| Error Correction |
2. COURT ORDER AND RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Background
Shaun Passley, PhD was appointed custodian of the Company by the Eighth Judicial District Court, Clark County, Nevada (the “Court”) on November 9, 2020 under NRS 78.347 and acted as custodian and sole director and officer until August 11, 2026. On August 11, 2026, after trial of the derivative claims of two creditors and the Company’s claims against them, the Court entered Findings of Fact, Conclusions of Law and Order in Case No. A-20-822695-B (the “Order”, filed as Exhibit 99.1).
The Court (i) removed Dr. Passley as custodian, held that he had not been validly appointed as a director or officer (ii) declared void ab initio transactions including the Management Services Agreement with Epazz, Inc., the mergers of Bozki, Inc. and VW Win Century, Inc., the Technology Exclusive License Agreement with ZenaTech, Inc., the Stock Compensation Agreement, the sale of Ecker Capital, LLC, the purchase of Galaxy Batteries, Inc., cancelled the shares issued under them and left the debt assumed under them with the originating party; (iii) rescinded the 1-for-1,200 reverse stock split of January 20, 2026; (iv) allowed the creditor claim of Meridian Pacific Holdings, LLC (“Meridian”) at $579,100 as of August 11, 2026 with interest accruing. The Company has applied the Order as written; Dr. Passley’s challenges to it are described in Note 14.
Restatement
On August 20, 2026 the Company’s then independent registered public accounting firm advised that its reports for 2019 through the quarter ended March 31, 2026 should no longer be relied upon, and the Company so reported on Form 8-K filed October 15, 2026. The transactions being void from inception, the Company did not acquire the assets, assume the liabilities or issue the shares concerned, and the previously issued financial statements also omitted the Meridian note outstanding since 2017. The comparative amounts are restated under ASC 250 as follows:
Adjustment
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Treatment in these financial statements
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R1 – Ecker Capital sale
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ZenaTech, Inc. shares received as consideration ($10,471,466 at December 31, 2025) derecognized and related gains and losses reversed; the Company’s interest in Ecker Capital, LLC carried at nil (Note 6).
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R2 – Bozki / VW Win mergers
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Epazz, Inc. notes assumed in the mergers (principal $1,014,094; accrued interest $699,009 at December 31, 2025) and related interest derecognized; 50,000,000 conversion shares cancelled; commitment-fee amortization reversed.
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R3 – Meridian note
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Recognized with accrued interest and late charge (Note 10).
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R4 – Equity
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Shares issued for Galaxy Batteries (10,000,000,000) and the $37,000,000 common control adjustment account reversed; 366,000,000 shares issued in January 2025 under the voided compensation and management agreements cancelled and 2025 stock-based compensation of $477,722 ($183,000 in the 2025 periods presented) reversed; other shares issued to Dr. Passley and his affiliates and the Series B, C and D preferred stock cancelled (Note 11); reverse stock split rescinded. No effect on total equity.
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R6 – Management fees
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Fees of $479,565 billed by Epazz, Inc. under the voided Management Services Agreement and unpaid at December 31, 2025 derecognized from the beginning of the earliest period presented (Note 12).
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The Order has not yet been implemented on the transfer agent’s register, which continues to show 9,222,729 post-split common shares and the preferred stock as previously reported; the cancelled shares have not been surrendered and the ZenaTech shares and Ecker membership interests have not been exchanged. Amounts may change when matters the Order does not resolve are determined by the Court, the custodian or on appeal.
Effect on the consolidated balance sheet as of December 31, 2025
|
As previously reported
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Adjustment
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As restated
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Cash
|
2,543
|
–
|
2,543
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Total current assets
|
2,543
|
–
|
2,543
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Property and equipment, net
|
417,313
|
–
|
417,313
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Franchise and development rights, net
|
78,375
|
–
|
78,375
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Investment in securities
|
10,471,466
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(10,471,466)
|
–
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Total long-term assets
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10,967,154
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(10,471,466)
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495,688
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Total assets
|
10,969,697
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(10,471,466)
|
498,231
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Accounts payable
|
516,051
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(479,565)
|
36,486
|
Accrued interest and expenses
|
700,642
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(699,009)
|
1,633
|
Short-term debt
|
125,232
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(104,232)
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21,000
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Short-term advances from affiliates
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892,386
|
–
|
892,386
|
Amount due to Meridian Pacific Holdings, LLC
|
–
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566,195
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566,195
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Total current liabilities
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2,234,311
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(716,611)
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1,517,700
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Long-term debt
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935,065
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(909,862)
|
25,203
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Total long-term liabilities
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935,065
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(909,862)
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25,203
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Total liabilities
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3,169,376
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(1,626,473)
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1,542,903
|
Preferred stock – Series A
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74,887
|
–
|
74,887
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Preferred stock – Series B
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100,000
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(100,000)
|
–
|
Preferred stock – Series C
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599,890
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(599,890)
|
–
|
Preferred stock – Series D
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90,836
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(90,836)
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–
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Preferred stock – Series E
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230,000
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–
|
230,000
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Common stock
|
9,124
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358,892
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368,016
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Additional paid-in capital
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38,940,342
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(37,045,888)
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1,894,454
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Common control adjustment account
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(37,000,000)
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37,000,000
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–
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Accumulated surplus (deficit)
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4,755,242
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(8,367,271)
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(3,612,029)
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Total stockholders’ equity (deficit)
|
7,800,321
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(8,844,993)
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(1,044,672)
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Total liabilities and stockholders’ equity (deficit)
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10,969,697
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(10,471,466)
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498,231
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The adjustment to accumulated surplus (deficit) comprises R1 $(10,471,466), R2 $1,713,103, R3 $(566,195), R4 $477,722 and R6 $479,565. Common shares outstanding change from 9,124,451 post-split to 368,015,948 pre-split.
Effect on the consolidated statements of operations for the three and six months ended June 30, 2025
|
Three months as previously reported
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Adjustment
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As restated
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Six months as previously reported
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Adjustment
|
As restated
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Revenue
|
22,492
|
–
|
22,492
|
22,492
|
–
|
22,492
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General and administrative
|
2,067
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–
|
2,067
|
10,353
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–
|
10,353
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Stock-based compensation
|
183,000
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(183,000)
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–
|
183,000
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(183,000)
|
–
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Depreciation and amortization
|
2,000
|
–
|
2,000
|
4,000
|
–
|
4,000
|
Total operating expenses
|
187,067
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(183,000)
|
4,067
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197,353
|
(183,000)
|
14,353
|
Operating income (loss)
|
(164,575)
|
183,000
|
18,425
|
(174,861)
|
183,000
|
8,139
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Interest expense
|
(28,623)
|
21,387
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(7,236)
|
(55,615)
|
42,832
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(12,783)
|
Gain (loss) on investment in securities
|
1,725,833
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(1,725,833)
|
–
|
(7,296,262)
|
7,296,262
|
–
|
Net income (loss)
|
1,532,635
|
(1,521,446)
|
11,189
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(7,526,738)
|
7,522,094
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(4,644)
|
Weighted average shares – basic and diluted
|
949,226,791
|
|
368,015,948
|
949,226,791
|
|
382,933,075
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Net income (loss) per share – basic and diluted
|
0.00
|
|
0.00
|
(0.01)
|
|
(0.00)
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The interest adjustment reverses interest and commitment-fee amortization on the Epazz, Inc. notes and adds Meridian interest ($5,284 and $10,511).
Effect on the consolidated statement of cash flows for the six months ended June 30, 2025
|
As previously reported
|
Adjustment
|
As restated
|
Net income (loss)
|
(7,526,738)
|
7,522,094
|
(4,644)
|
Amortization and depreciation
|
4,000
|
–
|
4,000
|
Amortization of LOC commitment fees
|
3,696
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(3,696)
|
–
|
(Gain) loss on fair value changes in investments
|
7,296,262
|
(7,296,262)
|
–
|
Stock-based compensation
|
183,000
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(183,000)
|
–
|
Accounts payable
|
(11,100)
|
–
|
(11,100)
|
Accrued interest and expenses
|
51,918
|
(49,647)
|
2,271
|
Accrued interest and late charge – Meridian
|
–
|
10,511
|
10,511
|
Short-term advances from affiliates
|
100
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(100)
|
–
|
Net cash (used in) provided by operating activities
|
1,138
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(100)
|
1,038
|
Advances from affiliates, net
|
–
|
100
|
100
|
Net cash provided by financing activities
|
–
|
100
|
100
|
Net increase in cash
|
1,138
|
–
|
1,138
|
Cash – end of the period
|
1,138
|
–
|
1,138
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Cash advances from affiliates, previously presented in operating activities, are presented in financing activities.
Three months ended March 31, 2026
Effect on the quarter ended March 31, 2026, included in the six-month amounts:
|
As previously reported
|
Adjustment
|
As restated
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Revenue
|
5,419
|
–
|
5,419
|
General and administrative
|
8,223
|
–
|
8,223
|
Depreciation and amortization
|
8,208
|
–
|
8,208
|
Operating loss
|
(11,012)
|
–
|
(11,012)
|
Interest expense
|
(22,458)
|
16,512
|
(5,946)
|
Loss on investment in securities
|
(2,976,458)
|
2,976,458
|
–
|
Net loss
|
(3,009,928)
|
2,992,970
|
(16,958)
|
Weighted average shares – basic and diluted
|
9,131,485
|
|
368,015,948
|
Net loss per share – basic and diluted
|
(0.33)
|
|
(0.00)
|
Total stockholders’ equity (deficit), March 31, 2026
|
4,790,393
|
(5,852,023)
|
(1,061,630)
|
Cumulative effect at January 1, 2025
The cumulative effect at December 31, 2024 is a reduction of stockholders’ equity of $12,497,288 (from $13,729,792 to $1,232,504): preferred stock $(790,726), common stock $397,505, additional paid-in capital $363,246 and accumulated surplus $(12,467,313), from removing the ZenaTech shares ($14,053,981), the Epazz, Inc. notes and interest ($1,622,127) and the management fees ($479,565) and recognizing the Meridian liability ($545,000). The allocation between additional paid-in capital and accumulated surplus for pre-2025 transactions has not been completed and does not affect total equity. The restatement has no income tax effect (Note 15). The Company has not determined whether it will amend its 2025 Form 10-K or its Form 10-Q for the quarter ended March 31, 2026.
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