Prior Period Adjustment
|9 Months Ended|
Sep. 30, 2011
|Prior Period Adjustment|
|Prior Period Adjustment||
The financial statements of the Company for the three and nine months ended September 30, 2010 have been restated as a result of management's determination that the Company had misclassified warrants issued to investors through offerings occurring in December 2007, March 2008, June 2009, October 2009 and June 2010. The warrants were previously reported as equity, but further review by management concluded that these warrants should have been classified as liabilities at inception due to provisions within the warrant agreements, and should be reported at fair value at the balance sheet date.
Management also determined that the anti-dilution make whole provision (the "Anti-dilution provision") which is a put on the common stock, issued in the 2007 and 2008 offerings were also misclassified as equity. In the event that the Company issued shares or share indexed contracts below an effective purchase price paid by the investors, the investor would receive additional shares equal to a ratio of the initial purchase price per share less the original number of common shares issued. The Anti-dilution provision expired on the second anniversary of the financing and should have been reported as a liability at fair value at inception.
The restatement had no effect on the Company's cash, loss from operations or net cash used in operating activities for the three and nine months ended September 30, 2010. After reviewing the circumstances leading up to the restatement, management believes that the errors were inadvertent and unintentional. In addition, following the discovery of these errors, the Company began implementing procedures intending to strengthen its internal control processes and prevent a recurrence of these errors.
The effects of the restatement on the Company's statement of operations and cash flows for the three and nine months ended September 30, 2010 are as follows:
The entire disclosure of prior period adjustments to previously issued financial statements including (1) the effect of the correction on each financial statement line item and any per-share amounts affected for each prior period presented (2) the cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position, as of the beginning of the earliest period presented, and (3) the effect of the prior period adjustments (both gross and net of applicable income tax) on the net income of each prior period presented in the entity's annual report for the year in which the adjustments are made.