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Restatement of Previously Issued Financial Statements

3 Months Ended

Mar. 31, 2021

Prior Period Adjustment [Abstract]

Restatement of Previously Issued Financial Statements

Restatement of Previously Issued Financial Statements. The financial statements for the three months ended March 31, 2021 and 2020 have been restated to reflect the correction of misstatements. The Company also restated all amounts impacted within the notes to the financial statements. A description of the adjustments and their impact on the previously issued financial statements are included below.

Description of Restatement Adjustments. Commencing in the second quarter of 2021, the Company conducted a review of its sales tax positions, and related accounting, with the assistance of outside consultants. As a result of the review, it was determined that certain non-POPs services/products sales were subject to sales tax and that the Company had not assessed sales tax on sales of those services/products to customers. Company management then undertook a process to obtain documentation from significant customers to determine if each was exempt from sales tax assessments during the applicable periods. Based on responses received from these customers, the Company determined that it did not properly accrue sales tax and accrued the estimated sales tax. The misstatements in the previously issued financial statements are considered material and are described below.

In light of the foregoing, the Company in accordance with ASC 250, Accounting Changes and Error Corrections is restating the previously issued financial statements for the three months ended March 31, 2021 and 2020 to reflect the effects of misstatements, and to make certain corresponding disclosures. The balance sheets, statements of operations, shareholders’ equity and cash flows, and Notes 3, 5 and 6 were updated to reflect the restatement.

A summary of the impact of the misstatements is as follows:

		March 31, 2021								March 31, 2020
Three Months Ended		As previously reported				Restated				As previously reported				Restated
Net Sales		$	5,419,000			$	5,386,000			$	4,682,000			$	4,646,000
Operating Loss			(1,708,000	)			(1,759,000	)			(1,109,000	)			(1,156,000	)
Net Loss			(659,000	)			(737,000	)			(863,000	)			(925,000	)

		March 31, 2021								December 31, 2020
As of		As previously reported				Restated				As previously reported				Restated
Shareholder's equity		$	7,117,000			$	6,013,000			$	7,694,000			$	6,668,000

The categories of restatement adjustments and their impact on previously reported financial statements are described below:

(a)

Sales Tax and Related Misstatements – Sales tax on sales to customers who were subject to sales tax that was not previously accrued by the Company is corrected by an increase to accrued liabilities on the balance sheets and a reduction of net sales on the statements of operations. The Company also determined on which past sales the Company would bill for sales tax and corrected by increasing accounts receivable, net of an allowance for doubtful collectability, on the balance sheets and increasing net sales on the statements of operations. Estimated penalties on the related sales tax are corrected by an increase to accrued liabilities on the balance sheets and an increase to general and administrative expenses on the statements of operations. Estimated interest on the related sales tax is corrected by an increase to accrued liabilities on the balance sheets and an increase to interest expense within other income on the statements of operations.

(b)

Related Income Tax Impact-The impact on income tax benefit from the impact on loss before taxes due to the correction in (a) above are reflected as a change in deferred tax asset or liability on the balance sheet and a change in income tax benefit on the statements of operations.

The following is a summary of the impact of the correction of the sales tax error for the periods previously reported during the quarters ended March 31, 2021 and 2020.

The following table sets forth the corrections in each of the individual line items affected in the statements of operations:

		March 31,				March 31,
Three Months Ended		2021				2020
Reduction of net sales		$	33,000			$	36,000
Increase in general and administrative expense for penalities			18,000				11,000
Decrease in other income (expense) for interest expense			27,000				15,000
Total effect of restatement items		$	78,000			$	62,000

		March 31, 2021								March 31, 2020
Three Months Ended		As previously reported				Restated				As previously reported				Restated
Services revenues		$	5,419,000			$	5,386,000			$	4,436,000			$	4,400,000
Products revenues			—				—				246,000				246,000
Total Net Sales			5,419,000				5,386,000				4,682,000				4,646,000

Cost of services			4,457,000				4,457,000				3,382,000				3,382,000
Cost of goods sold			—				—				172,000				172,000
Impairment loss			—				—				159,000				159,000
Total Cost of Sales			4,457,000				4,457,000				3,713,000				3,713,000
Gross Profit			962,000				929,000				969,000				933,000

Operating Expenses:
Selling			516,000				516,000				720,000				720,000
Marketing			235,000				235,000				365,000				365,000
General and administrative			1,919,000				1,937,000				993,000				1,004,000
Total Operating Expenses			2,670,000				2,688,000				2,078,000				2,089,000
Operating Loss			(1,708,000	)			(1,759,000	)			(1,109,000	)			(1,156,000	)

Gain on forgiveness of debt and accrued interest			1,062,000				1,062,000				—				—
Other income (expense)			—				(27,000	)			24,000				9,000
Loss Before Taxes			(646,000	)			(724,000	)			(1,085,000	)			(1,147,000	)

Income tax expense (benefit)			13,000				13,000				(222,000	)			(222,000	)
Net Loss		$	(659,000	)		$	(737,000	)		$	(863,000	)		$	(925,000	)

Net loss per share:
Basic		$	(0.38	)		$	(0.42	)		$	(0.51	)		$	(0.54	)
Diluted		$	(0.38	)		$	(0.42	)		$	(0.51	)		$	(0.54	)

Shares used in calculation of net loss per share:
Basic			1,751,000				1,751,000				1,724,000				1,724,000
Diluted			1,751,000				1,751,000				1,724,000				1,724,000

The following table sets forth the corrections in each of the individual line items affected in the balance sheet:

		March 31, 2021												December 31, 2020
		As previously reported				Error correction				Restated				As previously reported				Error correction				Restated
Accounts receivable, net		$	4,726,000			$	349,000			$	5,075,000			$	5,628,000			$	229,000			$	5,857,000
Accrued liabilities - sales tax		$	-			$	1,163,000			$	1,163,000			$	-			$	1,011,000			$	1,011,000
Accrued liabilities - other		$	1,280,000			$	290,000			$	1,570,000			$	827,000			$	244,000			$	1,071,000
Accumulated deficit		$	9,220,000			$	1,104,000			$	10,324,000			$	8,561,000			$	1,026,000			$	9,587,000

The Company did not present tables for adjustments within the statement of cash flows, since all of the foregoing adjustments were within the operating activities section of the statements of cash flows. These adjustments did not affect total cash flows from operating activities, financing activities or investing activities for any period presented.