XML 35 R19.htm IDEA: XBRL DOCUMENT v3.24.1.1.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 12 Months Ended
Dec. 31, 2023
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with GAAP. The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.

 
Principles of Consolidation

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Stem Pearls. All intercompany accounts and transactions have been eliminated in consolidation.

 
Restatement of Previously Issued Consolidated Financial Statements

Restatement of Previously Issued Consolidated Financial Statements

 

On May 23, 2024, the Company, in consultation with its Audit Committee, concluded that its previously issued (i) consolidated financial statements as of and for the two years ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Periods”) and (ii) unaudited interim condensed consolidated financial statements as of and for the quarters ended March 31, 2022 through September 30, 2023 included in the Company’s quarterly reports on Form 10-Q for the periods ended March 31, 2023, June 30, 2023 and September 30, 2023 (the “Interim Periods”, and, together with the Annual Periods, the “Affected Periods”) should be restated because of a misapplication in the guidance around the accounting for certain warrants, as discussed below, and should no longer be relied upon.

 

The warrants at issue are the following:

 

  (i) the warrants to purchase an aggregate of 2,645,000 shares of the Company’s common stock, issued in November 2021 pursuant to an underwritten public offering, which warrants provide for an exercise price of $10.00 per share (the “Public Warrants”);
  (ii) the warrants to purchase an aggregate of 1,856,938 shares of the Company’s common stock, issued in November 2021 pursuant to a private offering, which warrants provide for an exercise price of $10.00 per share (the “Private Warrants”); and
  (iii) the warrants to purchase an aggregate of 235,970 shares of the Company’s common stock, issued in November 2021 to the underwriter of the public offering, which warrants provide for an exercise price of $12.50 per share (together with the Public Warrants and the Private Warrants, the “Warrants”).

 

Historically, the Warrants were included as a component of stockholders’ equity. It has now been determined, in accordance with Accounting Standards Codification (“ASC”) 815, that the Warrants should be included at fair value as a component of liabilities on the balance sheets, and the statements of operations should include the subsequent non-cash changes in estimated fair value of the Warrants (the “Restatement”). See Note 11 – Fair Value Measurement for details of the estimated fair value of the Warrants.

 

The Company evaluated the materiality of these misstatements and determined the effect of correcting these misstatements was material to the Affected Periods. As a result of the material misstatements, the Company has restated its consolidated financial statements for the Affected Periods in accordance with ASC 250, Accounting Changes and Error Corrections (the “Restated Financial Statements”).

 

A reconciliation from the amounts previously reported for the Affected Periods to the restated amounts in the Restated Financial Statements is provided for the impacted financial statement line items below for: (i) the consolidated balance sheets as of December 31, 2023 and 2022; (ii) the consolidated statements of operations for the years ended December 31, 2023 and 2022; (iii) the consolidated statements of changes in stockholders’ equity for the years ended December 31, 2023 and 2022; and (iv) the consolidated statements of cash flows for the years ended December 31, 2023 and 2022. The amounts labeled “Restatement Adjustments” represent the effects of the Restatement.

 

 

The following tables present the effects of the Restatement on the Company’s consolidated balance sheets as of December 31, 2023 and 2022:

 

   As Previously   Restatement   As 
   December 31, 2023 
   As Previously   Restatement   As 
   Stated   Adjustments   Restated 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY               
Current liabilities               
Derivative liabilities  $-   $1,543,953   $1,543,953 
Total current liabilities  $1,063,392   $1,543,953   $2,607,345 
Total liabilities  $1,063,392   $1,543,953   $2,607,345 
Stockholders’ equity               
Additional paid-in capital  $178,590,256   $(21,901,000)  $156,689,256 
Accumulated deficit  $(167,056,381)  $20,357,047   $(146,699,334)
Total stockholders’ equity  $11,548,328   $(1,543,953)  $10,004,375 
Total liabilities and stockholders’ equity  $12,611,720   $-   $12,611,720 

 

   As Previously   Restatement   As 
   December 31, 2022 
   As Previously   Restatement   As 
   Stated   Adjustments   Restated 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY               
Current liabilities               
Derivative liabilities  $-   $5,541,733   $5,541,733 
Total current liabilities  $440,302   $5,541,733   $5,982,035 
Total liabilities  $602,619   $5,541,733   $6,144,352 
Stockholders’ equity               
Additional paid-in capital  $168,457,418   $(21,901,000)  $146,556,418 
Accumulated deficit  $(152,640,897)  $16,359,267   $(136,281,630)
Total stockholders’ equity  $15,832,072   $(5,541,733)  $10,290,339 
Total liabilities and stockholders’ equity  $16,434,691   $-   $16,434,691 

 

The following tables present the effects of the Restatement on the Company’s consolidated statements of operations for the years ended December 31, 2023 and 2022:

 

   As Previously   Restatement   As 
   For the Year Ended 
   December 31, 2023 
   As Previously   Restatement   As 
   Stated   Adjustments   Restated 
             
Change in fair value of derivative liabilities  $-   $(3,997,780)  $(3,997,780)
Total other income  $(805,290)  $(3,997,780)  $(4,803,070)
Net (loss) income  $(14,415,484)  $3,997,780   $(10,417,704)
                
Earnings (loss) per share - basic and diluted  $(3.42)  $0.95   $(2.47)

 

   As Previously   Restatement   As 
   For the Year Ended 
   December 31, 2022 
   As Previously   Restatement   As 
   Stated   Adjustments   Restated 
             
Change in fair value of derivative liabilities  $-   $(5,272,473)  $(5,272,473)
Total other income  $(479,256)  $(5,272,473)  $(5,751,729)
Net (loss) income  $(18,494,769)  $5,272,473   $(13,222,296)
                
Loss per share:               
Earnings (loss) per share - basic and diluted  $(5.11)  $1.46   $(3.65)

 

 

The following tables present the effects of the Restatement on the Company’s consolidated statements of changes in stockholders’ equity for the years ended December 31, 2023 and 2022:

 

                
Balance - December 31, 2023 (as previously reported)  $178,590,256   $(167,056,381)  $11,548,328 
                
Adjustment due to cumulative error correction   (21,901,000)   16,359,267    (5,541,733)
                
Change in fair value of derivative liability   -    3,997,780    3,997,780 
                
Balance - December 31, 2023 (as restated)  $156,689,256   $(146,699,334)  $10,004,375 

 

Balance - December 31, 2022 (as previously reported)  $168,457,418   $(152,640,897)  $15,832,072 
                
Adjustment due to cumulative error correction   (21,901,000)   11,086,794    (10,814,206)
                
Change in fair value of derivative liability   -    5,272,473    5,272,473 
                
Balance - December 31, 2022 (as restated)  $146,556,418   $(136,281,630)  $10,290,339 

 

The following tables present the effects of the Restatement on the Company’s consolidated statements of cash flows for the years ended December 31, 2023 and 2022:

 

   As Previously   Restatement   As 
   December 31, 2023 
   As Previously   Restatement   As 
   Stated   Adjustments   Restated 
             
Cash Flows From Operating Activities:               
Net (loss) income  $(14,415,484)  $3,997,780   $(10,417,704)
Adjustments to reconcile net (loss) income to net cash used in operating activities:               
Change in fair value of derivative liability  $-   $(3,997,780)  $(3,997,780)
Net Cash Used In Operating Activities  $(6,430,211)  $-   $(6,430,211)

 

   As Previously   Restatement   As 
   December 31, 2022 
   As Previously   Restatement   As 
   Stated   Adjustments   Restated 
             
Cash Flows From Operating Activities:               
Net (loss) income  $(18,494,769)  $5,272,473   $(13,222,296)
Adjustments to reconcile net (loss) income to net cash used in operating activities:               
Change in fair value of derivative liability  $-   $(5,272,473)  $(5,272,473)
Net Cash Used In Operating Activities  $(5,913,100)  $-   $(5,913,100)

 

The remainder of the notes to the Company’s consolidated financial statements have been updated and restated, as applicable, to reflect the impact of the Restatement described above.

 

See Note 3 - Restatement of Previously Issued Unaudited Interim Condensed Consolidated Financial Statements for details of the effect of the Restatement on the Interim Periods.

 
Use of Estimates

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected.

 
Reclassifications

Reclassifications

 

Certain prior period balance sheet, statement of operations and statement of cash flows amounts have been reclassified to conform to the Company’s fiscal 2023 presentation. These reclassifications have no impact on the Company’s previously reported net loss.

 
Concentrations

Concentrations

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution. The Company maintains deposits in its cash account in excess of the Federal Depository Insurance Coverage limit of $250,000. As of December 31, 2023, the Company had not experienced losses on this account.

 

The royalties related to the Company’s sublicense comprised 100% of the Company’s revenue during the years ended December 31, 2023 and 2022. See “Revenue Recognition” below.

 

 
Revenue Recognition

Revenue Recognition

 

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.

 

The Company derives all of its revenue pursuant to a license agreement between the Company and a stem cell treatment company (“SCTC”) entered into in January 2012. In November 2022, the Company’s license rights under the agreement became exclusive. Pursuant to the license agreement, the SCTC granted to the Company a license to use certain intellectual property related to, among other things, stem cell disc procedures and the Company has granted to the SCTC a sublicense to use, and the right to sublicense to third parties the right to use, in certain locations in the United States and the Cayman Islands, certain of the licensed intellectual property. In consideration of the sublicenses, the SCTC has agreed to pay the Company royalties on a per disc procedure basis.

 

The Company’s contracted transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s contracts have a single performance obligation which is not separately identifiable from other promises in the contracts and is, therefore, not distinct. The Company’s performance obligation is satisfied upon the transfer of risk of loss to the customer. The timing of the Company’s revenue recognition may differ from the timing of receiving royalty payments. A receivable is recorded when revenue is recognized prior to receipt of a royalty payment and the Company has an unconditional right to the royalty payment. Alternatively, when a royalty payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. During the years ended December 31, 2023 and 2022, the Company recognized $145,800 and $119,800, respectively, of revenue related to the Company’s sublicenses.

 

Practical Expedients

 

As part of ASC 606, the Company has adopted several practical expedients including:

 

●Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

 

●Unsatisfied Performance Obligations - all performance obligations related to contracts with a duration for less than one year; the Company has elected to apply the optional exemption provided in ASC Topic 606 and, therefore, is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of the reporting period.

 

●Right to Invoice - the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date; the Company may recognize revenue in the amount to which the entity has a right to invoice.

 

 
Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. There were no cash equivalents as of December 31, 2023 or 2022.

 
Accounts Receivable

Accounts Receivable

 

Accounts receivable are carried at their contractual amounts, less a provision for current expected credit losses. The reserve represents the Company’s best estimate of expected credit losses it may experience in the Company’s receivable portfolio. Management estimates the allowance for credit losses based on an ongoing review of existing economic conditions, the financial conditions of the customers, historical trends in credit losses, and the amount and age of past due accounts. The Company writes off accounts receivable against the provision for current expected credit losses when a balance is determined to be uncollectible. The Company did not record a provision for current expected credit losses as of December 31, 2023 or 2022.

 
Property and Equipment

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the related assets, generally three to fifteen years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Computer equipment costs are capitalized, as incurred, and depreciated on a straight-line basis over a range of 3 - 5 years.

 

Leasehold improvements are amortized over the lesser of (i) the useful life of the asset, or (ii) the remaining lease term. Maintenance and repairs are charged to expense as incurred. The Company capitalizes cost attributable to the betterment of property and equipment when such betterment extends the useful life of the assets. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.

 
Intangible Assets

Intangible Assets

 

The Company records its intangible assets at cost in accordance with ASC 350, Intangibles - Goodwill and Other. Definite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.

 
Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets, including definite-lived intangible assets and right-of-use assets from operating leases, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. For the years ended December 31, 2023 and 2022, we determined that there was no impairment charge for our long-lived assets.

 
Derivative Financial Instruments

Derivative Financial Instruments

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted-average Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.

 
Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:

 

Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

 

Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.

 

Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

 

 

The Company considers cash and cash equivalents, investments held in marketable securities, accounts receivable, accounts payable and derivative liabilities to meet the definition of financial instruments. As of December 31, 2023 and 2022, the carrying amount of cash and cash equivalents, investments held in marketable securities, accounts receivable, and accounts payable approximate their fair value due to the relatively short period of time between their origination and their expected realization or payment. The Warrants are measured at fair value (see Note 11 – Fair Value Measurement for additional details).

 

During the years ended December 31, 2023 and 2022, the Company recognized aggregate dividend and interest income of $569,068 and $76,004 respectively, on its marketable securities, which was included within other income on its consolidated statements of operations.

 
Net Loss per Common Share

Net Loss per Common Share

 

Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The dilutive effect, if any, of stock options and warrants are calculated using the treasury stock method. All outstanding convertible preferred stock is considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, options, warrants, and convertible preferred stock have been excluded from the Company’s computation of diluted net loss per common share for the periods presented.

 

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less than the average market price of the common shares:

 

   For the Years Ended 
   December 31, 
   2023   2022 
Stock options   1,466,892    864,639 
Warrants   4,791,019    4,791,082 
Unvested RSUs   97,827    201,870 
Convertible Preferred Stock   1,398,158    1,518,158 
 Total   7,753,896    7,375,749 

 
Stock-Based Compensation

Stock-Based Compensation

 

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 then is recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period, on a straight-line basis. The Company computes the fair value of equity-classified warrants and options granted using the Black-Scholes option pricing model. Option forfeitures are recorded as incurred as a reduction of amounts previously expensed.

 
Income Taxes

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply 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 income in the period that includes the enactment date.

 

 

The Company utilizes ASC 740, “Income Taxes,” 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 or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.

 

For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations.

 
Leases

Leases

 

The Company determines whether an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in our consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise the option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 
Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires entities to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted this guidance on January 1, 2023. The adoption of this accounting standard did not have a material impact on the Company’s consolidated financial statements.