In this Annual Report on Form 10-K (“Form 10-K”), we are restating our financial statements for the fiscal year ended December 31, 2011 as filed with the U.S. Securities and Exchange Commission (“SEC”) on Form 10-K on April 6, 2012, to properly account for certain previously issued warrants and beneficial conversion feature in connection with a convertible note.
Restatement of Financial Statements
The Company granted warrants under a non-brokered subscription agreement on July 15, 2011 in connection with a convertible note. 8,333,333 warrants were granted with each warrant entitling the holder to purchase one additional share of common stock of the Corporation at $0.015 per share until July 15, 2013. No value was assigned to Warrants when the transaction was initially booked in year 2011. We were not aware of the error when those financial statements were issued. We recently determined to use the Black Scholes option pricing model for the warrants valuation. Inputs, including expected terms, volatility, expected dividends, and risk free rate, were appropriate based on management’s best estimation and judgment. After further evaluation under FASB ASC 815, we concluded that the Warrants are indexed to its own stock and should be recorded as equity. This resulted in $71,306 warrant valuation being recorded into equity as of the date of the Amended Designation.
In addition, the beneficial conversion feature associated with the convertible note was not determined at issuance. We have corrected the error by recording the difference between the conversion price and the fair market value of the convertible securities on the commitment date (transaction date). This resulted in $53,694 being recorded into Additional Paid in Capital as of the date of the Amended Designation.
The value of warrants and beneficial convertible feature was recorded as debt discount and amortized over three years.
The restatement is non-cash in nature and is not related to our operations.
Other than the change referred to above, all other information included in our Annual Report on Form 10-K for the fiscal year December 31, 2011 remains unchanged.
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