NOTE 2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

On July 1, 2020, the audit committee of the board of directors and management of the Company concluded that the Company’s previously issued audited consolidated financial statements for the year ended December 31, 2019, should no longer be relied upon because of an error in the Company’s accounting for certain outstanding common stock warrants, which are referred to as the 2019 Warrants herein. The error relates to the determination of the number of shares of common stock subject to the 2019 Warrants that were issued by the Company in May 2019, which contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. At the time of issuance, the 2019 Warrants represented the right to purchase 3,000,000 shares of common stock at a per share exercise price of $1.30. In the Company’s Form 10-K for the year ended December 31, 2019, the Company accounted for certain dilutive issuances of securities by the Company during 2019 by reflecting that the exercise price of such warrants had decreased to $0.45 per share as a result of the anti-dilution adjustment provisions contained in the warrants, but the Company did not correctly account for the increase in shares subject to such warrants resulting from the anti-dilution adjustment provisions contained in the warrants. Such adjustment provisions increased the number of shares subject to the 2019 Warrants to 8,666,666 shares as of December 31, 2019.

The cumulative effect of the restatement on the Company's financial statements is an increase in the derivative liability balance and a corresponding increase in loss on derivative instruments of $3.2 million at December 31, 2019. These adjustments are non-cash and do not impact the Company’s revenue, operating expenses, operating income, cash flows or cash and cash equivalents as previously reported.

The effects of the restatement on the consolidated balance sheets are summarized in the following table:


	December 31, 2019
	As Originally
	Reported		Adjustments		As Restated
ASSETS
Current Assets
Cash and Cash Equivalents	$	122,390	$	—	$	122,390
Accounts receivable, net		85,204		—		85,204
Note receivable, net – current portion		375,000		—		375,000
Prepaid expenses and other current assets		546,970		—		546,970
Assets held for sale		375,218		—		375,218
Assets of discontinued operations		47,453		—		47,453
Total Current Assets	$	1,552,235		—	$	1,552,235

Note receivable, net		93,333		—		93,333
Property and equipment, net		1,507,327		—		1,507,327
Investment		250,000		—		250,000
Assets held for sale		15,584		—		15,584
Assets of discontinued operations		83,525		—		83,525
Total Assets	$	3,502,004	$	—	$	3,502,004

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses	$	1,221,194	$	—	$	1,221,194
Interest payable		93,375		—		93,375
Customer deposits		562,803		—		562,803
Accrued stock payable		80,657		—		80,657
Notes payable (net of discount)		2,230,684		—		2,230,684
Related party note payable (net of discount)		99,667		—		99,667
Warrant derivative liability		1,599,436		3,201,157		4,620,593
Liabilities held for sale		149,249		—		149,249
Liabilities of discontinued operations		207,993		—		207,993
Total current liabilities	$	6,245,058	$	3,201,157	$	9,266,216
Stockholders’ Equity (Deficit)
Common Stock		39,498		—		39,498
Additional paid-in capital		61,468,034		—		61,468,034
Accumulated deficit		(64,250,586)		(3,201,157)		(67,271,744)
Total Stockholders’ Equity (Deficit)	$	(2,743,054)	$	(3,201,157)	$	(5,764,212)
Total Liabilities & Stockholders’ Equity (Deficit)
	$	3,502,004	$	—	$	3,502,004

The effects of the restatement on the consolidated statements of operations and comprehensive income/loss are summarized in the following table:


	Year Ended December 31, 2019
	As Originally
	Reported		Adjustments		As Restated
Revenues
Services	$	1,787,863	$	—	$	1,787,863
Rent and interest		95,437		—		95,437
Product sale		1,783,046		—		1,783,046
Total revenues		3,666,346		—		3,666,346
Costs and Expenses
Cost of service revenues		858,714		—		858,714
Cost of goods sold		1,608,386		—		1,608,386
Selling, general, and administrative		4,379,800		—		4,379,800
Share-based expense		3,966,621		—		3,966,621
Professional fees		1,598,818		—		1,598,818
Depreciation and amortization		115,696		—		115,696
Total costs and expenses		12,528,035		—		12,528,035

Operating Loss		(8,861,689)		—		(8,861,689)
Other (Income) Expense
Amortization of debt discount and equity issuance costs
		2,019,726		—		2,019,726
Loss on extinguishment of debt		377,300		—		377,300
Interest expense, net		345,371		—		345,371
(Gain) loss on warrant derivative liability		(816,916)		3,201,157		2,204,172
Total other expense, net		1,925,411		3,201,157		4,946,569

Net Loss from Continuing Operations	$	(10,787,100)	$	(3,201,157)	$	(13,808,258)
Loss from discontinued operations		(1,675,539)		—		(1,675,539)
Net Loss	$	(12,462,639)	$	(3,201,157)	$	(15,483,797)
Deemed dividend		(2,341,000)		—		(2,341,000)
Net Loss Attributable to Common Stockholders	$	(14,803,639)	$	(3,201,157)	$	(17,824,797)

Per Share Data – Basic and diluted
Net loss from continuing operations	$	(0.28)	$	(0.08)	$	(0.36)
Net loss from discontinued operations	$	(0.04)	$	—	$	(0.04)
Net loss attributable to common stockholders per share	$	(0.39)	$	(0.08)	$	(0.47)
Weighted average number of common shares outstanding		38,106,781		—		38,106,781

The effects of the restatement on the consolidated statement of cash flows are summarized in the following table:


	December 31, 2019
	As Originally
	Reported		Adjustments		As Restated
Operating Activities
Net loss	$	(12,462,639)	$	(3,201,157)	$	(15,483,797)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount and equity issuance costs		2,019,726		—		2,019,726
Loss on extinguishment of debt		377,300		—		377,300
Depreciation and amortization expense		196,247		—		196,247
Amortization of loan origination fees		(13,333)		—		(13,333)
Bad debt expense		174,249		—		174,249
Impairment of assets		147,035		—		147,035
Loss on disposal of property and equipment		104,803		—		104,803
(Gain) loss on warrant derivative liability		(816,986)		3,201,157		2,204,172
Share-based payments		3,966,621		—		3,966,621
Changes in operating assets and liabilities:
Accounts receivable		(101,766)		—		(101,766)
Prepaid expenses and other assets		(138,254)		—		(138,254)
Inventory		(23,772)		—		(23,772)
Accounts payable and accrued liabilities		1,242,108		—		1,242,108
Net cash used in operating activities:		(5,328,661)		—		(5,328,661)

INVESTING ACTIVITIES
Purchase of property and equipment		(318,639)		—		(318,639)
Lending on notes receivable		(705,000)		—		(705,000)
Proceeds on notes receivable		270,000		—		270,000
Net cash used in investing activities		(753,639)		—		(753,639)

FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants		2,604,355		—		2,604,355
Proceeds from exercise of stock options		188,770		—		188,770
Proceeds from notes payable		1,455,000		—		1,455,000
Payments on notes payable		(5,898,000)		—		(5,898,000)
Payments on Infinity Note - related party		—		—		—
Net cash provided by (used in) financing activities		(1,649,875)		—		(1,649,875)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(7,732,175)		—		(7,732,175)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		7,957,169		—		7,957,169
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	224,994	$	—	$	224,994
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION

Cash paid for interest	$	305,195	$	—	$	305,195

NON-CASH INVESTING & FINANCING ACTIVITIES
Deemed dividend from warrant repricing	$	2,603,000	$	—	$	2,603,000
Operating lease right-of-use asset/Operating lease liability		154,200		—		154,200
12% Warrants recorded as a debt discount and loss on extinguishment of debt		392,000		—		392,000
SBI Warrants recorded as a debt discount and loss on extinguishment of debt		28,800		—		28,800
15% Warrants recorded as a debt discount and additional paid-in capital		158,100		—		158,100