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Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2025
Significant Accounting Policies [Abstract] |
SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation – The conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules of the Securities and Exchange Commission (the “SEC”). It is recommended that the unaudited condensed interim consolidated financial statements be read in conjunction with the 2024 Consolidated Financial Statements. Principles of Consolidation – These unaudited condensed interim consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, Alpha Cognition Canada Inc. (“ACI Canada”) and ACI Canada’s wholly owned subsidiary Alpha Cognition USA Inc. (“ACI USA”). All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation. Functional and Reporting Currency – The functional currency of the Company and its subsidiaries is USD, being the currency of the primary economic environment in which each entity operates. The Company’s reporting currency is the USD. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s CAD operations are translated to USD at the exchange rate on the reporting date. The income and expenses are translated using average exchange rates. Foreign currency differences that arise on translation for consolidation purposes are recognized in net loss on the consolidated statements of operations and comprehensive (loss) income. Use of Estimates and Assumptions – The preparation of these unaudited condensed interim consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and disclosure of contingent liabilities as of the date of the unaudited condensed interim consolidated financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates, to ensure that those estimates effectively reflect changes in the Company’s business and new information as it becomes available. Management bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events. Actual results could differ materially from these estimates under different assumptions or conditions. Revenue Recognition Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company applies the following five-step revenue recognition model in accordance with ASC Topic 606, Revenue from Contracts with Customers, to determine revenue:
| i) | identify the contract with a customer;
| ii) | identify the performance obligations in the contract;
| iii) | determine the transaction price;
| iv) | allocate the transaction price to the performance obligations in the contract; and
| v) | recognize revenue when (or as) the Company satisfies a performance obligation.
Product Sales, Net Products are primarily sold to distributors and wholesalers. The Company’s contractual performance obligations are generally limited to the transfer of control of the product to the customer. For Zunveyl tablets provided to distributors, revenue is recognized at the point in time when control of the goods transfers to the distributor. The Company’s contracts typically stipulate F.O.B. (Free on Board) destination terms. Consequently, revenue is recognized when the drugs are delivered to the distributor’s location or any destination designated by the distributor for drop-shipment. This arrangement is not a consignment arrangement, and therefore, the Company recognizes revenue upon the delivery of goods to the distributor. The Company’s payment terms to customers range from 60 to 96 days; payment terms differ by customer and by product. Items Deducted from Gross Product Sales Revenue is reduced at the time of recognition for expected chargebacks, product returns, recalls, and consideration payable to customers, collectively referred to as gross-to-net (GTN) adjustments. Chargebacks, product returns, and recalls are based on agreed-upon contractual terms. Consideration payable to customers comprises distributor fees. These service fees for distribution services are calculated as a percentage of monthly product sales based on the Wholesale Acquisition Cost (WAC). These fees are paid to wholesale distributors for services such as access to inventory and sales data to pharmacies, inventory management, accounts receivable administration, and return and chargeback administration. These services are integral activities within the distribution chain with the distributor customer, specifically related to Alpha Cognition’s sales of Zunveyl, and are not considered distinct from the Company’s promise to sell Zunveyl through the distribution channel to end customers. Consequently, these fees are recognized as a reduction of revenue. Variable consideration will be re-evaluated at least on a quarterly basis, and we will continue to re-evaluate variable consideration on an ongoing basis. The amount of variable consideration can vary from period to period due to fluctuations in chargebacks, product returns, recalls, and consideration payable to customers, or other similar items. Licensing Revenue At contract inception, the Company identifies the goods or services promised in the contract and assesses whether each is distinct for the purpose of identifying performance obligations. A promised good or service is distinct if (1) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and (2) the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. In licensing arrangements, the Company considers factors such as the collaboration partner’s capabilities and the availability of required expertise in the marketplace. The intended benefit of the contract is also considered in determining whether a promised good or service is separately identifiable. If a good or service is not distinct, it is combined with other promised goods or services until a distinct bundle is identified. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company evaluates whether such options provide a material right to the customer. If so, they are treated as separate performance obligations. The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”). SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Judgment is required in estimating SSP, and the Company considers market conditions, entity-specific factors, and estimated costs in making this determination. If the consideration includes a variable amount, the Company estimates the amount to which it expects to be entitled using either the expected value or the most likely amount method, depending on which better predicts the outcome. The estimated amount is included in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty is resolved. The Company re-evaluates estimates and constraints at each reporting date and adjusts the transaction price accordingly, recording any changes on a cumulative catch-up basis. For arrangements that include development or regulatory milestone payments, the Company evaluates whether achieving the milestone is probable and recognizes revenue only if a significant reversal is not expected. Regulatory milestones that are outside the control of either party are generally excluded from the transaction price until achieved. For licenses of intellectual property that include sales-based royalties or milestones, and when the license is the predominant item to which the royalties relate, the Company recognizes royalty revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied, consistent with the sales-based royalty exception. Revenue is recognized when the Company satisfies a performance obligation, either at a point in time or over time. The amount of revenue recognized is based on the portion of the transaction price allocated to each performance obligation in accordance with its relative SSP. For obligations satisfied over time, revenue is recognized using an input or output method, depending on which most accurately depicts the transfer of control to the customer. Concentrations of Credit Risk – The Company’s financial instruments subject to concentrations of credit risk consists primarily of cash and cash equivalents. Cash is deposited with financial institutions with high credit quality which are typically in excess of insured limits. Additionally, as of March 31, 2025, the Company had $53,909 (December 31, 2024 - $69,387) in cash held at its payment processing company in a demand account to be used to pay accounts payable. During the three months ending March 31, 2025, and 2024, the Company did not experience any loss related to these concentrations. Cash and Cash Equivalents – The Company considers cash to include currency on hand, demand deposits with banks or other financial institutions, and other kinds of accounts that have the general characteristics of demand deposits in that the Company may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. The Company considers cash equivalents to include term deposits, certificates of deposit, and all highly liquid instruments with original maturities of three months or less to be cash equivalents. Accounts Receivable - The majority of our accounts receivable arise from product sales and primarily represent amounts due from our wholesale and other third-party distributors standard payment terms that generally require payment within 60 to 96 days. We provide reserves against accounts receivable for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. Inventory – The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. The Company classifies inventory as long-term when consumption or sale of the inventory is expected beyond its normal operating cycle of twelve months. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded within cost of sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required which would be recorded as cost of sales in the consolidated statements of operations. The Company capitalizes inventory costs associated with the Company’s products after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory acquired prior to receipt of regulatory approval of a product candidate is expensed as research and development expense as incurred. The Company began to capitalize inventory costs upon receipt of regulatory approval in July 2024. Raw materials consist of materials, including active pharmaceutical ingredients, to be consumed in production of inventory related to FDA approved products. Equipment – Equipment is stated at historical cost less accumulated depreciation. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the consolidated statement of operations. Repairs and maintenance are expensed as incurred. Depreciation is charged over the estimated useful lives using the straight line method as follows:
Computer equipment |  |  | 3 years |
Intangible Assets – The Company accounts for intangible assets in accordance with FASB ASC 350, Intangibles – Goodwill and Other. The Company’s intangible assets consist of exclusive licenses that allow the Company to further exploit the ALPHA-1062 and ALPHA-0602 Technology, as defined in Note 14. The license is carried at cost and amortized on a straight-line basis over their estimated useful life of 15 years. During the three months ended December 31, 2024, the Company impaired the ALPHA-0602 license in the amount of $39,166 on the consolidated statements of operations and comprehensive loss. Leases – The Company accounts for leases using FASB ASC 842, Leases. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The lease payments associated with these leases are charged directly to the consolidated statement of operations on a straight-line basis over the lease term. The Company had no leases outstanding during the three months ended March 31, 2025, and as at December 31, 2024. Impairment of Long-Lived and Non-Financial Assets – The Company reviews long-lived assets, primarily comprised of equipment and definite life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset and whether any impairment indicators exist. The Company recorded an impairment of intangible assets of $nil and $39,166 for the three months ending March 31, 2025, and 2024, respectively. Royalty Cost of Sales – The Company makes royalty payments to third parties under license or purchase agreements associated with the acquisition of intellectual property. These royalty payments are calculated as a percentage of the net product sales and licensing fee in the period the corresponding sales occur. Royalty expenses are recognized as incurred and recorded as a component of cost of sales in the consolidated statements of operations and comprehensive loss. Income Taxes – The Company uses the asset and liability method to account for income taxes in accordance with ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases, tax loss and credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that include the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than a 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense. To date, there have been no interest or penalties recorded in relation to unrecognized tax benefits. Research and Development Costs – The Company expenses all research and development costs incurred in accordance with the Accounting Standard Codifications as promulgated by FASB ASC 730, Research and Development. Advertising and Marketing Costs – The Company expenses advertising and marketing costs when incurred. During the three months ending March 31, 2025, and 2024, the Company incurred advertising and marketing expenses of $47,333 and $3,001, respectively, which are included in general and administrative expenses in the unaudited condensed interim consolidated statements of operations and comprehensive loss. Loss Per Share – Basic loss per share is computed by dividing net loss available to ordinary stockholders by the weighted-average number of common shares outstanding during the reporting period. If applicable, diluted income per share is computed similar to basic income per share except that the weighted average shares outstanding are increased to include potential common shares for the assumed conversion of convertible debentures and the exercise of share options and warrants, if dilutive. The number of potential common shares is calculated by assuming outstanding share options and warrants were exercised and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting periods. For the periods presented, this calculation proved to be anti-dilutive. Share-Based Compensation – The Company accounts for share-based compensation in accordance with ASC 718, Compensation – Share-Based Compensation, which requires compensation cost for the grant-date fair value of share-based awards to be recognized over the requisite service period. The Company accounts for forfeitures when they occur. The fair value of share-based awards, granted or modified, is determined on the grant date (or modification or acquisition dates, if applicable) at fair value, using the Black-Scholes option pricing model. This model is affected by the Company’s share price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected share price volatility over the terms of the awards, and actual and projected employee share option exercise behaviors. The Company records share-based compensation expense for service-based share options on an accelerated attributions method over the requisite service period. The Company records share-based compensation expense for performance-based share options on an accelerated attribution method over the requisite service period, and only if performance-based conditions are considered probable to be satisfied. The fair value of options is determined using the Black-Scholes option pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Liability-Based Awards – Bonus right awards that include cash settlement features are accounted for as liability-based awards in accordance with ASC 718, Compensation – Share Based Compensation. The fair value of the bonus right awards is estimated using a Black-Scholes option-pricing model and is revalued on each reporting date, based on the probability of the expected awards to vest, until settlement. Changes in the estimated fair value of the bonus right awards are recognized within general and administrative expense in the unaudited condensed interim consolidated statement of operations and comprehensive loss over the vesting period. Key assumptions in the calculation of the fair value of the bonus right awards include expected volatility, risk-free interest rate, expected life, and fair value per award. Segment Reporting – The Company currently operates in researching and developing pharmaceutical treatments for neurological diseases industry. Based on the guidance of ASC 280, Segment Reporting, the Company has one operating segment. For the three months ending March 31, 2025, and 2024, the Company operated in two geographical areas; the United States and Canada. Convertible Debentures and Conversion Feature Liability – The Company’s debt instruments contain a host liability and an embedded conversion feature. The Company uses the guidance under FASB ASC Topic 815 Derivatives and Hedging (“ASC 815”) to determine if the embedded conversion feature must be bifurcated and separately accounted for as a derivative under ASC 815. It also determines whether any embedded conversion features requiring bifurcation qualify for any scope exceptions contained within ASC 815. Generally, contracts issued or held by a reporting entity that are both (i) indexed to its own shares, and (ii) classified in stockholders’ equity, would not be considered a derivative for the purposes of applying ASC 815. Any embedded conversion features that do not meet the scope exception noted above are classified as derivative liabilities, initially measured at fair value, and remeasured at fair value each reporting period with change in fair value recognized in the consolidated statements of operations and comprehensive loss. Any embedded conversion features that meet the scope exception under ASC 815 are initially recorded at their relative fair value in paid-in-capital and are not remeasured at fair value in future periods. Any embedded conversion features that do not meet the scope exception under ASC 815 are initially recorded at their fair value and the residual amount of the proceeds received is allocated to the convertible debentures. The host debt instrument is accounted for in accordance with guidance applicable to non-convertible debt under FASB ASC Topic 470 Debt (“ASC 470”) and is accreted to its face value over the term of the debt with accretion expense and periodic interest expense recorded in the consolidated statements of operations and comprehensive loss. The Company uses the Monte Carlo Simulation method to determine the fair value of the conversion feature liability and warrant liability. This requires the input of subjective assumptions including the following: Risk-Free Interest Rate – The risk-free interest rate is the continuously compounded, term matching based on the U.S. Treasury zero coupon rate from the valuation date. Expected Life – The Company’s expected term represents the period that the Company’s convertible debentures are issued and are expected to be outstanding or the remaining contractual life of the conversion period and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). Expected Volatility – The Company’s expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the awards. Probability – The probability is based on management’s best estimate of based on the relevant information available. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings (loss) and equity. Derivative liability – The Company recognizes and measures derivative financial instruments in according with ASC 815, Derivatives and Heding, which requires that all derivative instruments be recognized on the balance sheet at fair value. Derivative instruments are classified as either assets or liabilities. The Company uses the Black-Scholes option pricing model to determine the fair value of the warrant liability, share-based options, and stand-alone share purchase warrants issued as noted above. This model requires the input of subjective assumptions including the following: Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury zero coupon bond issues in effect at the time of grant for periods corresponding with the expected term of option. Dividend Yield – The Company has never paid dividends on its common shares and has no plans to pay dividends on its common shares. Therefore, the Company used an expected dividend yield of zero. Expected Life – The Company’s expected term represents the period that the Company’s options granted are expected to be outstanding or the remaining contractual life of the conversion period and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). Expected Volatility – The Company’s expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the awards. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings (loss) and equity. Fair Value Measurements - FASB ASC 820 – Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. In accordance with ASC 820, we have categorized our financial assets and liabilities based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded in the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows: Level 1 – Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date. Level 2 – Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 3 – Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the instrument. The Company’s financial instruments consist of cash, restricted cash, accounts receivable, accounts payable, promissory note, warrant liabilities, and other liabilities. The fair values of inventory, prepaid and other current assets, accounts payable, and promissory note approximate their carrying values either due to their current nature or current market rates for similar instruments. Cash is measured at fair value on a recurring basis using level 1 inputs. Other liabilities consisting of the bonus rights liability and warrant liabilities are measured at fair value on a recurring basis using level 3 inputs. As of March 31, 2025 and December 31, 2024, the fair value of the bonus rights liability was $113,996 and $102,783, respectively. As of March 31, 2025 and December 30, 2024, the fair value of the warrant liabilities was $4,672,476 and $5,820,358, respectively. Grant Accounting – All funds relating to government grants are being recorded under the gross method of accounting for government grants whereby any income received and associated expenses incurred will be reported as grant income and included in research and development expenses, respectively on the statement of operations and comprehensive loss. When grant proceeds are initially received, they are recorded as deferred income and restricted cash. Grant proceeds used to pay for study costs and are expensed as incurred, with a corresponding amount of grant revenue recorded along with a reduction of the balance of the deferred income liability. The Company classifies the balance of cash received from grants as restricted cash when the proceeds from the grant have been designated for use in specified research. During the three months ending March 31, 2025 and 2024, the Company recorded grant income of $71,095 and $133,779, respectively, from its R&D Grant (defined in Note 3) in the unaudited condensed interim consolidated statements of operations and comprehensive loss. New Accounting Pronouncements – In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements in Income Tax Disclosures, which is to enhance the transparency and decision usefulness of income tax disclosures. This amendment requires public companies to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Additionally, under the amendment entities are required to disclose the amount of income taxes paid disaggregated by federal, state and foreign taxes, as well as disaggregated by material individual jurisdictions. Finally, the amendment requires entities to disclose income from continuing operations before income tax expense disaggregated between domestic and foreign and income tax expense from continuing operations disaggregated by federal, state and foreign. The new rules are effective for annual periods beginning after December 15, 2024. We will adopt this standard on a prospective basis as allowed by the standard. The adoption of this standard is not expected to have a material impact on our financial statements. In November 2024, FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Reporting Comprehensive Income – Expense Disaggregation Disclosures. This standard requires disclosure in the notes to the financial statements, at each interim and annual reporting period, of specified information about certain costs and expense including purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption. This standard also requires a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated, as well as disclosure of the total amount of selling expenses, and, in annual reporting periods, an entity’s definition of selling expenses. These new rules are effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. We are currently evaluating the potential impact that this new standard will have on our consolidated financial statements and related disclosures.

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