Restatement of Previously Issued Financial Statements

3 Months Ended

Mar. 31, 2019

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 modifying 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 income in accordance with ASC 310-30-35-3.

To correct these errors on this Amendment, the Company has restated both the related party note receivable and the interest income as detailed in the table below.

The effect of the restatements on the unaudited financial statements for March 31, 2019 and 2018 are as follows:

	For the Quarter Ended March 31, 2019
	As Reported			Restatement Adjustment			As Restated
Statement of Operations:
Revenue	$	5,036,346		$	-		$	5,036,346
Cost of revenue		2,043,028			-			2,043,028
Selling, general and administrative expenses		2,069,040			-			2,069,040
Depreciation and amortization expense		1,011,105			-			1,011,105
Total operating costs and expenses		5,123,173			-			5,123,173
Operating income (loss)		(86,827	)		-			(86,827	)
Other income (expense)
Interest income		123,386			(104,453	)		18,933
Interest expense		(177,982	)		-			(177,982	)
Total other expense		(54,596	)		(104,453	)		(159,049	)
Net income (loss)		(141,423	)		(104,453	)		(245,876	)
Income tax expense		-			-			-
Net income (loss)		(141,423	)		(104,453	)		(245,876	)
Earnings (loss) per common share - basic	$	(0.01	)	$	-		$	(0.01	)
Earnings (loss) per common share - diluted	$	(0.01	)	$	-		$	(0.01	)
Weighted average common shares outstanding - basic		25,018,098			-			25,018,098
Weighted average common shares outstanding - diluted		25,018,098			-			25,018,098
Balance Sheet:
Current assets	$	8,730,573		$	(104,453	)	$	8,626,120
Total assets		27,389,452			(7,471,665	)		19,917,787
Current liabilities		6,608,084			-			6,608,084
Total liabilities		12,571,592			-			12,571,592
Total shareholders’ equity		14,817,860			(7,471,665	)		7,346,195
Total liabilities and shareholders’ equity		27,389,452			(7,471,665	)		19,917,787

	For the Quarter Ended March 31, 2018
	As Reported			Restatement Adjustment			As Restated
Statement of Operations:
Revenue	$	4,600,293		$	-		$	4,600,293
Cost of revenue		1,798,944			-			1,798,944
Selling, general and administrative expenses		1,697,663			-			1,697,663
Depreciation and amortization expense		936,027			-			936,027
Total operating costs and expenses		4,432,634			-			4,432,634
Operating income (loss)		167,659			-			167,659
Other income (expense)
Interest income		92,428			(86,287	)		6,141
Interest expense		(191,553	)		-			(191,553	)
Total other expense		(99,125	)		(86,287	)		(185,412	)
Net income (loss)		68,534			(86,287	)		(17,753	)
Income tax expense		-			-			-
Net income (loss)		68,534			(86,287	)		(17,753	)
Earnings (loss) per common share - basic	$	0.00		$	-		$	(0.00	)
Earnings (loss) per common share - diluted	$	0.00		$	-		$	(0.00	)
Weighted average common shares outstanding - basic		24,535,155			-			24,535,155
Weighted average common shares outstanding - diluted		25,140,646			-			24,535,155
Balance Sheet:
Current assets	$	6,728,071		$	(86,287	)	$	6,641,784
Total assets		28,210,450			(7,453,499	)		20,756,951
Current liabilities		9,055,574			-			9,055,574
Total liabilities		13,702,323			-			13,702,323
Total shareholders' equity		14,508,127			(7,453,499	)		7,054,628
Total liabilities and shareholders' equity		28,210,450			(7,453,499	)		20,756,951