UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 6, 2007
PATRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-25675 74-3055158
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
5775 FLATIRON PARKWAY, SUITE 230
BOULDER, COLORADO 80301
(Address of Principal Executive Offices/Zip Code)
(303) 541-1005
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange ct (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c))
under the Exchange Act (17 CFR 240.13e-4c))
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Information included in this Form 8-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
This information may involve known and unknown risks, uncertainties and other
factors which may cause Patron Systems, Inc.'s actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe Patron
Systems, Inc.'s future plans, strategies and expectations, are generally
identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.
Forward-looking statements are based on assumptions that may be incorrect, and
there can be no assurance that any projections or other expectations included in
any forward-looking statements will come to pass. Patron Systems, Inc.'s actual
results could differ materially from those expressed or implied by the
forward-looking statements as a result of various factors. Except as required by
applicable laws, Patron Systems, Inc. undertakes no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A
RELATED AUDIT REPORT OR COMPLETE INTERIM REVIEW.
On March 6, 2007, the Board of Directors of Patron Systems, Inc. (the "Company")
determined that certain amounts reported in its unaudited condensed consolidated
interim financial statements for the quarters ended March 31, 2006, and June 30,
2006, and for the six months ended June 30, 2006 and nine months ended September
30, 2006 needed to be restated as described below.
While performing their audit of the Company's financial statements for the year
ended December 31, 2006, Marcum & Kliegman LLP ("M&K"), the Company's
independent registered public accounting firm, discovered that there may be
errors in the accounting for certain transactions occurring during the quarter
ended March 31, 2006 and the quarter ended June 30, 2006. M&K informed the
Company's management of the possible misstatements. Upon review of these
transactions the Company's management discovered that the accounting for these
transactions resulted in a $2,408,250 overstatement of its loss for the
quarterly period ended March 31, 2006 and a $593,765 overstatement of its loss
for the quarterly period ended June 30, 2006, which also resulted in an
overstatement of the year to date losses in the six and nine month periods ended
June 30, 2006 and September 30, 2006, respectively. Specifically, the Company
recorded for the three months ended March 31, 2006, 1) a net loss of $858,213 on
the settlement of various liabilities under its creditor and claimant
liabilities restructuring program when it should have recorded a net gain of
approximately $906,987, 2) excess non-cash interest of $358,000 with respect to
a conversion option that became effective under two of its Interim Bridge
Financing III notes and 3) charged, as interest expense, a $285,050 fee paid to
the placement agent in its Series A Preferred stock financing transaction that
should have been recorded as a reduction of the offering proceeds. For the three
months ended June 30, 2006, the company recorded a net gain of $371,616 on the
settlement of various liabilities under its creditor and claimant liabilities
restructuring program when it should have recorded a net gain of approximately
$965,381. The nature of the adjustments required in the creditor and claimant
liabilities restructuring in the quarters ended March 31, 2006 and June 30,
2006, relate to an overvaluation of the Series A-1 preferred shares issued in
the exchange offer offset by gains on the extinguishment of liabilities that
originated in connection with obligations to issue or repurchase stock.
The effect of the restatement on the Company's previously issued unaudited
condensed consolidated interim financial statements is as follows:
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Three Months Three Months Six Months
ended ended ended
March 31, 2006 June 30, 2006 June 30, 2006
---------------------------- ---------------------------- ----------------------------
As Previously As As Previously As As Previously As
Reported Restated Reported Restated Reported Restated
------------ ------------ ------------ ------------ ------------ ------------
Loss/(Gain)
associated
with settlement
agreements ..... $ 858,213 $ (906,987) $ (371,616) $ (965,381) $ 486,597 $ (1,872,368)
Interest expense $ (1,615,514) $ (972,464) $ (88,421) $ (88,421) $ (1,703,935) $ (1,060,885)
Net loss from
continuing
operations ..... $ (4,400,074) $ (1,991,824) $ (1,420,313) $ (826,548) $ (5,715,425) $ (2,713,410)
Net loss
available to
common
stockholders ... $ (4,400,074) $ (1,991,824) $ (1,621,017) $ (1,027,252) $ (6,021,091) $ (3,019,076)
Net loss per
share-
continuing
operations ..... $ (2.06) $ (0.91) $ (0.71) $ (0.44) $ (2.75) $ (1.33)
Net loss per
share - total .. $ (2.11) $ (0.96) $ (0.75) $ (0.47) $ (2.83) $ (1.42)
Additional paid
in capital ..... $ 93,922,101 $ 91,513,851 $ 97,792,968 $ 94,790,953 $ 97,792,968 $ 94,790,953
Accumulated
Deficit ........ $(88,788,101) $(86,379,851) $(90,409,118) $(87,407,103) $(90,409,118) $(87,407,103)
Nine Months
ended
September 30, 2006
----------------------------
As Previously As
Reported Restated
------------ ------------
Loss/(Gain)
associated
with settlement
agreements ..... $ (93,944) $ (2,452,909)
Interest expense $ (1,768,499) $ (1,125,449)
Net loss from
continuing
operations ..... $ (6,872,302) $ (3,870,287)
Net loss
available to
common
stockholders ... $ (7,300,152) $ (4,298,137)
Net loss per
share-
continuing
operations ..... $ (1.44) $ (0.83)
Net loss per
share - total .. $ (1.48) $ (0.87)
Additional paid
in capital ..... $ 97,468,961 $ 94,466,946
Accumulated
Deficit ........ $(91,688,179) $(88,686,164)
A) For the quarter ended March 31, 2006, a reduction in the net loss of
$2,408,250 ($1.15 per share) and a corresponding reduction in
accumulated deficit of $2,408,250 and a reduction of additional paid in
capital of $2,408,250.
B) For the quarter ended June 30, 2006, a reduction in the net loss of
$593,765 ($0.27 per share) and a corresponding reduction in accumulated
deficit of $593,765 and a reduction of additional paid in capital of
$593,765.
C) For the six months ended June 30, 2006, a reduction in the net loss of
$3,002,015 ($1.41 per share) and a corresponding reduction in
accumulated deficit of $3,002,015 and a reduction of additional paid in
capital of $3,002,015.
D) For the nine months ended September 30, 2006, a reduction in the net
loss of $3,002,015 ($0.61 per share) and a corresponding reduction in
accumulated deficit of $3,002,015 and a reduction of additional paid in
capital of $3,002,015.
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The Company's management and Board of Directors concluded that the previously
issued unaudited interim financial statements for the quarters ended March 31,
2006, June 30, 2006 and September 30, 2006, respectively, included in the
respective Forms 10-QSB, should no longer be relied upon. The Company will be
filing an amendment to its Quarterly Reports on Form 10-QSB for each of the
periods ended March 31, 2006, June 30, 2006 and September 30, 2006 to reflect
the restatement discussed above as soon as practicable.
The Company's management and the Board of Directors have discussed their
findings and conclusions relating to these adjustments with M&K.
The information in this report shall not be deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except as shall be expressly set forth by
specific reference in such a filing.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PATRON SYSTEMS, INC.
Date: March 12, 2007 By: /s/ Martin T. Johnson
-------------------------------
Martin T. Johnson
Chief Financial Officer
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