| RESTATEMENT |
NOTE 13 – RESTATEMENT
In connection with the
year-end financial statement closing process, the Company determined that its previously issued financial statements included in
its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018 (“Restated Period”) should
be restated due to an error in recording the conversion of debt on September 28, 2018 and the omission of recognizing a modification
of debt on July 11, 2018. With the modification on July 11, 2018, the Company should have recorded a loss on extinguishment of
debt in the amount of $44,348 and reclassified the derivative liability at its fair value in the amount of $1,141,995 to additional
paid in capital (see NOTE 7 for details). On September 28, 2018, the debt conversion was originally recorded as a gain of $3,976,992,
however it should have been recorded in common stock and additional paid in capital as a result of the July 11, 2018 debt modification.
Impact of this Restatement
Based on management’s
review and discussions with our external auditors, the Company’s has concluded that the misclassification included on its
financial statements filed in our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018 (“Q3
10-Q”) requires restatement, included herewith.
|
Condensed Consolidated Balance Sheet
(Unaudited)
|
| |
|
|
|
|
|
|
| |
|
September 30, 2018 |
|
| |
|
As Previously Reported |
|
|
As Restated |
|
|
Restatement |
|
| Total assets |
|
$ |
1,206,063 |
|
|
$ |
1,206,063 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
$ |
11,101,777 |
|
|
$ |
11,101,777 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’ Deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Common stock |
|
$ |
5,046 |
|
|
|
5,046 |
|
|
|
— |
|
| Additional paid in capital |
|
|
14,334,570 |
|
|
|
17,616,073 |
|
|
|
(3,281,503 |
) |
| Subscriptions receivable |
|
|
(1,958 |
) |
|
|
(1,958 |
) |
|
|
— |
|
| Accumulated deficit |
|
|
(24,233,372 |
) |
|
|
(27,514,875 |
) |
|
|
3,281,503 |
|
| Total stockholders’ deficit |
|
|
(9,895,714 |
) |
|
|
(9,895,714 |
) |
|
|
— |
|
| Total liabilities and stockholders’ deficit |
|
$ |
1,206,063 |
|
|
$ |
1,206,063 |
|
|
$ |
— |
|
|
Condensed Consolidated Statement of Operations
(Unaudited)
|
| |
| |
|
Three Months Ended
September 30, 2018
|
|
| |
|
As Previously Reported |
|
|
As Restated |
|
|
Restatement |
|
| Gross profit |
|
$ |
28,749 |
|
|
$ |
28,749 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating loss |
|
$ |
(2,072,459 |
) |
|
$ |
(2,072,459 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
|
(2,381,602 |
) |
|
|
(1,618,834 |
) |
|
|
(762,768 |
) |
| Change in fair value of derivative liability |
|
|
22,931 |
|
|
|
— |
|
|
|
22,931 |
|
| Gain (loss) on conversion of debt |
|
|
3,976,992 |
|
|
|
(44,348 |
) |
|
|
4,021,340 |
|
| Interest income |
|
|
6,606 |
|
|
|
6,606 |
|
|
|
— |
|
| Total other income (expense) |
|
|
1,624,927 |
|
|
|
(1,656,576 |
) |
|
|
3,281,503 |
|
| Net loss |
|
$ |
(447,532 |
) |
|
$ |
(3,729,035 |
) |
|
$ |
3,281,503 |
|
| Net loss per share – basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.14 |
) |
Condensed Consolidated Statement of Operations
(Unaudited)
| |
|
Nine Months Ended
September 30, 2018
|
|
| |
|
As Previously Reported |
|
|
As Restated |
|
|
Restatement |
|
| Gross profit |
|
$ |
83,180 |
|
|
$ |
83,180 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating loss |
|
$ |
(3,953,657 |
) |
|
$ |
(3,953,657 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
|
(2,932,674 |
) |
|
|
(2,169,906 |
) |
|
|
(762,768 |
) |
| Change in fair value of derivative liability |
|
|
(952,971 |
) |
|
|
(975,902 |
) |
|
|
22,931 |
|
| Gain (loss) on conversion of debt |
|
|
3,976,992 |
|
|
|
(44,348 |
) |
|
|
4,021,340 |
|
| Interest income |
|
|
13,416 |
|
|
|
13,416 |
|
|
|
— |
|
| Total other income (expense) |
|
|
104,763 |
|
|
|
(3,176,740 |
) |
|
|
3,281,503 |
|
| Net loss |
|
$ |
(3,848,894 |
) |
|
$ |
(7,130,397 |
) |
|
$ |
3,281,503 |
|
| Net loss per share – basic and diluted |
|
$ |
(0.18 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.16 |
) |
Condensed Consolidated Statement of Cash
Flows
(Unaudited)
| |
|
Nine Months Ended
September 30, 2018
|
|
| |
|
As Previously Reported |
|
|
As Restated |
|
|
Restatement |
|
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(3,848,894 |
) |
|
$ |
(7,130,397 |
) |
|
$ |
3,281,503 |
|
| Adjustments to reconcile net lost to net cash flows used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
|
15,405 |
|
|
|
15,405 |
|
|
|
— |
|
| Allowance for doubtful accounts |
|
|
(7,914 |
) |
|
|
(7,914 |
) |
|
|
— |
|
| Amortization of debt discount and deferred financing costs |
|
|
907,891 |
|
|
|
145,123 |
|
|
|
762,768 |
|
| Amortization of intangible assets |
|
|
77 |
|
|
|
77 |
|
|
|
— |
|
| Change in fair value of derivative liability |
|
|
952,971 |
|
|
|
975,902 |
|
|
|
(22,931 |
) |
| Loss (gain) on conversion |
|
|
(3,976,992 |
) |
|
|
44,348 |
|
|
|
(4,021,340 |
) |
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
1,929 |
|
|
|
1,929 |
|
|
|
— |
|
| Inventory |
|
|
(137,725 |
) |
|
|
(137,725 |
) |
|
|
— |
|
| Other current assets |
|
|
(110,113 |
) |
|
|
(110,113 |
) |
|
|
— |
|
| Accounts payable |
|
|
45,355 |
|
|
|
45,355 |
|
|
|
— |
|
| Accrued expenses and other current liabilities |
|
|
1,515,384 |
|
|
|
1,515,384 |
|
|
|
— |
|
| Net cash flows used in operating activities |
|
|
(4,642,626 |
) |
|
|
(4,642,626 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash flows used in investing activities |
|
|
(185,780 |
) |
|
|
(185,780 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash flows provided by financing activities |
|
|
4,884,593 |
|
|
|
4,884,593 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Increase in cash and cash equivalents |
|
|
56,187 |
|
|
|
56,187 |
|
|
|
— |
|
| Cash and cash equivalents, beginning of period |
|
|
460,064 |
|
|
|
460,064 |
|
|
|
— |
|
| Cash and cash equivalents, end of period |
|
$ |
516,251 |
|
|
$ |
516,251 |
|
|
$ |
— |
|
|