Quarterly report pursuant to Section 13 or 15(d)

Significant Accounting Policies

v3.20.2
Significant Accounting Policies
9 Months Ended
Jun. 30, 2020
Significant Accounting Policies  
Significant Accounting Policies

2.  Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended September 30, 2019 included in the Company’s Annual Report on Form 10-K (the “Annual Report”) filed with the SEC on January 10, 2020. The accompanying  unaudited condensed consolidated financial statements have been prepared by the Company in accordance with U.S. GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the Company’s financial position, results of operations and cash flows. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year. The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. The Company’s actual results may differ from these estimates under different assumptions or conditions.

Use of Estimates

The preparation of financial statements in conformity 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 expenses during the reporting period. The most significant estimates in the Company’s condensed consolidated financial statements relate to the valuation of share-based compensation, the valuation of licenses, the fair value of warrant liabilities and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. The Company assesses and updates estimates each period to reflect current information, such as the economic considerations related to the impact that the novel coronavirus disease (COVID-19) could have on our significant accounting estimates (see Part II, Item 1A – Risk Factors—“Our operations may be adversely affected by the coronavirus outbreak, and we face risks that could impact our business” for further discussion of the effect of the COVID-19 pandemic on our operations). Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. 

Fair Value Measurements

Fair value measurements are based on the premise that fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following three-tier fair value hierarchy has been used in determining the inputs used in measuring fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities on the reporting date.

Level 2 – Pricing inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Pricing inputs are generally unobservable and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require management’s judgment or estimation of assumptions that market participants would use in pricing the assets or liabilities. The fair values are therefore determined using factors that involve considerable judgment and interpretations, including but not limited to private and public comparables, third-party appraisals, discounted cash flow models, and fund manager estimates.

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.

The following tables present the Company’s fair value hierarchy for its warrant liabilities measured at fair value on a recurring basis at June 30, 2020 and September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fair Value Measurements 

 

 

as of June 30, 2020

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Liabilities

 

 

  

 

 

  

 

 

  

 

 

  

Warrant liabilities

 

$

 —

 

 

 —

 

 

1,405,817

 

$

1,405,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements 

 

 

as of September 30, 2019

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

 Total  

Liabilities

 

 

  

 

 

  

 

 

  

 

 

 

Warrant liabilities

 

$

 —

 

 

 —

 

 

496,343

 

$

496,343

 

The fair value of the warrant liabilities were determined using the Black-Scholes option pricing model. The following assumptions were used in determining the fair value of the warrant liabilities :

 

 

 

 

 

    

 

 

 

As of

 

 

June 30, 

 

 

2020

Remaining contractual term (years)

 

1.5 - 1.8

Common stock price volatility

 

87.9% - 89.8%

Risk-free interest rate

 

0.16%

Expected dividend yield

 

 —

 

The change in fair value of the warrant liabilities for the three and nine months ended June 30,2020 and 2019 is as follows:

 

 

 

 

 

Fair value as of September 30, 2019

    

$

496,343

Change in fair value

 

 

694,134

Fair value as of December 31, 2019

 

 

1,190,477

Change in fair value

 

 

(69,944)

Fair value as of March 31, 2020

 

$

1,120,533

Change in fair value

 

 

285,284

Fair value as of June 30, 2020

 

$

1,405,817

 

 

 

 

Fair value as of September 30, 2018

 

$

 —

Warrants issued in connection with license acquired

 

 

104,902

Fair value as of December 31, 2018

 

 

104,902

Change in fair value

 

 

38,702

Fair value as of March 31, 2019

 

$

143,604

Change in fair value

 

 

13,240

Fair value as of June 30, 2019

 

$

156,844

 

As of June 30, 2020 and September 30, 2019, the recorded values of cash and cash equivalents, accounts payable and the insurance note payable approximate fair value due to the short-term nature of these instruments.

Stock-based Compensation

The Company expenses stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value of the awards and actual forfeitures. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. All stock-based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.

Operating Leases

Effective October 1, 2019, the Company determines if an arrangement is a lease at inception. Operating leases are included in operating right-of-use (“ROU”) assets and operating lease liabilities on the consolidated balance sheets. Prior to October 1, 2019, the Company recorded rent expense associated with its operating lease on a straight-line basis over the term of the lease.

Lease ROU assets and operating lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the Company’s condensed consolidated balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for all its leases.

As of June 30, 2020, the Company’s leases had original terms of less than 12 months. The Company does not recognize ROU assets and lease liabilities that arise from leases with an original term of 12 months or less. Rather, the Company recognizes the lease expense on a straight-line basis over the term of the lease.

Other Income

During the three and nine months ended June 30, 2020, the Company recognized $0.4 million of other income associated with a license of certain clinical trial data to a third party.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per share includes the dilutive effect, if any, from the potential exercise or conversion of securities, such as convertible debt, warrants and stock options that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities outstanding as of June 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

 

 

 

 

 

 

 

 

As of June 30,

 

    

2020

    

2019

Common stock purchase options

 

6,514,466

 

3,337,406

Unvested restricted stock

 

1,250

 

1,307,001

Common stock purchase warrants

 

715,939

 

101,847

Convertible notes

 

 —

 

613,276

 

 

7,231,655

 

5,359,530

 

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-2, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company adopted this new lease standard on October 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of the new lease standard did not have an impact on the Company’s condensed consolidated financial statements as the Company did not have any leases with original terms longer than 12 months.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12,  “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company plans to evaluate the impact of this standard on its consolidated financial statements and related disclosures.