Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to the valuations of warrants, and equity-based awards. These estimates and assumptions are based on current facts, historical experience and various

other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Research and Development

Research and development costs, including in-process research and development acquired as part of an asset acquisition for which there is no alternative future use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Fair Value Measurement

The Company follows the accounting guidance in ASC 820 for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

As of September 30, 2022, and December 31, 2021, the recorded values of prepaid expenses, accounts payable and accrued expenses, approximate the fair values due to the short-term nature of the instruments.

Revenue Recognition

The Company has not yet generated any revenue from product sales. The Company’s source of revenue in 2022 and 2021 has been from grants and one milestone payment in 2021. When grant funds are received after costs have been incurred, the Company records grant revenue upon the receipt of cash.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options. The Company expenses stock-based compensation to employees, non-employees and members of the Board of Directors of the Company (the “Board”) over the requisite service period based on the estimated grant-date fair value of the awards and actual forfeitures. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. All stock-based compensation costs are recorded in general and

administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.

Loss Per Share

Basic net income (loss) per share (“EPS”) of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

To calculate the basic EPS numerator, income available to common stockholders must be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not declared) from income from continuing operations and also from net income.

If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends. The Series A Preferred Stock had cumulative dividends, whether or not declared. Accordingly, the Company reduced the numerator for basic EPS by deducting/(increasing) the amount of cumulative preferred dividend from net income/(loss) in each period presented prior to the Company’s Series A Preferred Stock becoming redeemable, which occurred in 2021. No dividends accrued on the Company’s Series A Preferred Stock during 2022 prior to the Warrant Exchange.

The basic and diluted net loss amounts are the same for the three and nine months ended September 30, 2022, and 2021, respectively, as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, value appreciation rights, and warrants. Potentially dilutive shares that were issuable upon conversion of the Series A Preferred Stock prior to the Warrant Exchange were calculated using the if-converted method.

As a result of the 2022 Reverse Stock Split, the Company has retroactively restated the basic and diluted weighted average number of shares outstanding

The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods presented below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic and diluted loss per share:
Net (loss) income	$	(3,187,275)	$	(3,005,404)	$	(15,756,665)	$	(7,845,867)
Cumulative dividends on Series A preferred stock		—		(36,685)		—		(108,858)
Net (loss) income attributable to common stockholders	$	(3,187,275)	$	(3,042,089)	$	(15,756,665)	$	(7,954,725)

Basic and diluted weighted average number of shares outstanding		2,095,091		733,194		1,550,326		717,476

Basic and Diluted net (loss) per share attributable to common stockholders	$	(1.52)	$	(4.15)	$	(10.16)	$	(11.09)

Securities that could potentially dilute income per share in the future were not included in the computation of diluted loss per share for the three-month and nine-month periods ended September 30, 2022, and 2021, respectively, because their inclusion would be anti-dilutive are as follows (unaudited):


	September 30,
	2022	2021
Series A warrants	334,036	334,036
Bridge warrants	8,275	7,275
Value appreciation rights	4,546	7,353
Options to purchase common stock	87,833	53,153
Series A preferred stock (if converted)	—	2,015
Legacy stock options	316	316
Legacy warrants	4,235	4,280
Warrants issued in the November 2021 Financing	539,063	—
Warrants issued in the August 2022 Financing	1,309,333	—
Warrants issued in exchange for Series A preferred stock (unexercised)	144,866	—
Restricted Stock Units	5,250	—
	2,437,752	408,428

Recent accounting pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of

either the modified retrospective or fully retrospective method of transition. The Company adopted ASU 2020-06 as of January 1, 2022, and adoption did not have a material the Company’s financial statements or related disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2021-04 as of January 1, 2022, and adoption did not have a material impact on the Company’s financial statements or disclosures.