NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2016 (unaudited)
The accompanying condensed
consolidated financial statements include the accounts of CASI Pharmaceuticals, Inc. and its subsidiaries (“CASI”
or “the Company”), Miikana Therapeutics, Inc. (“Miikana”) and CASI Pharmaceuticals (Beijing) Co., Ltd.
(“CASI China”). The Company previously operated under a different name prior to restructuring its business in 2012
in connection with an investment led by one of the Company’s largest stockholders. CASI China is a non-stock Chinese
entity with 100% of its interest owned by CASI. CASI China received approval for a business license from the Beijing Industry
and Commercial Administration in August 2012 and has operating facilities in Beijing. All inter-company balances and transactions
have been eliminated in consolidation.
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
such condensed consolidated financial statements do not include all of the information and disclosures required by U.S. generally
accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying December 31,
2015 financial information was derived from the Company’s audited financial statements in the Annual Report on Form 10-K
for the year ended December 31, 2015. Operating results for the three and nine month periods ended September 30, 2016 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer
to the Company’s audited consolidated financial statements and footnotes thereto included in its Form 10-K for the year
ended December 31, 2015.
Liquidity Risks
and Management’s Plans
Since
inception, the Company has incurred significant losses from operations and
has incurred an accumulated
deficit of $439.3 million.
The Company restructured its business in 2012 in connection with an investment led
by one of the Company’s largest stockholders
,
followed by implementation of a name
change to reflect its core mission and business strategy.
The Company expects to continue to
incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. In September
2015, the Company entered into stock purchase agreements for a $25.1 million strategic financing, the closing of which was subject
to certain regulatory and customary conditions. In January 2016, the Company completed the first closing and received approximately
$10.3 million (“First Closing”). In June 2016, the Company completed the second closing and received approximately
$6.0 million (“Second Closing”). In July 2016, the Company completed the third closing and received $1.0 million (“Third
Closing”). In October 2016, the Company completed the final closing and received $7.8 million (“Final Closing”),
together these closings are referred to as the Closings (see Note 5). The Final Closing included an investment from ETP Precision
Medicine, LLC, a healthcare investment fund of which the Company’s Chairman serves as managing member. On October 24, 2016,
the Company entered into and closed on a stock purchase agreement in a private placement with an accredited investor and received
$3.0 million (“October Offering”) (see Note 5). Net proceeds of the Closings and the October Offering will be used
to further fund the Company’s operations, accelerate its clinical and regulatory activities, expand its product pipeline,
and support its marketing and commercial planning activities. As a result of the Closings and the October Offering, the Company
believes that it has sufficient resources to fund its operations for at least the twelve months subsequent to September 30, 2016.
As of September 30, 2016, approximately $6.2 million of the Company’s cash balance was held by CASI China. The Company intends
to continue to exercise tight controls over operating expenditures and will continue to pursue opportunities, as required, to
raise additional capital and will also actively pursue non- or less-dilutive capital raising arrangements in China to support
the Company’s dual-country approach to drug development.
|
2.
|
License
Arrangements and Acquisition of In-Process Research and Development
|
In September 2014,
the Company acquired certain product rights and perpetual exclusive licenses from Spectrum Pharmaceuticals, Inc. and certain of
its affiliates (together referred to as “Spectrum”) to develop and commercialize the following commercial oncology
drugs and drug candidates in the greater China region (which includes China, Taiwan, Hong Kong and Macau) (the “Territories”):
|
·
|
MARQIBO
®
(vinCRIStine sulfate LIPOSOME injection) (“Marqibo”);
|
|
·
|
ZEVALIN
®
(ibritumomab tiuxetan) (“Zevalin”); and
|
|
·
|
EVOMELA
®
(melphalan) for Injection (“Evomela”).
|
CASI
is responsible for developing and commercializing these three drugs in the Territories, including the submission of import drug
registration applications and conducting confirmatory clinical trials as needed.
The Company is in
various stages of the regulatory and development process to obtain marketing approval for MARQIBO
®
, ZEVALIN
®
and EVOMELA
®
in its territorial region, with ZEVALIN
®
commercially available in Hong Kong.
In January 2016, the China Food and Drug Administration (CFDA) accepted for review the Company’s import drug registration
application for MARQIBO
®
and currently is in the quality testing phase of the regulatory review. On March 10, 2016,
Spectrum received notification from the U.S. Food and Drug Administration (FDA) of the grant of approval of its New Drug Application
(NDA) for EVOMELA
®
primarily for use as a high-dose conditioning treatment prior to hematopoietic progenitor
(stem) cell transplantation in patients with multiple myeloma. The Company is working with its partner to finalize the CFDA submission
for EVOMELA
®
and expects to file by the end of 2016.
As consideration for
the acquisition from Spectrum, the Company issued a total 5,405,382 shares of its common stock, a $1.5 million 0.5% secured promissory
note originally due in March 2016, and certain contingent rights (“Contingent Rights”) to purchase additional shares
of its common stock, which Contingent Rights expire upon the occurrence of certain events. The note was subsequently amended to
extend the due date to March 2017 (see Note 3). The Company accounted for the acquisition of the product rights and licenses as
an asset acquisition and, accordingly, recorded the acquired product rights and licenses at their estimated fair values based
on the fair value of the consideration exchanged (including transaction costs) of approximately $19.7 million. Because the products
underlying the acquired product rights and licenses have not reached technological feasibility and have no alternative uses, they
are considered “in-process research and development” costs; as such, the Company expensed the total purchase price
at the acquisition date as acquired in-process research and development in the consolidated statement of operations for the year
ended December 31, 2014.
The fair value of
the common stock issued was based on the closing market price of the Company’s common stock on the acquisition date. The
fair value of the promissory note was measured using Level 3 unobservable inputs (see Note 4) including primarily the Company’s
estimated incremental borrowing rate as provided by a commercial lending institution.
The Contingent Rights
provide Spectrum with the option to acquire, at a strike price of par value, a variable number of additional shares of common
stock that allows Spectrum to maintain its fully-diluted ownership percentage for a certain time period and under certain terms
and conditions. These Contingent Rights will expire on the earlier of raising an aggregate of $50 million or September 17, 2019
(subject to possible extension only for certain outstanding derivative securities). Based on the terms and conditions of the Contingent
Rights, the Company has determined that the Contingent Rights are a derivative financial instrument that is not indexed to its
common stock and therefore is required to be accounted for at fair value, initially and on a recurring basis. The fair value of
the Contingent Rights was measured using Level 3 unobservable inputs; the unobservable inputs include estimates of the Company’s
future capital requirements, and the timing, probability, size and characteristics of those capital raises, among other inputs.
The total estimated fair value of the Contingent Rights was $6,167,142 and $9,395,222 as of September 30, 2016 and December 31,
2015, respectively; the change in fair value (see Note 4) is reflected as change in fair value of contingent rights in the accompanying
condensed consolidated statements of operations.
As a result of the
First Closing (see Note 5), Spectrum exercised its Contingent Rights and the Company issued Spectrum 1,688,877 shares of common
stock in February 2016. As a result of the Second Closing (see Note 5), Spectrum exercised its Contingent Rights and the Company
issued Spectrum 980,732 shares of common stock in July 2016. As a result of the Third Closing (see Note 5), Spectrum exercised
its Contingent Rights and the Company issued Spectrum 164,526 shares of common stock in July 2016. The Company recorded a reduction
to the contingent rights derivative liability and an increase to additional paid-in capital of $3,232,502 related to the partial
settlement of the contingent rights derivative as a result of the First Closing, Second Closing and Third Closing, which is reflected
in the accompanying condensed consolidated balance sheet as of September 30, 2016.
As a result of the
Final Closing and the October Offering (see Note 5), Spectrum exercised its Contingent Rights and the Company issued Spectrum
1,789,062 shares of common stock in October 2016. In October 2016, the Company will record a reduction to the contingent rights
derivative liability and an increase to additional paid-in-capital of $2,047,243 which will be reflected in the Company’s
December 31, 2016 consolidated financial statements.
As part of the license
arrangements with Spectrum (see Note 2), the Company issued to Spectrum a $1.5 million 0.5% secured promissory note originally
due March 17, 2016. The promissory note was recorded initially at its fair value, giving rise to a discount of approximately $136,000;
the promissory note is presented as note payable, net of discount in the accompanying condensed consolidated balance sheets. For
the nine months ended September 30, 2016 and 2015, the Company recognized $21,015 and $67,950 of non-cash interest expense, respectively,
related to the amortization of the debt discount, using the effective interest method. On September 28, 2015, the Company entered
into a First Amendment to Secured Promissory Note (the “Amendment”) with Spectrum. Pursuant to the Amendment, the
Company and Spectrum agreed to extend the maturity date of the note to March 17, 2017. All other terms remain the same.
|
4.
|
Fair Value
Measurements
|
Fair value is the
price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the
most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes
and ranks the level of observability of inputs used in measuring fair value. These tiers include:
|
·
|
Level
1, defined as observable inputs such as quoted prices in active markets for identical
assets;
|
|
·
|
Level
2, defined as observable inputs other than Level 1 prices such as quoted prices for similar
assets; quoted prices in markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the
assets or liabilities; and
|
|
·
|
Level
3, defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
|
An asset’s or
liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair
value measurement. At each reporting period, the Company performs a detailed analysis of its assets and liabilities that are measured
at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or
instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.
The inputs used in
measuring the fair value of cash and cash equivalents are considered to be Level 1 in accordance with the three-tier fair value
hierarchy. The fair values are based on period-end statements supplied by the various banks and brokers that held the majority
of the Company’s funds. The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses,
accounts payable, accrued expenses, and other current assets and liabilities) approximates their carrying values because of their
short-term nature.
Financial Assets
and Liabilities Measured at Fair Value on a Recurring Basis:
The Contingent Rights
issued to Spectrum in connection with the license arrangements (see Note 2) are considered derivative liabilities and were recorded
initially at their estimated fair value, and are marked to market each reporting period until settlement. The fair value of the
Contingent Rights was measured using Level 3 unobservable inputs; the unobservable inputs include estimates of the Company’s
future capital requirements, and the timing, probability, size and characteristics of those capital raises, among other inputs.
Generally, if the estimates of the size and probability of the Company’s future capital requirements increase, the fair
value of the Contingent Rights will also increase.
The following table
presents the Company’s financial liabilities accounted for at fair value on a recurring basis as of September 30, 2016 and
December 31, 2015 by level within the fair value hierarchy:
|
|
As of September 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities - Contingent Rights
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,167,142
|
|
|
$
|
6,167,142
|
|
|
|
As of December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities - Contingent Rights
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,395,222
|
|
|
$
|
9,395,222
|
|
The following table
presents the changes in the Company’s financial liabilities accounted for at fair value on a recurring basis using Level
3 unobservable inputs:
December 31, 2015
|
|
$
|
9,395,222
|
|
Partial settlement of Contingent Rights
|
|
|
(3,232,502
|
)
|
Change in fair value of Contingent Rights
|
|
|
4,422
|
|
Balance at September 30, 2016
|
|
$
|
6,167,142
|
|
Financial Assets
and Liabilities Measured at Fair Value on a Non-Recurring Basis:
The promissory note
issued to Spectrum in connection with the license arrangements (see Notes 2 and 3) was initially recorded at its fair value using
Level 3 unobservable inputs including primarily the Company’s estimated incremental borrowing rate as provided by a commercial
lending institution.
Non-Financial Assets and Liabilities Measured
at Fair Value on a Recurring Basis:
The Company does not
have any non-financial assets and liabilities that are measured at fair value on a recurring basis.
Non-Financial Assets
and Liabilities Measured at Fair Value on a Non-Recurring Basis:
The Company measures
its long-lived assets, including property and equipment, at fair value on a non-recurring basis. These assets are recognized at
fair value when they are deemed to be impaired. No such fair value impairment was recognized for the nine months ended September
30, 2016 and 2015.
Securities Purchase Agreements
As described in Note
1, on September 20, 2015, the Company entered into stock purchase agreements with certain institutional and accredited investors
(the “Investors”) for a $25.1 million financing. Pursuant to these agreements, the Company agreed to sell to the Investors
in a private placement an aggregate of 20,658,434 shares of the Company’s common stock, at $1.19 per share, based on the closing
bid price of the Company’s common stock on the Nasdaq Capital Market on September 18, 2015, and a total of 4,131,686 warrants,
representing a 20% warrant coverage, with a purchase price of $0.125 per whole warrant share. The warrants become exercisable
three months after issuance at $1.69 per share exercise price, and expire three years from the date the warrants become exercisable.
The offering closed
after satisfaction of certain regulatory and customary closing conditions, with the net proceeds subject to payment of offering
expenses, including fees and expenses.
On January 15, 2016,
the Company completed the First Closing and received approximately $10.3 million and yielded approximately $10.2 million after
offering expenses. The First Closing resulted in the issuance of 8,448,613 shares of Common Stock, priced at $1.19 per share,
and 1,689,722 warrants, with a purchase price of $0.125 per warrant. The warrants became exercisable on April 15, 2016 at $1.69
per share exercise price, and will expire on April 15, 2019. The fair value of the warrants issued is $321,047, calculated using
the Black-Scholes-Merton valuation model value of $0.19 with a contractual life of 3.25 years, an assumed volatility of 70.1%,
and a risk-free interest rate of 1.08%.
On June 24, 2016,
the Company completed the Second Closing and received approximately $6.0 million. The Second Closing resulted in the issuance
of 4,906,118 shares of Common Stock, priced at $1.19 per share, and 981,223 warrants, with a purchase price of $0.125 per warrant.
The warrants became exercisable on September 23, 2016 at $1.69 per share exercise price, and will expire on September 23, 2019.
The fair value of the warrants issued is $431,738, calculated using the Black-Scholes-Merton valuation model value of $0.44 with
a contractual life of 3.25 years, an assumed volatility of 70.4%, and a risk-free interest rate of 0.76%.
On July 5, 2016, the
Company completed the Third Closing and received $1.0 million. The Third Closing resulted in the issuance of 823,045 shares of
Common Stock, priced at $1.19 per share, and 164,609 warrants, with a purchase price of $0.125 per warrant. The warrants became
exercisable on October 4, 2016 at $1.69 per share exercise price, and will expire on October 4, 2019. The fair value of the warrants
issued is $67,490, calculated using the Black-Scholes-Merton valuation model value of $0.41 with a contractual life of 3.25 years,
an assumed volatility of 70.6%, and a risk-free interest rate of 0.66%.
On October 3, 2016,
the Company completed the Final Closing and received $7.8 million. The Final Closing resulted in the issuance of 6,480,655 shares
of Common Stock, priced at $1.19 per share, and 1,296,129 warrants, with a purchase price of $0.125 per warrant. The warrants
will become exercisable on January 2, 2017 at $1.69 per share exercise price, and will expire on January 2, 2020. The fair value
of the warrants issued is $544,374, calculated using the Black-Scholes-Merton valuation model value of $0.42 with a contractual
life of 3.25 years, an assumed volatility of 71.4%, and a risk-free interest rate of 0.91%. The Company received approximately
$6.3 million of the $7.8 million proceeds from the Final Closing as of September 30, 2016 which is reflected as common stock to
be issued on the September 30, 2016 condensed consolidated balance sheet.
The Company
granted registration rights to the Investors and agreed to file a resale registration statement covering the shares of common
stock and the shares of common stock underlying the warrants within 120 days of the Final Closing.
As described in Note
1, on October 24, 2016, the Company entered into and closed on a stock purchase agreement with an accredited investor, pursuant
to which the Company agreed to sell to the investor in a private placement an aggregate of 2,469,135 shares of the Company’s
Common Stock, priced at $1.190 per share, and 493,827 warrants, representing a 20% warrant coverage, with a purchase price of
$0.125 per whole warrant share, for aggregate gross proceeds to the Company of $3.0 million. The warrants will become exercisable
on January 23, 2017 at $1.69 per share exercise price, and will expire on January 23, 2020. The fair value of the warrants issued
in the October Offering is $306,173, calculated using the Black-Scholes-Merton valuation model value of $0.62 with a contractual
life of 3.25 years, an assumed volatility of 72.2%, and a risk-free interest rate of 1.00%.
The Company granted
registration rights to the investor and agreed to file a resale registration statement covering the shares of common stock and
the shares of common stock underlying the warrants within 120 days of the closing of the transaction.
|
6.
|
Share-Based
Compensation
|
The Company has adopted
incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as
outside directors and consultants. In June 2016, the Company’s shareholders approved an amendment to the 2011 Long-Term
Incentive Plan, increasing the number of shares reserved for issuance from 8,230,000 to 11,230,000 shares of common stock to be
available for grants and awards.
As of September 30, 2016, there are 9,067,244 shares issuable under
options previously granted and currently outstanding, with exercise prices ranging from $0.86 to $17.38. In 2016, the Company
awarded options to officers and employees, covering up to 873,000 shares, in which vesting is subject to achievement of certain
performance milestones. Options granted under the plans generally vest over periods varying from immediately to one to three years,
are not transferable and generally expire ten years from the date of grant. As of September 30, 2016, 2,554,019 shares remained
available for grant under the Company’s 2011 Long-Term Incentive Plan.
The Company records
compensation expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative
guidance. Compensation costs are recognized over the requisite service period, which is generally the option vesting term of up
to three years.
Awards with
performance conditions
will be expensed
if it is probable that the
performance condition
will be achieved. For the nine months ended
September 30, 2016, $10,100 was expensed for share awards with performance conditions that became probable during that period.
There was no expense recorded for share awards with performance conditions during the nine months ended September 30, 2015.
The Company’s
net loss for the nine months ended September 30, 2016 and 2015 includes non-cash compensation expense of $2,201,401 and $1,193,419,
respectively, related to the Company’s share-based compensation awards. The compensation expense related to the Company’s
share-based compensation arrangements is recorded as components of general and administrative expense and research and development
expense, as follows:
|
|
NINE MONTH PERIOD ENDED
SEPTEMBER 30,
|
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
578,626
|
|
|
$
|
569,791
|
|
General and administrative
|
|
|
1,622,775
|
|
|
|
623,628
|
|
Share-based compensation expense
|
|
$
|
2,201,401
|
|
|
$
|
1,193,419
|
|
Net share-based compensation expense, per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
The Company uses the
Black-Scholes-Merton valuation model to estimate the fair value of stock options granted to employees. Option valuation models,
including Black-Scholes-Merton, require the input of highly subjective assumptions, and changes in the assumptions used can materially
affect the grant date fair value of an award.
Following are the
weighted-average assumptions used in valuing the stock options granted during the nine-month periods ended September 30, 2016
and 2015:
|
|
NINE MONTH PERIOD ENDED
SEPTEMBER 30,
|
|
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
83.03
|
%
|
|
|
85.28
|
%
|
Risk-free interest rate
|
|
|
1.31
|
%
|
|
|
1.58
|
%
|
Expected term of option
|
|
|
5.41 years
|
|
|
|
5.67 years
|
|
Forfeiture rate*
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
* - Authoritative guidance requires forfeitures
to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates. During the nine-month periods ended September 30, 2016 and 2015, forfeitures were estimated at 3%.
The weighted average
fair value of stock options granted during the nine-month periods ended September 30, 2016 and 2015 were $0.75 and $1.02, respectively.
A summary of the Company’s
stock option plans and of changes in options outstanding under the plans for the nine months ended September 30, 2016 is as follows:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at January 1, 2016
|
|
|
6,694,744
|
|
|
$
|
1.99
|
|
Granted
|
|
|
3,336,357
|
|
|
$
|
0.95
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(836,062
|
)
|
|
$
|
2.20
|
|
Forfeited
|
|
|
(127,795
|
)
|
|
$
|
1.33
|
|
Outstanding at September 30, 2016
|
|
|
9,067,244
|
|
|
$
|
1.60
|
|
Vested and expected to vest at September 30, 2016
|
|
|
8,968,117
|
|
|
$
|
1.61
|
|
Exercisable at September 30, 2016
|
|
|
5,763,002
|
|
|
$
|
1.90
|
|
There were no option
exercises during the three or nine months ended September 30, 2016 or 2015.
At December 31, 2015,
the Company had a $3.1 million unrecognized tax benefit. The Company recorded a full valuation allowance on the net deferred tax
asset recognized in the consolidated financial statements as of December 31, 2015.
During the nine months ended September
30, 2016, there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions. The
Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.
The tax returns for all years in the Company’s
major tax jurisdictions are not settled as September 30, 2016. Due to the existence of tax attribute carryforwards (which are
currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing
authorities’ ability to modify these attributes.
|
8.
|
Related
Party Transactions
|
In June 2016, under
a supply agreement with Spectrum, the Company received a shipment of MARQIBO
®
in China for quality testing purposes
to support CASI’s application for import drug registration. The CEO of Spectrum is also a board member of CASI. The total
cost of the materials was $133,770 which is included in research and development expense for the nine months ended September 30,
2016.
In 2015, the Company
began utilizing the services of Crown Biosciences, Inc. (“Crown Bio”) to perform certain research and development
testing. The CEO of Crown Bio is also a board member of CASI. The total value of the services is $66,545, of which $16,648 was
payable as of September 30, 2016. The research and development expense recognized for the services provided for the nine months
ended September 30, 2016 and 2015 was $28,648 and $24,750, respectively.
In October 2015, the
Company entered into a material transfer and research agreement with Origene Technologies, Inc. (“Origene”) for certain
research materials. The CEO of Origene is also the Chairman of the Board of CASI. No materials have been purchased
as of September 30, 2016, and there is no minimum commitment associated with this agreement.
As described in Note
1, in January, June, July and October 2016, the Company conducted a series of closings for a $25.1 million financing previously
announced in September 2015. Participants in the offering included ETP Precision Medicine, LLC, a healthcare investment fund.
The managing member of ETP Precision Medicine, LLC is also the Chairman of the Company.
|
9.
|
New Accounting
Pronouncements
|
The Company has implemented
all new accounting pronouncements that are in effect and that may impact the Company’s condensed consolidated financial
statements.
In August 2014, the
Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update (“ASU”)
2014-15,
Presentation of Financial Statements – Going Concern
. The new standard
requires management to
evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about the entity’s
ability to continue as a going concern. The guidance 1) provides a definition for the term “substantial doubt,” 2)
requires an evaluation every reporting period, interim periods included, 3) provides principles for considering the mitigating
effect of management’s plans to alleviate the substantial doubt, 4) requires certain disclosures if the substantial doubt
is alleviated as a result of management’s plans, 5) requires an express statement, as well as other disclosures, if the
substantial doubt is not alleviated, and 6) requires an assessment period of one year from the date the financial statements are
issued. The standard is effective for the Company’s reporting year beginning January 1, 2017 and early adoption is
not permitted. The Company does not expect that this new accounting pronouncement will have an impact on its financial statements.
In May 2014, the FASB
issued
ASU 2014-09,
Revenue from Contracts with Customers,
which provides guidance
for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific
guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance
obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard
will result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with
customers.
In July 2015, the FASB delayed the effective date of this standard by one year. The new
standard will be effective for the Company’s reporting year beginning on January 1, 2018, and early adoption of the standard
as of
January 1, 2017 is permitted. In March 2016, the FASB issued an accounting standard update to clarify the implementation
guidance on principal versus agent considerations. In April 2016, the FASB issued an accounting standard update to clarify
the identification of performance obligations and the licensing implementation guidance, while retaining the related principles
for those areas. In May 2016, the FASB issued an accounting standard update to clarify guidance in certain areas and add
some practical expedients to the guidance. The amendments in these 2016 updates do not change the core principle of the
previously issued guidance in May 2014. The Company is currently evaluating the impact, if any, that this new accounting
pronouncement will have on its financial statements.
In
November 2015, the FASB issued new guidance on the balance sheet classification of deferred taxes. To simplify presentation, the
new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified
as noncurrent on the balance sheet
.
The accounting
standard is effective for public business entities for annual reporting periods (including interim reporting periods within those
periods) beginning after December 15, 2016. Early adoption is permitted. The Company has not yet adopted this pronouncement but
does not expect it to have any impact on its consolidated financial statements.
In January 2016, the
FASB issued a new accounting standard on recognition and measurement of financial assets and financial liabilities. The accounting
standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation
and disclosure requirements for financial instruments. In addition, it includes a clarification related to the valuation
allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.
The accounting guidance is effective for annual reporting periods (including interim periods within those periods) beginning after
December 15, 2017. Early adoption is permitted for the provision to record fair value changes for financial liabilities under
the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating
the impact, if any, that the pronouncement will have on the consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. ASU 2016-02 supersedes existing lease guidance,
including Accounting Standards Codification (ASC) 840 -
Leases
. Among other things, the new standard requires recognition
of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease.
This
ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
Earlier application is permitted.
The standard must be applied using a modified retrospective approach.
The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.
In
March 2016, the FASB issued an accounting standard update which simplified several aspects of the accounting for employee
share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements,
as well as classification in the statement of cash flows. The standard is effective for annual reporting periods beginning after
December 15, 2016, including interim periods within those annual reporting periods.
The Company does not expect that
the adoption of this ASU will have a material impact on its financial statements.
In August 2016, the
FASB issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments
(ASU 2016-15). ASU 2016-15 clarifies how companies present and classify certain cash receipts
and cash payments in the statement of cash flows where diversity in practice exists. ASU 2016-15 is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years and earlier adoption is permitted.
The Company is currently evaluating the effect that the updated standard will have on its financial statements.