Note 2

Restatement of Previously Issued 2017 Consolidated Financial Information

During the audit of the Company’s 2018 financial statements, the Company identified errors and has restated the previously issued 2017 financial statements because of the failure to properly record the following:

•

a non-cash embedded conversion feature arising from debentures issued in June 2015 (which converted into Series C Preferred Stock in September 2017) which should have been accounted for as an embedded derivative. With respect to the restatement of the opening balances associated with recognition of the derivative liability as compared to the original recognition of a beneficial conversion feature, the Company recorded an adjustment at January 1, 2017, whereby the senior secured convertible debenture liability was reduced by $6,945, a derivative liability of $3,158 was recorded, additional paid-in-capital was reduced by $27,300, and accumulated deficit was reduced by $31,087. As a result, for the year ended December 31, 2017, the Company recorded a loss on the extinguishment of the debentures of $20,160 and a gain in the fair value of the embedded conversion feature of $3,158;

•

non-cash derivative accounting for warrants issued, and other warrants modified, in June 2015 which should have been accounted for as derivative liabilities due to a down round provision in the warrant agreements until the Company adopted ASU 2017-11 on October 1, 2018, under the modified retrospective method. The Company restated the opening balances of the warrant liability to increase the warrant liability by $557 and corrected the method of calculating the volatility to properly reflect the impact on the valuation of the derivative;

•

accrual of additional liabilities related to sales and use tax. The Company restated the opening balance of other accrued liabilities at January 1, 2017, by increasing the liability by $917 and restated the December 31, 2017, balance by increasing the liability by $1,221. The as reported balance of other accrued liabilities at December 31, 2017, increased from $2,360 to $3,581;

•

adjustments to the impairment assessment and related impairment charge for intangible assets which was performed at the intangible asset level, as opposed to the asset group level, for the year ended December 31, 2017, which improperly resulted in an impairment charge. For the year ended December 31, 2017, the Company incorrectly recognized a total of $500 of intangible asset impairment charges with respect to product technology, which were recognized as cost of revenues on the Company’s consolidated statement of operations and comprehensive loss. The impairment assessment and the impairment charge for intangible assets was incorrectly performed at the intangible asset level, as opposed to the asset group level, for the year ended December 31, 2017, which improperly resulted in the impairment charge; The Company re-performed its recoverability test of December 31, 2017, at the asset group level, which demonstrated that its assets were fully recoverable and there was no impairment;

•

adjustment to deferred revenue to correct assumptions from the sale of access codes on the estimated usage period of the agreed upon number of treatments; the Company restated the opening balance of deferred revenue at January 1, 2017 by increasing the liability by $1,995 and the as reported balance of current deferred revenue as of December 31, 2017 increased from $291 to $1,871; and

•

other adjustments to the financial statements and related footnote disclosures for the presentation of certain discounts provided to customers as a decrease to revenue and a decrease to general and administrative expenses of approximately $101 and to reflect a decrease to certain state net operating loss carryforwards of approximately $9,700 with a corresponding decrease in the valuation allowance for deferred taxes.

Portions of the accompanying footnotes have been restated to give effect to the aforementioned error corrections:

•	Note 4 Revenue

•	Note 7 Intangibles Assets, net

•	Note 9 Other Accrued Liabilities

•	Note 10 Convertible Debentures

•	Note 13 Warrants

•	Note 16 Income Taxes

•	Note 17 Business Segments

•	Note 19 Significant Customer Concentration

The impact of the changes as of and for the year ended December 31, 2017, are as follows:

Balance Sheet

	As of December 31, 2016 As Reported			Effect of Restatement Jan. 1, 2017			Balance as of January 1, 2017 As Restated
Intangible assets, net	$	13,412		$	-		$	13,412
Total assets		43,193						43,193
Deferred revenues		235			1,995			2,230
Other accrued liabilities		1,992			917			2,909
Total current liabilities		6,133			2,912			9,045
Senior secured convertible debentures, net		12,028			(6,945	)		5,083
Derivative liability senior secured convertible debentures		-			3,158			3,158
Warrant liability		105			557			662
Total liabilities		28,474			(318	)		28,156

Series B Convertible Preferred Stock $.10 par value		1			-			1
Common Stock $.001 par value		2			-			2
Additional paid-in capital		225,289			(27,814	)		197,475
Accumulated deficit		(210,575	)		28,132			(182,443	)
Accumulated other comprehensive income		2			-			2
Total stockholders’ equity	$	14,719		$	318		$	15,037

							Restatement Adjustments as of December 31, 2017
	Balance as of December 31, 2017 as reported			Effect of restatement January 1, 2017			Sales and Use Tax			Warrants			Debentures			Intangible Impairment		Deferred Revenue			Other Adjustments		Balance as of December 31, 2017 as restated
Intangible assets, net	$	11,325			-		$	-		$	-		$	-		$	500	$	-		$	-	$	11,825
Total assets		38,631			-												500							39,131
Deferred revenues		291			1,995			-			-			-			-		(415	)		-		1,871
Other accrued liabilities		2,360			917			304			-			-			-		-			-		3,581
Total current liabilities		7,672			2,912			304											(415	)				10,473
Senior secured convertible debentures, net		-			(6,945	)		-			-			6,945			-		-					-
Derivative liability senior secured convertible debentures		-			3,158			-			-			(3,158	)		-		-			-		-
Warrant liability		3			557						(493	)							-			-		67
Total liabilities		16,386			(318	)		304			(493	)		3,787					(415	)		-		19,251

Series C Convertible Preferred Stock $.10 par value		4						-			-			-			-		-			-		4
Common stock $.001 par value		4			-			-			-			-			-		-			-		4
Additional paid-in capital		251,643			(27,814	)		-			-			-			-		-			-		223,829
Accumulated deficit		(229,406	)		28,132			(304	)		493			(3,787	)		500		415			-		(203,957	)
Total stockholders’ equity	$	22,245		$	318		$	(304	)	$	493		$	(3,787	)	$	500	$	415			-	$	19,880

Statement of Operations and Other Comprehensive Loss:

				Restatement Adjustments for the Year Ended December 31, 2017
	For the twelve months ended December 31, 2017 as reported			Sales and Use Tax			Warrant		Debentures			Intangible Impairment			Deferred Revenue		Other Immaterial Adjustments			For the twelve months ended December 31, 2017 as restated
Revenues, net	$	31,449		$	-		$	-	$	-		$	-		$	415	$	(101	)	$	31,763
Cost of revenues		13,498			-			-		-			(500	)		-		-			12,998
Gross profit		17,951											500			415		(101	)		18,765
General and administrative		7,401			304			-		-			-			-		(101	)		7,604
Loss from operations		(2,410	)		(304	)							500			415		-			(1,799	)
Other (expenses) income, net		(16,292	)		-			493		(3,787	)		-			-		-			(19,586	)
Loss before income taxes		(18,702	)		(304	)		493		(3,787	)		500			415		-			(21,385	)
Net loss	$	(18,831	)		(304	)		493		(3,787	)		500			415		-		$	(21,514	)
Loss per common share	$	(2.85	)		-			-		-			-			-		-		$	(3.26	)
Loss attributable to common stock	$	(7,747	)		-			-		-			-			-		-		$	(8,851	)
Common shares used in computing loss per share		2,713,782			-			-		-			-			-		-			2,713,782
Loss per preferred share	$	(1,061.25	)		-			-		-			-			-		-		$	(1,212.47	)
Loss attributable to preferred stock	$	(11,084	)		-			-		-			-			-		-		$	(12,663	)
Preferred shares used in computing loss per share		10,444			-			-		-			-			-		-			10,444

With respect to the Statement of Cash Flows there were no changes to as reported cash flows from investing and financing activities. For the twelve months ended December 31, 2017 the impact on the cash flows provided by operating activities were as follows:

Other accrued liabilities increased $304

Deferred revenue decreased $415

The gain on the change in fair value of embedded conversion feature increased $3,158

The gain on the change in fair value of warrant liability increased $493

Loss on extinguishment of debentures increased $8,361

Amortization of debt discount decreased $1,416

Impairment for intangibles reversed as part of restatement decreased $500

The net loss increased $2,683