U.S. SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.





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




Commission File No. 33-19961




Santeon Group, Inc.


(Exact name of registrant as specified in its charter)




Delaware

01-0623010(State or Other Jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)








11720 Plaza America Drive, Suite 150, Reston, Virginia 20190


(Address of principal executive offices, including zip code)





(703) 970-9200


(Issuer’s telephone number, including area code)





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 o





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 the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer o

Accelerated filer oNon-accelerated filer o (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 o No x





As of July 31, 2012, there were 477,264,043 shares outstanding of the issuer’s common stock.














SANTEON GROUP, INC.
  INDEX




PagePART I - FINANCIAL INFORMATIONItem 1.  Financial Statements
3Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010
3Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010
4Unaudited Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2011
5Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010
6Notes to Unaudited Condensed Consolidated Financial Statements
7Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
16Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
20Item 4T.  Controls and Procedures.
20PART II - OTHER INFORMATION
22Item 1. Legal Proceedings.
22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
22Item 3. Defaults upon Senior Securities.
22Item 4. Mine Safety Disclosures
22Item 5. Other Information.
22Item 6. Exhibits.
22Signatures
23











2





PART I - FINANCIAL INFORMATION





Item 1.  Financial Statements





SANTEON GROUP, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


March 31, 2011


December 31, 2010(unaudited)ASSETSCurrent assets:Cash

$
6,808


$
27,353Accounts receivable


209,056



41,101Other current assets


8,596



8,783Total current assets


224,460



77,237Property and equipment, net


19,088



11,179Software assets, net


492,137



524,553Total non-current asset


511,225



535,732Total Assets

$
735,685


$
612,969LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable and accrued expenses

$
502,879


$
313,023Notes payable - related party


107,000



65,000Notes payable


241,500



248,000Total current liabilities


851,379



626,023Stockholders' deficit:Common stock, par value $0.001, 700,000,000 shares authorized 207,889,126 shares issued and outstanding as of March 31, 2011 and  December 31, 2010


207,889



207,889Common stock to be issued


308,542



285,542Additional paid in capital


695,598



698,598Accumulated deficit


(1,327,723
)


(1,205,083
)Total stockholders' deficit


(115,694
)


(13,054
)Total Liabilities and Stockholders' Deficit

$
735,685


$
612,969





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.








3




SANTEON GROUP, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND MARCH 31, 2010


(Unaudited)





March 31, 2011


March 31, 2010(As Restated)Revenues

$
510,054


$
205,621Costs of revenue


365,693



78,834Gross Profit


144,361



126,787Operating expenses:General, selling and administration


256,834



133,555Depreciation and amortization


1,209



546Total Operating expenses


258,043



134,101Loss from Operations


(113,682
)


(7,314
)Other Income/(Expenses):Interest expense


(8,035
)


(7,619
)Gain on forgiveness of debt


-



10,000(Loss)/Gain from foreign currency transactions


(923
)


424Total Other (Expense)/Income


(8,958
)


2,805Loss before provision for income taxes


(122,640
)


(4,509
)Income tax (benefit) expense


-



-Net loss

$
(122,640
)

$
(4,509
)Net loss per common share, basic and diluted

$
-


$
-Weighted average number of common shares outstanding, basic and diluted


438,153,768



174,204,101


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.








4




SANTEON GROUP, INC.


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT


FOR THE THREE MONTHS ENDED MARCH 31, 2011


(Unaudited)








Common stock


Common Shares To Be Issued


Additional

Paid in


Accumulated


Total

Stockholders'Shares


Par Value


Shares


Amount


Capital


Deficit


DeficitBalance, December 31, 2010


207,889,126


$
207,889



153,099,686


$
285,542


$
698,598


$
(1,205,083
)

$
(13,054
)Common stock to be issued for cash


-



-



3,300,000



23,000



(3,000
)


-



20,000Net loss


-



-



-



-



-



(122,640
)


(122,640
)Balance, March 31, 2011


207,889,126


$
207,889



156,399,686


$
308,542


$
695,598


$
(1,327,723
)

$
(115,694
)














The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.








5


SANTEON GROUP, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010


(Unaudited)





March 31, 2011


March 31, 2010(As Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(122,640
)

$
(4,509
)Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Depreciation and amortization


33,625



17,881Gain on forgiveness of debt


-



(10,000
)Changes in operating assets and liabilities:Accounts receivable


(167,955
)


8,762Other current asset


187



-Accounts payable and other payable


189,856



42,993Net cash (used in) provided by operating activities


(66,927
)


55,127CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of equipment and furniture


(9,118
)


-Capitalized labor for software development


-



(110,109
)Net cash used in investing activities


(9,118
)


(110,109
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sale of common stock


20,000



-Proceeds from issuance of notes payable - related party


50,000



-Repayment of notes payable - related party


(8,000
)


-Repayment of notes payable


(6,500
)


(6,500
)Net cash provided by (used in) financing activities


55,500



(6,500
)Net decrease in cash


(20,545
)


(61,482
)Cash, beginning of the period


27,353



78,004Cash, end of the period

$
6,808


$
16,522Supplemental disclosures of cash flow information:Taxes paid

$
-


$
-Interest paid

$
-


$
-Supplemental disclosures for non-cash investing and financing activities:Asset aquired in connection with reverse merger

$
-


$
-Liabilities assumed in connection with reverse merger

$
-


$
-











The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




6




SANTEON GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For the Three Months Ended March 31, 2011


(Unaudited and Restated)








Note 1.  Nature and Summary of Significant Accounting Policies





Nature of Company





Santeon Group, Inc. (“SGI” or the “Registrant), a publicly traded Delaware corporation formerly known as ubroadcast, Inc. (“ubroadcast”), originally formed as a Nevada corporation was reincorporated under the laws of the State of Delaware in 2009.  The Registrant’s subsidiary, SI Acquisitions, Inc., consummated a reverse merger transaction on May 12, 2010 with Santeon, Inc., a privately held Delaware corporation formed in 2002, the accounting acquirer. Upon completion of the reverse merger transaction, the ubroadcast changed its name to Santeon Group, Inc. and the historical financial statements are those of Santeon, Inc., the surviving entity and accounting acquirer. All references that refer to (the “Company” or “SGI” or “we” or “us” or “our”) are Santeon Group, Inc., the Registrant, and its wholly owned subsidiaries unless otherwise differentiated.  We are a diversified software development and services company specializing in the development of software to facilitate business process management (“BPM”) and document management for the healthcare, environmental/energy and media sectors. We offer innovative software solutions for that enable organizations to optimize performance and maximize their revenues. Our clients include state and local governments, federal agencies and numerous private sector customers.





Our corporate offices are located in Reston, Virginia with branch offices in Tampa, Florida and Cairo, Egypt.





Basis of Presentation





The accompanying unaudited condensed consolidated interim financial statements of Santeon Group, Inc. have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.




In the opinion of management, the unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the consolidated financial position as of March 31, 2011 and the results of operations and cash flows for the three months ended March 31, 2011 and 2010.  The results from operations for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.




The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2010, included in the Company’s annual report on Form 10-K filed with the SEC on March 26, 2012.




The condensed consolidated financial statements as of December 31, 2010 contained herein have been derived from the audited consolidated financial statements as at December 31, 2010, but do not include all disclosures required by the accounting principles generally accepted in the United States of America.





Basis of Consolidation




As of March 31, 2011, the Company had one wholly owned subsidiary: Santeon, Inc. with Santeon Egypt operating as a branch office under Santeon, Inc.  The consolidated financial statements include our accounts and the accounts of our wholly owned subsidiary.  All significant intercompany transactions and balances have been eliminated in consolidation.




The three months ended March 31, 2011 as compared to the three months ended March 31 2010 are not directly comparable as the three months ended March 31, 2010 reflect only the financial results of the private company Santeon, Inc. prior to the acquisitions of iVu Media, Inc., X2A Consulting LLC and ubroadcast, Inc. in February 2010, April 2010 and May 2010, respectively.  Further, the unaudited condensed consolidated statements of operations and cash flows reflecting the activity of ubroadcast for the three months ended March 31, 2010, as originally filed on June 4, 2010 and as amended on November 23, 2010, have been restated to reflect only the activity of Santeon, Inc.







7


Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.





Reclassifications





Certain reclassifications have been made in prior year’s financial statements to conform with the current year’s financial statements presentation.







Note 2.  Going Concern




The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the accompanying unaudited condensed consolidated financial statements, the Company incurred a net loss of $122,640 and $4,509 for the three months ended March 31, 2011 and 2010, respectively; accumulated deficits of $1,327,723 as of March 31, 2011 and $1,205,083 as of December 31, 2010; and a negative working capital position (current liabilities exceeded current assets) of $626,919 as of March 31, 2011 and $548,786 as of December 31, 2010.  These factors among others raise substantial doubt regarding the Company’s ability to continue as going concern.




The Company’s continued existence is dependent upon management’s ability to develop and achieve profitable operations and/or upon securing additional financing to carry out its planned business objectives. The Company intends to fund its business development, acquisition endeavors and operations first through internally generated cash flow from existing operations and secondarily through equity and/or debt financing arrangements.




The Company has undertaken further steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond to address our lack of liquidity by raising additional funds, either in the form of debt or equity or some combination thereof. However, there can be no assurance that the Company can successfully accomplish these steps and or business plans, and it is uncertain that the Company will achieve a profitable level of operations and be able to obtain additional financing




There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all.  The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.







Note 3.  Merger, Acquisitions and Corporate Restructure





Prior to May 2010, the Company was known as ubroadcast, Inc. (“ubroadcast”), the owner of ubroadcast.com, an Internet broadcasting web site, and were in a series of unrelated businesses.  From January 2009 until May 2010, our principal business activity was the development of the ubroadcast.com proprietary software that provided a platform for hosting live interactive radio shows on the Internet.




In February 2010, ubroadcast acquired all of the issued and outstanding equity of iVu Media Corp. (“iVu”), an Alexandria, Virginia-based software company in exchange for ten million (10,000,000) shares of its common stock.  iVu Media Corp., developed and owned a state-of-the-art Video Content Management (“VCM”) system.  iVu Media’s VCM worked in tandem with a High Definition Playback technology, an Internet broadcasting platform that attracted Fortune 500 clients and many leading international broadcasting firms.




In April 2010, ubroadcast acquired X2A Consulting, LLC, (“X2A”) an Alexandria, Virginia-based software company for ten million (10,000,000) shares of its common stock.






8


In May 2010, ubroadcast acquired a significant majority (99.2%) of the issued and outstanding capital stock of Santeon, Inc. (“Santeon”) in exchange for an aggregate amount of one hundred twenty-seven million eighteen thousand seven hundred thirty five shares (127,018,735) of ubroadcast common stock (the “Merger Transaction”). Prior to the Merger Transaction, Santeon was a privately held company specializing in the development of software products and offers software services including software development outsourcing services and solutions across industries.  The Merger Transaction was structured, as a transaction in which Santeon would merge into a wholly owned subsidiary of ubroadcast and as a result of the Merger Transaction Santeon would become a wholly owned subsidiary of ubroadcast.  Pursuant to the terms of the Merger Transaction, the Company’s board of directors was reconstituted and Santeon was granted the right to appoint three members to the Board of Directors while ubroadcast maintained two board seats. In May 2010 and concurrent with the Merger Transaction, ubroadcast changed its name from ubroadcast, Inc. to Santeon Group, Inc. (“SGI” or the “Company”) and the common stock symbol was changed from “UBCI” to “SANT”.




At the closing of the Merger Transaction on May 12, 2010, a majority of the sharesof Santeon (99.2%) were delivered to Santeon Group, Inc., or SGI, formerly known as ubroadcast and 127,018,735 shares of SGI were issued to Santeon’s participating shareholders.  However, the certificate of merger that should have been filed to effect the merger of Santeon into SGI as a majority-owned (99.2%) subsidiary was not finalized nor filed with the Delaware Secretary of State in a timely manner.  This unintentional administrative oversight was discovered only very recently.  Nevertheless, since the Merger Transaction date and until now, Santeon has been operating and functioning, both administratively and financially, as a majority owned subsidiary of SGI.  Further, since the Merger Transaction date, SGI has been the majority (99.2%) owner of the shares of Santeon that were surrendered as part of the Merger Transaction.




The current management of SGI filed the certificate of merger with the Delaware Secretary of State with an effective date of March 26, 2012 to complete the administrative procedures required for the Merger Transaction.  Although this important and necessary filing was overlooked by previous management of SGI due to an administrative oversight, there has been no operational, financial or practical effect of this unintentional omission as SGI, by holding a majority (99.2%) of the shares of Santeon, has operated as if Santeon had fully and officially merged into its subsidiary on May 12, 2010.  Despite the effective date of the certificate of merger (March 26, 2012), for accounting and operational purposes, Company management has accounted for the Merger Transaction as if it was fully consummated with an effective date of May 12, 2010 as originally intended.




The Merger Transaction has been accounted for as a reverse acquisition of SGI, formerly known as ubroadcast, by Santeon but in substance as a capital transaction, rather than a business combination, since SGI had nominal operations and assets prior to and as of the closing of the Merger Transaction.  The former stockholders of Santeon represent a significant constituency of the Company’s voting power as a result of the Merger Transaction and Santeon’s management has assumed operational, financial and governance control.  The transaction is deemed a reverse recapitalization and the accounting is similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets has been recorded. For accounting purposes, Santeon is treated as the surviving entity and accounting acquirer although SGI was the legal acquirer. Accordingly, the Company’s historical financial statements are those of Santeon, Inc.




All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse recapitalization as if the transaction had taken place as of the beginning of the earliest period presented.




Total consideration paid was $0 and the pre-Merger Transaction Registrant’s assets and liabilities retained subsequent to the transaction are as follows:




Other current asset

$
4,803Fixed Assets and Software


143,028Accounts payable and accrued expenses


(117,431
)Short Term Notes Payable


(30,400
)Net liabilities retained

$
-





The Registrant had nominal operations and minimal assets prior to and on the Merger Transaction date, May 12, 2010.  The transaction is in substance as a capital transaction or deemed as a reverse recapitalization, rather than a business combination; thus, no goodwill or other intangible assets have been recorded.








9


Note 4.  Capital Stock





During the three months ended March 31, 2011, the Company issued





1.
3,000,000 shares of common stock for cash, valued at $20,000. These shares were not physically certificated until 2012 and are presented as common shares to be issued





2.
300,000 shares of common stock for cash, valued at $3,000. These shares were not physically certificated until 2012 and are presented as common shares to be issued





The above securities are exempt from registration under the Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving a public offering.  Shares authorized for issuance, but not physically certificated until after March 31, 2011 have been included in the calculations of weighted average number of common shares outstanding and earnings (loss) per share for the three months ended March 31, 2011 and 2010 as they are considered outstanding.




Note 5. Software and Software Under Development





The primary business of the Company is to provide technology products and services that enable organizations to optimize performance and maximize revenues through its BPM software products and services.  A substantial number of the employees of the Company are engaged in the development of and further enhancement of the Company’s BPM and IPTV software platforms. The products and services enabled by these software platforms are ultimately sold to customers for their personal use or to partners who then in turn sell the services to their customers.




In accordance with ASC 985-20, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes certain costs related to the development of new software products or the enhancement of existing software products.  These costs are capitalized from the point in time that technological feasibility has been established, as evidenced by a working model or detailed working program design to the point in time that the product is available for general release to customers.  Capitalized development costs are amortized on a straight-line basis over the estimated economic lives of the products of 5 years, beginning when the product is placed into service.  Software under development are not amortize until completion and when they are in service.  Research and development costs incurred prior to establishing technological feasibility and costs incurred subsequent to general product release to customers are charged to expense as incurred.  The Company periodically evaluates whether events or circumstances have occurred that indicate that the remaining useful lives of the capitalized software development costs should be revised or that the remaining balance of such assets may not be recoverable.




The acquired software was acquired in connection with the Merger Transaction completed on May 12, 2010, which consisted of media platforms (see Note 3).




The Company has taken the position that the employees whose time is dedicated to development of and further enhancement of the Company’s BPM software platform should be treated as a capital asset and amortized over a five (5) year period. For the three months ended March 31, 2011 and 2010, the Company capitalized labor costs of $0 and $110,109, respectively. Amortization expense related to the capitalization of software development of $32,003 and $17,335 has been recorded under cost of revenues for the three months ended March 31, 2011 and 2010, respectively. Also, included in cost of revenue is amortization expense related to the acquired software of $414 and $0 for the three months ended March 31, 2011 and 2010, respectively. The table below reflects the capitalized software costs as of March 31, 2011 and December 31, 2010.







10
 
  March 31,

2011


December 31,

2010(unaudited)Software, net of accumulated amortization of $154,680 and $122,677 at March 31, 2011 and December 31, 2010

$
485,376


$
517,379Acquired software, net of accumulated amortization of $51,081 and $50,667 at March 31, 2011 and December 31, 2010 and accumulated impairment of $243,667 at March 31, 2011 and December 31, 2010.


6,761



7,174Software assets, net

$
492,137


$
524,553


Management performs periodic evaluation on the net carrying value of the Company’s revenue-generating assets as compared to the net present value of cash flows generated by them to determine if they are properly valued and reflected on the Company’s consolidated financial statements. Impairment charges of $0 and $243,667 were recognized for the periods ended March 31, 2011 and December 31, 2010, respectively for the Company’s acquired software.




Note 6: Notes Payable





As of March 31, 2011 and December 31, 2010, the Company had outstanding notes payable as follows:








March 31,

2011


December 31,

2010(unaudited)8.50% Secured Promissory Note due November 2005

$
-


$
6,50015.00% Unsecured Note due July 2007


45,000



45,00010.00% Unsecured Convertible Promissory Note due August 2008(1)


196,500



196,500$
241,500


$
248,000





(1) The conversion feature on the 10.00% Unsecured Convertible Promissory Note due August 2008 expired on May 11, 2011.





All of the notes payable above are classified as short-term as of March 31, 2011 and December 31, 2010 as the maturity dates lapsed and the Company is currently negotiating with the lenders for revised repayment terms.




Note 7. Related Party Transactions





Unsecured Loan Agreement due December 2011





In January 2011, a relative of one of the Company’s directors extended to the Company a non-interest bearing loan in the amount of fifty thousand US dollars ($50,000) for a period of twelve months. The purpose of the loan was to provide capital for growth and general operating needs for Santeon, Inc.  In lieu of cash interest, the lender accepted one million two hundred fifty thousand (1,250,000) shares of the Company’s common stock, that were valued at $8,250, as compensation for the loan during the fourth quarter of 2011.








11


Note 8. Restatement of Financial Statements for the quarter ended March 31, 2010





The Company has restated its unaudited condensed consolidated financial statements for the three months ended March 31, 2010 to reflect only the financial results of Santeon, Inc. rather than ubroadcast, or the legal acquirer as a result of the Merger Transaction since Santeon, Inc. is treated as the surviving entity and accounting acquirer.  Accordingly, the Company’s historical financial statements are those of Santeon, Inc.The net result of the reverse recapitalization accounting arising from the Merger Transaction, as more fully described in Note 3 above, is that the acquired company’s financials (Santeon, Inc.’s) are the surviving financials and are presented herein in place of the previously reported financial results of ubroadcast.





The net effect of the corrections made to the previously reported statements of operations and cash flows for the three months ended March 31, 2010 are summarized and presented below for comparative purposes with the three months ended March 31, 2011 financial resulted from the Merger Transaction:





The net effect of the restatement on the Statements of Operations is:




·
Revise previously reported revenues for the three months ended March 31, 2010 from $159,686 to $205,621.


·
Report cost of revenue of $78,834.


·
Revise previously reported operating expenses for the three months ended March 31, 2010 from $479,503 to $134,101.


·
Report net other income (expense) of $2,805 for the three months ended March 31, 2010.


·
Revise previously reported net loss for the three months ended March 31, 2010 from $319,817 to $4,509.


·
Revise the basic and dilutive weighted average common shares outstanding for the three months ended March 31, 2010 from 184,741,174 shares to 174,204,101 shares.





The net effect of the restatement on the Statements of Cash Flows is:




·
Revise previously reported cash used in operations of $54,006 for the three months ended March 31, 2010 to cash provided by operations of $55,127.


·
Report cash used in investing activities for the three months ended March 31, 2010 of $110,109.


·
Revise previously reported cash provided by financing activities of $50,833 for the three months ended March 31, 2010 to cash used in financing activities of $6,500.


·
Revise the previously reported ending cash balance for the three months ended March 31, 2010 from $1,067 to $16,522.





Following are reconciliations of the Company’s restatement of the unaudited condensed consolidated statements of operations and cash flows for the three months ended March 31, 2010 to present the correction of the previously reported unaudited condensed consolidated financial statements as amended and filed with the SEC on November 23, 2010.







12


SANTEON GROUP, INC.


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


FOR THE THREE MONTHS ENDED MARCH 31, 2010


(Unaudited and Restated)





As Reported


Net Change


As RestatedRevenues

$
159,686


$
45,935


$
205,621Costs of revenue


-



78,834



78,834Gross Profit


159,686



(32,899
)


126,787Operating expenses:General, selling and administration


444,137



(310,582
)


133,555Depreciation and amortization


35,366



(34,820
)


546Total operating expenses


479,503



(345,402
)


134,101Loss from operations


(319,817
)


312,503



(7,314
)Other Income (Expenses):Interest expense


-



(7,619
)


(7,619
)Gain on forgiveness of debt


-



10,000



10,000Gain from foreign currency transactions


-



424



424Total other income


-



2,805



2,805Loss before provision for income taxes


(319,817
)


315,308



(4,509
)Income tax (benefit) expense


-







-Net Loss

$
(319,817
)

$
315,308


$
(4,509
)Net loss per common share, basic and diluted

$
(0.00
)

$
0.00


$
-Weighted average number of common shares outstanding, basic and diluted


184,741,174



10,537,073



174,204,101








13





SANTEON GROUP, INC.


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


FOR THE THREE MONTHS ENDED MARCH 31, 2010


(Unaudited and Restated)




As Reported


Net Change


As RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(319,817
)

$
315,308


$
(4,509
)Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Depreciation and amortization


35,366



(17,485
)


17,881Gain on forgiveness of debt


-



(10,000
)


(10,000
)Common stock issued and to be issued for compensation and consulting services


195,150



(195,150
)


-Common stock to be issued for  expense


32,118



(32,118
)


-Changes in operating assets and liabilities:Accounts receivable


(5,680
)


14,442



8,762Other current assets


-



-



-Accounts payable and accrued expenses


8,857



34,136



42,993Net cash (used in) provided by operating activities


(54,006
)


109,133



55,127CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of equipment and furniture


-



-



-Capitalized labor for software development


-



(110,109
)


(110,109
)Net cash used in investing activities


-



(110,109
)


(110,109
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sale of common stock


55,000



(55,000
)


-Repurchase of notes payable


(4,167
)


4,167



-Repayment of notes payble


-



(6,500
)


(6,500
)Net cash provided by (used in) financing activities


50,833



(57,333
)


(6,500
)Net decrease in cash


(3,173
)


(58,309
)


(61,482
)Cash, beginning of period


4,240



73,764



78,004Cash, end of period

$
1,067


$
15,455


$
16,522










14


Note 9. Subsequent Events





Subsequent to the end of the quarter ended March 31, 2011, the Company issued





1.
47,018,735 shares of common stock were physically certificated subsequently during 2011 to Santeon, Inc.’s shareholders in connection with the Merger Transaction that occurred in 2010.





2.
31,587,302 shares of common stock were subsequently sold for cash to certain investors for $185,000.





3.
13,738,969 shares of common stock were subsequently issued to a former officer of the Company as stock-based compensation for services rendered during 2010.





4.
3,000,000 shares of common stock were subsequently issued to a former officer of the Company as compensation pursuant to an employment agreement and were valued at $15,000.





5.
7,142,813 shares of common stock were subsequently to be issued as stock-based compensation to the Company’s Acting Chief Financial Officer pursuant to a consulting agreement and were valued at $68,119.





6.
2,406,761 shares of common stock were subsequently to be issued to a certain senior employee of the Company as payment of his unpaid compensation pursuant to an employment agreement and were valued at $17,088.





7.
194,444 shares of common stock were subsequently to be issued to a former employee of the Company as payment of his unpaid compensation pursuant to an employment agreement and were valued at $1,750.





8.
2,500,000 shares of common stock were subsequently issued to a certain senior employee of the Company pursuant to an employment agreement and were valued at $22,500.





9.
In the first quarter 2012, the Company entered into a material sub-contractor agreement with The MITRE Corporation to provide Agile coaching and consulting services to the US Department of Homeland Security.





10.
In April 2012, the Company renegotiated with the lender the terms of the 10.00% Unsecured Convertible Promissory Note due August 2008. The new terms stipulate a monthly payment of $6,015 for 36 months, commencing April 2012, until the new note is fully satisfied in March 2015.




The above securities are exempt from registration under the Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving a public offering.








15


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.





Background





Santeon Group, Inc. (“SGI” or the “Company” or “we” or “our”) is a diversified software products and services company specializing in the transformation and optimization of business through the deployment or the development of innovative products and services using Agile mindsets in the information systems/technology, healthcare, environmental/energy and media sectors. Our innovative software solutions enable organizations to optimize performance and maximize revenues.  Our clients include state and local governments, federal agencies and numerous private sector customers.




SGI is focused on the development and provision of business solutions software and technology to assist companies with performance optimization and maximizing revenues.  While our roots are in healthcare, our name means health (“santé” is French for health), we have expanded into software development, media, energy and agile carrying the same principals of building a “healthy” organization. Whether we are building solutions for healthcare, media or agile, the health of the organization and how they benefit from our products and services is of the utmost importance.




Innovation forward is the mindset that drives our product development, service delivery and the solutions we offer our customers. We approach each business opportunity with an open mind and creativity always looking for what is best, not what is traditional or common. We strongly believe our innovation is what sets us apart from our competition and what will set our customers apart from their competition. We always look ahead at what is of long-term value.  We are agile in our thinking but focused in our execution. We are not chasers of what is trendy or what is buzz, we are evaluators of what is sustainable and reliable. Innovation is what drives our business and forward is where we are moving. We are focused on two specific aspects of our operations, specifically securing and growing the current client base and revenue, as well as new sales through both direct and in-direct sales channels.




It is important that the Company’s technology offerings are scalable, easy to implement, attract market leading channel partners, and provide tremendous value for the end customer. We continue to refine our technology assets, making them easier to deploy through channel partners into targeted vertical sales channels. Over the past two years, in spite of difficult financial circumstances and an exceptionally soft business climate, the Company was able to develop multiple distribution channels for its products.  As these channels continue to develop, the Company expects new revenue opportunities to emerge.




Our corporate offices are located in Reston, Virginia with branch offices in Tampa, Florida and Cairo, Egypt. Our common stock is quoted on the inter-dealer quotation system operated by the OTC Market Group under the symbol SANT.





Critical Accounting Policies





Significant Accounting Policies




Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our consolidated financial condition and results of operations, we view certain of these policies as critical.  Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.




We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.






16


General




The Company’s unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue, if any, and expenses, and the disclosure of contingent assets and liabilities.  Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors.  Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions.




An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the consolidated financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.




Revenue Recognition




The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.  Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and/or services rendered and the collectability of those amounts.  Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.  The Company defers any revenue for which the product has not been delivered and/or services has not been rendered or is subject to refund until such time that the Company and the customer jointly determine that the product and/or services has been delivered or no refund will be required. ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.  The effect of implementing 605-25 on our consolidated financial position and results of operations was not significant.




The Company’s sources of revenues include: (1) customized software development, which includes software systems support revenues and are recognized when completed and invoiced to the customer; (2) fees from Agile training services, which includes the revenue for training classes that range in duration from 1 to 3 days, which are recognized immediately after the completion of the training class and deemed to be earned; (3) software license fees, which includes sales of licenses to use or re-sell pre-existing software, including client consulting, either on a fixed fee or a per end-user fee arrangement and are recognized over the term that the license for use is granted to the customer (one month, one year, etc.).





Stock-Based Compensation




We account for stock, stock options and warrants using the fair value method promulgated by Accounting Standards Codification subtopic 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Therefore, our results include non-cash compensation expense as a result of the issuance of stock, stock options and warrants and we expect to record additional non-cash compensation expense in the future. We follow Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees and non-employees be recognized in the income statement based on their fair values.




For the quarter ended March 31, 2011, there were no warrants, preferred shares or common stock options issued and outstanding.









17


Impairment of Long-Lived Assets




The Company follows ASC 360, "Property, Plant and Equipment" which requires that long-lived assets and certain identifiable intangibles held and used by us be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of the long-lived assets and certain identifiable intangibles will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less disposal costs.




Fair Value of Financial Instruments




Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the unaudited condensed consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the unaudited condensed consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.




The Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s consolidated financial position, results of operations or cash flows.




Newly Issued Accounting Standards




In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the FASB Accounting Standards Codification (Codification) in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. We are currently assessing the impact of this update on our consolidated financial statements.




There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.




Results of Operations.  First Quarter 2011 vs. First Quarter 2010





Revenues




During the three months ended March 31, 2011, we generated total revenues of $510,054 as compared to $205,621 for the three months ended March 31, 2010.  Of the $304,433 period over period increase in revenues, $227,087 was generated by the Agile business due to the acquisition of that business in April 2010, $145,990 was generated through new software development and maintenance customers and $8,858 was generated from web-site projects and media platform subscriptions. These increases were offset by a decline of $77,502 in software support and maintenance revenues.







18




Cost of Revenues




Cost of revenues for the three months ended March 31, 2011 was $365,693 compared to $78,834 for the three months ended March 31, 2010.  The largest component of the period over period increase of $286,859 is the expensing in 2011 of internal labor that was previously capitalized in 2010 for internally developed software assets of ($156,439).  Other components of the increase are: $72,239 related to Agile expenses and $58,181 due to headcount and expenses added to support software development, support and maintenance.




Expenses




Overall operating expenses for the three months ended March 31, 2011 were $258,043 compared to $134,101 for the three months ended March 31, 2010.  Of the $123,942 period over period increase in total operating expenses, following are the primary components of the change: an increase of $72,885 for personnel and personnel-related expenses, $29,052 for professional fees and public-company compliance costs, $15,861 for increased administrative rent and utilities and an net increase of $6,559 in other administrative costs.




Net Loss




The Company had a net loss of $122,640 for the three months ended March 31, 2011, compared to a net loss of $4,509 for the three months ended March 31, 2010.  Included in the quarters ended March 31, 2011 and 2010 was a foreign currency transaction loss of $923 and a foreign currency transaction gain of $424, respectively.  During the first quarter 2010, the Company realized a gain on the forgiveness of debt of $10,000.




Financial Condition





Net cash used in operating activities during the first quarter of 2011 was $66,927 as compared to net cash provided by operating activities during the first quarter of 2010 of $55,127.  The higher use of cash in operating activities during the quarter ended March 31, 2011 is primarily due to the expensing, as opposed to capitalization in the first quarter 2010, of salaries for internal software development labor. This caused a period over period increase in expenses of approximately $100,000.




Net cash used in investing activities was $9,118 and $110,109 for the quarters ended March 31, 2011 and 2010, respectively.  The net cash used in investing activities decreased as the Company did not incur any capital expenditure on capitalized software development costs during the quarter ended March 31, 2011.




Net cash provided by financing activities increased by $62,000 for the quarter ended March 31, 2011 over the prior year quarter ended March 31, 2010 due to proceeds from the issuance of notes payable ($50,000) from a related party and issuance of common stock ($20,000) offset by principal repayments on a note payable to a related party of $8,000 in the first quarter 2011.




In the first quarter 2011, the Company incurred substantial additional expenses over 2010 related to the addition of Agile coaches and trainers, public company compliance expenses, insurance expense and occupancy expenses.




For the quarter ended March 31, 2011, the Company had working capital deficit (Current Liabilities exceeded Current Assets) of $626,919 and had an accumulated operating deficit of $1,327,723. While there is no assurance that the Company will generate sufficient net income in subsequent periods such that the accumulated deficit will turn into positive retained earnings, the Company intends to invest prudently in the growth of its products and services in order to grow top-line revenue and generate net income in future periods.




Our Capital Needs




Based on contracts in hand and current customer prospects, the Company believes it will be able to sustain and potentially increase its current level of operations in the coming months. We also anticipate that our relatively low level of capital needs will be met through cash generated from operations; however, to achieve our business objectives, we may require additional funding through bank loans, the sale of shares for cash and other fund-raising methods. To date, we have not received a commitment for capital in any amount and we cannot assure you that we will be able to obtain any capital.










19


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.





Not applicable.




Item 4T.  Controls and Procedures.





Evaluation of Disclosure Controls and Procedures




We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended March 31, 2011 we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective as of March 31, 2011.





Management’s Report on Internal Control over Financial Reporting




Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles, or GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.




With the participation of our Chief Executive Officer and Acting Chief Financial Officer (principal financial officer), our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2011 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  Based on our evaluation and the material weaknesses described below, management concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2011 based on the COSO framework criteria. Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment.  Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff.  The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.





To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and professional accounting consultants.  As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.





These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.





In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the quarter ended March 31, 2011 included in this Quarterly Report on Form 10-Q are fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the quarter ended March 31, 2011 are fairly stated, in all material respects, in accordance with US GAAP.







20


This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm.





Limitations on Effectiveness of Controls and Procedures





Our management, including our Chief Executive Officer and Acting Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.





Changes in Internal Controls




During the fiscal quarter ended March 31, 2011, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.










21





PART II - OTHER INFORMATION





Item 1. Legal Proceedings.





We are not currently involved in any legal proceedings.








Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.





During the three months ended March 31, 2011, the Company issued:





1.
3,000,000 shares of common stock for cash, valued at $20,000. These shares were not physically certificated until 2012 and are presented as common shares to be issued





2.
300,000 shares of common stock for cash, valued at $3,000. These shares were not physically certificated until 2012 and are presented as common shares to be issued




The above securities are exempt from registration under the Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving a public offering.  Shares authorized for issuance, but not physically certificated until after March 31, 2011 have been included in the calculations of weighted average number of common shares outstanding and earnings (loss) per share for the quarter ended March 31, 2011 and 2010 as they are considered outstanding.




Item 3. Defaults upon Senior Securities





None.




Item 4. Mine Safety Disclosures





None.




Item 5. Other Information.





None.




Item 6. Exhibits.




Exhibit No.

Description31.1 *

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 *

Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 *

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.1 *

Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* filed herewith.







22


SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on August 31, 2012 on its behalf by the undersigned, thereunto duly authorized.





SANTEON GROUP, INC.By:
/s/ Ashraf M. RofailDr. Ashraf M. RofailChairman and CEO











23