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Note 11 - Subsequent Events
12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Subsequent Events [Text Block]

Note 11  Subsequent Events

 

Cross River Working Capital Note

 

On March 9, 2022, Enservco issued a $1.2 million Note to Cross River Partners, LP, an entity controlled by Richard Murphy, our Chairman and Chief Executive Officer for funds lent to the Company for working capital purposes between February 18, 2022 and March 9, 2022 (the “Working Capital Note”). Cross River will also be paid a loan fee of $15,000 upon repayment of the subordinated debt, which is in substance interest. The Working Capital Note is secured by the Company’s accounts receivable from a Company's customer. The proceeds under this note were only to be used to pay the $75,000 underwriting deposit required by Utica and for working capital purposes. The outstanding principal of the Working Capital Note is due and payable upon the earlier of (i) the refinancing of the secured debt obligations owed to East West Bank, (ii) the date that is October 16, 2022; or (iii) receipt by Borrower of certain accounts receivable received from the customer. The Working Capital Note was repaid in-full on March 24, 2022 in connection with the Refinancing.

 

Restatements of 2021 10-Q Filings

 

On March 22, 2022, the Company, in consultation with the Audit Committee of its Board of Directors, concluded that the Company’s previously issued condensed consolidated financial statements as of and for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021 (collectively, the “Relevant Periods”) should no longer be relied upon. This conclusion was primarily due to the Company’s misinterpretation of eligibility for certain employee retention tax credits under relevant provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) following advice provided by its third party subject matter consultant. In addition, the Company incorrectly applied accounting treatment for the conversion of subordinated debt with a related party to Company Common Stock and warrants. As a result, the Company amended its Quarterly Reports on Form 10-Q for the Relevant Periods to reflect restatements of its condensed consolidated financial statements for the Relevant Periods ("Amendment No. 1s"). These restatements had no impact on the Company’s cash position, revenues, operating expenses, loss from operations or Adjusted EBIDTA for the Relevant Periods. During the first quarter of 2022, the Company received approximately $443,000 in refunds that related to the employee retention tax credits to which the Company did not qualify. In addition to the need to return a large portion of these funds to the IRS, the Company may incur additional penalties and interest.

 

On April 14, 2022, the Company, in consultation with the Audit Committee of its Board of Directors, concluded that the Company’s previously issued and amended condensed consolidated financial statements as of and for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021 (collectively, the “Relevant Periods”) should no longer be relied upon. This conclusion was due to the Company re-evaluating its accounting for income taxes in connection with a change in control that occurred pursuant to the issuance of 4,199,998 shares of common stock during the first quarter of 2021. This change in control led to a change in management's judgment about the realizability of the Company's deferred tax assets. As a result, the Company amended for a second time its Quarterly Reports on Form 10-Q for the Relevant Periods to reflect restatements of its previously amended condensed consolidated financial statements for the Relevant Periods ("Amendment No. 2s"). These restatements had no impact on the Company’s cash position, revenues, operating expenses, loss from operations or Adjusted EBIDTA for the Relevant Periods.

 

Class Action Litigation

 

On May 23, 2022, Ali Safee, individually and on behalf of others, filed a complaint in United States District Court for the District of Colorado against the Company, Richard A. Murphy, and Majorie A. Hargrave (our former Chief Financial Officer). The complaint generally alleges violation of federal securities laws in connection with the Company’s amending of its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021 to reflect restatements of its consolidated financial statements for such quarters. The Company vigorously denies these claims and has tendered this litigation to its insurer.