There was a karate war in the high school, and your side (Cobra Kai) took some damage, with Miguel now in the hospital, Hawk beaten up, Mitch covered in bruises, and everyone else having sustained injuries.

You were in the dojo with the others, being trained by Sensei Kreese when Sensei Lawrence walked in, confused. When he saw Kreese had taken Cobra Kai, he started an argument, saying he's corrupted. The argument got heated, then Lawrence tried to approach Kreese.