UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Amendment No. 1 to Form 10-Q

(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
 
or
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.
 
Commission file No. 000-52882
 
VERECLOUD, INC.
(Exact name of registrant as specified in its charter)
 

Nevada
26-0578268
(State or other jurisdiction of incorporation
or organization)
(I.R.S. Employer Identification Number)
 
   

6560 South Greenwood Plaza Boulevard
Number 400
Englewood, Colorado 80111
(Address of principal executive offices)
 
 
(877) 711-6492
(Registrant's telephone number, including area code)
 
 
____________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    x      No    ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes    ¨      No    x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer
 
¨
 
Accelerated filer
 
¨
       
Non-accelerated filer
 
¨     (Do not check if a smaller reporting company)
 
Smaller reporting company
 
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    ¨      No    x
 
As of May 11, 2011, there were 71,597 ,165 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.
 
 
 
 
 
 
 
 
 
Table of Contents
VERECLOUD, INC.
 
FORM 10-Q for the Quarterly Period Ended March 31, 2011
 
TABLE OF CONTENTS
 
 
TABLE OF CONTENTS
     
   
PAGE
        Explanatory Note   ii 
     
        Part I Financial Information
   
   
Item 1. Financial Statements
 
1
   
Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and June 30, 2010
 
1
   
Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2011 and 2010 (unaudited)
 
2
   
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2011 and 2010 (unaudited)
 
3
   
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the nine months ended March 31, 2011 (unaudited)
 
  4 
     
Notes to Condensed Consolidated Financial Statements
 
5
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
18
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
24
   
Item 4. Controls and Procedures
 
25
   
Part II Other Information
 
25
   
Item 1.  Legal Proceedings
 
26
     
Item 1A.  Risk Factors
 
26
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
26
     
Item 3.  Defaults Upon Senior Securities
 
26
     
Item 4.  [Removed and Reserved]
 
26
     
Item 5.  Other Information
 
26
   
Item 6.  Exhibits
 
27
   
Signatures
 
28
   
     
     
 
 
i
 
 
 
 
 
 
Explanatory Note

This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends the Quarterly Report on Form 10-Q of Verecloud, Inc. (the “Company”),  for the three and nine months ended March 31, 2011, filed with the Securities and Exchange Commission (“SEC”) on May 11, 2011 (the “Original Quarterly Report”).  This Amendment amends the Original Quarterly Report by amending and restating the financial statements as of March 31, 2011 and for the three and nine months ended March 31, 2011.  Accordingly, the following sections of the Original Quarterly Report have been revised to reflect the restatement: Part I – Item 1 – Financial Statements and Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations. Therefore, the financial information in the Original Quarterly Report should not be relied upon. 

Except as described above, no attempt has been made in this Amendment to modify or update other disclosures presented in the Original Quarterly Report.  This Amendment does not reflect events occurring after the filing of the Original Quarterly Report or modify or update those disclosures, including the exhibits to the Original Quarterly Report affected by subsequent events.  Accordingly, this Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Quarterly Report, including any amendments to those filings.
 
This Amendment amends the Original Quarterly Report for the quarterly period ended March 31, 2011 for the following two items:

First, on June 10, 2010, the Company entered into a loan agreement (as amended by the Loan Amendment (as defined below), the “Loan Agreement”) with TMG Holdings Colorado, LLC, a Texas limited liability company (“TMG Colorado”). Pursuant to the Loan Agreement, TMG Colorado agreed to provide the Company with a revolving line of credit in the principal amount of up to $1,564,000 (as renewed, extended and increased by the Amended Loan (as defined below), the “Loan”) pursuant to a revolving credit note (the “Note”).  On March 31, 2011 (the “Effective Date”), the Company entered into a first amendment to the Loan Agreement (the ”Loan Amendment”) with TMG Colorado.  On the Effective Date, the Company also entered into a First Amendment to Independent Contractor Consulting Agreement (the “First Amendment”) with The Mesa Group, Inc., a Texas corporation (“TMG”), pursuant to which the Company and TMG amended the Independent Contractor Consulting Agreement dated June 10, 2010.  In connection with the First Amendment, the Company also entered into a warrant purchase agreement (the “Purchase Agreement”) with TMG.  Pursuant to the Purchase Agreement, the Company issued TMG a common stock purchase warrant (the “Warrant”), pursuant to which TMG may purchase up to 10,000,000 shares of the Company's common stock for $.01 per share.  The Warrant is exercisable for three years and may be exercised on a cashless basis. The cashless exercise warrant shares to be issued are based on a formula in the Purchase Agreement and are based on difference between exercise price and the average of the closing prices for the twenty trading days immediately prior to (but not including) the exercise date. The Purchase Agreement also provided for customary representations and warranties regarding the accredited investor status of TMG.  Previously, using a different fair market value under the Black-Scholes model, the value of the warrant issued to TMG was calculated as $137,352, which was being amortized to earnings as additional interest expenses over the remaining term of the Loan Amendment described in Note 6.  However, in connection with the annual audit of the year ended June 30, 2011, it was determined that, under generally accepted accounting principles, the trading price of the shares on the date of grant, March 31, 2011, should be used as the calculated fair market value on the date of issuance. On the date of the grant, the Company’s common stock closed at $0.30 per share. Using the Black-Scholes model and using the trading price of the common stock on March 31, 2011, the value of the warrant issued to TMG was recalculated as $2,827,928.  Since no additional services were provided by TMG under the First Amendment, this entire amount has been booked to expense and classified as stock based compensation in the three and nine months ended March 31, 2011.

Second, the Company began capitalizing software costs in September 2010 and the Company accounts for the costs of software within its products in accordance with Accounting Standards Codification (“ASC”) Topic 985-20 “ Costs of Software to be Sold, Leased or Marketed” , under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design, or to the extent that a detailed program design is not pursued, upon completion of a working model that has been confirmed by testing to be consistent with the product design, as specified by ASC Topic 985-20. Upon the general release of the product to customers, development costs for that product will be amortized over periods not exceeding three years, based on current and future revenue of the product. Previously, the Company had capitalized $862,990 in software costs as of March 31, 2011. In connection with the annual audit for the year ended June 30, 2011, it was determined that the gross capitalized software costs at March 31, 2011, in accordance with ASC Topic 985-20, should have been $709,825. In addition, the Company recorded amortization expense of $59,152 in the three months ended March 31, 2011. Therefore, this Amendment reflects the change which increases operating expenses and adjusts the net capitalized software amount to $650,672 as of March 31, 2011.
 
ii
 
 
 
 
 
 
 A summary of the changes to the financial statements as of March 31, 2011 and for the three and nine months ended March 31, 2011 is shown below:
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
As of March 31, 2011
 
   
(unaudited)
 
   
Previously
             
   
Reported
   
Adjustment
   
Restated
 
Current assets
 
$
623,459
    $  -    
$
623,459
 
Property and equipment
   
37,381
     -      
37,381
 
Other assets
   
862,990
     
(212,318
)
   
650,672
 
   Total assets
 
$
1,523,831
   
$
(212,318
)
 
$
1,311,513
 
                         
Current liabilities
 
$
755,590
    $ -    
$
755,590
 
Long term debt
   
1,426,648
     
137,352
     
1,564,000
 
Stockholders equity (deficit)
   
(658,407
)
   
(349,670
)
   
(1,008,077
)
  Total liabilities and stockholders' equity (deficit)
 
$
1,523,831
   
$
(212,318
)
 
$
1,311,513
 


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

   
Three months ended March 31, 2011
   
Nine months ended March 31, 2011
 
   
(unaudited)
   
(unaudited)
 
   
Previously
               
Previously
             
   
Reported
   
Adjustment
   
Restated
   
Reported
   
Adjustment
   
Restated
 
Revenue
 
$
1,002,326
    $   -    
$
1,002,326
   
$
4,106,553
    $  -    
$
4,106,553
 
Cost of goods sold
   
540,420
     
59,152
     
599,572
     
1,908,945
     
59,152
     
1,968,097
 
Gross margin
   
461,907
     
(59,152
)
   
402,755
     
2,197,608
     
(59,152
)
   
2,138,456
 
Operating expenses
   
796,909
     
3,002,952
     
3,799,861
     
2,601,295
     
3,002,952
     
5,604,247
 
Operating income (loss)
   
(335,003
)
   
(3,062,104
)
   
(3,397,106
)
   
(403,687
)
   
(3,062,104
)
   
(3,465,791
)
Other income (expense)
   
(38,188
)
   
21,858
     
(16,330
)
   
(99,630
)
   
21,858
     
(77,772
)
Pretax income (loss)
   
(373,191
)
   
(3,040,246
)
   
(3,413,436
)
   
(503,318
)
   
(3,040,246
)
   
(3,543,563
)
Income tax expense
   
12,745
      -      
12,745
     
12,745
      -      
12,745
 
Net income (loss)
 
$
(385,936
)
 
$
(3,040,246
)
 
$
(3,426,181
)
 
$
(516,063
)
 
$
(3,040,246
)
 
$
(3,556,308
)
                                                 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

   
Nine months ended March 31, 2011
 
   
(unaudited)
 
   
Previously
             
   
Reported
   
Adjustment
   
Restated
 
Net cash from (used in) operating activities
 
$
(54,735
)
 
$
(153,165
)
 
$
(207,900
)
Investing Activities
   
(867,872
)
   
153,165
     
(714,706
)
Financing Activities
   
758,417
     
-
 
   
758,417
 
Net (decrease) in cash and cash equivalents
 
$
(164,190
)
 
$
-
 
 
$
(164,190
)
Cash and cash equivalents at the beginning of the period
   
197,151
     
-
     
197,151
 
Cash and cash equivalents at the end of the period
 
$
32,961
   
$
-
 
 
$
32,961
 
 
iii
 
 
 
 
  PART I FINANCIAL INFORMATION

Item 1.  Financial Statements
VERECLOUD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
   
March 31,
   
June 30,
 
   
2011
   
2010
 
   
Restated
       
ASSETS
           
             
Current assets
           
Cash
  $ 32,961     $ 197,151  
Accounts receivable
    534,943       632,962  
Other current assets
    55,555       34,243  
Total current assets
    623,459       864,356  
                 
Property and equipment (Note 3)
               
Computer related
    89,307       87,655  
Equipment and machinery
    39,485       36,255  
Other property and equipment
    36,330       36,330  
Subtotal
    165,122       160,240  
Accumulated depreciation
    (127,740 )     (98,839 )
Net property and equipment
    37,381       61,401  
                 
Other assets
               
Capitalized software, net (Note 4)
    650,672       -  
Total assets
  $ 1,311,513     $ 925,757  
                 
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
               
Current liabilities
               
Accounts payable
  $ 360,511     $ 174,899  
Accrued liabilities
    395,079       319,899  
Total current liabilities
    755,590       494,798  
                 
Long term debt (Note 6)
    1,564,000       864,000  
                 
Total liabilities
    2,319,590       1,358,798  
                 
Commitments and contingencies (Notes 2,5,6,7,9,10)
               
                 
Stockholders' (deficit)
               
Preferred stock - $0.001 par value, 5,000,000 shares authorized:
    -       -  
No shares issued or outstanding
               
Common stock - $0.001 par value, 200,000,000 shares authorized:
    71,577       70,098  
71,577,165 and 70,098,000 shares issued and outstanding, respectively
               
Additional paid-in capital
    3,777,463       797,670  
Accumulated (deficit)
    (4,857,118 )     (1,300,809 )
Total stockholders' (deficit)
    (1,008,077 )     (433,041 )
                 
Total liabilities and stockholders' (deficit)
  $ 1,311,513     $ 925,757  
 
 
The accompanying notes are integral parts of these unaudited financial statements.
 
1
 
 
 
 
 
 
VERECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
 
   
Three Months Ended March 31,
   
Nine Months Ended March 31,
 
   
2011
   
2010
   
2011
   
2010
 
   
Restated
         
Restated
       
                         
Revenue
  $ 1,002,326     $ 260,433     $ 4,106,553     $ 5,126,586  
                                 
Cost of goods sold
    599,572       129,999       1,968,097       2,299,535  
                                 
Gross profit
    402,755       130,434       2,138,456       2,827,051  
                                 
Operating expenses
                               
Employee related (1)
    488,439       656,353       1,249,076       1,507,613  
Marketing expense
    124,060       139,687       616,923       527,981  
Legal and accounting
    80,569       105,594       238,510       357,904  
Consulting expense (1)
    2,895,336       99,513       3,067,011       191,050  
Rent
    22,500       34,416       67,435       104,858  
Travel and entertainment
    53,046       52,421       104,711       96,938  
Information technology
    12,889       9,174       31,126       72,808  
Depreciation
    8,924       12,555       28,901       24,476  
Other
    114,097       24,996       200,555       73,277  
        Total operating expenses
    3,799,861       1,134,709       5,604,247       2,956,905  
                                 
Operating income (loss)
    (3,397,106 )     (1,004,275 )     (3,465,791 )     (129,854 )
                                 
Other income (expense)
                               
Interest income
    16       965       242       3,608  
Interest (expense)
    (16,346 )     (38,319 )     (78,015 )     (134,693 )    
  Total other income (expense)
    (16,330 )     (37,354 )     (77,772 )     (131,085 )
                                 
Pretax income (loss)
    (3,413,436 )     (1,041,629 )     (3,543,563 )     (260,939 )
                                 
Income tax expense (benefit)
    12,745       (405,533 )     12,745       (341,223 )
                                 
Net income (loss)
  $ (3,426,181 )   $ (636,096 )   $ (3,556,308 )   $ 80,284  
                                 
                                 
Basic net income (loss) per common share
  $ (0.05 )   $ (0.01 )   $ (0.05 )   $ 0.00  
                                 
Basic weighted average common shares
    71,366,758       47,729,222       70,610,311       44,096,752  
                                 
(1) Includes stock-based compensation as follows:
                               
Employee Related
  $ 19,812     $ 28,916     $ 86,744     $ 204,743  
Consulting Expense
    2,827,928       -       2,827,928       -  
    $ 2,847,739     $ 28,916     $ 2,914,671     $ 204,743  
                                 
 
The accompanying notes are integral parts of these unaudited financial statements.

2
 
 
 
 
 
 
VERECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
   
Nine Months Ended
 
   
March 31,
 
   
2011
   
2010
 
   
Restated
       
Operating Activities
           
Net income (loss)
 
$
(3,556,308
)
 
$
80,284
 
Adjustments to reconcile net income to
               
net cash from operations
               
Depreciation and amortization
   
88,053
     
24,476
 
Stock for services
   
8,185
     
141,915
 
Stock-based compensation
   
2,914,671
     
204,743
 
Income tax expense (benefit)
   
-
     
(341,223
)
Change in assets and liabilities
               
Accounts receivable
   
98,019
     
1,125,323
 
Other current assets
   
(21,312
)
   
8,365
 
Accounts payable
   
185,612
     
(77,203
)
Other current liabilities
   
75,180
     
(15,373
)
Net cash provided by (used in) operating activities
   
(207,900
)
   
1,151,308
 
                 
Investing Activities
               
Purchase of computer related
   
(1,652
)
   
(12,727
)
Purchase of equipment and machinery
   
(3,230
)
   
(2,519
)
Purchase of other property and equipment
   
-
     
(2,946
)
Capitalized software
   
(709,825
)
   
-
 
Net cash (used in) investing activities
   
(714,706
)
   
(18,193
)
                 
Financing Activities
               
Issuance of common stock
   
58,417
     
-
 
Reduction in note payable
   
(100,000
)
   
(840,000
)
Increase in long term debt
   
800,000
     
-
 
Members distributions
   
-
     
(506,623
)
Net cash provided by (used in) financing activities
   
758,417
     
(1,346,623
)
                 
Decrease in cash for period
 
$
(164,190
)
 
$
(213,508
)
Cash at beginning of period
   
197,151
     
540,479
 
Cash at end of period
 
$
32,961
   
$
326,971
 
                 
                 
Supplemental disclosure:
               
Cash paid for interest during the year
 
$
-
   
$
134,693
 
Cash paid for income taxes during the year
 
$
12,745
   
$
-
 

 
The accompanying notes are integral parts of these unaudited financial statements.
 
3
 
 
 
 
 
 
VERECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
For the period from June 30, 2010 to March 31, 2011
Restated
 
                               
   
Common Stock
   
Additional
Paid in
   
Accumulated
Earnings
   
Total
Stockholders Equity
 
   
Shares
   
Amount
   
Capital
   
(Deficit)
   
(Deficit)
 
                               
Balance at June 30, 2010
   
70,098,000
   
$
70,098
   
$
797,670
   
$
(1,300,809
)
 
$
(433,040
)
                                         
Stock-based compensation (Note 9)
   
-
     
-
     
51,657
     
-
     
51,657
 
                                         
Net income (loss)
   
-
     
-
     
-
     
(147,851
)
   
(147,851
)
                                         
Balance at September 30, 2010
   
70,098,000
   
$
70,098
   
$
849,326
   
$
(1,448,660
)
 
$
(529,235
)
                                         
Stock option exercises
   
845,000
     
845
     
40,805
     
-
     
41,650
 
                                         
Surrender and issuance of stock for services (Note 8)
   
-
     
-
     
4,064
     
-
     
4,064
 
                                         
Stock-based compensation (Note 9)
   
-
     
-
     
15,276
     
-
     
15,276
 
                                         
Net income (loss)
   
-
     
-
     
-
     
17,724
     
17,724
 
                                         
Balance at December 31, 2010
   
70,943,000
   
$
70,943
   
$
909,471
   
$
(1,430,936
)
 
$
(450,521
)
                                         
Stock option exercises
   
634,165
     
634
     
16,132
     
-
     
16,767
 
                                         
Surrender and issuance of stock for services (Note 8)
   
-
     
-
     
4,121
     
-
     
4,121
 
                                         
Stock-based compensation (Note 9)
   
-
     
-
     
2,847,739
     
-
     
2,847,739
 
                                         
Net income (loss)
   
-
     
-
     
-
     
(3,426,181
)
   
(3,426,181
)
                                         
Balance at March 31, 2011
   
71,577,165
   
$
71,577
   
$
3,777,463
   
$
(4,857,118
)
 
$
(1,008,077
)

The accompanying notes are integral parts of these unaudited financial statements.
 
4
 
 
 
 
VERECLOUD, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1.  Organization

Verecloud, Inc. (the "Company" or "Verecloud") is headquartered in Englewood, Colorado and is the developer and operator of Nimbus CSB, a proprietary cloud service brokerage platform.  Using its Nimbus CSB platform, Verecloud integrates and delivers a customer-specific suite of multiple, diverse cloud services.

History of Verecloud

The Company began in 2006 as Cadence II, LLC, a Colorado limited liability company, doing business as Network Cadence ("Network Cadence"), and has driven operational improvements and innovation with clients across the telecommunications landscape through professional services contracts. From architecture design to solution, or technology selection to delivery and implementation, Network Cadence provided professional service solutions in all areas of operational support systems (service creation, order fulfillment, inventory, activation and provisioning, assurance and billing, among others).

On August 31, 2009, a web development company, Sage Interactive, Inc., a Nevada corporation ("Sage"), consummated a share exchange (the "Share Exchange") with the sole member of Network Cadence, pursuant to which it acquired all of the membership interests of Network Cadence in exchange for the issuance to the sole member of Network Cadence of 42,320,000 shares of common stock, par value, $0.001.  After the Share Exchange, business operations consisted of those of Network Cadence and the operations of Sage ceased.  The Share Exchange was treated as a merger of Sage and Network Cadence, which is accounted for as a reverse acquisition with Network Cadence being the acquirer for financial reporting purposes.  As such, for all disclosures referencing shares authorized, issued, outstanding, reserved for, per share amounts and other disclosures related to equity, amounts have been retroactively restated to reflect share quantities as if the exchange of Network Cadence membership interest had occurred at the beginning of the periods presented as altered by the terms of the Share Exchange.  Upon the closing of the Share Exchange, the articles of incorporation were amended to change the name of the Company to Network Cadence, Inc. and Network Cadence became a wholly-owned subsidiary of Network Cadence, Inc.

On January 25, 2010, the Company instituted a four-for-one forward split of its common stock and amended its articles of incorporation to change the name of the Company from Network Cadence, Inc. to Verecloud, Inc. All historical information with regard to shares outstanding has been adjusted to reflect the split.

This Quarterly Report on Form 10-Q for the three and nine months ended March 31, 2011 reflects the financial statements and related disclosures for Verecloud.
 
2.   Summary of Significant Accounting Policies
 
The unaudited balance sheet as of March 31, 2011, the condensed consolidated balance sheet as of June 30, 2010 and the unaudited interim condensed consolidated financial statements as of and for the three and nine months ended March 31, 2011 and 2010 have been prepared in accordance with the instructions for Form 10-Q. In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted. We believe that the disclosures made are adequate such that the information presented is not misleading.
 
In the opinion of management, these statements include all normal recurring adjustments necessary to fairly present our unaudited condensed consolidated results of operations, financial position and cash flows as of March 31, 2011 and 2010 and for all periods presented. These unaudited condensed consolidated financial statements should therefore be read in conjunction with the consolidated financial statements and notes thereto for the year ended June 30, 2010, included in our Form 10-K filed on September 28, 2010 and our Form 10-K/A filed on February 14, 2011.
 
The unaudited condensed consolidated statements of operations, the unaudited condensed consolidated statement of changes in stockholders’ equity (deficit) and the unaudited condensed consolidated statements of cash flows for the three and nine months ended March 31, 2011 are not necessarily indicative of the results or cash flows expected for the full year.

 
5
 
 
 
 
Critical Accounting Policies and Estimates

Basis of Presentation
 
The preparation of financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, the Company makes and evaluates estimates and judgments, including those related to revenue recognition, capitalized software development costs, stock-based compensation, goodwill and intangible assets, valuation of investments and accounting for income taxes. It bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances; the results of which form the basis for making judgments about amounts and timing of revenue and expenses, the carrying values of assets and the recorded amounts of liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change.
 
Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Verecloud and its wholly owned subsidiary, Network Cadence. For the three and nine months ended March 31, 2011 and 2010, there were no equity investments in companies over which Verecloud has the ability to exercise significant influence, but does not hold a controlling interest. Verecloud has eliminated all significant intercompany accounts and transactions.
 
Reclassifications

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation with no impact on previously reported net income (loss).
 
Cash and Cash Equivalents

For purposes of balance sheet classification and the statements of cash flows, the Company considers cash in banks, deposits in transit, and all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk
 
The Company primarily sells its services to customers in the communications industry in the United States on an uncollateralized, open credit basis. For the nine months ended March 31, 2011 and 2010, one customer (LightSquared) accounted for 90% and 88% of the revenue, respectively.  For the three months ended March 31, 2011, the Company performed services for LightSquared under month to month statements of work.  The current statements of work may be terminated by LightSquared with 30 days written notice.
 
Cash is maintained at financial institutions. The Federal Deposit Insurance Corporation ("FDIC") currently insures accounts at each institution for up to $250,000. At times, cash balances may exceed the FDIC insurance limit of $250,000.
 
Accounts Receivable
 
Accounts receivable include uncollateralized customer obligations due under normal trade terms and do not bear interest.

Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of our customers to make required payments. The allowances are based on our regular assessment of the credit worthiness and financial condition of specific customers, as well as its historical experience with bad debts and customer deductions, receivables aging, current economic trends, geographic or country-specific risks and the financial condition of its distribution channels. All outstanding accounts receivable as of March 31, 2011 were either collected subsequent to year end or are deemed collectible based on the collection history of the customer.

Revenue Recognition
 
For the periods covered by this Quarterly Report on Form 10-Q, the Company derived revenue solely from billable professional services provided to clients.  Revenue is recognized only when all of the following conditions have been met:  (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and (iv) collectability of the fee is reasonably assured.
 
6
 
 
 
 
 
Property and Equipment
 
Equipment and furniture are carried at historical cost, net of accumulated depreciation. Depreciation is computed using straight-line methods over the estimated useful lives of the assets, ranging from three to seven years. Expenditures for repairs and maintenance which do not materially extend the useful lives of equipment and furniture are charged to operations.
 
Fair Value Financial Instruments
 
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2011. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable and accrued expenses.  Fair values are assumed to approximate carrying values for these financial instruments because they are short term in nature, or are receivable or payable on demand.

Capitalized Software

The Company accounts for the costs of software within its products in accordance with Accounting Standards Codification ("ASC") Topic 985-20 " Costs of Software to be Sold, Leased or Marketed" , under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design, or to the extent that a detailed program design is not pursued, upon completion of a working model that has been confirmed by testing to be consistent with the product design, as specified by ASC Topic 985-20. Upon the general release of the product to customers, development costs for that product will be amortized over periods not exceeding three years, based on current and future revenue of the product.

Research and Development Costs
 
Costs related to research, design and development of products, which consist primarily of personnel, product design and infrastructure expenses, are expensed as they are incurred.

Marketing and Advertising Costs

Marketing and advertising costs are expensed when incurred.  For the three months ended March 31, 2011 and 2010, the Company incurred marketing expenses of $124,060 and $139,687, respectively. For the nine months ended March 31, 2011 and 2010, the Company incurred marketing expenses of $616,923 and $527,981, respectively.
 
Segment Information
 
Certain information is disclosed based on the way management organizes financial information for making operating decisions and assessing performance. The Company currently operates in one business segment and will evaluate additional segment disclosures if it expands operations.
 
Significant Customers

For the three and nine months ended March 31, 2011 and 2010, the Company had a substantial business relationship with one major customer, LightSquared.  LightSquared accounted for 100% and 0% of the Company’s total revenue for the three months ended March 31, 2011 and 2010, respectively. LightSquared accounted for 90% and 88% of the Company’s total revenue for the nine months ended March 31, 2011 and 2010, respectively.
 
Long-Lived Assets
 
The Company accounts for its long-lived assets in accordance with Accounting for the Impairment or Disposal of Long-Lived Assets ("ASC 360").  Its primary long-lived assets are property and equipment and capitalized software costs. ASC 360 requires a company to assess the recoverability of its long-lived assets whenever events and circumstances indicate the carrying value of an asset or asset group may not be recoverable from estimated future cash flows expected to result from its use and eventual disposition. Additionally, the standard requires expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred, rather than as of the measurement date. For property and equipment, our assets consist primarily of computers and office equipment. The Company has compared the net book value of these assets to market-based pricing for similar used equipment. The Company accounts for the costs of software within its products in accordance with the ASC Topic 985-20 " Costs of Software to be Sold, Leased or Marketed" under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products (Note 4). As of March 31, 2011, the depreciated value of the assets materially reflects the estimated fair value of similar used equipment in the marketplace.
 
 
7
 
 
 
 
Stock Based Compensation Expense
 
Stock based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Company estimates the fair value of stock options in accordance with ASC Topic 718 using the Black-Scholes option-pricing model. This model requires the use of the following assumptions: (i) expected volatility of the Company’s common stock, which is based on the Company’s peer group in the industry in which the Company does business; (ii) expected life of the option award, which is calculated using the "simplified" method provided in the Security Exchange Commission's (the "SEC") Staff Accounting Bulletin No. 110 and takes into consideration the grant’s contractual life and vesting periods; (iii) expected dividend yield, which is assumed to be 0%, as the Company has not paid and does not anticipate paying dividends on its common stock; and (iv) the risk-free interest, which is based on the U.S. Treasury yield curve in effect at the time of grant with maturities equal to the grant’s expected life. In addition, ASC Topic 718 requires the Company to estimate the number of options that are expected to vest. In valuing stock based awards under ASC Topic 718, significant judgment is required in determining the expected volatility of the Company’s common stock.
 
Accounting for Income Taxes

Income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year’s results and for deferred tax assets and liabilities related to the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.
 
Net Income (Loss) Per Common Share
 
Basic net income (loss) per common share calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year.  Diluted net income (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding.  During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.
 
Recent Pronouncements
 
The Company evaluates pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board ("FASB"), the SEC, and the Emerging Issues Task Force, to determine the impact of new pronouncements on GAAP and the preparation of our financial statements.  The Company has adopted the following new accounting standards:
 
In October 2009, FASB published Accounting Standards Update ("ASU") 2009-14, Certain Revenue Arrangements That Include Software Elements ("ASU 2009-14") , to provide guidance for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and non-software components that function together to deliver the product’s essential functionality are excluded from the software revenue guidance in ASC Subtopic 985-605, Software-Revenue Recognition .  In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance. ASU 2009-14 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. This pronouncement did not have any impact on the Company’s condensed consolidated unaudited financial statements for the three and nine months ended March 31, 2011 and 2010.

In January 2010, FASB published ASU 2010-06, Improving Disclosures About Fair Value Measurement ("ASU 2010-06") , which requires additional disclosures regarding the activity in fair value measurements classified as Level 3 in the fair value hierarchy. Disclosure of activity in Level 3 fair value measurements is required for fiscal years beginning after December 15, 2010. Early adoption is permitted. The Company does not expect the adoption of ASU 2010-06 to have a material impact on its consolidated financial statements. .
 
There were no other accounting standards and interpretations issued recently which are expected to have a material impact on the Company’s financial position, operations or cash flows.
 
 
8
 
 
 
 
Restatement of Consolidated Financial Statements

The unaudited financial statements for the three and nine months ended March 31, 2011 are being restated to correct the accounting treatment previously reported in connection with the two items described below, and reported in Original Quarterly Report.

First, on June 10, 2010, the Company entered into a loan agreement (as amended by the Loan Amendment (as defined below), the “Loan Agreement”) with TMG Holdings Colorado, LLC, a Texas limited liability company (“TMG Colorado”). Pursuant to the Loan Agreement, TMG Colorado agreed to provide the Company with a revolving line of credit in the principal amount of up to $1,564,000 (as renewed, extended and increased by the Amended Loan (as defined below), the “Loan”) pursuant to a revolving credit note (the “Note”).  On March 31, 2011 (the “Effective Date”), the Company entered into a first amendment to the Loan Agreement (the ”Loan Amendment”) with TMG Colorado.  On the Effective Date, the Company also entered into a First Amendment to Independent Contractor Consulting Agreement (the “First Amendment”) with The Mesa Group, Inc., a Texas corporation (“TMG”), pursuant to which the Company and TMG amended the Independent Contractor Consulting Agreement dated June 10, 2010.  In connection with the First Amendment, the Company also entered into a warrant purchase agreement (the “Purchase Agreement”) with TMG.  Pursuant to the Purchase Agreement, the Company issued TMG a common stock purchase warrant (the “Warrant”), pursuant to which TMG may purchase up to 10,000,000 shares of the Company's common stock for $.01 per share.  The Warrant is exercisable for three years and may be exercised on a cashless basis. The cashless exercise warrant shares to be issued are based on a formula in the Purchase Agreement and are based on difference between exercise price and the average of the closing prices for the twenty trading days immediately prior to (but not including) the exercise date. The Purchase Agreement also provided for customary representations and warranties regarding the accredited investor status of TMG.  Previously, using a different fair market value under the Black-Scholes model, the value of the warrant issued to TMG was calculated as $137,352, which was being amortized to earnings as additional interest expenses over the remaining term of the Loan Amendment described in Note 6.  However, in connection with the annual audit of the year ended June 30, 2011, it was determined that, under generally accepted accounting principles, the trading price of the shares on the date of grant, March 31, 2011, should be used as the calculated fair market value on the date of issuance. On the date of the grant, the Company’s common stock closed at $0.30 per share. Using the Black-Scholes model and using the trading price of the common stock on March 31, 2011, the value of the warrant issued to TMG was recalculated as $2,827,928.  Since no additional services were provided by TMG under the First Amendment, this entire amount has been booked to expense and classified as stock based compensation in the three and nine months ended March 31, 2011.

Second, the Company began capitalizing software costs in September 2010 and the Company accounts for the costs of software within its products in accordance with Accounting Standards Codification (“ASC”) Topic 985-20 “ Costs of Software to be Sold, Leased or Marketed” , under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design, or to the extent that a detailed program design is not pursued, upon completion of a working model that has been confirmed by testing to be consistent with the product design, as specified by ASC Topic 985-20. Upon the general release of the product to customers, development costs for that product will be amortized over periods not exceeding three years, based on current and future revenue of the product. Previously, the Company had capitalized $862,990 in software costs as of March 31, 2011. In connection with the annual audit for the year ended June 30, 2011, it was determined that the gross capitalized software costs at March 31, 2011, in accordance with ASC Topic 985-20, should have been $709,825. In addition, the Company recorded amortization expense of $59,152 in the three months ended March 31, 2011. Therefore, this Amendment reflects the change which increases operating expenses and adjusts the net capitalized software amount to $650,672 as of March 31, 2011.
 

9
 
 
 
 
A summary of the changes to the financial statements as of March 31, 2011 and for the three and nine months ended March 31, 2011 is shown below:
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
As of March 31, 2011
 
   
(unaudited)
 
   
Previously
             
   
Reported
   
Adjustment
   
Restated
 
Current assets
 
$
623,459
    $  -    
$
623,459
 
Property and equipment
   
37,381
     -      
37,381
 
Other assets
   
862,990
     
(212,318
)
   
650,672
 
   Total assets
 
$
1,523,831
   
$
(212,318
)
 
$
1,311,513
 
                         
Current liabilities
 
$
755,590
    $ -    
$
755,590
 
Long term debt
   
1,426,648
     
137,352
     
1,564,000
 
Stockholders equity (deficit)
   
(658,407
)
   
(349,670
)
   
(1,008,077
)
  Total liabilities and stockholders' equity (deficit)
 
$
1,523,831
   
$
(212,318
)
 
$
1,311,513
 


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

   
Three months ended March 31, 2011
   
Nine months ended March 31, 2011
 
   
(unaudited)
   
(unaudited)
 
   
Previously
               
Previously
             
   
Reported
   
Adjustment
   
Restated
   
Reported
   
Adjustment
   
Restated
 
Revenue
 
$
1,002,326
    $   -    
$
1,002,326
   
$
4,106,553
    $  -    
$
4,106,553
 
Cost of goods sold
   
540,420
     
59,152
     
599,572
     
1,908,945
     
59,152
     
1,968,097
 
Gross margin
   
461,907
     
(59,152
)
   
402,755
     
2,197,608
     
(59,152
)
   
2,138,456
 
Operating expenses
   
796,909
     
3,002,952
     
3,799,861
     
2,601,295
     
3,002,952
     
5,604,247
 
Operating income (loss)
   
(335,003
)
   
(3,062,104
)
   
(3,397,106
)
   
(403,687
)
   
(3,062,104
)
   
(3,465,791
)
Other income (expense)
   
(38,188
)
   
21,858
     
(16,330
)
   
(99,630
)
   
21,858
     
(77,772
)
Pretax income (loss)
   
(373,191
)
   
(3,040,246
)
   
(3,413,436
)
   
(503,318
)
   
(3,040,246
)
   
(3,543,563
)
Income tax expense
   
12,745
      -      
12,745
     
12,745
      -      
12,745
 
Net income (loss)
 
$
(385,936
)
 
$
(3,040,246
)
 
$
(3,426,181
)
 
$
(516,063
)
 
$
(3,040,246
)
 
$
(3,556,308
)
                                                 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

   
Nine months ended March 31, 2011
 
   
(unaudited)
 
   
Previously
             
   
Reported
   
Adjustment
   
Restated
 
Net cash from (used in) operating activities
 
$
(54,735
)
 
$
(153,165
)
 
$
(207,900
)
Investing Activities
   
(867,872
)
   
153,165
     
(714,706
)
Financing Activities
   
758,417
     
-
 
   
758,417
 
Net (decrease) in cash and cash equivalents
 
$
(164,190
)
 
$
-
 
 
$
(164,190
)
Cash and cash equivalents at the beginning of the period
   
197,151
     
-
     
197,151
 
Cash and cash equivalents at the end of the period
 
$
32,961
   
$
-
 
 
$
32,961
 
 
 
10
 
 
 
3.   Property and Equipment
 
Property and equipment are recorded at cost. Replacements and major improvements are capitalized while maintenance and repairs are charged to expense as incurred. Depreciation is provided using primarily straight line methods over the estimated useful lives of the related assets.
 
Property and equipment at March 31, 2011 and June 30, 2010 consisted of the following:
 
   
March 31,
   
June 30,
 
   
2011
   
2010
 
             
Computer related
 
$
89,307
   
$
87,655
 
Equipment and machinery
   
39,485
     
36,255
 
Other property and equipment
   
36,330
     
36,330
 
   Subtotal
   
165,122
     
160,240
 
Accumulated depreciation
   
(127,740
)
   
(98,839
)
   Net property and equipment
 
$
37,381
   
$
61,401
 

4.    Capitalized Software
 
The Company accounts for the costs of software within its products in accordance with Accounting Standards Codification (“ASC”) Topic 985-20 “ Costs of Software to be Sold, Leased or Marketed” , under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design, or to the extent that a detailed program design is not pursued, upon completion of a working model that has been confirmed by testing to be consistent with the product design, as specified by ASC Topic 985-20. Upon the general release of the product to customers, development costs for that product will be amortized over periods not exceeding one year. The Company began capitalizing software costs in September 2010. As of March 31, 2011, capitalized software consists of the following: 
 
   
March 31,
2011
 
Capitalized software
 
$
709,825
 
Less accumulated amortization
   
(59,153
)
Net capitalized software
 
$
650,672
 
 
With regard to the recoverability of capitalized software and development costs, the Company regularly performs an assessment of its ability to recover the costs invested in these assets. The recoverability analysis considers projected future cash flows from the utilization of the underlying software in the respective components of the business. The Company's projections of future cash flows are affected by such factors as technological change, competitive offerings, marketplace expectations and project development. Changes in any of these factors may result in future write-downs of the carrying value of these or other assets.
 
5.   Commitments and Contingencies
 
Consulting Agreements
 
On September 15, 2009, the Company signed a consulting agreement with Capital Group Communications, Inc. ("CGC"), pursuant to which CGC agreed to provide investor relations services including representing the Company in investor communications and public relations with existing stockholders, brokers, dealers and others for a 14-month period once the Company's stock is publicly traded (September 2010).  Pursuant to the terms of the consulting agreement, the Company agreed to compensate CGC with the issuance of 1,380,000 shares of restricted common stock. The fair market value of these services was estimated at $98,000 and, upon issuance of the shares, has been reflected in the operating expenses for the nine months ended March 31, 2010 since the shares issued are non-refundable if the agreement is terminated and compensation is not based on future services.

On February 24, 2010, the Company issued 898,000 shares of restricted common stock to various other consultants to the Company for financial, marketing and business development services. For the three months ended March 31, 2010, the Company expensed $43,916 for the fair market value of these services.

On June 10, 2010, the Company entered into a consulting agreement (the "Original Consulting Agreement") with The Mesa Group, Inc., a Texas corporation ("TMG"), pursuant to which TMG agreed to render consulting services with respect to organizational and business matters to the Company.  The Original Consulting Agreement had a three year term and provided that, commencing on March 31, 2011 and terminating on December 31, 2013, the Company shall pay TMG an aggregate amount of $744,000 in 12 quarterly payments of $62,000.  On March 31, 2011, the Company entered into a first amendment to the consulting agreement (the "Amended Consulting Agreement") with TMG.  Under the Amended Consulting Agreement, the first payment of $62,000 is now due and payable upon the earlier of: (i) thirty days following the date that the Company secures and closes upon long term financing in a principal amount not less than $3,000,000; or (ii) September 30, 2011.  The Company will then make 11 quarterly payments of $62,000 on the last day of every calendar quarter (December 31, March 31, June 30 and September 30) through the term of the Amended Consulting Agreement which ends on June 30, 2014. The total aggregate payments under the Amended Consulting Agreement remain at $744,000.  Aside from the changes described above, all other provisions of the Original Consulting Agreement remain in full force and effect.  As of March 31, 2011, the Company had accrued $163,680 associated with the consulting agreement.
 
11
 
 
 
 
On November 10, 2010, the Company entered into an agreement with ChangeWave, Inc. ("ChangeWave") in which ChangeWave will provide investor relations and shareholder marketing services for the Company. The term of agreement is November 1, 2010 to October 31, 2011. As compensation for these services, ChangeWave will receive 1,200,000 shares of restricted common stock over the term of the agreement. These shares are earned and payable quarterly beginning on November 1, 2010 with the final installment due on August 1, 2011. The contract may be terminated by the Company without cause with ten days notice to ChangeWave. In the event of termination, the Company is obligated for only those shares issued prior to the date of termination. As of March 31, 2011 and in connection with payment of the first and second installments, the Company's chief executive officer has surrendered 600,000 shares of common stock and the Company has re-issued 600,000 shares of common stock to ChangeWave. The Company has recorded operating expense of $4,121 and $8,185 in the three and nine months ended March 31, 2011, respectively.

In addition, the Company has entered into a variety of consulting agreements for services to be provided to the Company in the ordinary course of business.  These services include project staffing on customer engagements, business development activities and marketing efforts. These agreements call for various payments upon performance of services and are generally short-term and cancellable by the Company at will.

Operating Leases
 
The Company has a lease commitment for its office facility. This lease has a monthly rental payment of $7,500 and expires in August 2011.   In addition, the Company has one apartment lease in Reston, Virginia that is month to month at a monthly rate of $4,411.
 
Employment Agreements
 
On June 22, 2010, the Company entered into employment agreements (the "Employment Agreements") with the following executives:  (i) its President, William E. Wood, III; (ii) its Chief Financial Officer, James R. Buckley; (iii) its Chief Operating Officer, Michael P. Cookson; and (iv) its Chief Technology Officer, William Perkins.

Pursuant to the Employment Agreements:

(a)   Mr. Wood is to receive a base salary of $225,000 per annum and options to purchase 5,700,000 shares of the Company's common stock at $0.02 per share;

(b)   Mr. Buckley is to receive a base salary of $180,000 per annum and options to purchase 1,900,000 shares of the Company's common stock at $0.02 per share;

(c)   Mr. Cookson is to receive a base salary of $180,000 per annum and options to purchase 500,000 shares of the Company's common stock at $0.02 per share; and

(d)   Mr. Perkins is to receive a base salary of $180,000 per annum and options to purchase 350,000 shares of the Company's common stock at $0.02 per share.

Each option granted above began vesting 1/12 on the last day of each calendar quarter commencing December 31, 2010, so that if each executive remains continuously employed by the Company, their respective options will fully vest on June 30, 2013.

In addition, the Employment Agreements provide that each of the executives is eligible to participate in the Company's benefit plans (including, as they become available, savings, profit-sharing, life, disability, health, accident and other programs), will accrue three weeks paid vacation per year and be entitled to paid holidays in accordance with the Company's vacation policy.

In the event any executive's employment is terminated without cause (as defined in the Employment Agreements) or the executive resigns for good reason (as defined in the Employment Agreements), upon execution of a release of claims against the Company, the executive would be entitled to receive an amount equal to six times the amount of his monthly base salary. However, in the event the executive's employment is terminated without cause (as defined in the Employment Agreements) or the executive resigns for good reason (as defined in the Employment Agreements), at anytime during the period beginning three months prior to a change in control (as defined in the Employment Agreements) and ending 12 months after a change in control, the executive would instead be entitled to receive a lump sum payment equal to the sum of (i) 1.0 times his base salary, plus (ii) the bonus he earned for the prior calendar year, plus (iii) 12.0 times the monthly premium amount for the executive's employee benefits.

In addition, the Employment Agreements include a "modified 280G cutback" which provides that, in the event of a change in control (as defined in the Employment Agreements), if the executive would receive payments in excess of the Internal Revenue Code Section 280G statutory safe harbor amount, the executive will receive the amount of payments that results in the greatest after-tax proceeds.
 
12
 
 
 
 
 
6.   Borrowings

On June 10, 2010, the Company entered into a loan agreement (as amended by the Loan Amendment (as defined below), the "Loan Agreement") with TMG Holdings Colorado, LLC, a Texas limited liability company ("TMG Colorado"). Pursuant to the Loan Agreement, TMG Colorado agreed to provide the Company with a revolving line of credit in the principal amount of up to $1,564,000 (as renewed, extended and increased by the Amended Loan (as defined below), the "Loan") pursuant to a revolving credit note (the "Note").  On March 31, 2011 (the "Effective Date"), the Company entered into a first amendment to the Loan Agreement (the "Loan Amendment") with TMG Colorado.  Pursuant to the Loan Amendment, TMG Colorado agreed to provide the Company with a renewal and extension of its revolving line of credit in the principal amount of up to an aggregate of $2,564,000 (the "Amended Loan"), an increase of $1,000,000 over the original Loan.   Interest accrues on the outstanding principal amount of the Note at the rate of 10% per annum. In accordance with the Loan Amendment, the first of such interest payments shall be due and payable upon the earlier of: (i) thirty days following the date that the Company secures and closes upon long term financing in a principal amount not less than $3,000,000; or (ii) September 30, 2011. Subsequent interest payments shall be due and payable thereafter on the last day of every calendar quarter (December 31, March 31, June 30 and September 30) during the term of the Loan Agreement. The Amended Loan matures on June 30, 2012 and may be prepaid at anytime without premium or penalty.  As a result, the outstanding balance at March 31, 2011 is classified as long term debt. Aside from the changes described above, the remaining provisions of the Loan Agreement remain in full force and effect. As of March 31, 2011, the Company had borrowed $1,564,000 under the Note.

The Loan Agreement also contains customary representations, warranties and covenants. The Company's obligations under the Loan are secured by a first priority lien on all of the Company's assets pursuant to a security agreement (the "Security Agreement") between the Company and TMG Colorado dated as of June 10, 2010.  Failure to pay any amount of principal or interest when due, failure to comply with any other terms and conditions of the Loan Agreement, the Note or the Security Agreement, any false or inaccurate material representation, the bankruptcy of the Company, or liquidation, termination or dissolution of the Company, will result in an acceleration of the total balance of outstanding interest and principal on the Note. In addition, upon any of the foregoing defaults, the Note shall accrue default interest at a rate of 18% per annum and TMG Colorado may foreclose on the Company’s assets. 

On March 31, 2011 in connection with the First Amendment and the Original Consulting Agreement discussed in Note 5, the Company also entered into the Purchase Agreement with TMG. Pursuant to the Purchase Agreement, the Company issued TMG the Warrant for TMG to purchase up to 10,000,000 shares of the Company’s common stock for $0.01 per share.  On the date of the grant, the Company’s common stock closed at $0.30 per share. Under generally accepted accounting principles, the trading price of the shares was used as the calculated fair market value on the date of issuance. Using the Black-Scholes model, the value of the warrant issued to TMG was calculated as $2,827,928. Since the First Amendment did not result in additional services being performed by TMG, this entire amount has been booked to expense and classified as stock based compensation in the three and nine months ended March 31, 2011.
 
7.   Related Parties

The Company has not adopted formal policies and procedures for the review, approval or ratification of related party transactions with its executive officers, directors and significant stockholders.  However, all material related party transactions for the periods covered by this report have been disclosed and such transactions have been approved by the board of directors.  Future transactions will be subject to the review, approval or ratification of the board of directors, or an appropriate committee thereof.  

On June 10, 2010, the Company entered into the Original Consulting Agreement with TMG.  On March 31, 2011, the Company entered into the Amended Consulting Agreement with TMG.  Under the Amended Consulting Agreement, the first payment of $62,000 is due and payable upon the earlier of: (i) thirty days following the date that the Company secures and closes upon long term financing in a principal amount not less than $3,000,000; or (ii) September 30, 2011.  The Company will then make 11 quarterly payments of $62,000 on the last day of every calendar quarter (December 31, March 31, June 30 and September 30) through the term of the Amended Consulting Agreement which ends on June 30, 2014. The total aggregate payments under the Amended Consulting Agreement remain at $744,000.  As of March 31, 2011, the Company had accrued $163,680 associated with the consulting agreement. The Company currently has the Loan Agreement with TMG's affiliate, TMG Colorado, and another affiliate of TMG, TMG Holdings, LLC, is the Company's second largest stockholder.
 
8.   Capital Stock

As of March 31, 2011, there were 71,577,165 outstanding shares of common stock and no issued and outstanding shares of preferred stock.

The Company’s articles of incorporation, as amended, authorize the issuance of 200,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par value.
 

13
 
 
 
 
 
 
The Company’s articles of incorporation, as amended, authorize the issuance of preferred stock in one or more series at the discretion of the board of directors.  In establishing a series, the board of directors has the right to give it a distinctive designation so as to distinguish such series of preferred stock from other series and classes of capital stock.  In addition, the board of directors is obligated to fix the number of shares in such a series, and the preference rights and restrictions thereof.  All shares of any one series shall be alike in every particular except as provided by the articles of incorporation, as amended, or the Nevada Revised Statutes.

On January 25, 2010, the Company conducted a four-for-one forward split of its common stock, in which each share of our issued and outstanding common stock as of January 25, 2010 was converted into four shares of common stock.  Accordingly, all share amounts referenced herein are calculated on a post-split basis notwithstanding that certain grants or issuances were made prior to the date of the forward split.  In addition, all references in the accompanying financial statements to the number of common shares and per share amounts have been retroactively adjusted to reflect the forward stock split.
 
9.  Securities Authorized for Issuance under Equity Compensation Plans
 
The following table sets forth, as of March 31, 2011, certain information related to the Company’s compensation plans under which shares of its common stock are authorized for issuance.
 
Plan Category
 
Number of
securities to be Issued upon Exercise of Outstanding Options
(a)
   
Average
Exercise
Price of
 Outstanding
Options
   
Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
 
Equity compensation plans approved by security holders
   
13,795,835
   
$
0.04
     
725,000
 
                         
Equity compensation plans not approved by security holders
   
-
   
$
-
     
-
 
Total
   
13,795,835
   
$
0.04
     
725,000
 
 
On October 27, 2009, the Company's board of directors adopted the Verecloud 2009 Equity Incentive Plan (the "Incentive Plan"). The purpose of the Incentive Plan is to benefit the Company’s stockholders by furthering the growth and development of the Company by affording an opportunity for stock ownership to attract, retain and provide incentives to employees and directors of, and non-employee consultants to, the Company and its affiliates, and to assist the Company in attracting and retaining new employees, directors and consultants; to encourage growth of the Company through incentives that are consistent with the Company’s goals; to provide incentives for individual performance; and to promote teamwork.
 
Under the Incentive Plan, the board of directors in its sole discretion, may grant stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock, deferred stock or other equity-based awards (each an "Award") to the Company’s employees, directors and consultants (or those of the Company’s affiliates).  The Awards available under the Incentive Plan also include performance-based Awards, which would have pre-established performance goals that relate to the achievement of the Company’s business objectives.  The performance-based stock Awards available under the Incentive Plan are intended to comply with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended, to allow such Awards, when payable, to be tax deductible by the Company.
 
On June 22, 2010, the board of directors of Verecloud approved the increase in the amount of shares reserved for issuance under the Incentive Plan from 8,000,000 shares of common stock to 16,000,000 shares.  To the extent that an Award expires, ceases to be exercisable, is forfeited or repurchased by the Company, any shares subject to the Award may be used again for new grants under the Incentive Plan.  In addition, shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligation with respect to any Award (other than with respect to options) may be used for grants under the Incentive Plan.  The maximum number of shares of common stock that may be subject to one or more Awards to a participant pursuant to the Incentive Plan during any fiscal year of the Company is 8,000,000 shares.

As of March 31, 2011, 15,275,000 options to acquire shares of common stock and restricted shares have been issued under the Incentive Plan leaving 725,000 shares of common stock remaining available for option and stock awards. Of the 15,275,000 options to acquire shares of common stock issued, 634,165 were exercised in the three months ended March 31, 2011. In the three months ended March 31, 2011, options to acquire shares of common stock totaling 250,000 shares, issued to a former employee of the Company, expired since they were not exercised within the required timeframe after termination. In general, each option vests evenly on the last day of each fiscal quarter, based on a three-year period commencing upon the employee's original date-of-hire.  As of March 31, 2011, 8,045,833 options have vested.
 
14
 
 
 
 
 
 
The following table summarizes the activity under the Company’s stock option plans:
                   
   
Number of
Shares
   
Weighted-
Average
Exercise
Price
   
Aggregate
Intrinsic
Value (1)
 
Outstanding as of June 30, 2010
   
14,680,000
   
$
.04
   
$
-
 
Granted
   
-
   
 
-
     
-
 
Exercised
   
(634,165)
   
 
.03
     
-
 
Expired
   
(250,000)
   
 
.02
     
-
 
Outstanding as of March 31, 2011
   
13,795,835
   
$
.04
   
$
-
 
                         
 
(1)
Amounts represent the difference between the exercise price and the fair market value of common stock at each period end for all in the money options outstanding.
 
Stock Based Compensation
 
The Company estimates the fair value of stock options in accordance with ASC Topic 718 using the Black-Scholes option-pricing model. This model requires the use of the following assumptions: (i) expected volatility of the Company’s common stock, which is based on the Company’s peer group in the industry in which the Company does business; (ii) expected life of the option award, which is calculated using the "simplified" method provided in the SEC’s Staff Accounting Bulletin No. 110 and takes into consideration the grant’s contractual life and vesting periods; (iii) expected dividend yield, which is assumed to be 0%, as the Company has not paid and does not anticipate paying dividends on its common stock; and (iv) the risk-free interest, which is based on the U.S. Treasury yield curve in effect at the time of grant with maturities equal to the grant’s expected life. In addition, ASC Topic 718 requires the Company to estimate the number of options that are expected to vest. In valuing share-based awards under ASC Topic 718, significant judgment is required in determining the expected volatility of the Company’s common stock. The following table presents the weighted average assumptions used to estimate the fair values of the stock options and stock warrants granted for the three months ended March 31, 2011:
 
     
2011
   
2010
 
 
Expected volatility    
84%
     
86%
 
 
Expected life (years)    
3.00
     
5.29
 
 
Expected divided yield    
–
     
–
 
 
Risk free interest rate    
2.24%
     
2.78%
 
 
There were no stock options granted in the three months ended March 31, 2011.  No options were granted prior to October 2009. As of March 31, 2011, there was $113,841 of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted average service period of 5.3 years. The Company utilizes historical volatility of other entities in a similar line of business for a period commensurate with the contractual term of the underlying financial statements. As of March 31, 2011, the Company had issued 15,275,000 options to purchase common stock and 8,045,833 of the Company’s stock options have vested.  In connection with the stock option plan, the Company recognized stock-based compensation expense of $19,812 and $28,916 for the three months ended March 31, 2011 and 2010, respectively. For the nine months ended March 31, 2011 and 2010, the Company recognized stock-based compensation expense of $86,744 and $204,743, respectively.
 
The fair values of the common stock underlying stock options granted during the three months ended March 31, 2011 were estimated by the Company's board of directors, which intended all options granted to be exercisable at a price per share not less than the per share fair market value of our common stock underlying those options on the date of grant. Given the absence of a widely traded public trading market, the board of directors considered numerous objective and subjective factors to determine the best estimate of the fair market value of the common stock at each meeting at which stock option grants were approved. These factors included, but were not limited to, the following: (i) contemporaneous valuations of the common stock; (ii) the low trading volume of the common stock; (iii) developments in the business; and (iv) revenue trading multiples of comparable companies in the Company's industry and the discounted present value of anticipated cash flows through 2012. If the Company had made different assumptions and estimates, the amount of recognized and to be recognized stock-based compensation expense could have been materially different. The Company believes that it has used reasonable methodologies, approaches and assumptions in determining the fair value of its common stock.

10.  Stock Warrants
 
On June 11, 2010, the Company issued to Pat and Ann Burke (collectively, the "Burkes") a common stock purchase warrant pursuant to which the Burkes may purchase up to 1,250,000 shares of the Company's common stock at $.01 per share.  The warrant is exercisable for five years and may be exercised on a cashless basis.

15
 
 
 
 
 
 
On August 12, 2010, upon approval by the Company board of directors, Phillip Tonge was elected as a director (the "Tonge Appointment").  In connection with the Tonge Appointment, the Company issued Mr. Tonge a warrant (the "Tonge Warrant") to purchase 200,000 shares of common stock at $0.02 per share.  The shares underlying the Tonge Warrant will vest equally over five consecutive quarters commencing on September 30, 2010 with full vesting occurring on December 31, 2011.  As of March 31, 2011, 120,000 shares had vested and the value of these vested shares was estimated at $1,614 using the Black-Scholes option-pricing model. It was recorded as an increase to additional paid in capital.
 
On August 24, 2010, upon approval by the Company board of directors, Dr. Hossein Eslambolchi was elected as a director (the "Eslambolchi Appointment").  In connection with the Eslambolchi Appointment, the Company issued to Dr. Eslambolchi a warrant (the "Eslambolchi Warrant") to purchase 600,000 shares of the Company's common stock, at $0.07 per share.  As consideration for Dr. Eslambolchi's prior advisory service to the Company over a two-year period commencing January 29, 2009, 450,000 of the shares underlying the Eslambolchi Warrant vested as of August 24, 2010.  As of March 31, 2011, 600,000 shares had vested and the value of these vested shares was estimated at $9,682 using the Black-Scholes option-pricing model. It was recorded as an increase to additional paid in capital.
 
On March 31, 2011 in connection with the First Amendment and the Original Consulting Agreement discussed in Note 5, the Company also entered into the Purchase Agreement with TMG.  Pursuant to the Purchase Agreement, the Company issued TMG the Warrant for TMG to purchase up to 10,000,000 shares of the Company’s common stock for $0.01 per share.  On the date of the grant, the Company’s common stock closed at $0.30 per share. Under generally accepted accounting principles, the trading price of the shares was used as the calculated fair market value on the date of issuance. Using the Black-Scholes model, the value of the warrant issued to TMG was calculated as $2,827,928. Since the First Amendment did not result in additional services being performed by TMG, this entire amount has been booked to expense and classified as stock based compensation in the three and nine months ended March 31, 2011.
 
11.  Income Taxes
 
The income tax provision due to net operating losses for the nine months ended March 31, 2011 and 2010:

   
Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2011
   
2010
 
             
Current income tax expense (benefit)
           
U.S. Federal
 
$
(454,066
)
 
$
306,801
 
State and local
   
(60,097
)
   
40,606
 
Total current expense (benefit)
   
(514,163
)
   
347,407
 
Change in tax status
   
-
     
(283,097
)
Deferred tax asset allowance
   
514,163
     
-
 
Other
   
12,745
     
-
 
Total income tax expense (benefit)
 
$
12,745
   
$
64,310
 
 
The Company has $1,279,564 of net operating loss carryforwards that, if not used, will expire in various years through 2031. Due to the uncertainty over whether the net operating loss carryforward will be realized, the Company has recorded a valuation allowance of $514,163 for the tax effect of the entire net operating loss carryforward. 
 
As a result of the Share Exchange on August 31, 2009, the Company became a "C" corporation, and Network Cadence became a wholly-owned subsidiary of Verecloud. Prior to the Share Exchange, Network Cadence was a pass-through entity for U.S. federal income tax purposes and state, and local income taxes were not provided for this entity as it was not a taxable entity. Limited liability company members are required to report their share of our taxable income on their respective income tax returns. As a result of the Share Exchange, the Company is subject to corporate U.S. federal, state, and local taxes beginning in September 2009. Prior to the Share Exchange, no provision for income tax has been provided in the financial statements since, prior to the Share Exchange, the Company elected to be taxed as a partnership, whereby all income or losses flow through to the partners for income tax reporting purposes and the Company was on the cash basis of accounting for income tax purposes.
 

16
 
 
 
 
 
With the transition to a "C" corporation, the Company assumed a tax liability of $579,905 related to the conversion from a cash basis tax entity to an accrual based taxpayer. This liability was fully offset by the operating losses generated from September 1, 2009 to June 30, 2010.  In addition and in connection with purchase of the former owners’ interest in May 2009, the Company has a deferred intangible tax asset of $408,452 at March 31, 2011. Due to the uncertainty over whether the deferred tax asset will be realized, the Company has recorded a valuation allowance for the entire deferred tax asset balance of $408,452.
 
As result, the total deferred tax asset at March 31, 2011 is as follows:
 
Tax effect of net operating loss carryforward   
 
$
514,163
 
Tax effect of deferred intangible tax asset
   
 408,452
 
Total deferred tax asset at March 31, 2011  
   
922,615
 
Less deferred tax valuation allowance   
   
(922,615
)
Net tax benefit
 
$
-
 
                                                                                                                                                                                                                                                                                                               
A reconciliation of income tax computed at the United States federal statutory rate of 34% to reported income tax expense for the three and nine months ended March 31, 2011 and 2010 follows:
 
   
Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2011
   
2010
 
Statutory U.S. federal tax rate
   
34.0%
     
34.0%
 
                 
Change in tax rate resulting from
               
      LLC results not subject to federal or state income taxes
   
-
     
-36.3%
 
      Tax intangible
   
11.0%
     
-2.7%
 
      State and local taxes
   
0.9%
     
4.5%
 
      Stock-based compensation
   
-19.8%
     
8.7%
 
      Capitalized software costs
   
102.5%
     
-
 
      Deferred income tax valuation allowance
   
-132.2%
     
0.0%
 
                 
Effective Tax Rate
   
-3.6%
     
8.2%
 
 
 
12. Subsequent Events
 
In April 2011, the Company borrowed $500,000 pursuant to the Amended Loan described in Note 6 and, as of May 11, 2011, had $2,064,000 outstanding under the Loan Agreement. The remaining available capacity under the Amended Loan as of May 11, 2011 is $500,000.

 
17
 
 
 
 
 
ITEM 2 .   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing in our Annual Report on Form 10-K for the year ended June 30, 2010 filed on September 28, 2010 and our Annual Report on Form 10-K/A filed on February 14, 2011.
 
Cautionary Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q and other materials we will file with the SEC contain, or will contain, disclosures which are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, such as, but not limited to, the discussion of economic conditions in market areas and their effect on revenue growth, the discussion of our growth strategy, the effectiveness of our management information systems, and the availability of financing and working capital to meet funding requirements, and can generally be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These factors include, but are not limited to: economic conditions in the telecommunications industry; our ability to service and repay our debt financing; increased competition in the industry; our dependence on a certain customer; the availability of and costs associated with potential sources of financing; difficulties associated with managing future growth; our inability to manage our customer’s projects; our ability to continue as a going concern; our ability to raise funds to operate; the loss of key personnel; and our ability to attract and retain new qualified personnel.
 
For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements see the "Liquidity and Capital Resources" section under "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this item of this report and the other risks and uncertainties that are set forth elsewhere in this report or detailed in our other SEC reports and filings. We believe it is important to communicate our expectations. However, our management disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
 
Overview

Verecloud, Inc. (the "Company" or "Verecloud") is headquartered in Englewood, Colorado and is the developer and operator of Nimbus CSB, a proprietary cloud service brokerage platform.  Using its Nimbus CSB platform, Verecloud integrates and delivers a customer-specific suite of multiple, diverse cloud services.
 
For the past five years, Verecloud has driven operational improvements and innovation with clients across the telecommunications landscape through professional services contracts. From architecture design to solution, or technology selection to delivery and implementation, Verecloud has provided professional service solutions in areas of operational support systems (service creation, order fulfillment, inventory, activation and provisioning, assurance and billing, among others).  For the periods covered by this Quarterly Report on Form 10-Q, the Company’s revenue stream consists solely of billable professional services.  No software or product revenue has yet occurred.
 
While professional services remain the Company’s sole source of revenue as of the date of this Quarterly Report on Form 10-Q, in early 2011, the Company shifted the primary focus of its strategy from marketing Nimbus CSB directly to communication service providers ("CSPs") to aggregating and integrating the diverse offerings of multiple cloud service vendors and delivering the services as a complete, customized suite. Verecloud will reach users directly or through channel partners. Channel partners include value added resellers ("VARs"), managed service providers ("MSPs") and CSPs. These channel partners have direct access to the SMB market and Verecloud can use these relationships to reach a broader target market. Its primary customer base is small and medium sized businesses (referred to as "SMB" and broadly defined as business organizations with fewer than 500 employees). In the United States also, there are more than 8 million SMBs ranging in size from a single employee business to up to 500 employees. In addition, opportunities exist for Verecloud to market and sell its services internationally.

The success of this new strategy will depend on several major factors.  First, Verecloud's ability to acquire additional funding to execute on the business which consists of: (i) continued development and upgrade of Nimbus CSB; (ii) executing on the go-to-market strategy of directly marketing, selling and serving SMB customers; and (iii) successfully proving the business model in the marketplace and driving customer growth in the next 12 months. The Company is currently piloting and trialing pieces of the cloud offering and expects full rollout of the cloud services by the Fall 2011. As a result, the Company does not expect to generate significant revenue until early 2012 and expects to operate at a loss until that time. The Company is aggressively moving forward on executing on their strategy and concurrently, is actively engaged in discussions to secure long term funding of $5-10 million by August 2011. If long term funding is not received by August 2011, the Company will either have to obtain additional short term funding or will be required to significantly curtail operations to continue as a going concern.
 
 
18
 
 
 
Restatement of Consolidated Financial Statements

The unaudited financial statements for the three and nine months ended March 31, 2011 are being restated to correct the accounting treatment previously reported in connection with the two items described below, and reported in the Original Quarterly Report, filed with the SEC on May 11, 2011.

First, on June 10, 2010, the Company entered into a loan agreement (as amended by the Loan Amendment (as defined below), the “Loan Agreement”) with TMG Holdings Colorado, LLC, a Texas limited liability company (“TMG Colorado”). Pursuant to the Loan Agreement, TMG Colorado agreed to provide the Company with a revolving line of credit in the principal amount of up to $1,564,000 (as renewed, extended and increased by the Amended Loan (as defined below), the “Loan”) pursuant to a revolving credit note (the “Note”).  On March 31, 2011 (the “Effective Date”), the Company entered into a first amendment to the Loan Agreement (the ”Loan Amendment”) with TMG Colorado.  On the Effective Date, the Company also entered into a First Amendment to Independent Contractor Consulting Agreement (the “First Amendment”) with The Mesa Group, Inc., a Texas corporation (“TMG”), pursuant to which the Company and TMG amended the Independent Contractor Consulting Agreement dated June 10, 2010.  In connection with the First Amendment, the Company also entered into a warrant purchase agreement (the “Purchase Agreement”) with TMG.  Pursuant to the Purchase Agreement, the Company issued TMG a common stock purchase warrant (the “Warrant”), pursuant to which TMG may purchase up to 10,000,000 shares of the Company's common stock for $.01 per share.  The Warrant is exercisable for three years and may be exercised on a cashless basis. The cashless exercise warrant shares to be issued are based on a formula in the Purchase Agreement and are based on difference between exercise price and the average of the closing prices for the twenty trading days immediately prior to (but not including) the exercise date. The Purchase Agreement also provided for customary representations and warranties regarding the accredited investor status of TMG.  Previously, using a different fair market value under the Black-Scholes model, the value of the warrant issued to TMG was calculated as $137,352, which was being amortized to earnings as additional interest expenses over the remaining term of the Loan Amendment described in Note 6.  However, in connection with the annual audit of the year ended June 30, 2011, it was determined that, under generally accepted accounting principles, the trading price of the shares on the date of grant, March 31, 2011, should be used as the calculated fair market value on the date of issuance. On the date of the grant, the Company’s common stock closed at $0.30 per share. Using the Black-Scholes model and using the trading price of the common stock on March 31, 2011, the value of the warrant issued to TMG was recalculated as $2,827,928.  Since no additional services were provided by TMG under the First Amendment, this entire amount has been booked to expense and classified as stock based compensation in the three and nine months ended March 31, 2011.

Second, the Company began capitalizing software costs in September 2010 and the Company accounts for the costs of software within its products in accordance with Accounting Standards Codification (“ASC”) Topic 985-20 “ Costs of Software to be Sold, Leased or Marketed” , under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design, or to the extent that a detailed program design is not pursued, upon completion of a working model that has been confirmed by testing to be consistent with the product design, as specified by ASC Topic 985-20. Upon the general release of the product to customers, development costs for that product will be amortized over periods not exceeding three years, based on current and future revenue of the product. Previously, the Company had capitalized $862,990 in software costs as of March 31, 2011. In connection with the annual audit for the year ended June 30, 2011, it was determined that the gross capitalized software costs at March 31, 2011, in accordance with ASC Topic 985-20, should have been $709,825. In addition, the Company recorded amortization expense of $59,152 in the three months ended March 31, 2011. Therefore, this Amendment reflects the change which increases operating expenses and adjusts the net capitalized software amount to $650,672 as of March 31, 2011.
 
19
 
 
 
  A summary of the changes to the financial statements as of March 31, 2011 and for the three and nine months ended March 31, 2011 is shown below:

CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
As of March 31, 2011
 
   
(unaudited)
 
   
Previously
             
   
Reported
   
Adjustment
   
Restated
 
Current assets
 
$
623,459
    $  -    
$
623,459
 
Property and equipment
   
37,381
     -      
37,381
 
Other assets
   
862,990
     
(212,318
)
   
650,672
 
   Total assets
 
$
1,523,831
   
$
(212,318
)
 
$
1,311,513
 
                         
Current liabilities
 
$
755,590
    $ -    
$
755,590
 
Long term debt
   
1,426,648
     
137,352
     
1,564,000
 
Stockholders equity (deficit)
   
(658,407
)
   
(349,670
)
   
(1,008,077
)
  Total liabilities and stockholders' equity (deficit)
 
$
1,523,831
   
$
(212,318
)
 
$
1,311,513
 


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

   
Three months ended March 31, 2011
   
Nine months ended March 31, 2011
 
   
(unaudited)
   
(unaudited)
 
   
Previously
               
Previously
             
   
Reported
   
Adjustment
   
Restated
   
Reported
   
Adjustment
   
Restated
 
Revenue
 
$
1,002,326
    $   -    
$
1,002,326
   
$
4,106,553
    $  -    
$
4,106,553
 
Cost of goods sold
   
540,420
     
59,152
     
599,572
     
1,908,945
     
59,152
     
1,968,097
 
Gross margin
   
461,907
     
(59,152
)
   
402,755
     
2,197,608
     
(59,152
)
   
2,138,456
 
Operating expenses
   
796,909
     
3,002,952
     
3,799,861
     
2,601,295
     
3,002,952
     
5,604,247
 
Operating income (loss)
   
(335,003
)
   
(3,062,104
)
   
(3,397,106
)
   
(403,687
)
   
(3,062,104
)
   
(3,465,791
)
Other income (expense)
   
(38,188
)
   
21,858
     
(16,330
)
   
(99,630
)
   
21,858
     
(77,772
)
Pretax income (loss)
   
(373,191
)
   
(3,040,246
)
   
(3,413,436
)
   
(503,318
)
   
(3,040,246
)
   
(3,543,563
)
Income tax expense
   
12,745
      -      
12,745
     
12,745
      -      
12,745
 
Net income (loss)
 
$
(385,936
)
 
$
(3,040,246
)
 
$
(3,426,181
)
 
$
(516,063
)
 
$
(3,040,246
)
 
$
(3,556,308
)
                                                 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

   
Nine months ended March 31, 2011
 
   
(unaudited)
 
   
Previously
             
   
Reported
   
Adjustment
   
Restated
 
Net cash from (used in) operating activities
 
$
(54,735
)
 
$
(153,165
)
 
$
(207,900
)
Investing Activities
   
(867,872
)
   
153,165
     
(714,706
)
Financing Activities
   
758,417
     
-
 
   
758,417
 
Net (decrease) in cash and cash equivalents
 
$
(164,190
)
 
$
-
 
 
$
(164,190
)
Cash and cash equivalents at the beginning of the period
   
197,151
     
-
     
197,151
 
Cash and cash equivalents at the end of the period
 
$
32,961
   
$
-
 
 
$
32,961
 
 
Significant Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
20
 
 
 
 
The Company’s significant accounting policies are more fully described in Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
 
Recent Accounting Pronouncements
 
The Company evaluates pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board ("FASB"), the Securities and Exchange Commission (the "SEC"), and Emerging Issues Task Force, to determine the impact of new pronouncements on GAAP and the preparation of our financial statements.  The Company has adopted the following new accounting standards:
 
In October 2009, FASB published Accounting Standards Update ("ASU"), 2009-14, Certain Revenue Arrangements That Include Software Elements ("ASU 2009-14") , to provide guidance for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and non-software components that function together to deliver the product’s essential functionality are excluded from the software revenue guidance in Accounting Standards Codification Subtopic 985-605, Software-Revenue Recognition . In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance. ASU 2009-14 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. This pronouncement did not have any impact on the Company’s condensed consolidated unaudited financial statements for the three and six months ended December 31, 2010 and 2009.
 
In January 2010, FASB published ASU 2010-06, Improving Disclosures about Fair Value Measurement, which requires additional disclosures regarding the activity in fair value measurements classified as Level 3 in the fair value hierarchy. Disclosure of activity in Level 3 fair value measurements is required for fiscal years beginning after December 15, 2010. Early adoption is permitted. We do not have activity that requires disclosure in accordance with this pronouncement.
 
There were no other accounting standards and interpretations issued recently which are expected to have a material impact on the Company’s financial position, operations or cash flows.
 
Outlook
 
With the change in our overall strategy in March 2011, we are now focused on aggregating and integrating the diverse offerings of multiple cloud service vendors and delivering the services as a complete, customized suite. We will try to reach users directly or through channel partners. Channel partners include VARs, MSPs and CSPs. These channel partners have direct access to the SMB market and we can use these relationships to reach a broader target market. Our primary customer base is the SMBs.  In the United States there are more than 8 million SMBs ranging in size from single employee business to up to 500 employees. In addition, opportunities exist to market and sell our services internationally.
 
Revenue
 
While we expect to continue to generate revenue from professional services in the near term, our long term strategy is to drive revenue from selling  Nimbus CSB directly to SMBs. As noted above, we do not expect significant revenue from this new strategy until 2012.
 
Cost of Goods Sold and Operating Expenses

Our strategy reflects a new approach to offering cloud services to SMBs. As a result, we are in the process of fully developing our go-to-market strategy and expected cost structure.  However, our expense structure is expected to focus on: (i) branding and marketing to drive awareness of our offering; (ii) customer support costs to serve our customer base from a technical and operations perspective; (iii) ongoing development of our platform; and (iv) continued expansion of the products and services that we offer to customers. We expect overhead costs to remain fairly consistent with most staffing growth driven by variable changes in the business.

 
21
 
 
 
 
Results of Operations

Comparison of the Three and Nine Months Ended March 31, 2011 and 2010

The following table sets forth the results of our operations for the periods indicated as a percentage of revenues:
 
   
Three months ended March 31, (Unaudited)
   
Nine months ended March 31, (Unaudited)
 
   
2011
   
2010
   
2011
   
2010
 
         
% of
         
% of
         
% of
         
% of
 
   
Amount
   
Revenues
   
Amount
   
Revenues
   
Amount
   
Revenues
   
Amount
   
Revenues
 
   
Restated
                     
Restated
                   
   
in dollars except percentages
   
in dollars except percentages
 
                                                 
Revenue
 
$
1,002,326
     
100
%
 
$
260,433
     
100
%
 
$
4,106,553
     
100
%
 
$
5,126,586
     
100
%
                                                                 
Cost of goods sold
   
599,572
     
60
%
   
129,999
     
50
%
   
1,968,097
     
48
%
   
2,299,535
     
45
%
                                                                 
Gross profit
   
402,755
     
40
%
   
130,434
     
50
%
   
2,138,456
     
52
%
   
2,827,051
     
55
%
                                                                 
Operating expenses
   
3,799,861
     
379
%
   
1,134,709
     
436
%
   
5,604,247
     
136
%
   
2,956,905
     
58
%
                                                                 
Operating income (loss)
   
(3,397,106
)
   
-339
%
   
(1,004,275
)
   
-386
%
   
(3,465,791
)
   
-84
%
   
(129,854
)
   
-3
%
                                                                 
Other income (expense)
   
(16,330
)
   
-2
%
   
(37,354
)
   
-14
%
   
(77,772
)
   
-2
%
   
(131,085
)
   
-3
%
                                                                 
Income tax expense (benefit)
   
12,745
     
1
%
   
(405,533
)
   
-156
%
   
12,745
     
0
%
   
(341,223
)
   
-7
%
                                                                 
Net income (loss)
 
$
(3,426,181
)
   
-342
%
 
$
(636,096
)
   
-244
%
 
$
(3,556,308
)
   
-87
%
 
$
80,284
     
2
%
 
Three Months Ended March 31, 2011
 
Revenue: Revenue for the three months ended March 31, 2011 increased 285% compared to 2010.  This increase was driven by higher revenue from LightSquared in 2011 compared to 2010. In November 2009, LightSquared temporarily terminated its contract with us and was not re-engaged until May 2010. Although we are shifting our strategy away from professional services, we continue to provide professional services in support of their network development efforts.
 
Cost of Goods Sold :   Cost of goods sold, which consists mainly of staff related expenses (employees and contractors) and travel expenses for the three months ended March 31, 2011 increased 361% compared to the three months ended March 31, 2010.  The increase is driven both by the higher revenue in 2011 versus 2010 and lower billable rates at LightSquared in 2011 compared to comparable professional service engagements in 2010.
 
Operating Expenses: Operating expenses for the three months ended March 31, 2011 increased 235% or $2,665,152 versus the comparable period in 2010.   This increase is driven by stock compensation expense associated with the issuance of common stock purchase warrants described in Note 10 to the financial statements with a calculated value under generally accepted accounting principles of $2,827,928. Excluding this amount, operating expenses decreased $162,776. This decrease is driven primarily by three major factors: lower employee related costs due to higher billable productivity of our internal staff, our Nimbus development costs that are no longer considered research and development and are now being capitalized; and lower legal and accounting costs (down 24%).
 
Other Income (Expense): Other income (expense) for the three months ended March 31, 2011 was ($16,330) versus ($37,354) for the comparable period in 2010 and consists primarily of interest expense. This decline is driven by $21,858 of capitalized interest recorded in the three months ended March 31, 2011. For the three months ended March 31, 2011, interest expense relates to the outstanding line of credit. In 2010, the interest expense was related to the note payable balance outstanding as of March 31, 2010.
 
Net Income (Loss): For the three months ended March 31, 2011, we reported a net loss of $3,426,181 compared to a net loss of $636,096 for the three months ended March 31, 2010.

 
22
 
 
 
Nine Months Ended March 31, 2011
 
Revenue: Revenue for the nine months ended March 31, 2011 decreased 20%, compared to 2010, driven primarily by lower revenue from LightSquared. Prior to the temporary termination of our contract with LightSquared in November 2009, the monthly revenue run rate was approximately $1 million per month versus approximately $333,000 in the current quarter. Our monthly revenue run rate at LightSquared continues to decline as we shift our strategy away from professional services and towards development of Nimbus CSB.
 
Cost of Goods Sold :   Cost of goods sold, which consists mainly of staff related expenses (employees and contractors) and travel expenses for the nine months ended March 31, 2011 decreased 14% versus the nine months ended March 31, 2010. The decrease is commensurate with the decline in revenue noted above.
   
Operating Expenses: Operating expenses for the nine months ended March 31, 2011 increased 90% versus the comparable period in 2010. This increase is driven by stock compensation expense associated with the issuance of common stock purchase warrants described in Note 10 to the financial statements with a calculated value under generally accepted accounting principles of $2,827,928. Excluding this amount, operating expenses declined 6%. This decline is driven by two major factors: (i) staffing costs associated with software development that was expensed in the prior year and is now being capitalized and (ii) lower legal and accounting fees (down $119,395 versus 2010).

Other Income (Expense): Other income (expense) for the nine months ended March 31, 2011 was ($77,772) compared to ($131,085) for the comparable period in 2010 and consists primarily of interest expense. Part of this decline is driven by $21,858 of capitalized interest recorded in the nine months ended March 31, 2011. For the nine months ended March 31, 2011, interest expense relates to the outstanding line of credit. In 2010, the interest expense was related to the higher note payable balance outstanding as of March 31, 2010.
 
Net Income (Loss): For the nine months ended March 31, 2011, we reported a net loss of $3,556,308 compared to net income of $80,284 for the nine months ended March 31, 2010. Overall this change is primarily driven by the stock compensation expense noted above and the lower revenue and margin in the current year.
 
Liquidity and Capital Resources

Cash Flow Activity
 
Cash and cash equivalents were $32,961 and $197,151 as of March 31, 2011 and June 30, 2010, respectively.
 
The change in cash and cash equivalents during the periods presented was as follows:
 
   
Three months ended March 31,
   
Nine months ended March 31,
 
   
2011
   
2010
   
2011
   
2010
 
   
Restated
         
Restated
       
                         
Net cash from (used in) operating activities
 
$
(287,671
)
 
$
(912,940
)
 
$
(207,900
)
 
$
1,151,308
 
Investing Activities
   
(258,709
)
   
0
     
(714,706
)
   
(18,193
)
Financing Activities
   
16,767
     
(280,000
)
   
758,417
     
(1,346,623
)
Net (decrease) in cash and cash equivalents
 
$
(529,613
)
 
$
(1,192,940
)
 
$
(164,190
)
 
$
(213,508
)
Cash and cash equivalents at the beginning of the period
  562,574      
1,519,911
     
197,151
     
540,479
 
Cash and cash equivalents at the end of the period
 
$
32,961
   
$
326,971
   
$
32,961
   
$
326,971
 
 

 
 
23
 
 
 
Three Months Ended March 31, 2011
 
Operations: Net cash used in operating activities during the three months ended March 31, 2011 was $287,671 compared to net cash used in operating activities of $912,940 during the comparable period of 2010, an increase of $625,269.  This increase is mainly driven by higher revenue in the current quarter versus the prior year.

Investing: Net cash used in investing activities, consisting primarily of capital expenditures and capitalized software costs, for the three months ended March 31, 2011 was $258,709 compared to $0 for three months ended March 31, 2010.  The increase is driven by capitalization of software costs of $257,854 in the three months ended March 31, 2011. Our capital expenditures consist mainly of office and computer equipment.
 
Financing: Net cash provided by financing activities for the three months ended March 31, 2011 was $16,767. This is entirely related to the exercise of stock options of $16,767. The activity for the three months ended March 31, 2010 consists of one debt payment of $280,000.
 
Nine Months Ended March 31, 2011

Operations: Net cash used in operating activities during the nine months ended March 31, 2011 was $207,900, compared to net cash from operating activities of $1,151,308 during the comparable period of 2010, a decrease of $1,359,208.  This decrease is mainly due to the lower revenue from LightSquared in the nine months ended March 31, 2011 versus 2010.

Investing: Net cash used in investing activities, consisting primarily of capital expenditures and capitalized software costs, for the nine months ended March 31, 2011 was $714,706, compared to $18,193 for the nine months ended March 31, 2010.  The increase is driven by capitalization of software costs of $709,825 in the nine months ended March 31, 2011. Our capital expenditures consist mainly of office and computer equipment.
 
Financing: Net cash from financing activities for the nine months ended March 31, 2011 was $758,417. This is driven by net draws on our existing line of credit of $700,000 plus the exercise of stock options which generated $58,417. The activity for the nine months ended March 31, 2010 consists of three debt payments totaling $840,000 and member distributions of $506,623 prior to the Share Exchange on September 1, 2009.

As of March 31, 2011, total current assets were $623,459, which consisted of $32,961 of cash, $534,943 of accounts receivable and $55,555 of other current assets.

Accounts receivable at March 31, 2011 were $534,943 compared to $632,962 at June 30, 2010. All accounts receivable outstanding at March 31, 2011 have been collected or are within normal collection terms as of May 11, 2011.

Accounts payable and accrued liabilities at March 31, 2011 were $755,590 compared to $494,798 at June 30, 2010.  This increase of $260,792 was driven primarily by higher accounts payable at March 31, 2011 due to the delayed receipt of outstanding accounts receivables until after March 31, 2011.
 
As of March 31, 2011, we had a negative working capital balance of $132,131, consisting of current assets of $623,459 and current liabilities of $755,590. This represents a decrease of $501,689 from the working capital balance of $369,558 at June 30, 2010.  This decrease is driven by the decline in revenue from our major customer, LightSquared, in the current quarter and the higher level of outstanding accounts payable at March 31, 2011. Our current assets consist primarily of cash, which is deposited in short term, interest bearing accounts, and accounts receivable.  The Company intends to fund operations for the twelve months ending June 30, 2011 through a combination of (i) ongoing cash flow provided by existing professional services engagements, (ii) expanding professional services engagements, (iii) the additional funding received in March 2011 as described in Note 6 to the financial statements, and (iv) management of variable expenses. The additional capacity under the existing line of credit is sufficient to fund operations through June 30, 2011. The Company is seeking long term funding to fund operations beyond August 2011.   
 
24
 
 
 
 
 
 
 
Off-Balance Sheet Arrangements
 
As of and subsequent to March 31, 2011, we have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.
 
Item 4. Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures
 
Our chief executive and chief financial officers evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our chief executive and chief financial officers concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our president, as appropriate to allow timely decisions regarding disclosure.
  
Changes in Internal Control over Financial Reporting.  There were no changes in Verecloud’s internal controls over financial reporting, known to the chief executive officer or the chief financial officer, that have materially affected, or are reasonably likely to materially affect Verecloud’s internal control over financial reporting.
 
 
 

25
 
 
 
 
 
PART II
OTHER INFORMATION
Item 1. Legal Proceedings

We are not a party and our property is not subject to any material pending legal proceedings nor are we aware of any threatened or contemplated proceeding by any governmental authority against the Company.

Item 1A. Risk Factors

Not applicable to smaller reporting companies.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
On November 10, 2010, the Company entered into an agreement with ChangeWave, Inc. ("ChangeWave") in which ChangeWave will provide investor relations and shareholder marketing services for the Company. The term of agreement is November 1, 2010 to October 31, 2011. As compensation for these services, ChangeWave will receive 1,200,000 shares of restricted common stock over the term of the agreement. These shares are earned and payable quarterly beginning on November 1, 2010 with the final installment due on August 1, 2011. The contract may be terminated by the Company without cause with ten days notice to ChangeWave. In the event of termination, the Company is obligated for only those shares issued prior to the date of termination. During the period covered by this Quarterly Report on Form 10-Q, the Company issued the second installment of 300,000 shares of common stock to ChangeWave. As of March 31, 2011 and in connection with payment of the first and second installment, the Company's chief executive officer has surrendered 600,000 shares of common stock and the Company has re-issued 600,000 shares of common stock to ChangeWave. The Company has recorded operating expense of $4,121 and $8,185 in the three and nine months ended March 31, 2011.
 
Issuance of the shares described above were not registered under the Securities Act of 1933, as amended. The issuance of these shares were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.  The Company believes that ChangeWave is accredited and/or a sophisticated investor. The Company engaged ChangeWave to provide public company investor relations services and ChangeWave is familiar with working with public companies of similar size and stage of development of the Company. ChangeWave's executives had the opportunity to meet with the Company and had an opportunity to learn about the Company's business, operations, customers, financial position, management and prospects, among other things. The issuance of restricted common stock to ChangeWave in exchange for ChangeWave's investor relations services is customary with the Company's past practice. Because of ChangeWave's experience with similar companies and the customary nature of this arrangement, the Company believes that ChangeWave is experienced with analyzing the risks associated with acquiring the Company's common stock and that such acquisition could result in a loss of all or part of its value. Furthermore, for these reasons, the Company also believes that ChangeWave understands the illiquid nature of the Company's common stock and anticipates that it may need to hold the securities indefinitely.

Aside from the issuance described above, all unregistered issuances of equity securities during the period covered by this report have been previously included in Current Reports on Form 8-K.
 
Item 3. Defaults Upon Senior Securities

None.
 
Item 4. [Removed and Reserved]

Item 5. Other Information

None.
26
 
 
 
 
 

Item 6. Exhibits

Exhibit No.
 
 Description
     
10.1
 
First Amendment to Loan Agreement by and between Verecloud, Inc. and TMG Holdings Colorado, LLC, dated March 31, 2011. (Incorporated herein by reference to Exhibit 10.1 to Form 8-K for Verecloud, Inc. filed on April 6, 2011) (File No. 000-52882).
10.2
 
Revolving Credit Note dated March 31, 2011 by Verecloud, Inc. (Incorporated herein by reference to Exhibit 10.2 to Form 8-K for Verecloud, Inc. filed on April 6, 2011) (File No. 000-52882).
10.3
 
Warrant Purchase Agreement by and between Verecloud, Inc. and The Mesa Group, Inc., dated March 31, 2011. (Incorporated herein by reference to Exhibit 10.3 to Form 8-K for Verecloud, Inc. filed on April 6, 2011) (File No. 000-52882).
10.4
 
Common Stock Purchase Warrant by Verecloud, Inc., dated March 31, 2011. (Incorporated herein by reference to Exhibit 10.4 to Form 8-K for Verecloud, Inc., filed on April 6, 2011 (File No. 000-52882).
10.5
 
First Amendment to Independent Contractor Consulting Agreement by and between Verecloud, Inc. and The Mesa Group, Inc., dated March 31, 2011. (Incorporated herein by reference to Exhibit 10.5 to Form 8-K for Verecloud, Inc., filed on April 6, 2011) (File No. 000-52882).
31.1
 
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).
31.2
 
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).
32.1
 
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
 
 

 
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SIGNATURES

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, thereunto duly authorized.
 

 
VERECLOUD, INC.
 
       
Date:  November 8, 2011
By:
/s/ John McCawley
 
   
John McCawley
 
   
Chief Executive Officer
 
 
     
Date: November 8, 2011
By:
/s/ William E. Wood, III
 
   
William E. Wood, III
 
   
President, Interim Chief Financial Officer and Principal Accounting Officer
 
 
 
 
 
 
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