Company management subsequently discovered certain errors in our financial statements included in our Form 10-K as previously filed for the year ended August 31, 2013. The restatement primarily comprises the write off of note receivables and the recording of a derivative liability on a convertible note payable.
Novation Holdings, Inc. | |||||||
RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
Balance Sheets at August 31, 2013 | |||||||
August 31, 2013 | Adjustments | Restated | |||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash | $ 4 | $ 4 | |||||
Accounts receivable | 161,110 | 161,110 | |||||
Prepaid expenses | 6,845 | 6,845 | |||||
Deferred loan costs, net of accumulated amortization of $39,148 and $15,689 | 6,853 |
| 6,853 | ||||
Total current assets | 174,812 | 174,812 | |||||
OTHER ASSETS | |||||||
Property, plant and equipment (net of accumulated | |||||||
depreciation of $645 and $221 respectively) | 21,475 | (20,000) | (a) | 1,475 | |||
Loan receivable | 848,523 | (202,147) | (b) | 646,376 | |||
Investment | 528,000 | (476,000) | (c) | 52,000 | |||
ISP Contracts/Support | 100,000 | 65,000 | (d) | 165,000 | |||
Goodwill | - | 20,000 | (e) | 20,000 | |||
Advances to related parties | 42,350 | - | 42,350 | ||||
Total assets | $ 1,715,160 | $ (613,147) | $ 1,102,013 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable and accrued expenses | $ 177,528 | $ 177,528 | |||||
Accrued interest | 47,878 | 47,878 | |||||
Due to related party | 36,406 | (5,694) | (f) | 30,712 | |||
Due to third party | - | 5,694 | (g) | 5,694 | |||
Notes payable - net of debt discount of $48,324 and $25,861 | 108,405 | 2,800 | (h) | 111,205 | |||
Derivative liability | 165,090 | 467,704 | (i) | 632,794 | |||
Total current liabilities | 535,307 | 470,504 | 1,005,811 | ||||
LONG-TERM LIABILITIES | |||||||
Acquisition note payable | 489,689 | 489,689 | |||||
Convertible note payable - net of discount of $133,907 | 335,927 | (133,907) | 202,020 | ||||
Total liabilities | 1,360,923 | 336,597 | 1,697,520 | ||||
STOCKHOLDERS' EQUITY (DEFICIT) | |||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized | |||||||
1,000,000 and no shares issued and outstanding at | |||||||
August 31, 2013 and August 31, 2012, respectively | 1,000 | 1,000 | |||||
Common stock, $0.001 par value; 2,500,000,000 shares authorized, | |||||||
509,999,997 and 30,094,500 shares issued and outstanding at | |||||||
August 31, 2013 and August 31, 2012, respectively | 510,000 | 510,000 | |||||
Additional paid in capital | 9,840,746 | (7,141) | (j) | 9,833,605 | |||
Accumulated other comprehensive income | - | 24,000 | 24,000 | ||||
Accumulated deficit | (9,997,509) | (966,603) | (10,964,112) | ||||
Total stockholders' equity (deficit) | 354,237 | (949,744) | (595,507) | ||||
Total liabilities and stockholders' equity | $ 1,715,160 | $ (613,147) | $ 1,102,013 |
Novation Holdings, Inc. | |||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
(RESTATED) | |||||
For the Year Ended August 31, 2013 | |||||
As reported | Adjustments | Restated | |||
REVENUES | $ 258,521 | $ 258,521 | |||
COST OF GOODS SOLD | 59,712 |
| 59,712 | ||
NET REVENUES | $ 198,809 |
| $ 198,809 | ||
GENERAL AND ADMINISTRATIVE EXPENSES | |||||
Payroll and payroll taxes | 130,000 | 130,000 | |||
Professional fees | 391,962 | 391,962 | |||
General and administrative | 110,193 | 15,000 | (k) | 125,193 | |
Bad debt expense | - | 337,600 | (l) | 337,600 | |
Impairment loss | - | 284,547 | (m) | 284,547 | |
Rent | 10,301 | 10,301 | |||
Total operating expenses | 642,456 | 637,147 | 1,279,603 | ||
Loss from operations | (443,647) | (637,147) | (1,080,793) | ||
OTHER INCOME (EXPENSE) | |||||
Finance cost | (33,102) | (33,102) | |||
Sale of subsidiary | 418,876 | 418,876 | |||
Interest, net | (223,118) | (74,098) | (n) | (297,216) | |
Derivative expense | (212,516) | (10,471) | (o) | (222,988) | |
Change in fair value of derivatives | (226,850) | (244,887) | (p) | (471,737) | |
Total other income (expense) | (276,711) | (329,456) | (606,168) | ||
DISCONTINUED OPERATIONS | |||||
Loss from discontinued operations | (10,708) | (10,708) | |||
Total loss from discontinued operations | (10,708) |
| (10,708) | ||
Net income (loss) | $ (731,066) | $ (966,603) | $ (1,697,669) | ||
Net loss per share (basic and diluted) | $ (0.01) | $ (0.02) | |||
Weighted average number of shares outstanding during the period-basic and diluted | 71,289,402 | 71,289,402 | |||
Net income (loss) | $ (731,066) | $ (966,603) |
| $ (1,697,669) | |
OTHER COMPREHENSIVE INCOME, NET OF TAX | |||||
Unrealized gain on investment | - | 24,000 | (q) | 24,000 | |
Comprehensive loss | $ (731,066) | $ (942,605) | $ (1,673,669) |
Novation Holdings, Inc. | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||
(RESTATED) | ||||||
For the Year Ended August 31, 2013 | ||||||
As Reported | Adjustments | Restated | ||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net loss | $ (731,066) | $ (966,603) | $ (1,697,669) | |||
Adjustments to reconcile net loss to net | ||||||
cash used by operations: | ||||||
Depreciation expense | 424 | 424 | ||||
Capital contributions-noncash expenses | - | - | ||||
Stock based compensation expense | - | 25,760 | 25,760 | |||
Gain in sale of subsidiary | - | (418,876) | (418,876) | |||
Loss on derivatives | 226,850 | 244,887 | 471,737 | |||
Bad debt expense | - | 337,600 | 337,600 | |||
Impairment loss | - | 284,547 | 284,547 | |||
Unrealized gain on investment | - | (24,000) | (24,000) | |||
Amortization of intangibles | - | 15,000 | 15,000 | |||
Amortization of debt discount and non-cash derivative expense | 45,422 | 539,219 | 584,641 | |||
Changes in certain operating assets and liabilities: | ||||||
Interest accrued on notes payable | 34,450 | 34,450 | ||||
Increase in accounts receivable | (160,000) | (160,000) | ||||
Increase in prepaid expenses | (5,845) | (5,845) | ||||
Loans receivable | - | - | ||||
Increase in accounts payable | 170,403 |
| 170,403 | |||
Net cash used by operating activities | (395,903) | 14,075 | (381,828) | |||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Purchase of property and equipment | - |
| - | |||
Net cash used by investing activities | - |
| - | |||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Additional capital contributed | - | - | ||||
Proceeds from issuance of common stock | - | - | ||||
Proceeds from notes payable | 399,975 | (13,950) | 386,025 | |||
Payments on notes payable | (6,000) | - | (6,000) | |||
Related party advances | 687 | (125) | 562 | |||
Net cash provided by financing activities | 394,662 |
| 380,587 | |||
Net increase (decrease) in cash | (1,241) | (1,241) | ||||
Cash and equivalents, beginning of period | 1,245 |
| 1,245 | |||
Cash and equivalents, end of period | $ 4 |
| $ 4 | |||
Supplemental cash flow information: | ||||||
Cash paid for interest | $ - | $ - | ||||
Cash paid for income taxes | $ - | $ - | ||||
Significant non-cash activities | ||||||
Notes payable and accrued interest converted to common stock | $ 378,404 | $ 378,404 | ||||
Accrued interest converted to notes payable | $ 15,520 | $ 15,520 | ||||
Debt discount on notes payable from derivative liability | $ 555,527 | 212,344 | $ 767,871 | |||
Reclassification of derivative liabilities to paid-in-capital | $ 652,605 | 7,139 | $ 659,744 |
(a) Equipment that was written off for ($20,000).
(b) Uncollectible loans that were written off to bad debt expense for ($202,147).
(c) Unrecoverable investments written off for ($476,000).
(d) Reclass adjustment to ISP contracts net of amortization for $65,000 from purchase price allocations.
(e) Reclass adjustment of contracts to goodwill for $20,000 from purchase price allocations.
(f) Reclass adjustment from related party to third party liability for ($5,694).
(g) Reclass adjustment from related party to third party liability for $5,694.
(h) Net adjustments to debt discount for $2,800.
(i) Net adjustments and increase in derivative liability for $467,704.
(j) Net adjustments to additional paid in capital for ($7,141).
(k) Amortization of intangibles for $15,000.
(l) Loans receivable written off to bad debt expense for $337,600.
(m) Unrecoverable investment written off to impairment loss $284,547.
(n) Increase in interest expenses based on updated calculations for ($74,098).
(o) Increase in derivative expense based on updated calculations for ($10,472).
(p) Decrease in change in derivative value based on updated calculations for ($244,887).
(q) Increase in unrealized gain on investment based on current market value for $24,000.