RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

6 Months Ended

Aug. 31, 2013

Notes to Financial Statements

Note 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

In this Quarterly Report on Form 10-Q, we are reporting quarterly data for our fiscal quarter ended August 31, 2013, and in some cases providing the comparative data from the same quarter a year ago. As described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2013 filed with the SEC on May 24, 2013, and summarized below, we restated the financial statements for certain quarterly and year-to-date periods, including the quarter ended August 31, 2012. All comparative data for the quarter ended August 31, 2012 is as restated.

Description of Restatement

In connection with our financial close process for our fiscal year 2013 financial statements, we concluded that the accounting for our acquisition of Hipcricket, Inc. (“Hipcricket subsidiary”) and JAGTAG, Inc. (“JAGTAG”), both of which occurred during fiscal year 2012, and of GEOS Communications IP Holdings, Inc. (“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. The corresponding reduction to the deferred income tax asset valuation allowance was also not properly recognized. The Hipcricket subsidiary 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 subsidiary 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. 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 subsidiary and JAGTAG transactions on our interim goodwill impairment analysis that was performed as of November 30, 2012. 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 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. 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.

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 were restated in our Annual Report on Form 10-K for the fiscal year ended February 28, 2013, from amounts previously reported. 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 table summarizes the corrections by financial statement line item for the three and six months ended August 31, 2012:

	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 reported			Restatement adjustments		As restated			As previously reported			Restatement adjustments			As 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 Stockholders' 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	)