Quarterly report pursuant to sections 13 or 15(d)

Significant Accounting Policies

Significant Accounting Policies
9 Months Ended
Apr. 30, 2013
Significant Accounting Policies  
Significant Accounting Policies

Note 2—Significant Accounting Policies


Financial Instruments


The carrying amounts for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate fair value due to their short-term nature, generally less than three months.  The carrying amount of the Company’s short-term acquisition obligation outstanding approximates fair value based upon current rates and terms available to us for similar activity.  It is management’s opinion that the Company is not exposed to significant interest, currency, or credit risks arising from its other financial instruments and that their fair values approximate their carrying values except where separately disclosed.


Derivative Liabilities


The Company accounts for its warrants and other derivative financial instruments as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate.


Use of Estimates


The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements.  Actual results could differ materially from the estimates.


Property and Equipment


The cost of property and equipment is depreciated on a straight-line basis over the estimated useful lives of the related assets. The useful lives of property and equipment for the purpose of computing depreciation are:


Computers and Equipment


3 to 5 years

Computer Software


1 to 3 years

Leasehold Improvements


1 year


Total depreciation expense recorded for the three and nine months ended April 30, 2013 was approximately $10,000 and $28,000 respectively.  Total depreciation expense for the three and nine months ended April 30, 2012 was approximately $8,000 and $25,000, respectively.


Net Income (Loss) Per Share


The Company computes basic net income (loss) per common share by dividing the applicable net income (loss) by the weighted average number of common shares outstanding during the respective period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock options and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options. The Company did not include shares underlying stock options and warrants issued and outstanding during any of the periods presented in the computation of net income (loss) per share, as the effect would have been anti-dilutive.


Stock Options to Non-Employees


Expense for stock options granted to non-employees has been determined using the estimated fair value of the stock options issued, based on the Black-Scholes Option Pricing Model.  Such options are revalued quarterly until fully vested, with any change in fair value expensed.  During the three and nine months ended April 30, 2013, the Company recorded $3,000 and $9,000 in research and development expense, respectively, and $62,000 and $236,000 in general and administrative expense, respectively, for stock options granted to non-employees.  During the three and nine months ended April 30, 2012, the Company recorded $8,000 in research and development expense, and $25,000 in general and administrative expense for stock options granted to non-employees.


Comprehensive Income (Loss)


Comprehensive income or loss includes all changes in equity except those resulting from investments by owners and distributions to owners.  The Company did not have any items of comprehensive income or loss other than net income (loss) from operations for the three and nine months ended April 30, 2013 and 2012, or for the period from inception (February 8, 2008) through April 30, 2013.