| Note 2. Restatement |
Restatement
of Financial Statements for the three and six months ended June 30, 2016 and 2015
The
Company is restating its financial statements for the three and six months ended June 30, 2016 and 2015 to correct various account
balances as summarized below.
The
restatements are being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure
provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have
been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and
any per share amount affected for each prior period presented, and the cumulative effect on retained earnings (deficit) in the
statement of financial position as of the beginning of each period presented.
The
effects of the adjustments on the Company’s previously issued unaudited financial statements are summarized as follows:
| Selected
Unaudited Consolidated Balance Sheets Information as of June 30, 2016 |
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Previously
|
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|
|
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|
|
|
| |
|
Reported
|
|
|
Net
Change |
|
|
Restated
|
|
| |
|
|
|
|
|
|
|
|
|
| Petroleum
and natural gas rights / oil and gas properties |
|
|
2,918,042 |
|
|
|
(279,938 |
) |
|
|
2,638,104 |
|
| Derivative
liability |
|
|
787,560 |
|
|
|
2,550,660 |
|
|
|
3,338,220 |
|
| Additional
paid in capital |
|
|
9,638,488 |
|
|
|
807,869 |
|
|
|
10,446,357 |
|
| Accumulated
deficit |
|
|
(9,563,140 |
) |
|
|
(3,372,669 |
) |
|
|
(12,935,809 |
) |
| Selected
Unaudited Consolidated Statements of Operations and Comprehensive Loss information for the three months ended June 30, 2016
and 2015 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Three
months ended June 30, 2016 |
|
| |
|
Previously
|
|
|
|
|
|
|
|
| |
|
Reported
|
|
|
Net
Change |
|
|
Restated
|
|
| |
|
|
|
|
|
|
|
|
|
| Derivative
gain (loss) / change in fair value |
|
|
400,867 |
|
|
|
(676,926 |
) |
|
|
(276,059 |
) |
| Interest
expense |
|
|
(528,573 |
) |
|
|
(463,627 |
) |
|
|
(992,200 |
) |
| Loss
from operations |
|
|
(466,191 |
) |
|
|
86,811 |
|
|
|
(379,380 |
) |
| Net
loss |
|
|
(518,897 |
) |
|
|
(1,053,742 |
) |
|
|
(1,572,639 |
) |
| Net
comprehensive loss |
|
|
(359,575 |
) |
|
|
(1,053,742 |
) |
|
|
(1,413,317 |
) |
| Basic
and diluted loss per common share |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.03 |
) |
| |
|
Three
months ended June 30, 2015 |
|
| |
|
Previously
|
|
|
|
|
|
|
|
| |
|
Reported
|
|
|
Net
Change |
|
|
Restated
|
|
| |
|
|
|
|
|
|
|
|
|
| Derivative
gain (loss) / change in fair value |
|
|
(5,542 |
) |
|
|
62,206 |
|
|
|
56,664 |
|
| Derivative
expense |
|
|
- |
|
|
|
(154,271 |
) |
|
|
(154,271 |
) |
| Loss
from operations |
|
|
(177,732 |
) |
|
|
2,250 |
|
|
|
(175,482 |
) |
| Net
loss |
|
|
(225,057 |
) |
|
|
(86,897 |
) |
|
|
(311,954 |
) |
| Net
comprehensive loss |
|
|
(292,047 |
) |
|
|
(86,897 |
) |
|
|
(378,944 |
) |
| Basic
and diluted loss per common share |
|
|
(0.01 |
) |
|
|
- |
|
|
|
(0.01 |
) |
| Selected
Unaudited Consolidated Statements of Operations and Comprehensive Loss information for the six months ended June 30, 2016
and 2015 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Six
months ended June 30, 2016 |
|
| |
|
Previously
|
|
|
|
|
|
|
|
| |
|
Reported
|
|
|
Net
Change |
|
|
Restated |
|
| |
|
|
|
|
|
|
|
|
|
| Derivative
gain (loss) / change in fair value |
|
|
(126,436 |
) |
|
|
(1,805,159 |
) |
|
|
(1,931,595 |
) |
| Interest
expense |
|
|
(709,830 |
) |
|
|
(714,077 |
) |
|
|
(1,423,907 |
) |
| Loss
from operations |
|
|
(822,617 |
) |
|
|
131,751 |
|
|
|
(690,866 |
) |
| Net
loss |
|
|
(1,583,883 |
) |
|
|
(2,387,485 |
) |
|
|
(3,971,368 |
) |
| Net
comprehensive loss |
|
|
(1,431,826 |
) |
|
|
(2,387,485 |
) |
|
|
(3,819,311 |
) |
| Basic
and diluted loss per common share |
|
|
(0.03 |
) |
|
|
(0.06 |
) |
|
|
(0.09 |
) |
| |
|
Six
months ended June 30, 2015 |
|
| |
|
Previously
|
|
|
|
|
|
|
|
| |
|
Reported
|
|
|
Net
Change |
|
|
Restated
|
|
| |
|
|
|
|
|
|
|
|
|
| Derivative
gain (loss) / change in fair value |
|
|
(5,542 |
) |
|
|
119,648 |
|
|
|
114,106 |
|
| Derivative
expense |
|
|
- |
|
|
|
(403,193 |
) |
|
|
(403,193 |
) |
| Loss
from operations |
|
|
(327,462 |
) |
|
|
6,792 |
|
|
|
(320,670 |
) |
| Net
loss |
|
|
(393,989 |
) |
|
|
(273,669 |
) |
|
|
(667,658 |
) |
| Net
comprehensive loss |
|
|
(406,211 |
) |
|
|
(273,669 |
) |
|
|
(679,880 |
) |
| Basic
and diluted loss per common share |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.03 |
|
| Selected
Unaudited Consolidated Statements of Cash Flows information for the six months ended June 30, 2016 and 2015 |
| |
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|
|
|
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|
|
|
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|
Six
months ended June 30, 2016 |
|
| |
|
Previously
|
|
|
Increase
|
|
|
|
|
| |
|
Reported
|
|
|
(Decrease)
|
|
|
Restated |
|
| |
|
|
|
|
|
|
|
|
|
| Net
Loss |
|
|
(1,583,883 |
) |
|
|
(2,387,485 |
) |
|
|
(3,971,368 |
) |
| Derivative
(gain) loss / change in fair value |
|
|
126,436 |
|
|
|
1,805,159 |
|
|
|
1,931,595 |
|
| Stock
based compensation |
|
|
102,500 |
|
|
|
303,644 |
|
|
|
406,144 |
|
| Depreciation,
depletion and amortization |
|
|
190,646 |
|
|
|
(142,030 |
) |
|
|
48,616 |
|
| Amortization
of debt discount |
|
|
493,733 |
|
|
|
724,357 |
|
|
|
1,218,090 |
|
| Net
cash used in operating activities |
|
|
315,883 |
|
|
|
(52,758 |
) |
|
|
263,125 |
|
| |
|
Six
months ended June 30, 2015 |
|
| |
|
Previously
|
|
|
Increase
|
|
|
|
|
| |
|
Reported
|
|
|
(Decrease)
|
|
|
Restated |
|
| |
|
|
|
|
|
|
|
|
|
| Net
Loss |
|
|
(393,989 |
) |
|
|
(273,669 |
) |
|
|
(667,658 |
) |
| Derivative
(gain) loss / change in fair value |
|
|
5,542 |
|
|
|
(119,648 |
) |
|
|
(114,106 |
) |
| Derivative
expense |
|
|
- |
|
|
|
403,193 |
|
|
|
403,193 |
|
| Depreciation,
depletion and amortization |
|
|
6,792 |
|
|
|
(6,792 |
) |
|
|
- |
|
| Amortization
of debt discount |
|
|
43,241 |
|
|
|
(7,084 |
) |
|
|
36,157 |
|
| Net
cash used in operating activities |
|
|
227,042 |
|
|
|
(119,044 |
) |
|
|
107,998 |
|
The
Company uses the full cost method of accounting for its oil and gas properties, which requires a capitalized cost limitation test
(“ceiling test”) at each report date. This analysis utilizes information included in an annual reserve report. The
report originally used did not contemplate the pricing requirements for proved reserves promulgated by the Securities and Exchange
Commission (“SEC”). The Company obtained a revised reserve report in October 2016, which met the SEC pricing requirements
for proved reserves. Based on this report, the Company determined that an impairment of $210,032 should be recorded for the year
ended December 31, 2015, consequently reducing the balances carried forward to 2016 and impacting the calculations for depletion.
The Company also reevaluated the methodology originally used to estimate the derivative liabilities associated with the conversion
features of certain debt instruments, and the impact on additional paid in capital associated with these transactions. The Company
determined that the accounting for these transactions understated the derivative liability at June 30, 2016 by $2,550,660. The
change in the estimated fair value of these derivatives resulted in a loss of $1,931,595 for the six months ended June 30, 2016
as compared to previously recording a loss of $126,436.
|