Annual report pursuant to Section 13 and 15(d)

Significant Accounting Policies

v3.5.0.2
Significant Accounting Policies
12 Months Ended
Jul. 31, 2016
Accounting Policies [Abstract]  
Significant Accounting Policies

Note 2—Significant Accounting Policies

 

Segment Reporting

 

The Company operates in a single industry segment — the discovery and development of novel immunotherapeutic product candidates to improve treatment options for patients and physicians, intended to treat a wide range of oncology indications.

 

Concentrations and Credit Risk

 

The Company maintains cash balances at a small number of financial institutions, where such balances commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts and management believes that the Company does not have significant credit risk with respect to such cash and cash equivalents.

 

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. 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.

 

Warrants

 

The Company accounts for its warrants 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 balance sheet 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 balance sheet 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 accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which 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. Such estimates include stock-based compensation and accounting for income taxes including the related valuation allowance on the deferred tax asset and uncertain tax positions. The Company bases its estimates on historical experience and on various other assumptions that are 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 that are not readily apparent from other sources. On an ongoing basis, the Company reviews its estimates to ensure that these estimates appropriately reflect changes in the business or as new information becomes available. Actual results could differ materially from the estimates.

 

Intangible Assets

 

In accordance with the provisions of the applicable authoritative guidance, the Company’s long-lived assets and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value. As of July 31, 2015, the Company recognized $0.4 million of amortization in its statement of operations related to the intangible assets acquired from Inovio under the asset purchase agreement dated March 14, 2011. While these assets are fully depreciated, during the years ended July 31, 2016 and 2015, no impairment was recorded.

 

Property and Equipment

 

Our capitalization threshold is $5,000 for 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 10 years
Computer Software   1 to 3 years
Leasehold Improvements   Shorter of lease period or useful life

 

Net Loss Per Share

 

The Company computes basic net loss per common share by dividing the applicable net 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 loss per share, as the effect would have been anti-dilutive.

 

Potentially dilutive outstanding securities excluded from diluted net loss per common share because of their anti-dilutive effect:

 

    July 31, 2016     July 31, 2015  
Stock Options     3,243,460       1,148,746  
Warrants     12,859,286       1,895,102  
      16,122,746       3,043,848  

 

Stock-based Compensation

 

The Company grants equity-based awards (typically stock options or restricted stock units) under our stock-based compensation plan and outside of our stock-based compensation plan, with terms generally similar to the terms under our stock-based compensation plan. The Company estimates the fair value of stock option awards using the Black-Scholes option valuation model. This fair value is then amortized over the requisite service periods of the awards. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option. The Company estimates the fair value of restricted stock unit awards based on the closing price of the Company’s common stock on the date of issuance. Stock-based compensation expense is based on awards ultimately expected to vest, and therefore is reduced by forfeitures. Changes in assumptions used under the Black-Scholes option valuation model could materially affect the Company’s net loss and net loss per share. Stock options granted to non-employees are revalued monthly until fully vested, with any change in fair value expensed.

 

The Company has issued equity for services or as consideration within contractual agreements. Stock-based compensation expense related to such equity issuances are based on the closing price of the Company’s stock on the date the liability is incurred, with the stock-based compensation adjusted on the date of issuance, based on the Company’s stock price on the issuance date.

 

Employee Stock Purchase Program

 

Pursuant to the Company’s December 2015 Annual Shareholders Meeting, the Company’s shareholders approved the Company’s 2015 Employee Stock Purchase Plan (or, 2015 ESPP). The 2015 ESPP provides an incentive to attract, retain and reward eligible employees to contribute to the growth and profitability of the Company through the opportunity to acquire Company stock at a discount. The ESPP allows for the purchase of Company stock at not less than 85% of the lesser of (a) the fair market value of a share of stock on the beginning date of the offering period or (b) the fair market value of a share of stock on the purchase date of the offering period, subject to a share and dollar limit as defined in the 2015 ESPP and subject to the requirements of IRS code section 423. The first 2015 ESPP offering period commenced on February 7, 2016 and lasted approximately six (6) months, with the first purchase date on July 31, 2016.

 

Under FASB ASC 718 Compensation –Stock Compensation, the Company’s 2015 ESPP would be considered a Type B plan because the number of shares a participant is permitted to purchase is not fixed based on the stock price at the beginning of the offering period and the expected withholdings. The 2015 ESPP enables the participant to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date.

 

Because the 2015 ESPP is considered a Type B plan, the fair value of the award would be calculated at the beginning of the offering period as the sum of:

 

15% of the share price of a nonvested share at the beginning of the offering period,

85% of the fair market value of a six (6)-month call on the nonvested share aforementioned, and

15% of the fair market value of a six (6)-month put on the nonvested share aforementioned.

 

The fair market value of the 6-month call and 6-month put are based on the Black-Scholes option pricing model, using the following assumptions: six (6) month maturity, 0.45% risk free interest, 81.06% volatility, 0% forfeitures and $0 dividends. Approximately $16,000 was recorded as stock-based compensation during the year end period ended July 31, 2016.

 

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 loss from operations for the years ended July 31, 2016 and 2015.

 

Recent Accounting Pronouncements

 

Recent pronouncements that are not anticipated to have an impact on or are unrelated to the Company’s financial condition, results of operations, or related disclosures are not discussed.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not intend to early adopt this standard. The adoption of this standard will not have an impact on the financial condition of the Company.

 

In February 2016, the FASB issued new lease accounting guidance in Accounting Standards Update No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) at the commencement date (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting, however, remains largely unchanged. In addition, the new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The new lease guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted, however, the Company does not intend to early adopt. The Company believes that adoption of this new guidance will not have a material impact on the Company’s financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments cover both public and private companies that issue share-based payment awards to their employees. Under the amendment several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted, however, the Company does not intend to early adopt and the Company does not believe that adoption of these clarifying amendments will have a material impact on the Company’s financial statements.

 

In August 2016, the Financial Accounting Standards Board (or, FASB) issued new cash flow statement guidance in Accounting Standards Update (or, ASU) No. 2016-15, Statement of Cash Flow (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The new guidance specifically addresses diversity of presentation and classification with regard to:

 

Debt Prepayment or Debt Extinguishment Costs;
   
Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing;
   
Contingent Consideration Payments Made after a Business Combination;
   
Proceeds from the Settlement of Insurance Claims;
   
Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned;
   
Life Insurance Policies;
   
Distributions Received from Equity Method Investees;
   
Beneficial Interests in Securitization Transactions; and
   
Separately Identifiable Cash Flows and Application of the Predominance Principle.

 

The amendments are effective for fiscal year beginning after December 15, 2017 and interim periods within those fiscal years and amendments should be applied using a retrospective transition method to each period presented. However, prospective application as of the earliest practicable date is permitted for some issues. Early adoption is permitted, however, the Company does not intend to early adopt. The Company also believes that adoption of this guidance will not have a material impact on the Company’s financial statements.