Note 3. Restatement of Consolidated Financial Statements for Prior Period

6 Months Ended

Jun. 30, 2011

Accounting Changes and Error Corrections [Text Block]

Note 3.  Restatement of Consolidated Financial Statements for Prior Period

The Company has determined that its previously issued consolidated financial statements for the three and six months ended June 30, 2010 contained errors. As part of the financial statement review, it was determined that certain accounting policies had not been applied properly in the prior periods.

A summary of the changes made is listed below. One source of the restatements was the application of the purchase price for the acquisition of United Oil and Gas. Significant adjustments from this were the $357,809 reclassification of purchase price from fixed assets to goodwill.  The second source of restatement was the reclassification of $99,013 of Additional Paid In Capital primarily to Preferred Convertible Shares. Finally, there was a significant restatement of expense due to the improper GAAP accounting for several Derivative Instruments the Company has on its balance sheet. These are Convertible Notes Payable that have a variable conversion feature that is dependent on the price of the stock at the time of conversion. This primarily resulted in a derivative liability of $845,921, a loss on the valuation of the derivative at period end of $37,418, discounts to notes payable of $232,801, and amortization expense of $67,366. All of these adjustments were made to the financial statements for the three months ended March 31, 2010 and were presented in the Form 10-Q for the period ended March 31, 2011. However, there are some additional adjustments related to the derivative liability for the three and six months ended June 30, 2010 that are presented below (see note 15 for more detail).

Consolidated Balance Sheet at June 30, 2010

	Prior			Adjustment			Restated
Property and equipment, net	$	1,456,409		$	(497,426	)	$	958,983
Goodwill		3,396,126			(639,091	)		2,757,035
Intangible Assets, net		841			744,797			745,638
Total Assets:		7,184,153			(391,720	)		6,792,433
Notes Payable – current – total, including $162,000 related Party Note Payable and $227,800 convertible		5,325,381			(150,811	)		5,174,570
Derivative Liability		-			803,956			803,956
Total Current Liabilities		6,496,506			653,145			7,149,651
Total Liabilities		7,094,618			653,145			7,747,763
Additional Paid In Capital		2,517,775			55,679			2,573,454
Retained Earnings, including current year loss		(2,431,449	)		(1,100,544	)		(3,531,993	)
Total Stockholders’ Equity (Deficit)		89,535			(1,044,865	)		(955,330	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	7,184,153		$	(391,720	)	$	6,792,433

Consolidated Statement of Operations for the three months ended June 30, 2010

	Prior		Adjustment			Restated
Cost of Goods Sold	$	5,366,670	$	115,000		$	5,481,670
Gross Profit		603,502		(115,000	)		488,502
Operating Expenses:
Salaries and Benefits		229,239		(80,000	)		149,239
Depreciation		56,629		(37,646	)		18,983
Amortization		100		19,600			19,700
Bad Debt Expense		577		(1,210	)		(633	)
Total Operating Expense		505,785		(99,256	)		406,529
Income (loss) from Operations		97,717		(15,744	)		81,973
Amortization Expense - Convertible Notes		-		(14,624	)		(14,624	)
Gain (Loss) on derivative liability		-		41,965			41,965
Bad debt recovery (expense)		1,210		(1,210	)		-
Total Non-operating income, net		11,283		26,131			37,414
Income (loss) before income taxes		109,000		10,387			119,387
Net Income (loss)	$	6,031	$	10,387		$	16,418

Consolidated Statement of Operations for the six months ended June 30, 2010

	Prior			Adjustment			Restated
Cost of Goods Sold	$	10,311,740		$	230,000		$	10,541,740
Gross Profit		1,053,879			(230,000	)		823,879
Operating Expenses:
Salaries and Benefits		407,809			(160,000	)		247,809
Depreciation		113,242			(76,068	)		37,174
Amortization		201			39,976			40,177
Bad Debt Expense		2,075			166,437			168,512
Total Operating Expense		1,002,470			(29,655	)		972,815
Income (loss) from Operations		51,409			(200,345	)		(148,936	)
Amortization Expense - Convertible Notes		-			(81,990	)		(81,990	)
Gain (Loss) on derivative liability		-			4,547			4,547
Bad debt recovery (expense)		3,570			(3,570	)		-
Total Non-operating income, net		(259,595	)		81,013			(340,608	)
Income (loss) before income taxes		(208,186	)		(281,358	)		(489,544	)
Net Income (loss)	$	(341,100	)	$	(281,358	)	$	(622,458	)

Consolidated Statement of Cash Flows for the six months ended June 30, 2010

	Prior			Adjustment			Restated
Net  Income	$	(341,100	)	$	(281,358	)	$	(622,458	)
Amortization expense on debt discount		-			81,990			81,990
Gain on derivative liabilities		-			(41,965	)		(41,965	)
Depreciation expense		113,242			(6,068	)		107,174
Amortization of intangibles		201			39,976			40,177