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RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
 12 Months Ended
Feb. 28, 2013
Notes to Financial Statements  
Note 3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

In connection with our financial close process for our fiscal year 2013 financial statements, we concluded that the accounting for our acquisition of Hipcricket and JAGTAG, both of which occurred during fiscal year 2012, and of GEOS, which occurred during the first quarter of fiscal 2013, was incorrect because deferred income tax liabilities arising from the acquisition accounting were not properly recorded for the differences between the book and tax basis of the acquired assets and the corresponding reduction to the deferred income tax asset valuation allowance was also not properly recognized. The Hipcricket and JAGTAG transactions were structured as non-taxable transactions to the acquired companies’ shareholders and therefore considered mergers according to the provisions of IRS Code Section 368(a)(1)(c). To correct the errors related to the Hipcricket and JAGTAG transactions, we recorded an increase to goodwill of $13.5 million, an increase to deferred tax liability of $13.5 million, which resulted in a corresponding reduction to the deferred income tax asset valuation allowance of $10.0 million and an increase to income tax benefits of $10.0 million for the quarter ended August 31, 2011 and fiscal year ended February 29, 2012. Accordingly, the financial statements for the year ended February 29, 2012 and unaudited quarterly and year-to-date periods ended August 31, 2011, November 30, 2011, February 29, 2012, May 31, 2012, August 31, 2012 and November 30, 2012 have been restated in this annual report from amounts previously reported. To correct the errors related to the GEOS transaction, we recorded an increase to the identified intangible asset category of patents of $2.6 million, an increase to deferred income tax liability of $2.6 million, and a corresponding reduction to the deferred income tax asset valuation allowance of $2.6 million and an increase to income tax benefits of $2.6 million for the quarter ended May 31, 2012. As a result of our previously completed impairment analysis performed during the quarter ended November 30, 2012 on certain identified intangibles, we recognized additional impairment expense of $2.6 million to write off the increased value resulting from the adjustments for the GEOS transaction.

 

We assessed the impact of the errors relating to the Hipcricket and JAGTAG transactions on our interim goodwill impairment analysis that was performed as of November 30, 2012, using the methodology described in Note 2. As a result of the increase in the carrying amount of goodwill resulting from the restatement, in our updated interim impairment assessment step one recoverability test (described in Note 6) we concluded that the carrying value of the reporting unit that included goodwill exceeded its fair value, resulting in an indication of impairment. Therefore we were required to perform the step two analysis to calculate the impairment in which we estimated the fair value of the reporting units tangible and intangible assets and liabilities to arrive at the implied goodwill. To estimate fair value we used our estimates of future cash flows, historical and estimated future operating results, business plans, economic projections, and marketplace data. As a result of that analysis, we determined the implied goodwill was less than the carrying value and we recognized an impairment write down of goodwill of $25.9 million for the period ended November 30, 2012 and the year ended February 28, 2013, to reduce the carrying value of goodwill to $35.1 million.

 

Net loss, basic and diluted net loss per share, accumulated deficit, and shareholders’ equity were also affected by the restatements. These adjustments are carried forward in subsequent periods. The corrections had no impact on total revenue, operating expense, or operating cash flows.

 

The following tables summarize the corrections by financial statement line item (amounts may not add to totals, due to rounding):

 

    February 29, 2012  
    As previously     Restatement     As  
    Reported     Adjustments     restated  
Balance Sheet                  
Goodwill   $ 47,484,708     $ 13,494,475     $ 60,979,183  
Total assets     100,592,076       13,494,475       114,086,551  
Deferred income tax liability     -       3,517,652       3,517,652  
Total liabilities     31,377,176       3,517,652       34,894,829  
Accumulated deficit     (72,533,071 )     9,976,823       (62,556,249 )
Total stockholders' equity     69,214,900       9,976,823       79,191,722  
Total liabilities and stockholders' equity     100,592,076       13,494,475       114,086,551  
Statement of Cash Flows                        
Net loss     (32,580,025 )     9,976,823       (22,603,202 )
Deferred income tax benefits     -       (9,976,823 )     (9,976,823 )
Statement of Shareholders Equity                        
Accumulated deficit     (72,533,071 )     9,976,823       (62,556,249 )
Stockholders' equity     69,214,900       9,976,823       79,191,722  
Statement of Operations                        
Income tax benefit   $ -     $ 9,976,823     $ 9,976,823  
Net loss     (32,580,025 )     9,976,823       (22,603,202 )
Basic and diluted net loss per share     (0.41 )     0.12       (0.28 )

 

    As of and For the Three     As of and For the Six  
    Months Ended August 31, 2011     Months Ended August 31, 2011  
    (Unaudited)     (Unaudited)  
    As previously     Restatement     As     As previously     Restatement     As  
    Reported     Adjustments     Restated     Reported     Adjustments     Restated  
Balance Sheet                                    
Goodwill   $ 47,484,708     $ 13,494,475     $ 60,979,183     $ 47,484,708     $ 13,494,475     $ 60,979,183  
Total assets     93,630,646       13,494,475       107,125,121       93,630,646       13,494,475       107,125,121  
Deferred income tax liability     -       3,517,652       3,517,652       -       3,517,652       3,517,652  
Total liabilities     26,998,307       3,517,652       30,515,959       26,998,307       3,517,652       30,515,959  
Accumulated deficit     (49,973,217 )     9,976,823       (39,996,394 )     (49,973,217 )     9,976,823       (39,996,394 )
Total stockholders' equity     66,632,339       9,976,823       76,609,162       66,632,339       9,976,823       76,609,162  
Total liabilities and stockholders' equity     93,630,646       13,494,475       107,125,121       93,630,646       13,494,475       107,125,121  
Statement of Cash Flows                                                
Net loss     (6,003,584 )     9,976,823       3,973,239       (10,020,170 )     9,976,823       (43,347 )
Deferred income tax benefit     -       (9,976,823 )     (9,976,823 )     -       (9,976,823 )     (9,976,823 )
Statement of Shareholders Equity                                                
Accumulated deficit     (49,973,217 )     9,976,823       (39,996,394 )     (49,973,217 )     9,976,823       (39,996,394 )
Stockholders' equity     66,632,339       9,976,823       76,609,162       66,632,339       9,976,823       76,609,162  
Statement of Operations                                                
Income tax benefit     -       9,976,823       9,976,823       -       9,976,823       9,976,823  
Net loss     (6,003,584 )     9,976,823       3,973,239       (10,020,170 )     9,976,823       (43,347 )
Basic and diluted net loss per share   $ (0.08 )   $ 0.14     $ 0.06     $ (0.14 )   $ 0.14     $ -  

 


 

    As of and For the Three     As of and For the Nine  
    Months Ended November 30, 2011     Months Ended November 30, 2011  
    (Unaudited)     (Unaudited)  
    As previously     Restatement     As     As previously     Restatement     As  
    Reported     Adjustments     Restated     Reported     Adjustments     Restated  
Balance Sheet                                    
Goodwill   $ 47,484,708     $ 13,494,475     $ 60,979,183     $ 47,484,708     $ 13,494,475     $ 60,979,183  
Total assets     108,141,879       13,494,475       121,636,354       108,141,879       13,494,475       121,636,354  
Deferred income tax liability     -       3,517,652       3,517,652       -       3,517,652       3,517,652  
Total liabilities     29,462,242       3,517,652       32,979,894       29,462,242       3,517,652       32,979,894  
Accumulated deficit     (61,351,329 )     9,976,823       (51,374,506 )     (61,351,329 )     9,976,823       (51,374,506 )
Total stockholders' equity     78,679,637       9,976,823       88,656,460       78,679,637       9,976,823       88,656,460  
Total liabilities and stockholders' equity     108,141,879       13,494,475       121,636,354       108,141,879       13,494,475       121,636,354  
Statement of Cash Flows                                                
Net loss     (11,377,289 )     -       (11,377,289 )     (21,398,282 )     9,976,823       (11,421,459 )
Deferred income tax benefit     -       -       -       -       (9,976,823 )     (9,976,823 )
Statement of Shareholders Equity                                                
Accumulated deficit     (61,351,329 )     9,976,823       (51,374,506 )     (61,351,329 )     9,976,823       (51,374,506 )
Stockholders' equity     78,679,637       9,976,823       88,656,460       78,679,637       9,976,823       88,656,460  
Statement of Operations                                                
Income tax benefit     -       -       -       -       9,976,823       9,976,823  
Net loss     (11,378,112 )     -       (11,378,112 )     (21,398,282 )     9,976,823       (11,421,459 )
Basic and diluted net loss per share   $ (0.13 )   $ -     $ (0.13 )   $ (0.14 )   $ 0.14     $ (0.00 )

 

    As of and For the Three  
    Months Ended May 31, 2012  
    (Unaudited)  
    As previously     Restatement     As  
    Reported     Adjustments     Restated  
Balance Sheet                  
Goodwill   $ 47,484,708     $ 13,494,475     $ 60,979,183  
Intangible assets, net     41,135,654       2,618,723       43,754,377  
Total assets     96,829,482       16,113,198       112,942,680  
Deferred income tax liability     -       3,517,652       3,517,652  
Total liabilities     29,864,115       3,517,652       33,381,767  
Accumulated deficit     (80,094,067 )     12,595,546       (67,498,521 )
Total stockholders' equity     66,965,367       12,595,546       79,560,913  
Total liabilities and stockholders' equity     96,829,482       16,113,198       112,942,680  
Statement of Cash Flows                        
Net loss     (7,560,996 )     2,618,723       (4,942,273 )
Deferred income tax benefit     -       (2,618,723 )     (2,618,723 )
Statement of Shareholders Equity                        
Accumulated deficit     (80,094,067 )     12,595,546       (67,498,521 )
Stockholders' equity     66,965,367       12,595,546       79,560,913  
Statement of Operations                        
Net loss     (7,560,996 )     2,618,723       (4,942,273 )
Basic and diluted net loss per share   $ (0.08 )   $ 0.03     $ (0.05 )

 


 

    As of and For the Three     As of and For the Six  
    Months Ended August 31, 2012     Months Ended August 31, 2012  
    (Unaudited)     (Unaudited)  
    As previously     Restatement     As     As previously     Restatement     As  
    Reported     Adjustments     Restated     Reported     Adjustments     Restated  
Balance Sheet                                    
Goodwill   $ 47,484,708     $ 13,494,475     $ 60,979,183     $ 47,484,708     $ 13,494,475     $ 60,979,183  
Intangible assets, net     40,583,291       2,618,723       43,202,014       40,583,291       2,618,723       43,202,014  
Total assets     94,624,813       16,113,198       110,738,011       94,624,813       16,113,198       110,738,011  
Deferred income tax liability     -       3,517,652       3,517,652       -       3,517,652       3,517,652  
Total liabilities     18,515,584       3,517,652       22,033,236       18,515,584       3,517,652       22,033,236  
Accumulated deficit     (82,393,665 )     12,595,546       (69,798,119 )     (82,393,665 )     12,595,546       (69,798,119 )
Total stockholders' equity     76,109,229       12,595,546       88,704,775       76,109,229       12,595,546       88,704,775  
Total liabilities and stockholders' equity     94,624,813       16,113,198       110,738,011       94,624,813       16,113,198       110,738,011  
Statement of Cash Flows                                                
Net loss     (2,299,598 )     -       (2,299,598 )     (9,860,594 )     2,618,723       (7,241,871 )
Deferred income tax benefit     -       -       -       -       (2,618,723 )     (2,618,723 )
Statement of Shareholders Equity                                                
Accumulated deficit     (82,393,665 )     12,595,546       (69,798,119 )     (82,393,665 )     12,595,546       (69,798,119 )
Stockholders' equity     76,109,229       12,595,546       88,704,775       76,109,229       12,595,546       88,704,775  
Statement of Operations                                                
Net loss     (2,299,598 )     -       (2,299,598 )     (9,860,594 )     2,618,723       (7,241,871 )
Basic and diluted net loss per share   $ (0.02 )   $ -     $ (0.02 )   $ (0.10 )   $ 0.02     $ (0.08 )

 

    As of and For the Three     As of and For the Nine  
    Months Ended November 30, 2012     Months Ended November 30, 2012  
    (Unaudited)     (Unaudited)  
    As previously     Restatement     As     As previously     Restatement     As  
    Reported     Adjustments     Restated     Reported     Adjustments     Restated  
Balance Sheet                                    
Goodwill   $ 47,484,708     $ (12,424,525 )   $ 35,060,183     $ 47,484,708     $ (12,424,525 )   $ 35,060,183  
Intangible assets, net     30,489,139       (200,000 )     30,289,139       30,489,139       (200,000 )     30,289,139  
Total assets     90,274,094       (12,624,525 )     77,649,569       90,274,094       (12,624,525 )     77,649,569  
Deferred income tax liability     -       3,517,652       3,517,652       -       3,517,652       3,517,652  
Total liabilities     9,097,712       3,517,652       12,615,364       9,097,712       3,517,652       12,615,364  
Accumulated deficit     (87,362,012 )     (16,142,177 )     (103,504,189 )     (87,362,012 )     (16,142,177 )     (103,504,189 )
Total stockholders' equity     81,176,382       (16,142,177 )     65,034,205       81,176,382       (16,142,177 )     65,034,205  
Total liabilities and stockholders' equity     90,274,094       (12,624,525 )     77,649,569       90,274,094       (12,624,525 )     77,649,569  
Statement of Cash Flows                                                
Net loss     (4,968,347 )     (28,737,724 )     (33,706,071 )     (14,828,941 )     (26,119,001 )     (40,947,942 )
Goodwill impairment     -       25,919,000       25,919,000       -       25,919,000       25,919,000  
Impairment of intangible assets     5,849,160       2,818,723       8,667,883       5,849,160       2,818,723       8,667,883  
Statement of Shareholders Equity                                                
Accumulated deficit     (87,362,012 )     (16,142,177 )     (103,504,189 )     (87,362,012 )     (16,142,177 )     (103,504,189 )
Stockholders' equity     81,176,382       (16,142,177 )     65,034,205       81,176,382       (16,142,177 )     65,034,205  
Statement of Operations                                                
Goodwill impairment     -       25,919,000       25,919,000       -       25,919,000       25,919,000  
Impairment of intangible assets     5,849,160       2,818,723       8,667,884       5,849,160       2,818,723       8,667,884  
Income tax benefit     -       -       -       -       2,618,723       2,618,723  
Net loss     (4,968,347 )     (28,737,724 )     (33,706,071 )     (14,828,941 )     (26,119,001 )     (40,947,942 )
Basic and diluted net loss per share   $ (0.05 )   $ (0.26 )   $ (0.31 )   $ (0.15 )   $ (0.26 )   $ (0.41 )