Restatement of Previously Issued Financial Statements

12 Months Ended

Dec. 31, 2018

Accounting Changes and Error Corrections [Abstract]

Restatement of Previously Issued Financial Statements

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the issuance of the consolidated financial statements and following discussions with the Staff of the United States Securities and Exchange Commission (the “Staff”) related to the Meier stock pledge and Meier Guaranties, the adequacy of the collateral, and the Company’s demonstrated intent to enforce the Meier Guaranties, all as related to the loan made to Tronco Energy Corporation the (“Tronco Loan”), the Company concluded that it had incorrectly accounted for the Tronco Loan. After a thorough review and interpretation of accounting standards, the Company concluded that it was necessary to revise its financial statements to reflect the write-down of the loan. The Meier Guaranties were determined not to be substantive based on GAAP that states that the substance of a personal guarantee depends on the ability of the guarantor to perform, the practicality of enforcing the guarantee, and the demonstrated intent to enforce the guarantee. Since the Company did not demonstrate intent by either enforcing the redemption of collateral or the guarantees by the borrowers to repay the loan when the related party note receivable was due and payable on December 31, 2017 and instead modified the loan by extending the payment term, the Company determined the guarantees are not substantive and therefore should not serve as the basis for concluding the loan is well secured and collateralized.

As a result, the Company fully reserved the related party note receivable effective August 2017. The Company continues to hold the 8,267,860 shares of the Company’s common stock as collateral. The Company will record a recovery of the loan upon receiving repayment of the note.

Additionally, the Company determined that related party note receivable should have been classified as an impaired loan upon the first modification in 2014. In 2018 and 2017, the Company received consideration on the related party note receivable in the form of a non-cash payment given in lieu of making an annual restricted stock unit award to the Meiers. This non-cash payment has been recorded as a reduction of the principal balance of the loan and not as interest income in accordance with ASC 310-30-35-3. The Company increased its Accumulated Deficit on January 1, 2017 in the amount of $767,674 to properly reclass the interest received in fiscal years December 31, 2014 to 2016 from interest income and record as a reduction in the recorded investment of the related party note receivable. For the fiscal years ending December 31, 2018 and 2017, the Company reclassed the interest income on the related party note receivable from interest income to recovery on related party note receivable, which are both part of total other expense on our statement of operations and can be seen in the table shown below. The Company has also adjusted and restating its previously issued unaudited interim condensed consolidated financial information for each of the quarters in the fiscal years ended December 31, 2017 and 2018 related to the interest income, see Note 13 – Unaudited Financial Statements for more information.

The effect of the restatements on the consolidated balance sheets for December 31, 2018 and 2017 are as follows:

	For the Year Ended December 31, 2018									For the Year Ended December 31, 2017
	As Reported			Restatement Adjustment			As Restated			As Reported			Restatement Adjustment			As Restated
Statement of Operations:
Revenue	$	18,245,212		$	-		$	18,245,212		$	15,595,659		$	-		$	15,595,659
Cost of revenue		7,077,344			-			7,077,344			5,960,223			-			5,960,223
Selling, general and administrative expenses		7,107,432			-			7,107,432			5,734,315			-			5,734,315
Depreciation and amortization expense		3,760,231			-			3,760,231			3,676,598			-			3,676,598
Total operating costs and expenses		17,945,007			-			17,945,007			15,371,136			-			15,371,136
Operating income (loss)		300,205			-			300,205			224,523			-			224,523
Other income (expense)
Interest income		432,753			(377,746	)		55,007			346,926			(338,204	)		8,722
Interest expense		(773,680	)		-			(773,680	)		(905,990	)		-			(905,990	)
Other income		-			-			-			43,669						43,669
Gain (loss) on disposition of assets		(14,013	)		-			(14,013	)		12,167						12,167
Provision for related party note receivable		-			-			-			-			(6,979,043	)		(6,979,043	)
Recovery on related party note receivable		-			377,746			377,746			-			717,709			717,709
Total other expense		(354,940	)		-			(354,940	)		(503,228	)		(6,599,538	)		(7,102,766	)
Net income (loss) before income taxes		(54,735	)		-			(54,735	)		(278,705	)		(6,599,538	)		(6,878,243	)
Income tax expense		(3,640	)		-			(3,640	)		-			-			-
Net income (loss)		(58,375	)		-			(58,375	)		(278,705	)		(6,599,538	)		(6,878,243	)
Earnings (loss) per common share - basic	$	(0.00	)	$	-		$	(0.00	)	$	(0.01	)	$	(0.27	)	$	(0.28	)
Earnings (loss) per common share - diluted	$	(0.00	)	$	-		$	(0.00	)	$	(0.01	)	$	(0.27	)	$	(0.28	)
Weighted average common shares outstanding - basic		24,608,967			24,608,967			24,608,967			24,268,409			24,268,409			24,268,409
Weighted average common shares outstanding - diluted		24,608,967			24,608,967			24,608,967			24,268,409			24,268,409			24,268,409
Balance Sheet:
Current assets	$	7,675,186		$	-		$	7,675,186		$	6,350,564		$	-		$	6,350,564
Total assets		27,006,405			(7,367,212	)		19,639,193			28,675,856			(7,367,212	)		21,308,644
Current liabilities		5,931,980			-			5,931,980			7,666,905			-			7,666,905
Total liabilities		12,228,974			-			12,228,974			14,373,280			-			14,373,280
Total shareholders’ equity		14,777,431			(7,367,212	)		7,410,219			14,302,576			(7,367,212	)		6,935,364
Total liabilities and shareholders’ equity		27,006,405			(7,367,212	)		19,639,193			28,675,856			(7,367,212	)		21,308,644