Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2024

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 3 - Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies included in the Annual Report on Form 10-K for the year ended December 31, 2023, except as disclosed herein.

Valuation of Common Stock Price

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date and is then recognized over the period the services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an option or warrant, the Company issues new shares of common stock out of its authorized shares.

Because the Company’s common stock historically was not actively traded on a public market, the fair value of the Company’s restricted equity instruments is estimated by management based on observations of the sales prices of both restricted and freely tradable common stock, or instruments convertible into common stock. The Company obtained a third-party valuation of its common stock as of July 1, 2024 and December 31, 2023, which was considered in management’s estimation of fair value during the three and nine months ended September 30, 2024. The third-party valuation was performed in accordance with regulation of Section 409A of the Internal Revenue Code (“IRC”) as well as FASB ASC Topic 718. The estimates used by management are considered highly complex and subjective. The Company anticipates that once its shares become more actively traded, the use of such estimates will no longer be necessary to determine the fair value of its common stock.

The independent appraisal utilized the market approach, specifically the Backsolve method. The Backsolve method utilizes the economics from a direct transaction in the Company’s securities in determining fair value. The Backsolve method utilizes the Black-Scholes option pricing method (“OPM”) which allocated a probability-weighted present value to the Company’s convertible securities. The following steps were applied under the OPM:

● Establishment of total enterprise or equity value;

● Analysis of equity rights for each class of security;

● Selection of appropriate model for valuation purposes;

● Determination of key valuation inputs; and

● Computation of the fair value of the subject security.

Under the OPM, it was determined the Company’s common stock had a fair value of $0.28 and $0.26 as of July 1, 2024 and December 31, 2023, respectively, which included a discount for lack of marketability of 25%. Furthermore, the independent appraisal determined the Company’s expected volatility was 75% and 65% as of July 1, 2024 and December 31, 2023, respectively, by evaluating historical and implied volatilities of guideline companies.

Loss Per Share

The Company computes basic net loss per share by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share includes the dilution that would occur upon the exercise or conversion of all dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable.

The common stock equivalents associated with the following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

	September 30,
	2024		2023
Options		6,932,004		6,932,004
Warrants		19,434,945		13,541,107
Convertible notes [1]		14,977,347		13,493,270
Convertible preferred stock		21,031,420		18,743,053
Total		62,375,716		52,709,434

[1] Convertible notes are assumed to be converted at the rate of $0.75 per common share, which is the conversion price as of September 30, 2024 and 2023. However, such conversion rates are subject to adjustment under certain circumstances, such as stock splits and stock dividends, which may result in the issuance of common shares greater than the amount indicated.

Recent Accounting Standards

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” to amend certain disclosure and presentation requirements for a variety of topics within the ASC. These amendments align the requirements in the ASC to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, announced by the SEC. The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date. Early adoption is prohibited. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures (Topic 280), which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis. The guidance becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The standard is intended to require more detailed disclosures about specified categories of expenses (including employee compensation, depreciation, and amortization) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. This ASU is applicable to entities with a single operating segment. The Company is currently evaluating the potential impact of this adoption on the condensed consolidated financial statements and related disclosures.