| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation and Consolidation The
unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“U.S. GAAP”). The Company’s unaudited condensed consolidated financial statements
include the accounts of the Company and the accounts of the Company’s wholly owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation. The
accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with the rules
and regulations of the U.S. Securities and Exchange Commission (“SEC”) for unaudited condensed consolidated financial information.
Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. Certain information and footnote disclosure normally included in financial
statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the
SEC. Unaudited
interim results These
unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual
audited financial statements and the notes thereto as of and for the year ended December 31, 2023 filed as Exhibit 99.1 to the Company’s
Current Report on Form 8-K/A filed with the SEC on March 20, 2024. The accompanying unaudited condensed consolidated financial statements
as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 are unaudited but have been prepared on the same basis
as the annual audited financial statements and include all normal, recurring adjustments that management believes to be necessary for
a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Balance sheet
amounts as of December 31, 2023 have been derived from the audited financial statements filed as Exhibit 99.1 to the Company’s
Current Report on Form 8-K/A filed with the SEC on March 20, 2024. Use
of Estimates The
preparation of the accompanying unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and
liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results
and outcomes could differ significantly from the Company’s estimates, judgments, and assumptions. Significant estimates in the
Company’s consolidated financial statements include, but are not limited to, assumptions used to measure stock-based compensation,
valuation of the intangible assets acquired from DM Lab (see Note E), useful life of intangible assets, warrant liabilities, and deferred
customer acquisition costs. These
estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions
on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes
to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes
in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future
periods. As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates
and assumptions. Segment
and geographic information Operating
segments are defined as components of an entity about which separate discrete financial information is available for evaluation by the
chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing
performance. The CODM for the Company is the Co-Chief Executive Officer, Paul Chang. The Company views its operations as, and manages
its business in, one operating segment. The
Company has an office in the Republic of Korea dedicated to research and development activities. Significant
Risks and Uncertainties There
can be no assurance that the Company’s research and development will be successfully commercialized. Developing and commercializing
goods and services require significant time and capital and is subject to regulatory review and approval as well as competition from
other AI technology companies. The Company operates in an environment of rapid change and is dependent upon the continued services of
its employees and consultants and obtaining and protecting intellectual property. Revenue
Recognition and Accounts Receivable The
Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 606, Revenue from Contracts with Customers
1) Identification
of the Contract, or Contracts, with a Customer.
2) Identification
of the Performance Obligations in the Contract.
3) Determination
of the Transaction Price.
4) Allocation
of the Transaction Price to the Performance Obligations in the Contract. 5)
Recognition of Revenue when, or as, Performance Obligations are Satisfied. Trade
receivables represent amounts due from customers and are stated net of the allowance for doubtful accounts. The allowance for doubtful
accounts is based on management’s assessment of the collectability of specific customer accounts, the aging of the accounts receivable,
historical experience, and other currently available evidence. If there is a deterioration of a major customer’s credit worthiness
or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due the Company
could be adversely affected. Trade receivables of the Company as of June 30, 2024 and December 31, 2023 are net of an allowance for expected
credit losses amounting to $ 50,000 20,000 The
Company capitalizes the incremental costs of obtaining a contract with a customer. The Company’s incremental costs are related
to the shares issued in connection with the Exclusive Reseller Agreement (“Reseller Agreement”) with AFG in August 2023 (Note
K). Deferred customer acquisition costs, which are recorded within other assets on the unaudited condensed consolidated balance sheet,
were $ 13,475,000 Impairment
of Definite Lived Intangible Assets The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the carrying amount of the asset exceeds its estimated undiscounted net cash flows, before interest,
the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. If impairment
is recognized, the reduced carrying amount of the asset will be accounted for as its new cost. Generally, fair values are estimated using
discounted cash flow, replacement cost or market comparison analyses. The process of evaluating for impairment requires estimates as
to future events and conditions, which are subject to varying market and economic factors. Therefore, it is reasonably possible that
a change in an estimate resulting from judgments as to future events could occur which would affect the recorded amounts of the asset.
No In-Process
Research and Development The
fair value of in-process research and development (“IPR&D”) acquired in an asset acquisition, that has been determined
to have alternative future uses in accordance with ASC Topic 350, Intangibles—Goodwill and Other 5 During
the three and six months ended June 30, 2024 and 2023, the Company did not Research
and Development Costs Costs
incurred in connection with research and development activities are expensed as incurred. These costs include rent for facilities, hardware
and software equipment costs, employee related costs, consulting fees for technical expertise, prototyping, and testing. Stock-Based
Compensation The
Company recognizes stock-based compensation for stock-based awards (including stock options, restricted stock units, and restricted stock
awards) in accordance with ASC Topic 718, Compensation — Stock Compensation Stock-based
awards generally vest subject to the satisfaction of service requirements, or the satisfaction of both service requirements and achievement
of certain performance conditions or market and service conditions. For stock-based awards that vest subject to the satisfaction of service
requirements or market and service conditions, stock-based compensation is measured based on the fair value of the award on the date
of grant and is recognized as stock-based compensation on a straight-line basis over the requisite service period. For stock-based awards
that have a performance component, stock-based compensation is measured based on the fair value on the grant date and is recognized over
the requisite service period as achievement of the performance objective becomes probable. The
Black-Scholes option-pricing model requires the use of judgments and assumptions, including fair value of its Common Stock, the option’s
expected term, the expected price volatility of the underlying stock, risk free interest rates and the expected dividend yield. The
Black-Scholes model assumptions are further described below:
● Common
stock — the fair value of the Company’s Common Stock.
● Expected
Term — The expected term of employee options with service-based vesting is determined
using the “simplified” method, as prescribed in the SEC’s Staff Accounting
Bulletin No. 107, whereby the expected life equals the arithmetic average of the vesting
term and the original contractual term of the option due to the Company’s lack of sufficient
historical data. The expected term of nonemployee options is equal to the contractual term.
● Expected
Volatility — The Company lacks its own historical stock data. Therefore, it estimates
its expected stock volatility based primarily on the historical volatility of a publicly
traded set of peer companies.
● Risk-Free
Interest Rate — The Company bases the risk-free interest rate on the U.S. Treasury
yield curve commensurate with the expected term of each option.
● Expected
Dividend —The Company has never declared or paid any cash dividends on its Common Stock
and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an
expected dividend yield of zero in its valuation models. Cash
and Cash Equivalents The
Company considers all highly-liquid investments, readily convertible to cash, and which have a remaining maturity date of three months
or less at the date of purchase, to be cash equivalents. Cash and cash equivalents are recorded at fair value and are held for the purpose
of meeting short-term liquidity requirements, rather than for investment purposes. The Company maintains its cash and cash equivalent
balances in the form of business checking accounts and money market accounts, the balances of which, at times, may exceed federally insured
limits. Capitalized
Internal-Use Software Costs Pursuant
to ASC 350-40, Internal-Use Software The
Company capitalizes costs for internal-use software once project approval, funding, and feasibility are confirmed. These costs primarily
consist of external consulting fees and direct labor costs. During the three months ended June 30, 2024, $ 645,683 3 5 16,364 150,421 No Leases The
Company’s accounting policy provides that leases with an initial term of 12 months or less will not be recognized as right-of-use
assets and lease liabilities on its unaudited condensed consolidated balance sheet. Lease payments associated with short-term leases
are recognized as an expense on a straight-line basis over the lease term. Foreign
Currency Transactions Foreign
currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other
than the functional currency. Gains and losses arising from foreign currency transactions and the effects of remeasurements are captured
within the net loss within statement of operations. Foreign currency transaction gains and losses were not material for the three and
six months ended June 30, 2024 and 2023. Warrant
Liabilities The
Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, Equity Derivatives and Hedging Fair
Value of Financial Instruments The
Company accounts for financial instruments under ASC 820, Fair Value Measurements Level
1 — quoted prices (unadjusted) in active markets for identical assets or liabilities; Level
2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose
significant value drivers are observable; and Level
3 — assets and liabilities whose significant value drivers are unobservable. The
following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on
a recurring basis: SCHEDULE
OF FAIR VALUE HIERARCHY
Fair value measurement at reporting date using
June 30, 2024 (Level 1) (Level 2) (Level 3)
Liabilities:
Warrant liabilities - Public Warrants $ — $ 324,930 $ —
Warrant liabilities - Private Placement Warrants $ — $ 192,969 $ —
Warrant liabilities $ — $ 192,969 $ — The
Public Warrants and Private Placement Warrants assumed in connection with the Business Combination were accounted for as liabilities
in accordance with ASC 815 and are presented within warrant liabilities on the accompanying unaudited condensed consolidated balance
sheets. The warrant liabilities are initially measured at fair value at the day of the Business Combination and on a recurring basis,
with changes in fair value presented within change in fair value of warrant liabilities in the unaudited condensed consolidated statements
of operations. The
fair value of the Public Warrants and Private Placement Warrants is estimated based on the closing price of the Public Warrants, an observable
market quote but is classified as a Level 2 fair value measurement due to the lack of an active market. Net
Loss per Share Basic
loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of shares of Common
Stock outstanding during the period. Diluted loss per share reflects the potential dilution, using the treasury stock method 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 loss of the Company. In computing diluted loss per share, the treasury stock method assumes that
outstanding instruments are exercised/converted, and the proceeds are used to purchase Common Stock at the average market price during
the period. Instruments may have a dilutive effect under the treasury stock method only when the average market price of the Common Stock
during the period exceeds the exercise price/conversion rate of the instruments. The Company accounts for stock issued in spin-out transactions
and consummations of mergers of entities under common control retrospectively. For diluted net loss per share, the weighted-average number
of shares of Common Stock is the same for basic net loss per share due to the fact that when a net loss exists, potentially dilutive
securities are not included in the calculation when the impact is anti-dilutive. The
following potentially dilutive securities are excluded from the calculation of weighted average shares of Common Stock outstanding because
their inclusion would have been anti-dilutive: SCHEDULE
OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
2024 2023
June 30,
2024 2023
Unvested restricted shares 35,461 —
Options 2,508,553 1,920,579
Warrants 22,931,826 1,066,895
Convertible note (as converted) 1,583,334 —
Total 27,059,174 2,987,474 Recently
Issued but Not Yet Adopted Accounting Standards In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures | NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation and Consolidation The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). The Company’s consolidated financial statements include the accounts of the Company and the
accounts of the Company’s wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated
in consolidation. Use
of Estimates The
preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported,
disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results and outcomes could
differ significantly from the Company’s estimates, judgments, and assumptions. Significant estimates in the financial statements
include, but are not limited to, assumptions used to measure stock-based compensation, the valuation of patents received in the acquisition
of an entity under common control, and the Company also performs impairment testing on certain assets such as the indefinite lived intangible
assets. These
estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions
on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes
to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes
in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future
periods. As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates
and assumptions. Segment
and geographic information Operating
segments are defined as components of an entity about which separate discrete financial information is available for evaluation by the
chief operating decision maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance.
The CODM for the Company is the Chief Executive Officer. The Company views its operations as, and manages its business in, one operating
segment. The
Company has an office in the Republic of Korea dedicated to research and development activities. The carrying value of long-lived assets
held in the Republic of Korea was $ 1,012,291 Significant
Risks and Uncertainties There
can be no assurance that the Company’s research and development will be successfully commercialized. Developing and commercializing
a goods and services require significant time and capital and is subject to regulatory review and approval as well as competition from
other AI technology companies. The Company operates in an environment of rapid change and is dependent upon the continued services of
its employees and consultants and obtaining and protecting intellectual property. Concentration
of Credit Risk Financial
instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company
maintains its cash and cash equivalent balances in the form of business checking accounts and money market accounts, the balances of
which, at times, may exceed federally insured limits. Acquisitions Asset
acquisitions are accounted for using the cost accumulation method while business combinations are accounted for at fair value. Determining
whether the acquired set represents an asset acquisition, or a business combination requires quantitative and qualitative assessments
subject to judgment. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s
estimates and assumptions, as well as other information compiled by management, including projected financial information, effective
income tax rates, present value discount factors, and long-term growth expectations. The Company utilizes third-party specialists to
assist management with the identification and valuation of intangible assets using customary valuation procedures and techniques when
required. Deferred
Financing Costs The
Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated, at which
time such costs are recorded against the gross proceeds from the applicable financing. If a financing is abandoned, deferred financing
costs are expensed immediately. As of December 31, 2023, the Company incurred $ 1,427,729 Revenue
Recognition and Accounts Receivables The
Company accounts for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers
(ASC 606) for all periods presented. The core principle of ASC 606 is to recognize revenue for the transfer of promised goods or services
to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
This principle is achieved by applying the following five-step approach: 1)
Identification of the Contract, or Contracts, with a Customer. 2)
Identification of the Performance Obligations in the Contract. 3)
Determination of the Transaction Price. 4)
Allocation of the Transaction Price to the Performance Obligations in the Contract. 5)
Recognition of Revenue when, or as, Performance Obligations are Satisfied. Trade
receivables represent amounts due from customers and are stated net of the allowance for doubtful accounts. The allowance for doubtful
accounts is based on management’s assessment of the collectability of specific customer accounts, the aging of the accounts receivable,
historical experience, and other currently available evidence. If there is a deterioration of a major customer’s credit worthiness
or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due the Company
could be adversely affected. Trade receivables of the Company as of December 31, 2023 and 2022 are net of allowance, amounting to $ 20,000 25,000 Impairment
of Definite Lived Intangible Assets The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the carrying amount of the asset exceeds its estimated undiscounted net cash flows, before interest,
the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. If impairment
is recognized, the reduced carrying amount of the asset will be accounted for as its new cost. Generally, fair values are estimated using
discounted cash flow, replacement cost or market comparison analyses. The process of evaluating for impairment requires estimates as
to future events and conditions, which are subject to varying market and economic factors. Therefore, it is reasonably possible that
a change in estimate resulting from judgments as to future events could occur which would affect the recorded amounts of the asset. No In-Process
Research and Development The
fair value of in-process research and development (“IPR&D”) acquired in an asset acquisition, that has been determined
to have alternative future uses in accordance with ASC 350 Intangibles—Goodwill and Other, is capitalized as an indefinite-lived
intangible asset until the completion of the related research and development activities in accordance with ASC 350 or the determination
that impairment is necessary. If the related research and development is completed, the asset is reclassified as a definite-lived asset
at the time of completion and is amortized over its estimated useful life as research and development costs in accordance with ASC 730-10-25-2(c)
and ASC 350. Indefinite-lived
IPR&D is not subject to amortization but is tested annually for impairment or more frequently if there are indicators of impairment.
The Company also evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine
whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is
subsequently determined to have a finite useful life, the asset shall be tested for impairment in accordance with paragraphs 350-30-35-18
through 35-19. That intangible asset shall then be amortized prospectively over its estimated remaining useful life and accounted for
in the same manner as other intangible assets that are subject to amortization. The
Company tests its indefinite-lived IPR&D annually for impairment during the fourth quarter. In testing indefinite-lived IPR&D
for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances
would indicate that it is more likely than not that its fair value is less than its carrying amount, or the Company can perform a quantitative
impairment analysis to determine the fair value of the indefinite-lived IPR&D without performing a qualitative assessment. Qualitative
factors that the Company considers include significant negative industry or economic trends and significant changes or planned changes
in the use of the assets. If the Company chooses to first assess qualitative factors and the Company determines that it is more likely
than not that the fair value of the indefinite-lived IPR&D is less than its carrying amount, the Company would then determine the
fair value of the indefinite-lived IPR&D. Under either approach, if the fair value of the indefinite-lived IPR&D is less than
its carrying amount, an impairment charge is recognized in the consolidated statements of operations. During the year ended December
31, 2023, the Company did not recognize an impairment charge related to its indefinite-lived IPR&D. Research
and Development Costs Costs
incurred in connection with research and development activities are expensed as incurred. These costs include rent for facilities, hardware
and software equipment costs, consulting fees for technical expertise, prototyping, and testing. Stock
Compensation The
Company recognizes stock-based compensation for stock-based awards (including stock options, restricted stock units, and restricted stock
awards) in accordance with ASC No. 718, Compensation - Stock Compensation (“ASC 718”). Determining the appropriate fair value
of stock-based awards requires numerous assumptions, some of which are highly complex and subjective. The Company accounts for forfeitures
in the period in which they occur. Stock-based
awards generally vest subject to the satisfaction of service requirements. For stock-based awards that vest subject to the satisfaction
of service requirements or market and service conditions, stock-based compensation is measured based on the fair value of the award on
the date of grant and is recognized as stock-based compensation on a straight-line basis over the requisite service period. For stock-based
awards that have a performance component, stock-based compensation is measured based on the fair value on the grant date and is recognized
over the requisite service period as achievement of the performance objective becomes probable. The
Company estimates the fair value of its stock option and warrant awards on the grant date using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model requires the use of judgments and assumptions, including fair value of the Company’s common
stock, the option’s expected term, the expected price volatility of the underlying stock, risk free interest rates and the expected
dividend yield. The
fair value of the Company’s restricted stock awards is estimated on the date of grant based on the fair value of the Company’s
common stock. The
Black-Scholes model assumptions are further described below:
● Common
stock – the fair value of the Company’s common stock.
● Expected
Term – The expected term of employee options with service-based vesting is determined using the “simplified” method,
as prescribed in the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 107, whereby
the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s
lack of sufficient historical data. The expected term of nonemployee options is equal to the contractual term.
● Expected
Volatility - The Company lacks its own historical stock data. Therefore, it estimates its expected stock volatility based primarily
on the historical volatility of a publicly traded set of peer companies.
● Risk-Free
Interest Rate - The Company bases the risk-free interest rate on daily constant maturity treasury auction yields received as a proxy
for the implied yield from strips.
● Expected
Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends
in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. Cash
and Cash Equivalents The
Company considers all highly liquid investments, readily convertible to cash, and which have a remaining maturity date of three months
or less at the date of purchase, to be cash equivalents. Cash and cash equivalents are recorded at fair value and are held for the purpose
of meeting short-term liquidity requirements, rather than for investment purposes. Capitalized
internal-use software costs Pursuant
to ASC 350-40, Internal-Use Software, the Company capitalizes development costs for internal use software projects once the preliminary
project stage is completed, management commits to funding the project, and it is probable that the project will be completed, and the
software will be used to perform the function intended. The Company ceases capitalization at such time as the computer software project
is substantially complete and ready for its intended use. The determination that a software project is eligible for capitalization and
the ongoing assessment of recoverability of capitalized software development costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to, estimated economic life and changes in software and hardware technologies. The
Company capitalizes costs for internal-use software once project approval, funding, and feasibility are confirmed. These costs primarily
consist of external consulting fees and direct labor costs. As of December 31, 2023, the cost of the Company’s capitalized internal-use
software was $ 569,923 No No Leases The
Company has adopted an accounting policy which provides that leases with an initial term of 12 months or less will not be recognized
as right-of-use assets and lease liabilities on its consolidated balance sheet. Lease payments associated with short-term leases are
recognized as an expense on a straight-line basis over the lease term. The Company incurred $ 186,202 19,000 Fair
Value of Financial Instruments The
Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 820, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability
in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three levels as follows: Level
1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; Level
2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant
value drivers are observable; and Level
3 - assets and liabilities whose significant value drivers are unobservable. Net
Loss per Share Basic
loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted loss per share reflects the potential dilution, using the treasury stock method 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 loss of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding
instruments are exercised/converted, and the proceeds are used to purchase common stock at the average market price during the period.
Instruments may have a dilutive effect under the treasury stock method only when the average market price of the common stock during
the period exceeds the exercise price/conversion rate of the instruments. The Company accounts for stock issued in spin-out transactions
and consummations of mergers of entities under common control retrospectively. For diluted net loss per share, the weighted-average number
of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, potentially dilutive
securities are not included in the calculation when the impact is anti-dilutive. The
following common share equivalents are excluded from the calculation of weighted average common shares outstanding because their inclusion
would have been anti-dilutive: SCHEDULE
OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
December 31,
2023 2022
Options 2,430,900 270,100
Warrants 1,039,885 297,110
Total 3,470,785 567,210
Weighted average common shares 3,470,785 567,210 Income
Taxes The
Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method,
the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases
of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect
of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Deferred
tax assets are recognized to the extent that these assets are more likely than not to be realized. In making such a determination, the
Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it is able
to realize its deferred tax assets in the future in excess of their net recorded amount, the Company records an adjustment to the deferred
tax asset valuation allowance, which reduces the provision for income taxes. Tax
benefits from uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Company’s consolidated
financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized.
Interest and penalties are recognized associated with tax matters as part of the income tax provision and include accrued interest and
penalties with the related income tax liability on the Company’s consolidated balance sheets. Recently
Adopted 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 of Initiative (“ASU 2023-06”). ASU 2023-06 incorporates several disclosure and presentation requirements
into the FASB’s Accounting Standards Codification (the “Codification”) currently residing in SEC Regulation S-X and
Regulation S-K. The effective date for each amendment in the Codification will be the date on which the SEC’s removal of the related
disclosure from Regulation S-X or Regulation S-K becomes effective. ASU 2023-06 is not expected to have a significant impact on the Company. Effective
January 1, 2023, the Company elected to early adopt ASU 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.” This update simplifies the accounting for convertible instruments by removing major separation
models required under U.S. GAAP. The early adoption did not have a material impact on the Company’s consolidated financial statements. In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments, which requires financial assets measured at amortized cost, including accounts receivables, be presented net of the amount
expected to be collected. The measurement of all expected credit losses will be based on relevant information about the credit quality
of customers, past events, including historical experience, and reasonable and supportable forecasts that affect the collectability of
the reported amount. The Company adopted the guidance using a modified retrospective approach as of January 1, 2023 which resulted in
no cumulative-effect adjustment to retained earnings. Recently
Issued but Not Yet Adopted Accounting Pronouncements In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07),
which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning
after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company
is currently evaluating the effect of this pronouncement on its disclosures. In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which expands
the disclosures required for income taxes. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption
permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently
evaluating the effect of this pronouncement on its disclosures. |
