upon exercise and settlement of the warrant because there are
further registration and prospectus delivery requirements that are
outside our control. Therefore, the fair value of the warrants was
determined using the Black-Scholes option pricing model, deemed to
be an appropriate model due to the terms of the warrants issued,
including a fixed term and exercise price.
The fair value of warrants was affected by changes in inputs to the
Black-Scholes option pricing model including our stock price,
expected stock price volatility, the contractual term, and the
risk-free interest rate. This model uses Level 3 inputs, including
stock price volatility, in the fair value hierarchy established by
ASC 820 Fair Value Measurement. At June 30, 2020 and
December 31, 2019, the fair value of all warrants was
$34,398 and $5,623, respectively, which are classified as a
long-term derivative liability on our condensed consolidated
balance sheets.
Property, equipment and
depreciation
As of June 30, 2020 and December 31, 2019, we
had $52,679 and $57,166, respectively, of property and equipment,
consisting primarily of lab equipment, computer equipment,
furniture and fixtures. Expenditures for additions, renewals and
improvements will be capitalized at cost. Depreciation will
generally be computed on a straight-line method based on the
estimated useful lives of the related assets. The estimated useful
lives of the depreciable assets are 3 to 5 years. Leasehold
improvements are amortized using the straight-line method over
their estimated useful lives, or the remaining term of the lease,
whichever is shorter. Depreciation expense for the three months
ended June 30, 2020
and 2019 was $7,202 and $8,287 respectively, and was $13,729 and
$12,928 for the six months ended June 30, 2020 and 2019,
respectively. Expenditures for repairs and maintenance are charged
to operations as incurred. We will periodically evaluate whether
current events or circumstances indicate that the carrying value of
our depreciable assets may not be recoverable. There were no
adjustments to the carrying value of property and equipment at
June 30, 2020 or December 31, 2019.
Goodwill and In-Process Research
& Development
In accordance with ASC Topic 350, Intangibles — Goodwill and Other (“ASC
Topic 350”), goodwill and acquired IPR&D are determined to have
indefinite lives and, therefore, are not amortized. Instead, they
are tested for impairment annually, in our fourth quarter, and
between annual tests if we become aware of an event or a change in
circumstances that would indicate the carrying value may be
impaired.
In January 2017, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2017-04, Intangibles - Goodwill and Other:
Simplifying the Test for Goodwill Impairment, which eliminates Step
2 from the goodwill impairment test. The annual, or interim,
goodwill impairment test is performed by comparing the fair value
of a reporting unit with its carrying amount. An impairment charge
should be recognized for the amount by which the carrying amount
exceeds the reporting unit's fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated
to that reporting unit. In addition, income tax effects from any
tax deductible goodwill on the carrying amount of the reporting
unit should be considered when measuring the goodwill impairment
loss, if applicable.
The amendments also eliminate the requirements for any reporting
unit with a zero or negative carrying amount to perform a
qualitative assessment and, if it fails that qualitative test, to
perform Step 2 of the goodwill impairment test. An entity still has
the option to perform the qualitative assessment for a reporting
unit to determine if the quantitative impairment test is necessary.
We adopted ASU 2017-04 on January 1, 2020, and the adoption of this
standard did not have a material effect on our condensed
condolidated financial statements.
Goodwill relates to amounts that arose in connection with the
acquisition of Ciclofilin. Goodwill represents the excess of the
purchase price over the fair value of the net assets acquired when
accounted for using the acquisition method of accounting for
business combinations. As a result of the COVID-19 pandemic, we
performed a qualitative assessment of goodwill and determined that
it was not more likely than not that the fair value of our
reporting was less than its carrying value. There was no impairment
of goodwill for the six months ended June 30, 2020 and
2019.