as a reduction of the debt principal and expensed the previously capitalized internal use software costs. The following summarizes the adjustments made to the Company’s previously reported amounts for the three and nine months ended September 30, 2015.

 

Condensed Consolidated Statements of Operations:

 

    Three Months Ended September 30, 2015  
    As Reported     Reclassifications     As Reclassified     Adjustments     As Restated  
Revenue   $ 75,312     $ -     $ 75,312     $ -     $ 75,312  
Operating Expenses:                                        
Depreciation and amortization     10,135       -       10,135       32,549 (1)     42,684  
Research and development     -       -       -       -       -  
General and administrative     840,199       4,849,740       5,689,939       (1,957,052 )(4)(5)     3,732,887  
Total operating expenses     850,334       4,849,740       5,700,074       (1,924,503 )     3,775,571  
Loss from operations     (775,022 )     (4,849,740 )     (5,624,762 )     1,924,503       (3,700,259 )
Derivative expense     (20,478,790 )     -       (20,478,790     (3,767,837 )(3)     (24,246,627 )
Stock compensation expense     (4,849,740 )     4,849,740       -       -       -  
Financing Costs of debentures     (1,357,917 )     -       (1,357,917 )     1,357,917       -  
Amortizaton of debt discounts     (358,705 )     358,705       -       -       -  
Interest expense     (98,166 )     (358,705 )     (456,871     (11,919 )(3)     (468,790 )
Other income     9,315       -       9,315       -       9,315  
Net loss   $ (27,909,025 )   $ -     $ (27,909,025 )   $ (497,336 )   $ (28,406,361 )
Net loss per share: Basic and Diluted   $ (0.16 )   $ -     $ (0.16 )   $ (0.00 )   $ (0.17 )

 

 

    Nine Months Ended September 30, 2015  
    As Reported     Reclassifications     As Reclassified     Adjustments     As Reclassified  
Revenue   $ 86,358     $ -     $ 86,358     $ -     $ 86,358  
Operating Expenses:                                        
Depreciation and amortization     34,312       -       34,312       65,098 (1)     99,410  
Research and development     24,853       -       24,853       200,000 (2)     224,853  
General and administrative     1,817,906       4,849,740       6,667,646       (2,003,395 )(4)(5)     4,664,251  
Total operating expenses     1,877,071       4,849,740       6,726,811       (1,738,297 )     4,988,514  
Loss from operations     (1,790,713 )     (4,849,740 )     (6,640,453 )     1,738,297       (4,902,156 )
Derivative expense     (20,979,041 )     -       (20,979,041     (6,132,939 )(3)     (27,111,980 )
Stock compensation expense     (4,849,740 )     4,849,740       -       -       -  
Financing Costs     (4,538,040 )     -       (4,538,040 )     4,538,040       -  
Amortizaton of debt discounts     (421,524 )     421,524       -       -       -  
Interest expense     (112,304 )     (421,524 )     (533,828     28,667 (3)     (505,161 )
Other income     9,315       -       9,315       -       9,315  
Net loss   $ (32,682,047 )   $ -     $ (32,682,047 )   $ 172,065     $ (32,509,982 )
Net loss per share: Basic and Diluted   $ (0.20 )   $ -     $ (0.20 )   $ 0.00     $ (0.20 )

  

(1) Fair Value of Intangible Assets In Connection with Business Acquisition. During the three months ended June 30, 2015, the Company accounted for the acquisition of Multipay as a business combination using the acquisition method of accounting utilizing an incorrect valuation. The adjustment to reflect the correct valuation, including the purchase price allocation of assets acquired, resulted in an increase of $138,336 to Goodwill, $168,438 to Intangible Assets (net of additional amortization) and $370,125 to Contingent Purchase Consideration as of September 30, 2015. In addition, certain previously reported contingent assets and liabilities of $87,941 were eliminated. The increase to Intangible Assets required an increase in previously reported amortization expense by $32,549 and $65,098 for the three and nine months ended September 30, 2015, respectively.

 

(2) Intangible Assets—Capitalized Software. The Company determined that previously capitalized software should have been expensed in accordance with US GAAP. Accordingly, a reduction of $200,000 to Intangible Assets and an increase to Research and Development Expenses is made as of and for the six months ended September 30, 2015.

 

(3) Derivative Liability. The fair value of the derivative liabilities related to convertible and other notes payable have now been estimated based on the Monte Carlo Simulation Model because it considers the effect of the down round feature (probability of a triggering capital raise) along with the other assumptions associated with the Black-Scholes option pricing model. The previously used methodology by the Company incorrectly did not take into consideration the probability of a financing at a price that would trigger the instruments down round provision. The adjusted fair value of the Company’s derivatives associated with its Convertible Notes and other Notes Payable resulted in an increase of $1,545,232 to the Derivative Liability as of September 30, 2015. For the three and nine months ended September 30, 2015, the Company’s derivative expense is increased by $3,767,837 and $6,132,939, respectively. In addition, the finalized fair value analysis of the Company’s embedded derivatives associated with its Convertible and other Notes Payable required a reduction to the previously recorded Debt Discount which resulted in an increase (decrease) of interest expense of $11,919 and $(28,667) for the three and nine months ended September 30, 2015, respectively. The adjusted fair value analysis for the derivatives required a decrease to Convertible Notes Payable of $271,655 and an increase to Notes Payable of $159,357 as of September 30, 2015.

 

(4) Stock-Based Compensation. The adjusted fair value of the Company’s stock-based compensation resulted in an increase to general and administrative expenses of $1,730,352 and $1,716,695 for the three and nine months ended September 30, 2015, respectively.

 

(5) Debt Issuance Costs. The capitalization of debt issuance costs resulted in a reduction to convertible notes payable of and a corresponding decrease general and administrative of $226,700 and $286,700 for the three and nine months ended September 30, 2015, respectively. The net decrease to General and Administrative expenses, after considering the decrease of $1,730,352 and $1,716,695 related to stock-based compensation in (4) above and the capitalization of debt issuance costs of $226,700 and $286,700 is $1,957,052 and $2,003,395 for the three and nine months ended September 30, 2015, respectively.

 

(6) Reclassifications. During the preparation of its consolidated financial statements for the year ended December 31, 2015, the Company changed or renamed the classification/description of certain accounts and related amounts. Accordingly, certain of the previously stated classifications/descriptions and related amounts required adjustment. As of September 30, 2015, and for the three and nine months then ended, the reclassifications and description changes relate to general and administrative and interest expense associated with the recording of the Debt Discount amortization and stock-based compensation expense and to reclassification from convertible notes payable to notes payable for those notes for which only the accrued interest is convertible.