Restatement of Previously Issued Financial Statements

3 Months Ended

Mar. 31, 2018

Accounting Changes and Error Corrections [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

NOTE 16 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company issued warrants associated with Series F Preferred stock in February 2018 whereas the difference between the cash value received and the fair value of the warrants was treated as a deemed dividend and recorded as a reduction to Additional Paid in Capital "APIC". However, after further looking into guidance of ASC 815, ASC 820, and ASC 470, it was determined that it is more appropriate to recognize this difference as a loss in earnings instead of a direct reduction to equity. The impact of this adjustment by itself was an increase to APIC of $4.2MM  for the three months ending March 31, 2018 and a reduction of earnings of $4.2MM. Additionally, the Company issued warrants in June 2017. Since the ability to issue these shares is deemed to be "out of the Company's control" to make sure there are sufficient shares available for issuance, combined with the fact that there is not specific language in the warrant documents that preclude the Company from having to issue cash if liquid shares cannot be delivered to the holder, it is deemed that a liability needs to be set up for these warrants in accordance with ASC 815 Accounting for Derivative Liabilities. Specifically, per 815-40-25-11, the events or actions necessary to deliver registered shares are not controlled by an entity and, therefore, except under the circumstances described in paragraph 815-40-25-16, if the contract permits the entity to net share or physically settle the contract only by delivering registered shares, it is assumed that the entity will be required to net cash settle the contract. As a result, the contracts are classified as a liability in our financial statements and adjusted quarterly based the change in stock value. The cumulative effect of these restatements, combined with other immaterial adjustments was an increase in liabilities of $288,824, an increase in Series Preferred Stock of $19,631, an increase in APIC of $4,085,247, a decrease of common stock of $159,507, and a decrease in the fair value of derivative liabilities of $4,234,195, which increased the loss on change in fair value of derivatives and other fair value liabilities in the statement of operations.

Management of the Company has determined that the purchase accounting used to determine the status of the AST transaction was inappropriate, resulting in the de-consolidation of the VIE AST, since it was determined the Company does not have control of the entity AST. Accordingly, the financial statements have been revised to de-consolidate AST. The appropriate accounting is to record the lease associated with the property and equipment as a capital lease and the patent license agreement as an operating lease. The impact of the corrections are as follows:

1. The assets of AST were revalued at fair value; and

2. Depreciation and amortization were adjusted accordingly and;

3. Expenses associated with the patent license agreement were expensed as incurred.

Additionally, there were immaterial out of period adjustments in 2017 that were corrected in the period ended March 31, 2018.

The tables below summarize the impact, by specific financial statement line item, of the restatement described above on financial information previously reported on the Company's Form 10-Q for the period ended March 31, 2018.

Balance Sheet (unaudited)

	March 31, 2018
	As Restated			Adjustments			As Previously Reported
Prepaid expenses and other assets		969,963			464,879			505,084
Total current assets		12,234,278			464,879			11,769,399
Property, plant and equipment, at cost net of accumulated depreciation		1,940,263			(1,088,803	)		3,029,066
Patents		3,107,607			(1,786,863	)		4,894,470
Total other assets		11,109,706			(1,786,863	)		12,896,569
Total assets	$	112,326,496		$	(2,410,786	)	$	114,737,282
Accrued expenses		1,926,676			(1,340,599	)		3,267,275
Derivative and other fair value liabilities		11,469,171			288,824			11,180,347
Total current liabilities		37,672,609		$	(1,051,775	)		38,724,384
Lease payable		1,288,709			1,288,709			-
Total long term liabilities		102,355,090			1,288,709			101,066,381
Total liabilities		140,027,699			236,935			139,790,764
Preferred Series E stock, cumulative, stated value $100 per share, par value $.001, 300,000 shares authorized, 223,950 and 300,000 shares issued and outstanding, respectively		2,696,523			19,631			2,676,892
Common stock, par value $.025, 75,000,000 shares authorized, 2,148,080 and 1,832,372 shares issued and 2,141,393 and 1,830,969 shares outstanding, respectively		33,724			(395,575	)		429,299
Common stock to be issued		4,935			(34,544	)		39,479
Treasury stock, at cost, 11,500 shares		(28,031	)		196,219			(224,250	)
Additional paid in capital		59,699,040			4,159,640			55,539,399
Accumulated equity (deficit)		(92,728,320	)		(4,481,142	)		(88,247,178	)
Total shareholders' equity/deficit		(31,749,141	)		(555,402	)		(31,193,739	)
Noncontrolling interest		1,351,415			(2,111,950	)		3,463,365
Total equity (deficit)		(30,397,726	)		(2,667,352	)		(27,730,374	)
Total liabilities and shareholders' equity	$	112,326,496		$	2,410,786		$	114,737,282

Statement of Operations (unaudited)

	March 31, 2018
	As Restated			Adjustments			As Previously Reported
Depreciation and amortization		385,986			(46,494	)		432,480
Selling, general and administrative		3,813,431			204,290			3,609,142
Total costs and expenses		5,773,139			157,796			5,615,343
Unrealized gain (loss) on change in fair value of derivative and other fair value liabilities		(1,926,013	)		(4,234,195	)		2,316,360
Interest expense		(320,072	)		(18,343	)		(301,729	)
Total other income (expense)		(2,208,724	)		(4,252,538	)		2,043,813
Loss before income taxes		(7,193,645	)		(4,410,334	)		(2,783,312	)
Provision for income taxes		-						-
Loss from continuing operations		(7,193,645	)		(4,410,334	)		(2,783,312	)
Consolidated Net Loss		(7,737,790	)		(4,410,334	)		(3,327,456	)
Net (gain) loss attributable to noncontrolling interest		(71,064	)		70,808			(141,872	)
Net loss available to common shareholders	$	(7,666,726	)	$	(4,481,142	)	$	(3,185,584	)
Earnings per common share (basic and diluted):
Loss from continuing operations	$	(4.91	)	$	(2.03	)	$	(2.88	)
Loss from discontinued operations	$	(0.25	)	$	-		$	(0.25	)
Net loss per common share	$	(5.16	)	$	(2.03	)	$	(3.13	)
Weighted average number of shares outstanding
(Basic and Diluted)		2,169,861			2,169,861			2,169,861

Statement of Cash Flows (unaudited)

	March 31, 2018
	As Restated			Adjustments			As Previously Reported
Net loss	$	(7,737,791	)	$	(4,410,334	)	$	(3,327,457	)
Depreciation and amortization		358,986			(46,494	)		432,480
Unrealized (gain)/loss on fair value and derivative liabilities		1,926,013			4,234,195			(2,308,182	)
Prepaid expenses and other current assets		(243,619	)		204,290			(447,909	)
Accounts payable and accrued expenses		3,400,113			18,343			3,418,456