| Summary of Significant Accounting Policies | Note 2
- Summary of Significant Accounting Policies Basis
of Presentation The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include
all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed
consolidated financial statements of the Company as of March 31, 2023 and for the three months ended March 31, 2023 and 2022. The results
of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results for the full year ending
December 31, 2023 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with
the audited financial statements and related disclosures as of December 31, 2022 and for the year then ended which have been previously
filed. Use of Estimates Preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the
amounts reported in the financial statements and the amounts disclosed in the related notes to the financial statements. The Company’s
significant estimates used in these financial statements include, but are not limited to, fair value calculations for equity securities,
stock-based compensation, the collectability of receivables, the recoverability and useful lives of long-lived assets, and the valuation
allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions,
including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have
an effect on the Company’s estimates and could cause actual results to differ from those estimates. Cash and
Cash Equivalents The Company
considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents in the financial
statements. As of March 31, 2023 and December 31, 2022, the Company had no Restricted Cash Restricted
cash was comprised of cash held as a security deposit in connection with the Company’s operating lease. See Note 9 – for additional details. Deferred
Expenses Deferred
expenses consist of labor, materials and other costs that are attributable to customer contracts that the Company has not completed its
performance obligation under the contract and, as a result, has not recognized revenue. As of March 31, 2023 and December 31, 2022, deferred
expenses were approximately $ 10,000 0 Property
and Equipment Property
and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives once
the asset is placed in service. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related
assets, are charged to operations as incurred, and expenditures which extend the economic life are capitalized. Leasehold improvements
are depreciated over the lesser of their estimated useful lives or the remaining term of their respective lease. When assets are retired
or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or
loss on disposal is recognized in the statement of operations for the respective period. The Company’s
long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying amount. The estimated
useful lives of property and equipment are as follows:
Schedule of estimated useful lives of property and equipment
Schedule of estimated useful lives of property and equipment
Asset Useful lives (years)
Computer and office equipment 5
Lab equipment 5
Leasehold improvements shorter of useful life or lease term
Machinery 7 15
Furniture 7 Offering Costs Deferred
offering costs, which primarily consist of direct, incremental professional fees incurred in connection with a debt or equity financing,
are capitalized as non-current assets on the consolidated balance sheets. Once the financing closes, the Company reclassifies such costs
as either discounts to notes payable or as a reduction of proceeds received from equity transactions so that such costs are recorded as
a reduction of additional paid-in capital. If the completion of a contemplated financing was deemed to be no longer probable, the related
deferred offering costs would be charged to general and administrative expense in the consolidated financial statements. Revenue
Recognition The Company
recognizes revenue under ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines
revenue recognition through the following steps:
● Step 1:
● Step 2:
● Step 3:
● Step 4:
● Step 5: A majority
of the Company’s revenues are generated from contracts with customers that require it to design, develop, manufacture, test and
integrate complex equipment and to provide engineering and technical services according to customer specifications. These contracts are
often priced on a time and material type basis. Revenues on time and material type contracts are generally recognized in each period based
on the amount billable to the customer which is based on direct labor hours expended multiplied by the contractual fixed rate per hour,
plus the actual costs of materials and other direct non-labor costs. The timing
of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue
is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision
of the related services, the Company records deferred revenue until the performance obligations are satisfied. Contract assets are comprised
of unbilled contract receivables related to revenues earned but not yet invoiced to customers. During the
three months ended March 31, 2023 and 2022, there was no revenue recognized from performance obligations satisfied (or partially satisfied)
in previous periods. The Company
generated revenue from government contracts that reimburse the Company for certain allowable costs for funded projects. For contracts
with government agencies, when the Company has concluded that it is the principal in conducting the research and development expenses
and where the funding arrangement is considered central to the Company’s ongoing operations, the Company classifies the recognized
funding received as revenue. The Company has determined that revenue generated from government grants is outside the scope of ASC 606
and, as a result, the Company recognizes revenue upon incurring qualifying, reimbursable expenses. No Research
and Development Research
and development expenses are charged to operations as incurred. 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. The fair value amount is then recognized over the period during which services are required
to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of
common stock out of its authorized shares. The
risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with
the expected term of the instrument being valued. Option forfeitures are accounted for at the time of occurrence. The expected term used
is the estimated period of time that warrants or options are expected to be outstanding. The Company utilizes the “simplified”
method to develop an estimate of the expected term of “plain vanilla” employee options. For investor warrants and non-employee
options, the expected term used is the contractual life of the instrument being valued. The Company uses its trading history to support
its historical volatility calculations. Net (Loss)
Income per share of Common Stock Basic net
(loss) income per share of common stock is computed by dividing net (loss) income by the weighted average number of vested shares of common
stock outstanding during the period. Diluted net income per share of common stock is computed by dividing net income by the weighted
average number of common and dilutive common-equivalent shares outstanding during each period. The following
shares were excluded from the calculation of weighted average dilutive shares of common stock because their inclusion would have been
anti-dilutive:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
As of March 31,
2023 2022
Warrants 245,696 245,696
Options 2,915,746 1,398,246
Total 3,161,442 1,643,942 Income Taxes The Company
recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in
the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the
tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted
tax rates in effect for the years in which the temporary differences are expected to reverse. The Company has recorded a full valuation
allowance against its deferred tax assets for all periods, due to the uncertainty of future utilization. The Company
utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Management has evaluated and concluded that there were no material uncertain tax positions requiring
recognition in the Company’s financial statements as of March 31, 2023 and December 31, 2022. The Company does not expect any significant
changes in its unrecognized tax benefits within twelve months of the reporting date. The Company’s policy is to classify assessments,
if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses in the consolidated
statements of operations. Critical Accounting Policies
and Estimates Our consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience, current economic and
industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. We believe that full consideration has been given to all relevant
circumstances that we may be subject to, and the consolidated financial statements accurately reflect our best estimate of the results
of operations, financial position and cash flows for the periods presented. On an ongoing
basis, we evaluate our estimates and judgments for all assets and liabilities, including those related to the fair value of stock options
for determination of the stock-based compensation expense. The amount of stock based compensation has been a significant expense over
the three months ended March 31, 2023 and 2022. The assumptions that go into the Black-Scholes calculation are the major driver of the
calculation of the fair value of the stock options at the date of grant. The major assumption of volatility is based upon historical data,
and the majority of the other assumptions used in the Black Scholes computation is based upon the terms of the specific stock option grant. Revenues
and cost of sales are important metrics in demonstrating the completion of projects and shipment of products to customers, and the profitability
of such revenues. Accordingly, revenue recognition is a critical accounting policy. The timing of the Company’s revenue recognition
may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company
has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records
deferred revenue until the performance obligations are satisfied. Contract assets are comprised of unbilled contract receivables related
to revenues earned but not yet invoiced to customers. We review the status of each project at each period end and determine whether the
earnings process is complete and the revenue and costs of sales should be recognized. Leases In February
2016, the Financial Accounting Standards Board (the “FASB”) established Accounting Standards Codification (“ASC”)
Topic 842, “Leases”, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to now
recognize operating leases on the balance sheet and disclose key information about leasing arrangements. ASC Topic 842 was subsequently
amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements
to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements
● Short-term lease accounting policy election allowing lessees to not recognize ROU assets and liabilities for leases with a term of 12 months or less;
● The option to not separate lease and non-lease components in the Company’s lease contracts; and
● The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing the capitalization of initial direct costs for any existing leases. Adoption
of this standard resulted in the recognition of operating lease right-of-use assets and corresponding lease liabilities of approximately
$ 694,000 Bridge
Loan - Related Party The Company accounts for convertible
bridge loans under ASC 815. The Company has made the election under 815-15-25 to account for the notes under the fair value option. Using
the fair value option, the convertible notes are required to be recorded at their initial fair value on the date of issuance, and each
balance sheet thereafter. Differences between the face value of the note and fair value at issuance are recognized as either an expense
in the statement of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated
fair value of the notes are recognized as non-cash gains or losses in the statement of operations. Recently Issued and Adopted Accounting Standards In August of 2020, the FASB
issued 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)”. ASU 2020-06 simplifies the process of evaluating certain financial instruments with both equity and
debt characteristics. This update limits the number of models needed when evaluating embedded features of a debt instrument in order to
improve transparency for the users of the financial statements. The Company has elected early adoption of this standard on January 1,
2022. Adoption of this standard allows the Company to measure the derivative liability at fair market value. In June 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments
- Credit Losses”. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”).
Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that
are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022 for
public entities qualifying as small reporting companies. Early adoption is permitted. The Company is currently assessing the impact of
this update on our consolidated financial statements and do not anticipate a significant impact. |
