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Restatement

3 Months Ended

Mar. 31, 2018

NOTE 17 – RESTATEMENT

Subsequent to the issuance of the Company’s consolidated financial statements for the three months ended March 31, 2018 on May 15, 2018, the Company realized that (1) warrants which contain certain net cash settlement and down-round provisions were incorrectly accounted for as equity instruments instead of derivative liabilities; and (2) understatement of stock compensation from not recognizing additional warrants issued to Dynamic and Cannan. The Company recorded derivative liabilities of $846,319 and decreased additional paid in capital and accumulated deficit by $2,614,795 and $1,768,476, respectively at March 31, 2018. The Company also adjusted stock compensation expense and gain on derivative liability for the three months ended March 31, 2018 by $24,226 and $1,035,159, respectively.

Following is a summary of the restatement changes made to the consolidated financial statements previously issued as of and for the three months ended March 31, 2018:

	Originally Reported		Restatement			As Restated
	2018		2018			2018
Consolidated balance sheet:
Derivative liabilities	$	-	$	846,319		$	846,319
Additional paid-in capital	$	24,655,946	$	(2,614,795	)	$	22,041,151
Accumulated deficit	$	14,701,902	$	(1,768,476	)	$	12,933,426

Consolidated Statement of Operations and Comprehensive Loss:
General and administrative	$	3,169,787	$	24,226		$	3,194,013
Change in fair value of derivative liabilities	$	-	$	1,035,159		$	1,035,159
Net loss	$	1,915,971	$	(1,010,933	)	$	905,038
Total comprehensive loss	$	1,911,108	$	(1,010,933	)	$	900,175

Consolidated Statements of Cash Flows:
Net loss	$	1,915,971	$	(1,010,933	)	$	905,038
Stock compensation	$	496,688	$	24,226		$	520,914
Change in fair value of derivative liabilities	$	-	$	1,035,159		$	1,035,159

Derivative liabilities

ASC Topic No. 815 - Derivatives and Hedging provides guidance on determining what types of instruments or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements can affect the accounting for warrants issued by the Company. At March 31, 2018, the Company had warrants resulting from equity offerings in November 30, 2017 and additional warrants issued upon qualified equity event as defined in the warrants agreements that contain net cash settlement provision and do not have fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower prices in the future, the Company concluded that the instruments are not indexed to the Company’s stock and are to be treated as derivative liabilities. In determining the fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at March 31, 2018:

	March 31, 2018
Common stock issuable upon exercise of warrants		1,032,717
Market value of common stock on measurement date	$	4.06
Exercise price	$	7.70 to $7.0
Risk free interest rate(1)		2.27	%
Expected life in years		1.76 years
Expected volatility (2)		72.36	%
Expected dividend yields (3)		0	%

(1) The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date.

(2) The historical trading volatility was determined by calculating the volatility of the Company’s peers common stock.

(3) The Company does not expect to pay a dividend in the foreseeable future.

The following table shows the change in the Company’s derivative liabilities that were accounted for at fair value on a recurring basis as of March 31, 2018:

	Amount
Balance, December 31, 2017	$	1,857,252
Initial valuation of derivative liabilities upon issuance of warrants		24,226
Change in fair value of derivative liabilities		(1,035,159	)

Balance, March 31, 2018		846,319