Note 2 - Significant Accounting Policies and Basis of Presentation
|3 Months Ended|
Mar. 31, 2019
|Notes to Financial Statements|
|Significant Accounting Policies [Text Block]||
2.Significant Accounting Policies and Basis of Presentation
Basis of Presentation
In management’s opinion, the accompanying interim unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The unaudited condensed consolidated balance sheet at
December 31, 2018,has been derived from audited financial statements as of that date. The interim results of operations are
notnecessarily indicative of the results that
mayoccur for the full fiscal year. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). We believe that the disclosures provided herein are adequate to make the information presented
notmisleading when these unaudited condensed consolidated financial statements are read in conjunction with the Financial Statements and Notes included in our Annual Report on Form
10-K for the year ended
2018,filed with the SEC, and as
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. The unaudited condensed consolidated financial statements include significant estimates for the expected economic life and value of our licensed technology and related patents, our net operating loss and related valuation allowance for tax purposes, the fair value of our liability classified warrants and our share-based compensation related to employees and directors, consultants and advisors, among other things. Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.
Fair Value Measurements
The carrying amounts of our short-term financial instruments, which primarily include cash and cash equivalents, short-term investments, accounts payable and accrued expenses, approximate their fair values due to their short maturities. The fair value of our long-term indebtedness was estimated based on the quoted prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities and approximates the carrying value. The fair values of our liability classified warrants were estimated using Level
3unobservable inputs. See Note
3for further details.
Foreign Currency Translation
The functional currency of our wholly owned foreign subsidiary is its local currency. Assets and liabilities of our foreign subsidiary are translated into United States dollars based on exchange rates at the end of the reporting period; income and expense items are translated at the weighted average exchange rates prevailing during the reporting period. Translation adjustments for subsidiary are accumulated in other comprehensive income or loss, a component of stockholders' equity. Transaction gains or losses are included in the determination of net loss.
Cash, Cash Equivalents and Credit Risk
Cash equivalents consist of investments in low risk, highly liquid money market accounts and certificates of deposit with original maturities of
90days or less. Cash deposited with banks and other financial institutions
mayexceed the amount of insurance provided on such deposits. If the amount of a deposit at any time exceeds the federally insured amount at a bank, the uninsured portion of the deposit could be lost, in whole or in part, if the bank were to fail.
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents. Our investment policy, approved by our Board of Directors, limits the amount we
mayinvest in any
onetype of investment issuer, thereby reducing credit risk concentrations. We attempt to limit our credit and liquidity risks through our investment policy and through regular reviews of our portfolio against our policy. To date, we have
notexperienced any loss or lack of access to cash in our operating accounts or to our cash equivalents and short-term investments.
The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. Deferred revenue results from cash receipts from or amounts billed to customers in advance of the transfer of control of the promised services to the customer and is recognized as performance obligations are satisfied. When sales commissions or other costs to obtain contracts with customers are considered incremental and recoverable, those costs are deferred and then amortized as selling and marketing expenses on a straight-line basis over an estimated period of benefit.
Research and Development
Research and development costs are expensed as they are incurred. Research and development expenses consist primarily of costs associated with the pre-clinical development and clinical trials of our product candidates. For theapproximately
March 31, 2019and
$84,000,respectively of cost reimbursements from our grants as an offset to research and development expenses. The Company evaluated the grants and concluded that, based on the specific terms, they represent a cost reimbursement activity as opposed to a revenue generating activity, and are best reflected as an offset to the underlying research and development expense.
Income (Loss) per Common Share
Basic income (loss) per common share is computed by dividing total net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period.
For periods of net income when the effects are dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding and the dilutive impact of all dilutive potential common shares. Dilutive potential common shares consist primarily of convertible preferred stock, stock options, restricted stock units and common stock purchase warrants. The dilutive impact of potential common shares resulting from common stock equivalents is determined by applying the treasury stock method. Our unvested restricted shares contain non-forfeitable rights to dividends, and therefore are considered to be participating securities; the calculation of basic and diluted income per share excludes net income attributable to the unvested restricted shares from the numerator and excludes the impact of the shares from the denominator.
For all periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive due to the net losses; accordingly, diluted loss per share is the same as basic loss per share for the
March 31, 2019and
2018.A total of approximately
9.5million potential dilutive shares have been excluded in the calculation of diluted net income per share for the
March 31, 2019and
2018,respectively as their inclusion would be anti-dilutive.
We account for share-based compensation at fair value. Share-based compensation cost for stock options and stock purchase warrants is generally determined at the grant date using an option pricing model that uses Level
3unobservable inputs; share-based compensation cost for restricted stock and restricted stock units is determined at the grant date based on the closing price of our common stock on that date. The value of the award is recognized as expense on a straight-line basis over the requisite service period or based on probability of vesting for performance-based awards.
Intangible and Long-Lived Assets
We assess impairment of our long-lived assets using a "primary asset" approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
notbe recoverable. The carrying amount of a long-lived asset is
notrecoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
Nosignificant impairment losses were recognized during the
three-month periods ended
March 31, 2019or
We account for income taxes using the asset and liability approach, which requires the recognition of future tax benefits or liabilities on the temporary differences between the financial reporting and tax bases of our assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. We also recognize a tax benefit from uncertain tax positions only if it is “more likely than
not”that the position is sustainable based on its technical merits. Our policy is to recognize interest and penalties on uncertain tax positions as a component of income tax expense.
We determine if an arrangement is or contains a lease at its inception. We have made accounting policy elections whereby we (i) do
notrecognize right-of-use (“ROU”) assets or lease liabilities for our short-term leases (those with original terms of
12-months or less) and (ii) combine lease and non-lease elements of our operating leases. Operating lease ROU assets are included in other noncurrent assets and operating lease liabilities are included in other current liabilities in our consolidated balance sheets. We do
nothave any finance leases.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense is recognized on a straight-line basis over the lease term.
We currently have
oneoperating lease (for our San Diego facility) with an original term greater than
12-months. This lease terminates in
August 2019and provides for remaining minimum payments of approximately
March 31, 2019.We paid approximately
$29,800under this lease in the
March 31, 2019.Because this lease does
notprovide an implicit interest rate, we used our estimated incremental borrowing rate of approximately
12.75%to calculate the present value of our remaining minimum lease payments upon adoption of the new lease guidance. Our ROU asset and lease liability at
March 31, 2019,was approximately
We also have
twoadditional short-term leases for which we did
notestablish ROU assets or lease liabilities. We recognized total rent expense of approximately
$47,100in the quarters ended
March 31, 2019and
2018,respectively. Included in the
2019expense is approximately
$16,900relating to our short-term leases
In addition, in
April 2018,we entered into a sublease for our San Diego space. The sublease is coterminous with the head lease and provides for approximately
$62,200of remaining minimum payments. We recognized other income of approximately
$24,200from this sublease in the quarter ended
March 31, 2019.
Significant New Accounting Pronouncements
Recently Adopted Guidance
February 2016,the FASB issued
ASU,This ASU consists of a comprehensive lease accounting standard. The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after
December 15, 2018and early adoption is permitted. The guidance
maybe adopted on a modified retrospective basis and provides for certain practical expedients. We adopted this guidance effective
January 1, 2019as of the beginning of the period of adoption using the following practical expedients: we did
notevaluate any expired leases, nor did we reassess the classification of any existing leases. The Company made an ongoing policy election whereby it will
notrecognize a lease liability or right of use asset for our short-term leases and that it will combine lease and non-lease elements of leases. The new guidance changes the way we account for our operating leases including recording the future benefits (“ROU assets”) of those leases and the related discounted minimum lease payments on our consolidated balance sheets. Upon adoption we recorded a right of use asset of approximately
$53,000and a lease liability of approximately
$75,700on our consolidated balance sheet.
June 2018,the FASB issued
ASU. This ASU expands the scope of
07,Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting
ASCto include share-based payment transactions for acquiring goods and services from nonemployees. This guidance provides for the following changes: (
718,Compensation – Stock Compensation
1) awards to nonemployees will be measured at the grant date fair value of equity instruments that the entity is obligated to issue, (
2) performance-based awards to nonemployees will be measured based on the probability of the performance condition being met and (
3) eliminating the need to reassess the classification (equity or liability) of awards to nonemployees upon vesting. The guidance is effective for fiscal years beginning after
December 15, 2018.We adopted this guidance effective
January 1, 2019.The adoption resulted in our generally measuring awards to nonemployees using the grant date fair value. The adoption did
nothave a material impact to our financial statements.
June 2016,the FASB issued
ASU. This ASU relates to measuring credit losses on financial instruments, including trade receivables. The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity's current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance is effective for fiscal years beginning after
13,Financial Instrument’s – Credit Losses
December 15, 2019,including interim periods within those fiscal years and early adoption is permitted. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. We currently expect that the adoption of this guidance will likely change the way we assess the collectability of our receivables and recoverability of other financial instruments. We have
notyet begun to evaluate the specific impacts of this guidance nor have we determined the manner in which we will adopt this guidance.
August 2018,the FASB issued
ASU. This ASU addresses the disclosure requirements for fair value measurements. The guidance intends to improve the effectiveness of the disclosures relating to recurring and nonrecurring fair value measurements. The guidance is effective for fiscal years beginning after
13,Fair Value Measurement (Topic
820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
December 15, 2019and early adoption is permitted. Portions of the guidance are to be adopted prospectively while other portions are to be adopted retroactively. The Company is currently evaluating the impact, if any, that this guidance will have on the consolidated financial statements.
August 2018,the FASB issued
ASU. This ASU addresses the accounting for implementation, setup and other upfront costs paid by a customer in a cloud computing or hosting arrangement. The guidance aligns the accounting treatment of these costs incurred in a hosting arrangement treated as a service contract with the requirements for capitalization and amortization costs to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after
15,Intangibles – Goodwill and Other – Internal-Use Software
December 15, 2019and early adoption is permitted. The guidance can be adopted either retrospectively or prospectively. The Company is currently evaluating the impact, if any, that this guidance will have on the consolidated financial statements.
We have reviewed other recent accounting pronouncements and concluded that they are either
notapplicable to our business, or that
nomaterial effect is expected on the consolidated financial statements as a result of future adoption.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef