Restatement and Correction of an Error | NOTE 3 — RESTATEMENT AND CORRECTION OF AN ERROR Restatement The Company has restated its financial statements as of and for the year ended, December 31, 2021. The following tables provide the summary of restated amounts. December 31, 2021 As Previously Reclassifications Error Restated ASSETS Current Assets: Cash $ 12,362 $ 12,362 Deferred offering costs 166,342 166,342 Total Current Assets 178,704 178,704 Property and equipment, net of accumulated depreciation of $440,334 337,592 337,592 Operating lease right of use asset 1,007,589 1,007,589 Intangible assets, net of accumulated amortization of $37,528 18,506 14,712 33,218 Total Assets $ 1,542,391 — 14,712 $ 1,557,103 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT Current Liabilities: Accounts payable $ 871,313 $ 871,313 Accrued expenses and other liabilities 514,783 514,783 Accrued interest— related parties — 226,170 226,170 Accrued interest— non-related 1,880,656 (226,170 ) 1,654,486 Convertible notes payable— related parties, net of debt discount of $0 — 900,000 900,000 Convertible notes payable, current, net of debt discount of $946,291 9,507,228 (900,000 ) (903,796 ) 7,703,432 Derivative liabilities — 3,813,019 3,813,019 Lease liability, current 120,162 120,162 Total Current Liabilities 12,894,142 — 2,909,223 15,803,365 Long-term Liabilities: Lease liability, net of current portion 961,908 961,908 Convertible notes payable — net of debt discount of $49,078 50,000 (49,078 ) 922 Derivative liabilities — 33,300 33,300 Total Long-term Liabilities 1,011,908 — (15,778 ) 996,130 Total Liabilities 13,906,050 — 2,893,445 16,799,495 December 31, 2021 As Previously Reclassifications Error Restated Commitments and Contingencies (Note 8) Mezzanine Equity Series A Preferred stock, 21,064,711 7,020,992 385,417 7,406,409 Series B Preferred stock, 34,772,230 shares authorized; 32,917,690 issued and outstanding as of December 31, 2021 (liquidation preference: $6,928,245) 5,970,791 957,454 6,928,245 Series C Preferred stock, 25,907,990 shares authorized; 0 shares issued and outstanding as of December 31, 2021 — Stockholders’ Deficit: Common stock, $.001 par value; 100,050,000 shares authorized; 36,918,882 shares issued and outstanding as of December 31, 2021 36,919 36,919 Additional paid-in 2,989,644 170,847 3,160,491 Accumulated deficit (28,382,005 ) (4,392,451 ) (32,774,456 ) Total Stockholders’ Deficit (25,355,442 ) — (4,221,604 ) (29,577,046 ) Total Liabilities, Mezzanine Equity and Stockholders’ Deficit $ 1,542,391 — 14,712 $ 1,557,103 For the Year Ended December 31, 2021 As Previously Reclassifications Error Restated Operating expenses: Research and development $ 982,837 $ 982,837 General and administrative 617,989 153,861 91,483 863,333 Depreciation and amortization 103,656 (9,494 ) 94,162 ROU amortization 145,846 (145,846 ) — Advertising and Marketing 8,015 (8,015 ) — Total operating expenses 1,858,343 — 81,989 1,940,332 Loss from operations (1,858,343 ) — (81,989 ) (1,940,332 ) Other income (expense): Gain on the forgiveness of loans payable 438,180 438,180 Other income 37,527 (149 ) 37,378 Change in fair value of derivative liabilities — (2,515,065 ) (2,515,065 ) Interest expense, related party — (72,000 ) (72,000 ) Interest expense, non-related (860,805 ) 125,686 91,632 (643,487 ) Amortization of debt discount — (53,686 ) (1,729,911 ) (1,783,597 ) Total other expense (385,098 ) — (4,153,493 ) (4,538,591 ) Loss before provision for income taxes (2,243,441 ) — (4,235,482 ) (6,478,923 ) Provision for income taxes — — — Net loss (2,243,441 ) — (4,235,482 ) (6,478,923 ) Dividends on Series A preferred stock (307,927 ) (307,927 ) Net loss attributable to common stockholders $ (2,243,441 ) — (4,543,409 ) $ (6,786,850 ) Net loss per common share—basic and diluted $ (0.16 ) — (0.13 ) $ (0.29 ) Weighted average shares outstanding—basic and diluted 13,698,060 — 9,441,105 23,139,165 Common Stock Additional Paid-in Accumulated Total Shares Amount As Previously Reported Balance at January 1, 2021 2,922,284 $ 2,922 $ 2,539,486 $ (25,830,637 ) $ (23,288,229 ) Accrued Series A preferred stock dividend (307,927 ) (307,927 ) Issuance of stock 31,940,355 31,940 (28,746 ) — 3,194 Exercise of stock options 2,056,243 2,057 232,105 — 234,162 Stock-based compensation expense 246,799 — 246,799 Net loss — (2,243,441 ) (2,243,441 ) Balance as of December 31, 2021 36,918,882 $ 36,919 $ 2,989,644 $ (28,382,005 ) $ (25,355,442 ) Error Correction Net loss (4,235,482 ) (4,235,482 ) As Restated Balance at January 1, 2021 2,922,284 $ 2,922 $ 2,539,486 $ (25,830,637 ) $ (23,288,229 ) Correction of accumulated error 170,847 (156,969 ) 13,878 Balance at January 1, 2021 (Restated) 2,922,284 2,922 2,710,333 (25,987,606 ) (23,274,351 ) Accrued Series A preferred stock dividend — — — (307,927 ) (307,927 ) Issuance of common stock 31,940,355 31,940 (28,746 ) 3,194 Exercise of stock options 2,056,243 2,057 232,105 — 234,162 Stock-based compensation expense — — 246,799 — 246,799 Net loss — — — (6,478,923 ) (6,478,923 ) Balance as of December 31, 2021 36,918,882 $ 36,919 $ 3,160,491 $ (32,774,456 ) $ (29,577,046 ) For the Year Ended December 31, 2021 As Previously Reclassifications Error Restated Cash flows from operating activities: Net loss $ (2,243,441 ) (4,235,482 ) $ (6,478,923 ) Adjustments to reconcile net loss to net cash used in operating activities: Gain on forgiveness of loans payable (438,180 ) (438,180 ) Depreciation and amortization 103,656 (9,494 ) 94,162 Amortization of debt discount 53,686 1,729,911 1,783,597 Amortization of ROU assets 145,846 2,116 147,962 Change in fair value of derivative liabilities 2,515,065 2,515,065 Stock-based compensation 246,799 246,799 Changes in operating assets and liabilities: Prepaid expenses and other current assets 9,918 9,918 Accounts payable 80,320 80,320 Accrued expenses and other liabilities 262,098 (1 ) 262,097 Lease liability (113,016 ) (2,116 ) (115,132 ) Accrued interest— related parties 72,000 72,000 Accrued interest -non 715,486 (72,000 ) 643,486 Net cash used in operating activities (1,176,828 ) (1 ) 0 (1,176,829 ) Cash flows from investing activities: Purchase of property and equipment (7,273 ) (7,273 ) Net cash used in investing activities (7,273 ) — — (7,273 ) Cash flows from financing activities: Proceeds from convertible notes 906,839 906,839 Proceeds from PPP loan 217,460 217,460 Payment of offering costs (166,342 ) (166,342 ) Proceeds from issuance of common stock 3,194 3,194 Proceeds from exercise of stock options 237,356 (3,193 ) 234,163 Net cash provided by financing activities 1,195,313 1 — 1,195,314 Net increase in cash 11,212 11,212 Cash — beginning of the period 1,150 1,150 Cash — end of the period $ 12,362 — — $ 12,362 Supplemental cash flow information: Interest paid $ — — — $ — Income tax paid $ — — — $ — Non-cash Accrued Series A preferred stock dividends $ 307,927 — — $ 307,927 Initial recognition of derivative liabilities $ — — 258,359 $ 258,359 Derivative liability The Company did not previously identify or account for derivatives with its convertible debt. The fair value of the derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt. Due to the above, short and long-term derivative liabilities of $3,813,019 and $33,300, respectively, were recorded as of December 31, 2021 and the corresponding $2,515,065 loss on change in fair value of the derivative liability on the statement of operations was recorded. The debt discount recorded on the balance sheet for convertible notes and related party convertible notes increased by $995,369 as of December 31, 2021 and the corresponding amortization of debt discount on the statement of operations increased by $1,729,911. This also resulted in a correction of an error as an increase in the accumulated deficit of $1,351,531 as of January 1, 2021 for convertible notes issued prior to January 1, 2021. Series A Preferred Stock For the year ended December 31, 2011, certain convertible notes were converted into Series A preferred stock at a discount value. Since the consideration transferred should be measured at its then-current fair value, with any difference recorded as a gain or loss on the extinguishment, a loss of $425,396 at the time of conversion was reflected in the beginning accumulated deficit at January 1, 2021 with an increase in Series A preferred stock by the same amount. In addition, the dividends for Series A preferred stock issued prior to the fiscal year 2015 was overstated by the amount of $39,979 and was reflected in the beginning accumulated deficit at January 1, 2021. From the fiscal years of 2008 to 2010, the Company issued 1,096,660 warrants to purchase Series A preferred stock in connection with the conversion of certain convertible notes. As part of this extinguishment of debt, the Company did not properly value warrants issued with the conversion of the Series A shares. The fair value of the warrants was previously understated by $98,525. This correction of an error resulted in an increase in additional paid in capital and decrease in accumulated deficit of $98,325. Series B Preferred Stock For the year ended December 31, 2016, certain convertible notes were converted into Series B preferred stock at a discount value. Since the consideration transferred should be measured at its then-current fair value, with any difference recorded as a gain or loss on the extinguishment, a loss of $957,454 at the time of conversion was reflected in the beginning accumulated deficit at January 1, 2021 with an increase in Series B preferred stock by $1,029,976. As part of this extinguishment of debt, the Company did not properly value warrants issued with the issuance of the Series B shares. The fair value of the warrants was previously understated by $72,522. This correction of an error resulted in an increase in additional paid in capital and decrease in accumulated deficit of $72,522. Intangible Asset An adjustment was made to reduce the intangible assets carrying value for $78,009 and the related accumulated amortization prior to January 1, 2021. The life was adjusted from 10 years to the term of the patent which decreased accumulated deficit by $5,218 prior to January 1, 2021. For the year ended December 31, 2021, amortization expense decreased by $9,494 due to the change of the estimated useful life. Earnings per share The change in earnings per share of $0.13 is a result of the change of the net loss of $4,235,482 and the change in the weighted average shares outstanding. The weighted average shares outstanding changed from 13,698,060 to 23,139,165 due to an error in the Company’s calculation associated with the dates of stock options exercised during the year ended 2021. Correction of an Error Due to the same issues noted above, accumulated deficit at January 1, 2021 and December 31, 2021 was previously reported as $25,830,637 and $28,382,005, respectively and now is $25,987,606 and $32,774,456, respectively. |