Quarterly report pursuant to Section 13 or 15(d)

Restatement of Financial Statements

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Restatement of Financial Statements
3 Months Ended
Mar. 31, 2015
Restatement of Financial Statements [Text Block]

Note 2. Restatement of Previously Issued Condensed Consolidated Financial Statements

On November 4, 2015, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”), in connection with an internal review initiated by Company management, concluded that, because of a misapplication of the accounting guidance related to certain of the Company’s warrants, the Company’s previously issued consolidated financial statements for all periods beginning with the quarterly period ended September 30, 2010 through June 30, 2015 (collectively, the “Affected Periods”) should no longer be relied upon. As such, the Company is restating in this Quarterly Report its financial statements for the quarterly periods ended March 31, 2015 and 2014. However, these restatements result in non-cash, non-operating financial statement corrections and will have no impact on the Company’s current or previously reported cash position, operating expenses or total operating, investing or financing cash flows, or net operating loss carryforward. The Company’s December 31, 2014 opening balances were adjusted to reflect the cumulative impact of these restatements as a decrease in additional paid-in capital of $10.4 million and a decrease in accumulated deficit of $5.8 million, for a total change to stockholders’ deficit of $4.6 million.

The warrants at issue (collectively, the “Warrants”) consist of the following warrants outstanding as of March 31, 2015 and December 31, 2014:

Issued to Investors on July 28, 2010, entitling the holders to purchase 1,034,996 common shares
in the Company at an exercise price of $9.00 per common share up to and including July 27, 2017
  1,034,996  
       
Issued to Investors on October 25, 2013, entitling the holders to purchase 1,250,000 common shares
in the Company at an exercise price of $2.30 per common share up to and including April 24, 2021
  1,117,178  
       
Issued to Investors on November 17, 2014, entitling the holders to purchase 2,734,590 common shares
in the Company at an exercise price of $2.31 per common share up to and including May 16, 2022
  2,734,590  
       
Total   4,886,764  

The Warrants were issued and classified as equity on the Company’s consolidated balance sheets. The corresponding Condensed Consolidated Statements of Operations did not include the non-cash changes in the estimated fair value of such Warrants. Those Warrants, however, contain a cash settlement feature regarding fundamental transactions that allowed those Warrant holders to have a different settlement option than the Company’s stockholders upon certain fundamental transactions, including a change of control of the Company, thereby precluding equity treatment for the Warrants.

Based on Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), warrant instruments that could potentially require net cash settlement in the absence of express language precluding such settlement should be initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the derivative instruments should be reported in the statement of operations. The Audit Committee, together with management, determined that the financial statements in the Affected Periods should be restated to reflect the Warrants as liabilities, with subsequent changes in their estimated fair value recorded as non-cash income or expense in each Affected Period.

The cumulative effect of these adjustments on our financial statements is a 7.7% decrease in the accumulated deficit in the amount of approximately $5.8 million as of December 31, 2014. The restatement had no impact on net cash flows from operating, investing or financing activities as the adjustments resulting from the non-cash change in the fair value of the warrant liability for each period and the statements of operations only impacted net loss from operations.

Impact of the Restatement – March 31, 2015 and March 31, 2014

    Three Months Ended March 31, 2015  
    As Previously Reported     Adjustment     As Restated  
Consolidated Statement of Operations Data
(unaudited):
                 
   Warrant revaluation $   -     1,197,986   $ 1,197,986  
   Income (loss) from operations before income taxes   (1,080,324 )   1,197,986     117,662  
   Net income (loss)   (1,080,324 )   1,197,986     117,662  
                   
   Net earnings (loss) per share, basic and diluted $ (0.06 )   0.07   $ 0.01  

    Three Months Ended March 31, 2014  
    As Previously Reported     Adjustment     As Restated  
Consolidated Statement of Operations Data
(unaudited):
                 
Warrant revaluation $   -     (1,974,330 ) $ (1,974,330 )
Loss from operations before income taxes   (1,433,922 )   (1,974,330 )   (3,408,252 )
Net loss   (1,433,922 )   (1,974,330 )   (3,408,252 )
Net loss per share, basic and diluted $ (0.10 )   (0.13 ) $ (0.23 )

    As of March 31, 2015  
    As Previously Reported     Adjustment     As Restated  
Consolidated Balance Sheet Data (unaudited):                  
Warrant liability $   -     3,435,326   $ 3,435,326  
Total liabilities   586,685     3,435,326     4,022,011  
Additional paid-in capital   81,358,020     (10,474,875 )   70,883,145  
Accumulated deficit   (76,975,178 )   7,039,549     (69,935,629 )
Total stockholders’ equity $ 4,400,925     (3,435,326 ) $ 965,599  

    Three Months Ended March 31, 2015  
    As Previously Reported     Adjustment     As Restated  
Consolidated Cash Flows Data (unaudited):                  
Net income(loss) $ (1,080,324 )   1,197,986   $ 117,662  
Warrant revaluation $   -     (1,197,986 ) $ (1,197,986 )

    Three Months Ended March 31, 2014  
    As Previously Reported     Adjustment     As Restated  
                   
Consolidated Cash Flows Data (unaudited):                  
Net loss $ (1,433,922 )   (1,974,330 ) $ (3,408,252 )
Warrant revaluation $   -     1,974,330   $ 1,974,330