Explorer

The firm did not perform any substantive procedures to evaluate whether the issuer's accounting for and presentation of convertible notes payable including warrants were in conformity with relevant GAAP. (AS 2301.08)

The issuer settled certain debt by issuing shares. The firm did not perform any substantive procedures to test this transaction. (AS 2301.08) Unrelated to our review the issuer reevaluated its (1) accounting for and presentation of convertible notes payable including warrants and (2) accounting for the settlement of debt and concluded that material misstatements existed that had not been previously identified. The issuer subsequently corrected these misstatements in a restatement of its financial statements.

The firm identified a deficiency in ITGCs for certain of the issuer's systems related to individuals having inappropriate administrative rights to these systems. The firm identified a compensating control related to the issuer's monthly reviews of financial information. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. Further the firm did not identify that the control owners used data in the performance of this control that were produced by the systems that were subject to the inappropriate access deficiency. (AS 2201.68)

The firm tested various IT-dependent manual controls that used data generated or maintained by these systems. As a result of the deficiencies in the firm's compensating control testing discussed above the firm's testing of these IT-dependent manual controls was not sufficient. (AS 2201.46)

The firm did not identify and evaluate the significance to the financial statements of the issuer's omission of a required disclosure under FASB ASC Topic 470 Debt. (AS 2810.30 and .31)

During the year the issuer restructured certain of its debt and recorded an extinguishment loss. The following deficiencies were identified: · The firm did not identify and test any controls that addressed whether the (1) restructured debt and (2) issuer's fair value disclosures for debt were measured in conformity with FASB ASC Topic 820 Fair Value Measurement. (AS 2201.39)

During the year the issuer restructured certain of its debt and recorded an extinguishment loss. The following deficiencies were identified: · The firm's approach to substantively test the fair value of the restructured debt was to develop an independent expectation of the estimate. In developing its expectation the firm did not take into account certain requirements of FASB ASC Topic 820. (AS 2501.21)

During the year the issuer restructured certain of its debt and recorded an extinguishment loss. The following deficiencies were identified: · The firm did not perform any procedures to test the issuer's fair value disclosures for debt. (AS 2501.07)

The firm did not identify and test any controls that addressed whether the issuer's fair value disclosures for certain debt were measured in conformity with FASB ASC Topic 820. (AS 2201.39)

The firm did not perform any substantive procedures to test the issuer's fair value disclosures for this debt. (AS 2501.07)

The firm did not identify and evaluate the issuer's omission of a required disclosure under FASB ASC Topic 820 related to the categorization of certain of this debt within the fair value hierarchy. (AS 2810.30 and .31) In connection with our review the issuer reevaluated its disclosure related to this debt and determined that a disclosure was omitted. The issuer did not file an amended Form 10-K or Form 8-K indicating that its previously issued financial statements should not be relied on. Instead the issuer corrected this omission in a subsequent filing.

The firm sent positive confirmation requests to the issuer's lenders. The following deficiencies were identified related to the confirmation requests for one of the lenders: · The firm did not maintain control over a confirmation request through direct communication between the firm and the intended recipient of the request. (AS 2310.28)

The firm sent positive confirmation requests to the issuer's lenders. The following deficiencies were identified related to the confirmation requests for one of the lenders: · The confirmation response was returned by email. The firm performed procedures to verify the source of the response but did not evaluate certain inconsistencies it identified through the performance of these procedures. (AS 2310.29)

The firm did not identify and test any controls that addressed the issuer's compliance with certain non-financial contractual debt covenants. (AS 2201.39)

The firm did not perform any substantive procedures to test the issuer's compliance with these covenants. (AS 2301.08)

The firm used certain issuer-prepared schedules in its substantive testing of certain debt disclosures. The firm did not perform any procedures to test or test controls over the accuracy of these schedules. (AS 1105.10)

The firm used certain issuer-prepared schedules in its substantive testing of certain debt disclosures. The firm did not identify and evaluate certain differences between the issuer's debt disclosures and these schedules. (AS 2301.08)

The firm did not perform any procedures to test the issuer's fair value disclosures for certain debt. (AS 2501.07)

The firm did not perform procedures to evaluate the issuer's presentation and disclosure of the current and non-current portions of debt beyond obtaining and reviewing a checklist prepared by management. (AS 2301.08)

The firm selected for testing a control that consisted of the review of certain debt issuances and modifications. The firm did not perform any substantive procedures to test or in the alternative test any controls over the completeness of the population of debt issuances and modifications that the firm used to make its selections to test this control. (AS 1105.10)

The firm sent positive confirmation requests to the issuer's lenders for a sample of debt. For certain confirmations that were returned with exceptions the firm did not evaluate the nature of those exceptions. (AS 2310.33)

The issuer used an IT system to process and record transactions related to inventory and debt. The firm selected for testing a control that consisted of the issuer's reviews of instances where administrative access was granted that allowed the issuer's IT personnel to make changes to this system. The firm did not evaluate the specific review procedures that the control owners performed to assess whether (1) users performed appropriate actions when granted this access and (2) this access was appropriately granted for certain instances selected for testing. (AS 2201.42 and .44)

The issuer used an IT system to process and record transactions related to inventory and debt. The firm selected for testing a control that consisted of the issuer's reviews of instances where administrative access was granted that allowed the issuer's IT personnel to make changes to this system. The number of instances selected for testing did not provide sufficient appropriate audit evidence given the frequency with which the control operated. (AS 2201.46)

In its testing of controls over this inventory and debt the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by this IT system. As a result of the deficiencies in the firm's testing of ITGCs discussed above the firm's testing of these automated and IT-dependent manual controls was not sufficient. (AS 2201.46)

The issuer had outstanding convertible notes payable. The issuer disclosed that certain notes were with a party with which the issuer had pending litigation. The issuer also disclosed that a convertible note with a related party was modified during the year to change the conversion price. The following deficiencies were identified: - The firm did not evaluate whether the issuer's accounting for the conversion price modification was in conformity with FASB ASC Subtopic 470-20 Debt— Debt with Conversion and Other Options. (AS 2810.30)

The issuer had outstanding convertible notes payable. The issuer disclosed that certain notes were with a party with which the issuer had pending litigation. The issuer also disclosed that a convertible note with a related party was modified during the year to change the conversion price. The following deficiencies were identified: - The firm did not evaluate whether the pending litigation with the holder of certain notes would affect the financial statement classification of the notes. (AS 2810.30 and .31)

The issuer had outstanding convertible notes payable. The issuer disclosed that certain notes were with a party with which the issuer had pending litigation. The issuer also disclosed that a convertible note with a related party was modified during the year to change the conversion price. The following deficiencies were identified: - The firm did not perform procedures to determine whether the disclosures related to certain related party relationships and transactions were complete and accurate. (AS 2410.17; AS 2810.30 and .31)

For a certain loan payable the firm did not perform sufficient procedures to test the existence valuation rights and obligations classification and related disclosures as the firm's procedures were limited to (1) preparing a roll forward noting no change in the balance (2) agreeing the loan balance at the beginning of the year to prior year financial statements audited by the predecessor auditor and (3) agreeing the ending balance to the trial balance. (AS 2301.08)

The firm did not identify and evaluate departures from GAAP related to the issuer's omission of certain required disclosures related to debt. (AS 2810.30 and .31)

The firm did not evaluate whether the issuer's accounting for debt was in conformity with certain requirements of GAAP. (AS 2301.08)

The issuer issued convertible notes during the current and prior year. For certain convertible notes the issuer recorded both a derivative liability and beneficial conversion feature associated with the same conversion option of each convertible note. The following deficiencies were identified: • The firm did not identify and evaluate the significance to the issuer's financial statements of a GAAP departure related to the issuer's accounting treatment for and disclosure of these transactions. Specifically the firm did not evaluate whether the conversion options related to certain convertible notes should have been either (1) separated and accounted for as derivatives in conformity with FASB ASC Subtopic 815-15 Derivatives and Hedging — Embedded Derivatives; or (2) accounted for as beneficial conversion features in conformity with FASB ASC Subtopic 470¬20 Debt — Debt with Conversion and Other Options. (AS 2810.03 .30 and .31)

The issuer issued convertible notes during the current and prior year. For certain convertible notes the issuer recorded both a derivative liability and beneficial conversion feature associated with the same conversion option of each convertible note. The following deficiencies were identified: • The firm did not evaluate the appropriateness of the model the issuer used to value certain of the derivative liabilities given the complexity of the conversion options associated with the related convertible notes. (AS 2501.10)

The issuer issued convertible notes during the current and prior year. For certain convertible notes the issuer recorded both a derivative liability and beneficial conversion feature associated with the same conversion option of each convertible note. The following deficiencies were identified: • For certain convertible notes the firm did not test at inception the fair value of the derivative liabilities and associated debt discounts and the allocation of the proceeds to all of the features associated with the convertible notes. (AS 2501.07)

Certain of the issuer's debt was collateralized by the issuer's loans and investment securities that were held in custody by the lending party. As of the current year end the issuer disclosed information related to assets pledged as collateral for this debt and amended its prior-year comparative disclosure. The following deficiencies were identified: · The firm used certain information provided by the issuer to test the loans pledged as collateral but did not perform any procedures to test or test any controls over the accuracy and completeness of this information. (AS 1105.10)

The firm did not identify and evaluate that the issuer's presentation of certain debt as long term was not in conformity with FASB ASC Topic 470 Debt. (AS 2810.30 and .31)

The firm did not identify and evaluate a misstatement in the issuer's disclosures under FASB ASC Subtopic 860-30 Transfers and Servicing – Secured Borrowing and Collateral related to the carrying amount of its assets pledged as collateral. (AS 2810.30 and .31)

The firm did not perform any substantive procedures to test the issuer's presentation and disclosure of its unused financing arrangements. (AS 2301.08)

Certain of the issuer's debt was collateralized by the issuer's loans and investment securities that were held in custody by the lending party. As of the current year end the issuer disclosed information related to assets pledged as collateral for this debt and amended its prior-year comparative disclosure. The following deficiencies were identified: · The firm did not identify and evaluate the issuer's omission of required disclosures related to (1) the carrying amount of its assets pledged as collateral as of the current year end under FASB ASC Subtopic 860-30 and (2) the amendment of its assets pledged as collateral as of the prior year end under FASB ASC Topic 250 Accounting Changes and Error Corrections (AS 2810.30 and .31)

The issuer engaged an external specialist to assist in determining the fair value of certain of the issuer's debt. The company's specialist prepared a valuation model using inputs determined by the specialist and the issuer used the information provided by the specialist to estimate the changes to the fair value of the debt. The firm selected for testing a control that consisted of management's review of the inputs used by the company's specialist in the valuation model for reasonableness. The following deficiency was identified: · The firm did not test aspects of the control related to management's review of (1) one of the inputs used in the valuation model and (2) the mathematical accuracy of the changes to the fair value of the debt. (AS 2201.42 and .44)

The issuer engaged an external specialist to assist in determining the fair value of certain of the issuer's debt. The company's specialist prepared a valuation model using inputs determined by the specialist and the issuer used the information provided by the specialist to estimate the changes to the fair value of the debt. The firm selected for testing a control that consisted of management's review of the inputs used by the company's specialist in the valuation model for reasonableness. The following deficiency was identified: · The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of certain other inputs used in the valuation model. (AS 2201.42 and .44)

The issuer engaged an external specialist to assist in determining the fair value of certain of the issuer's debt. The company's specialist prepared a valuation model using inputs determined by the specialist and the issuer used the information provided by the specialist to estimate the changes to the fair value of the debt. The firm selected for testing a control that consisted of management's review of the inputs used by the company's specialist in the valuation model for reasonableness. The following deficiency was identified: · For one of the quarters tested the firm did not (1) agree the inputs used in the valuation model to the inputs provided by the company's specialist and (2) evaluate the specific review procedures that the control owner performed to assess the reasonableness of one such input. (AS 2201.42 and .44)

To test certain debt the firm selected transactions exceeding a monetary threshold. The firm did not perform procedures to test the remaining population of transactions. (AS 1105.27; AS 2301.08 and .11)

The firm did not perform procedures to test or identify and test any controls over the accuracy of certain issuer-produced data it used in its substantive procedures. (AS 1105.10)

The firm did not identify and evaluate a departure from GAAP related to the issuer's misclassification of certain debt as non-current which was not in conformity with FASB ASC Topic 210 Balance Sheet. (AS 2810.30 and .31)

The firm did not evaluate whether the issuer's accounting for and disclosure of certain notes payable was in conformity with GAAP. (AS 2301.08)

The firm did not perform any procedures to evaluate whether debt was appropriately accounted for in conformity with generally accepted accounting principles. (AS 2301.08)

To test the debt the firm sent positive confirmation requests to the noteholders. For certain positive confirmation requests for which it did not receive a response the firm did not perform alternative procedures that provided sufficient appropriate audit evidence that the debt was complete at year end. (AS 2310.31)

Certain of these notes contained default clauses related to the issuer's obligation to reserve a sufficient number of shares from its authorized and unissued common stock. The firm did not evaluate whether these notes were in default at the time of issuance and therefore the derivative liability should have been recorded at the time of issuance. (AS 2301.08; AS 2810.03)

The issuer reported certain convertible notes that included embedded conversion features that were effective after a certain period of time. The issuer recorded a derivative liability associated with these features after that period of time expired. The firm did not sufficiently evaluate whether the derivative liability should have been initially recorded on the issuance date of the convertible notes because it did not perform procedures to determine whether the feature met the definition of a derivative and whether the issuer had sufficient authorized and unissued shares to convert any of the notes at each note's issuance date and at year end. (AS 2301.08)

The issuer amended its convertible debt agreements. The following audit deficiencies were identified: · The firm did not identify and evaluate the significance of the issuer's omission of a required disclosure under FASB ASC Subtopic 470-60 regarding its accounting for the amendments as a troubled debt restructuring. (AS 2810.30 and .31)