NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS

6 Months Ended

Jun. 30, 2013

Notes to Financial Statements

NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS

NOTE – 2 RESTATEMENT OF FINANCIAL STATEMENTS

The Company identified errors related to understatement of option expense for the year ended December 31, 2012. The facts underlying the Company’s original conclusion is that 7.5 million stock options granted to President and CEO of the Company, Thom Kidrin, were only 18 month options and were expiring on March 31, 2014. In fact they were five (5) year options expiring in September 2017. Accordingly, all the financial statements for the year ended December 31, 2012 are restated.

In addition, the Company identified errors related to understatement of derivative liabilities as of June 30, 2013, and loss on change in the fair value of the derivative liability for the three and six months ended June 30, 2013. The facts underlying the Company’s original conclusion is that there were no derivative liabilities incurred when 4,535,714 warrants were granted to the investors in connection with the strategic financing agreements entered into in March of 2013. In fact such warrants’ ratchet features triggered derivative liabilities of the Company.

The following table sets forth all the accounts in the original amounts and restated amounts, respectively.

As of June 30, 2013

		Original		Adjustment		Restated
Derivative liability	$	1,949,470	$	1,850,871	$	3,800,341

For the six months ended June 30, 2013

	Original			Adjustment			Restated
Gain (loss) on change in fair value of derivative liability	$	450,530		$	(1,850,871	)	$	(1,400,341	)
Net (loss)		(569,778	)		(1,850,871	)		(2,420,649	)
Weighted average loss per share	$	(0.01	)	$	(0.02	)	$	(0.03	)

For the three months ended June 30, 2013

	Original			Adjustment		Restated
Gain on change in fair value of derivative liability	$	396,151		$	384,816	$	780,967
Net (loss) income		(238,414	)		384,816		146,402

Statement of Equity as of January 1, 2013

	Original			Adjustment			Restated
Additional paid in capital	$	26,580,244		$	208,682		$	26,788,926
Accumulated deficit	$	(30,130,692	)	$	(208,682	)	$	(30,339,374	)