| Restatement of Previously Issued Financial Statements |
Note 2
– Restatement of Previously Issued Financial Statements
As previously disclosed in the Company’s
Quarterly Report on Form 10-Q for the period ended March 31, 2024, filed with the Securities and Exchange Commission
(“SEC”) on May 13, 2024, following the entry of a cease-and-desist order by the SEC against our former auditor, B.F.
Borgers CPA PC (“BF Borgers”), we commenced the re-audit (the “Re-audit”) of our consolidated financial
statements for the year ended December 31, 2022, which had been audited by BF Borgers. Since that time and as a result of the
Re-audit, and as initially disclosed on Form 8-K dated July 10, 2024, the Company and the Audit Committee have concluded and
informed our current auditor, Forvis Mazars, LLP, that our audited consolidated financial statements for the year ended December 31,
2022 (the “2022 Financial Statements”), our audited consolidated financial statements for the year ended December 31,
2023 (the “2023 Financial Statements”), and the quarterly periods included in the Company’s Annual Report
for the year ended December 31, 2023, and the quarterly report for the period ended March 31, 2024 require restatement and are not reliable.
The accounting errors impacting our 2022 Financial
Statements include:
Stock Compensation
| ● | Application of the incorrect grant date fair values in determining the value of certain equity awards
granted during the years ended December 31, 2019 and 2020; |
| ● | Miscalculation of the pattern of recognition of stock-based compensation over the requisite service periods
for certain equity awards granted during the years ended December 31, 2019 and 2020; |
Series A Convertible Preferred Stock
| ● | Utilization of incorrect inputs to the fair value estimates for the warrant obligation related to
the Series A Convertible Preferred Stock; incorrectly recording the reclassification of the warrant obligation upon issuance as a
gain and not as a reclassification to stockholders’ equity; |
| ● | Recording of accrued dividends on the Series A Convertible Preferred Stock as a liability prior to
the dividends being declared; |
| ● | Failure to recognize the accounting impact for the amendment to the terms of the Series A
Convertible Preferred Stock in April 2022, which the Company subsequently concluded should have been recognized as an
extinguishment; |
| | ● | Failure to recognize deemed contribution related to the settlement of the
Series A Convertible Preferred Stock and accrued dividends; |
Notes Payable
| ● | Misidentification of certain debt and equity issuance costs and incorrect association with certain of
the Company’s financings during the years ended December 31, 2022 and 2021; |
| ● | Application of the incorrect amortization period and pattern of recognition for debt discounts recorded
in relation to the Company’s debt financings during the years ended December 31, 2022 and 2021; |
| ● | Incorrect recognition of bifurcated derivative liabilities, as well as incorrect initial and subsequent
fair value measurements, in relation to the December 2021 Notes, 2022 Convertible Notes and August 2022 Notes; |
| ● | Misclassification of certain warrants issued with debt transactions during the year ended December 31,
2022; |
| ● | Failure to recognize certain liability-classified warrants issued in exchange for services provided related
to the Company’s financing activities during the year ended December 31, 2022; |
| ● | Incorrect application of extinguishment or conversion models in accounting for certain debt instruments
upon their settlement; and |
Initial Public Offering
| |
● |
Incorrect identification of deferred issuance costs incurred in relation to the initial public offering; Incorrect identification and classification of issuance costs incurred in relation to the initial public offering. |
In addition to the restatement of the consolidated
financial statements, the Company has also restated the following notes to reflect the errors described above:
| ● | Note 2 - Summary of Significant Accounting Policies (now Note 3) |
| ● | Note 5 – Notes Payable-Related Party |
| ● | Note 6 – Convertible Notes (now labeled Notes Payable) |
| ● | Note 7 – Stockholders’ Equity |
| ● | Note 8 – Derivative Liabilities |
| ● | Note 10 – Income Taxes |
The impact of the errors described above also impact
the Company’s Annual Report on Form 10-K for the years ended December 31, 2023 and December 31, 2022 within additional paid in capital and accumulated deficit, resulting in the preparation and filing of this Annual Report on Form 10-K/A.
Schedule
of Error Corrections And Prior Period Adjustments
| Consolidated Balance Sheet as of December 31, 2023 | |
As Reported | | |
Adjustment | | |
As Restated | |
| Additional paid in capital | |
| 19,543,363 | | |
| 9,945,692 | | |
| 29,489,055 | |
| Accumulated deficit | |
| (15,487,612 | ) | |
| (9,945,692 | ) | |
| (25,433,304 | ) |
Additionally, the Company has provided Note 11 – Quarterly Financial
Data (unaudited and restated) to present the impact of the above restatements on the unaudited quarterly financial information for the
period ended September 30, 2023.
The Company’s prior and updated accounting for
the errors described above do not have any effect on the Company’s previously reported cash or cash flows.
The following tables summarize the effect of the restatement
on each financial statement line item as of the dates indicated:
| Consolidated Balance Sheet as of December 31, 2022 | |
As Reported | | |
Adjustment | | |
As Restated | |
| Additional paid in capital | |
| 16,572,741 | | |
| 9,945,692 | (1) | |
| 26,518,433 | |
| Accumulated deficit | |
| (8,894,889 | ) | |
| (9,945,692 | )(2) | |
| (18,840,581 | ) |
| |
(1) |
Adjustments
include corrections for stock compensation errors (increase of $7,843,052);
recognition of Series A Preferred Stock accrued dividends (decrease of $402,064);
correction of issuance cost recognition related to financing transactions (decrease of $174,082);
corrections to the Company’s initial classification and recognition of warrants issued in financing transactions (decrease of
$416,266),
reclassifications of warrants from liability to equity (increase of $881,554);
correction in the application of extinguishment accounting upon settlement of debt instruments (increase of $2,213,498). |
| |
(2) |
Adjustments include corrections for stock compensation errors (increase of $8,009,461); adjustment of the estimated Series A Preferred Stock warrant obligation fair value (increase of $240,930); reversal of accrued Series A Preferred Stock dividends (decrease of $402,064); recognition of bifurcated derivatives and recording of loss at issuance (increase of $296,151); correction of issuance cost recognition related to financing transactions (decrease of $166,407); and the aggregate adjustments to 2022 net loss as detailed below (increase of $1,967,621). |
| Consolidated Statement of Operations for the year ended December 31, 2022 | |
As Reported | | |
Adjustment | | |
As Restated | |
| Research and development, net of contract expense reimbursements | |
$ | 1,148,712 | | |
$ | (101,327 | ) | |
$ | 1,047,385 | |
| General and administrative | |
| 538,796 | | |
| (65,082 | ) | |
| 473,714 | |
| Legal and professional | |
| 866,770 | | |
| (44,043 | ) | |
| 822,727 | |
| Net loss from operations | |
| (2,554,278 | ) | |
| 210,452 | | |
| (2,343,826 | ) |
| Interest expenses | |
| (917,879 | ) | |
| 489,191 | | |
| (428,688 | ) |
| Financing fee | |
| — | | |
| (189,912 | ) | |
| (189,912 | ) |
| Change in fair value of derivative liabilities | |
| — | | |
| (189,000 | ) | |
| (189,000 | ) |
| Change in fair value of warrant liabilities | |
| 94,025 | | |
| (492,700 | ) | |
| (398,675 | ) |
| Loss on extinguishment of debt | |
| — | | |
| (1,795,652 | ) | |
| (1,795,652 | ) |
| Dividend on Series A Preferred Stock | |
| (71,009 | ) | |
| (331,055 | ) | |
| (402,064 | ) |
| Deemed dividend on extinguishment of Series A Preferred Stock | |
| — | | |
| (439,427 | ) | |
| (439,427 | ) |
| Deemed dividend on modification of equity-classified warrants, as restated | |
| — | | |
| (941,000 | ) | |
| (941,000 | ) |
| Deemed contribution on conversion of preferred stock and settlement of preferred stock dividends, as restated | |
| — | | |
| 31,423 | | |
| 31,423 | |
| Net loss attributable to common stockholders | |
| (3,099,457 | ) | |
| (3,647,680 | ) | |
| (6,747,137 | ) |
| Net loss per shares - basic and diluted | |
$ | (2.32 | ) | |
$ | (2.72 | ) | |
$ | (5.04 | ) |
| Consolidated Statement of Stockholders’ Equity as of December 31, 2022 | |
As Reported | | |
Adjustment | | |
As Restated | |
| Common stock issued for cash upon initial public offering and exercise of warrants, net of issuance costs | |
$ | — | | |
$ | 9,951,356 | | |
$ | 9,951,356 | |
| Common stock issued for cash | |
| 10,008,095 | | |
| (10,008,095 | ) | |
| — | |
| Warrants exercised for cash | |
| 14,098 | | |
| (14,098 | ) | |
| — | |
| Warrants issued for financing costs | |
| 412,241 | | |
| (397,579 | ) | |
| 14,662 | |
| Common stock issued for conversion of accrued interest | |
| 588,524 | | |
| (588,524 | ) | |
| — | |
| Common stock issued upon conversion of convertible debt and exercise of related warrants | |
| — | | |
| 1,199,916 | | |
| 1,199,916 | |
| Common stock issued for exercise of warrants with settlement of notes payable | |
| 576,476 | | |
| 1,576,648 | | |
| 2,153,124 | |
| Stock-based compensation | |
| 403,956 | | |
| (166,409 | ) | |
| 237,547 | |
| Dividends on Series A preferred stock | |
| (71,009 | ) | |
| (331,055 | ) | |
| (402,064 | ) |
| Common shares issued for dividends on and conversion of Series A preferred stock | |
| 402,068 | | |
| (4 | ) | |
| 402,064 | |
| Reclassification of fair value of warrant liability to equity upon initial public offering | |
| — | | |
| 881,553 | | |
| 881,553 | |
| Net loss | |
| (3,028,448 | ) | |
| (1,967,621 | ) | |
| (4,996,069 | ) |
| Consolidated Statement of Cash Flows for the year ended December 31, 2022 | |
As Reported | | |
Adjustment | | |
As Restated | |
| Net loss | |
$ | (3,028,448 | ) | |
$ | (1,967,621 | ) | |
$ | (4,996,069 | ) |
| Change in fair value of derivative liabilities | |
| — | | |
| 189,000 | | |
| 189,000 | |
| Change in fair value of warrant liabilities | |
| (94,025 | ) | |
| 492,700 | | |
| 398,675 | |
| Amortization of debt discount and finance fees | |
| 885,505 | | |
| (508,121 | ) | |
| 377,384 | |
| Loss on settlement of convertible debt | |
| — | | |
| 1,795,652 | | |
| 1,795,652 | |
| Fair value of freestanding instruments in excess of proceeds | |
| — | | |
| 189,912 | | |
| 189,912 | |
| Gain on interest relief on conversion of notes payable | |
| 12,625 | | |
| (12,625 | ) | |
| - | |
| Stock-based compensation | |
| 403,956 | | |
| (166,409 | ) | |
| 237,547 | |
| Accrued interest payable | |
| (13,177 | ) | |
| 31,555 | | |
| 18,378 | |
| Net cash used in operating activities | |
| (2,710,454 | ) | |
| 44,043 | | |
| (2,666,411 | ) |
| | |
| | | |
| | | |
| | |
| Proceeds
from issuance of common shares and warrants | |
| 10,022,193 | | |
| (26,680 | ) | |
| 9,995,513 | |
| Proceeds
from convertible notes payable | |
| 600,715 | | |
| (50,000 | ) | |
| 550,715 | |
| Proceeds
from notes payable and warrants | |
| — | | |
| 50,000 | | |
| 50,000 | |
| Payment
for finance costs related to convertible notes payable | |
| — | | |
| (17,363 | ) | |
| (17,363 | ) |
| Net
cash provided by financing activities | |
| 10,622,908 | | |
| (44,043 | ) | |
| 10,578,865 | |
| | |
| | | |
| | | |
| | |
| Supplemental non-cash financing activities: | |
| | | |
| | | |
| | |
| Common stock issued upon conversion of convertible debt | |
$ | 588,524 | | |
$ | 611,392 | | |
$ | 1,199,916 | |
| Common stock issued for exercise of warrants with settlement of notes payable | |
$ | 576,476 | | |
$ | 1,576,648 | | |
$ | 2,153,124 | |
| Common shares issued for dividends on and conversion of Series A preferred stock | |
$ | 402,068 | | |
$ | (4 | ) | |
$ | 402,064 | |
| Warrants issued for financing fees, net of issuance fees of $8,727 and $0, respectively | |
$ | 412,241 | | |
$ | (397,579 | ) | |
$ | 14,662 | |
| Reclassification of fair value of warrant liability to equity upon initial public offering | |
$ | — | | |
$ | 881,553 | | |
$ | 881,553 | |
| Consolidated Balance Sheet as of December 31, 2021 | |
As Reported | | |
Adjustment | | |
As Restated | |
| Additional paid in capital | |
| 4,150,948 | | |
| 7,912,992 | (1) | |
| 12,063,940 | |
| Accumulated Deficit | |
| (5,795,432 | ) | |
| (8,049,080 | )(2) | |
| (13,844,512 | ) |
| (1) |
Adjustments include adjustment
to the carrying value of notes payable, including recognition of day 1 loss (decrease of $7,351); identification of costs to be
recorded against Series A Preferred Stock carrying value (decrease of 89,118); and stock compensation adjustments (increase of $8,009,461). |
| (2) |
Adjustments
include reversal of dividend liability recorded (decrease of $331,059);
identification of deferred IPO costs (decrease of ($55,182);
identification of costs to be recorded against Series A Preferred Stock carrying value (decrease of 89,118);
adjustment to the estimated fair value of warrant liability (increase of $240,930);
adjustment to the carrying value of notes payable, including recognition of day 1 loss (increase of $274,048);
and stock compensation adjustments (increase of $8,009,461). |
|