Quarterly report pursuant to Section 13 or 15(d)

Basis of presentation, principles of consolidation and significant accounting policies

v3.10.0.1
Basis of presentation, principles of consolidation and significant accounting policies
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Basis of presentation, principles of consolidation and significant accounting policies Basis of presentation, principles of consolidation and significant accounting policies
 
Basis of Presentation – Unaudited Interim Consolidated Financial Information - The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited financial statements of the Company as of December 31, 2017 and December 31, 2016 and notes thereto contained in the Form 10-K filed with the SEC on March 28, 2018.

Principles of consolidation - The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. As of June 30, 2018, there is only one subsidiary company. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to GAAP. The Company views its operations and manages its business in one operating segment. All material long-lived assets of the Company reside in the United States.
 
Use of Estimates - The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of financial statements. Estimates are used in the following areas, among others: fair value estimates on intangible assets, warrants, and stock-based compensation expense, accrued expenses and taxes. 

Going Concern - These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As of June 30, 2018, the Company has incurred an accumulated deficit of $21.5 million since inception and had not yet generated any revenue from operations. Additionally, management anticipates that its cash on hand as of June 30, 2018 is sufficient to fund its planned operations into but not beyond the near term. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. Management cannot be certain that such events or a combination thereof can be achieved.
 
Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less at the date of acquisition to be cash equivalents. Periodically in the ordinary course of business, the Company may carry cash balances at financial institutions in excess of the insured limits of $250,000. The amount in excess of the applicable insurance coverage at June 30, 2018 was not material.

Intangible assets - Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. If an intangible asset is identified as an in-process research & development ("IPR&D") asset, then no amortization will occur until the development is complete. If the associated research and development effort is abandoned, the related assets will be written-off and the Company will record a noncash impairment loss on its statements of operations. For those compounds that reach commercialization, if any, the IPR&D assets will be amortized over their estimated useful lives.
The Company evaluates the recoverability of intangible assets periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No material impairments of intangible assets have been identified during any of the periods presented. Intangible assets are tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach.

Fair Value of Financial Instruments - The Company's financial instruments consist primarily of account payables, accrued expenses and a warrant liability. The carrying amount of accounts payables and accrued expenses approximates their fair value because of the short-term maturity of such.
 
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).
 
Assets and liabilities recorded in the balance sheets at fair value are categorized based on a hierarchy of inputs as follows:
 
Level 1 – Unadjusted quoted prices in active markets of identical assets or liabilities.
Level 2 – Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or  liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 – Unobservable inputs for the asset or liability.
 
The Company’s financial assets and liabilities recorded at fair value on a recurring basis include the fair value of its warrant liability discussed in Note 4.  In the accompanying consolidated financial statements as of June 30, 2018, the fair value of this warrant liability is included in current liabilities for the 2017 Issuance of Warrants and in long-term liabilities for the February 2018 Issuance of Warrants and the June 2018 Issuance of Warrants. The latter is due to the warrants issued during 2018 having an exercise price substantially higher than the current market value of the Company’s stock; therefore, management considers it a long-term liability.
 
The following table provides the financial assets and liabilities reported at fair value and measured on a recurring basis at December 31, 2017 and June 30, 2018 (in thousands):
 
Description Liabilities
Measured at Fair
Value 
Quoted Prices
in Active
Markets for
Identical
Assets (Level 1) 
Significant Other
Observable Inputs
(Level 2) 
Significant Other
Unobservable Inputs
(Level 3) 
Fair value of warrant liability as of December 31, 2017: $ 503  $ —  $ —  $ 503 
Fair value of warrant liability as of June 30, 2018: $ 3,653  $ —  $ —  $ 3,653 



The table below (in thousands) of Level 3 liabilities begins with the valuation as of the beginning of quarter two and then is adjusted for the issuances and exercises that occurred during the second quarter of 2018 and adjusts for balances for changes in fair value that occurred during the current quarter. The ending balance of the Level 3 financial instrument presented above represents our best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.
Three months ended June 30, 2018: 
Warrant
Liability –
Current
Warrant
Liability –
Long-Term
Warrant
Liability –
Total
Balance, March 31, 2018
$ 463  $ 2,410  $ 2,873 
Exercise of warrants —  —  — 
Issuances of warrants —  1,111  1,111 
Change in fair value - net
(12) (319) (331)
Balance, June 30, 2018 $ 451  $ 3,202  $ 3,653 

 
The table below (in thousands) of Level 3 liabilities begins with the valuation as of December 31, 2017 and then is adjusted for the issuances, exercises, and the changes in fair value that occurred during the six months ended June 30, 2018. The ending balance of the Level 3 financial instrument presented above represents its best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.
 
Six months ended June 30, 2018: 
Warrant
Liability –
Current
Warrant
Liability –
Long-Term
Warrant
Liability –
Total
Balance, December 31, 2017 $ 503  $ —  $ 503 
Exercise of warrants (13) —  (13)
Issuances of warrants —  4,203  4,203 
Change in fair value - net
(39) (1,001) (1,040)
Balance, June 30, 2018 $ 451  $ 3,202  $ 3,653 

 
Loss Per Common Share - Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. For the three months and six months ended June 30, 2018, the Company’s potentially dilutive shares, which were not included in the calculation of net loss per share, included options to purchase 2,754,000 common shares and warrants to purchase 3,784,515 common shares as inclusion of these securities would have been anti-dilutive. For the three months and six months ended June 30, 2017, the Company's potentially dilutive shares, which were not included in the calculation of net loss per share, included options to purchase 530,000 common shares and warrants to purchase 948,011 common shares as inclusion of these securities would have been anti-dilutive.
 
Reclassifications – A reclassification was made to the prior period financial statements to conform to the 2018 presentation. Such reclassification did not affect net loss as previously reported. Historically, "accrued expenses and current liabilities" were included in the line item "accounts payable and accrued expenses". Management believes that these costs are best shown as separate line items and, as such, a reclassification was made to the Statement of Cash Flows for the six months ended June 30, 2017 by reducing “Accounts payable" and now creating a new line item “Accrued expenses and other liabilities”.

Subsequent Events - The Company’s management reviewed all material events through the date these consolidated financial statements were issued for subsequent events disclosure consideration and has noted events in notes to the unaudited consolidated financial statements.
 
Recent Accounting Pronouncements  
 
In May 2014, the FASB issued Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and
provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB approved a proposal to defer the effective date of the guidance until annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements at the time the Company starts to generate revenue or enters into other contractual arrangements, which the Company does not expect in the near term.
 
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact that this standard will have on its financial statements.
 
In August 2016, the FASB issued ASU, Statement of Cash Flows (Topic 230). This ASU applies to all entities that are required to present a statement of cash flows under Topic 230. The amendments provide guidance on eight specific cash flow issues and includes clarification on how these items should be classified in the statement of cash flows and is designed to help eliminate diversity in practice as to where items are classified in the cash flow statement. Furthermore, in November 2016, the FASB issued additional guidance on this Topic that requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with earlier application permitted for all entities. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
 
In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805)," which provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments in this update also narrow the definition of the term "output" so that the term is consistent with how outputs are described in Topic 606. Public business entities are required to apply the amendments in this update to annual periods beginning after December 15, 2017, including interim periods within those periods. Early application is permitted. The Company will evaluate the effect of the update at the time of any future acquisition or disposal.
 
In May 2017, the FASB issued ASU 2017-09 "Compensation—Stock Compensation (Topic 718)." This update clarifies the existing definition of the term "modification," which is currently defined as "a change in any of the terms or conditions of a share-based payment award." The update requires entities to account for modifications of share-based payment awards unless the (1) fair value, (2) vesting conditions and (3) classification as an equity instrument or a liability instrument of the modified award are the same as of the original award before modification. Public business entities are required to adopt the amendments in this update for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718) Improvements to Non-employee Share-Based Payment Accounting ("ASU 2018-07"). ASU 2018-07 affects all entities that enter into share-based payment transactions for acquiring goods and services from non-employees. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The
amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption permitted, but no earlier than an entity's adoption date of Topic 606. The Company is currently evaluating the impact that this standard will have on its financial statements. 

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements ("ASU 2018-09"). ASU 2018-09 affects a wide variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The amendments in this Update are effective based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this Update. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.