| 2. Summary of Significant Accounting Policies |
Basis
of Presentation
The
consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion
of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present
fairly the financial position and results of operations for the periods presented have been made. The results for interim periods
are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be
read in conjunction with the financial statements of the Company for the year ended December 31, 2014 (including the notes
thereto) set forth in Form 10-K.
The
accompanying consolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting
principles (U.S. GAAP) and include all adjustments necessary for the fair presentation of the Company’s financial position
for the periods presented.
The
Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act
(“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue for the year ended December 31, 2014.
We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1)
of the JOBS Act.
Revenue
Recognition
Revenue
from product sales is recognized upon passage of title and risk of loss to customers. Provisions for discounts, rebates and sales
incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Historical
data are not yet readily available and reliable for use in estimating the amount of the reduction in gross sales. Revenue from
the launch of a new product, from an improved version of an existing product, or for shipments in excess of a customer's normal
requirements will be recorded when the conditions noted above are met. In those situations, management will record a returns reserve
for such revenue, if necessary. If in future the Company participates in selling arrangements that include multiple deliverables
(e.g., instruments, reagents, procedures, and service agreements), under these arrangements, the Company will recognize revenue
upon delivery of the product or performance of the service and will allocate the revenue based on the relative selling price of
each deliverable, which will be based primarily on vendor specific objective evidence. Revenue from license of product rights
is recorded over the periods earned.
In May 2014,
the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers,
which provides a single comprehensive model for accounting for revenue from contracts with customers and will supersede most existing
revenue recognition guidance. Early adoption is not permitted. The standard becomes effective for the Company in the first quarter
of 2017. The Company is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements
and related disclosures.
Use
of Estimates
The
preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from such estimates.
Cash,
Cash Equivalents, and Short-Term Investments
The
Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be
cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months
or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government
and U.S. government agency obligations. Cash equivalents are reported at fair value.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The
Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions
holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets exceed the federally insured limits.
The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2015, the Company
has no uninsured cash balances.
Segment
and Geographic Information
Operating
segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the
chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
The Company views its operations and manages its business in one operating segment and does not segment the business for internal
reporting or decision making.
Fair
Value of Financial Instruments
In
accordance with the reporting requirements of the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic 825, “Financial Instruments”, the Company calculates the fair value of its assets and liabilities
which qualify as financial instruments under this standard and includes this additional information in the notes to the financial
statements when the fair value is different than the carrying value of those financial instruments. Cash and cash equivalents,
accounts receivable, and accounts payable, are accounted for at cost which approximates fair value due to the relatively
short maturity of these instruments. The carrying value of notes payable also approximate fair value since they
bear market rates of interest and other terms. None of these instruments are held for trading purposes.
Fair
Value Measurements
The
ASC Topic 820, Fair Value Measurement, defines fair value, establishes a framework for measuring fair value in
accordance with U.S. generally accepted accounting principles, and requires certain disclosures about fair value measurements.
In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices
are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments
may include amounts to reflect counterparty credit quality and the customer's creditworthiness, among other things, as well as
unobservable parameters. Any such valuation adjustments are applied consistently over time.
Property
and Equipment
Property and
equipment are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated
useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense
as incurred. Depreciation expense from continuing operations for the quarters ended September 30, 2015 and September 30, 2014
was $638 and $668, respectively. Depreciation expense from continuing operations for the nine months ended September
30, 2015 and September 30, 2014 was $1,974 and $1,817, respectively.
Intangible
Assets
Costs
incurred to acquire and/or develop the Company’s product licenses and patents are capitalized and amortized by straight-line
methods over estimated useful lives of seven to sixteen years. Intangible assets are stated at the lower of cost or estimated
fair market value. During the quarters ended September 30, 2015 and September 30, 2014, the Company did not capitalize
any such costs. (See Note 10). During the nine months ended September 30, 2015 and September 30, 2014, the Company did not
capitalize any such costs.
Amortization
expense for the quarters ended September 30, 2015 and September 30, 2014 was $148,058 and $719,701, respectively. Amortization
expense for the nine months ended September 30, 2015 and September 30, 2014 was $444,175 and $2,157,125, respectively.
Impairment
of Long-Lived Assets
The
Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable as prescribed by ASC Topic 360, Property, Plant and Equipment. If the carrying
amount of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow,
before interest, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated
fair value. No impairment losses were recognized for the quarters ended September 30, 2015 and September 30, 2014.
Research
and Development Costs
Research
and development costs are charged to expense as incurred and are typically comprised of salaries and benefits, pre-clinical studies,
clinical trial activities, drug development and manufacturing, fees paid to consultants and other entities that conduct certain
research and development activities on the Company’s behalf and third-party service fees, including clinical research organizations
and investigative sites. Costs for certain development activities, such as clinical trials are recognized based on an evaluation
of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information
provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements,
which may differ from the pattern of costs incurred, and are reflected in the financial statements as operating expenses.
Income
Taxes
The
Company follows FASB ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are based on the differences between the financial statements and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax
assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will
not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled.
The
standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based
on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic
740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods
and requires increased disclosures. At the date of adoption, and as of September 30, 2015, and December 31, 2014, the Company
does not have a liability for unrecognized tax uncertainties.
The
Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. At the end of the
quarters ended September 30, 2015 and September 30, 2014, the Company had not accrued any interest or penalties related to uncertain
tax positions.
Stock-Based
Compensation and Issuance of Stock for Non-Cash Consideration
The
Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including
employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration
received, whichever is more readily determinable. The majority of the non-cash consideration pertains to services rendered by
consultants and others and has been valued at the fair value of the Company’s common stock at the date of the agreement.
Non-controlling
Interest
In
accordance with ASC 810, Consolidation, the Company consolidates Cytocom, Inc. (“Cytocom”). The
non-controlling interests in Cytocom represent the interests of outside shareholders in the equity and results of operations of
Cytocom.
The
Company has adopted changes issued by the FASB to the accounting for non-controlling interests in consolidated financial statements.
These changes require, among other items, that a non-controlling interest be included within equity separate from the parent’s
equity; consolidated net income be reported at amounts inclusive of both the parent’s and non-controlling interest’s
shares; and, separately, the amounts of consolidated net income attributable to the parent and non-controlling interest all be
reported on the consolidated statements of operations and comprehensive loss.
Net
Loss per Share
Basic
net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of
common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated
by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using
the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase
warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate
basic and diluted shares outstanding due to the Company’s net loss position.
A
calculation of basic and diluted net loss per share follows:
| |
|
For
the three months ended September 30, |
|
|
For
the nine months ended September 30, |
|
| |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
| Historical
net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(4,025,309 |
) |
|
$ |
(11,202,175 |
) |
|
$ |
9,499,641 |
) |
|
$ |
(34,454,263 |
) |
| Net
loss attributed to Common stockholders |
|
$ |
(3,859,550 |
) |
|
$ |
(11,202,175 |
) |
|
$ |
(9,070,926 |
) |
|
$ |
(34,454,263 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-average
common shares outstanding— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Denominator
for basic and diluted net loss per share |
|
|
156,814,094 |
|
|
|
94,316,453 |
|
|
|
147,365,571 |
|
|
|
87,875,552 |
|
| Basic
and diluted net loss per share attributed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| to
common stockholders |
|
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.40 |
) |
The
Company’s potential dilutive securities which include stock and warrants have been excluded from the computation of diluted
net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average Common stock outstanding
used to calculate both basic and diluted net loss per share is the same.
The
following shares of potentially dilutive securities have been excluded from the computations of diluted weighted average shares
outstanding as the effect of including such securities would be antidilutive:
| |
|
At September
30, |
|
| |
|
2015 |
|
|
2014 |
|
| Warrants
to purchase Common stock |
|
|
9,355,250 |
|
|
|
8,986,750 |
|
| |
|
|
9,355,250 |
|
|
|
8,986,750 |
|
Recent
Accounting Standards
During
the quarter ended September 30, 2015, there were several new accounting pronouncements issued by the Financial Accounting Standards
Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not
believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated
financial statements.
In May 2014,
the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers,
which provides a single comprehensive model for accounting for revenue from contracts with customers and will supersede most existing
revenue recognition guidance. Early adoption is not permitted. The standard becomes effective for the Company in the first quarter
of 2017. The Company is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements
and related disclosures.
|