Summary of Significant Accounting Policies
|9 Months Ended|
Dec. 31, 2013
|Notes to Financial Statements|
|NOTE 3 - Summary of Significant Accounting Policies||
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, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those relating to revenue recognition, share-based compensation, and assumptions that have been used to value warrants, warrant modifications, and previous put option and note term extension liabilities.
Although the Company does not currently have any such arrangements, it has historically generated revenue principally from collaborative research and development arrangements, technology access fees and government grants. Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling prices. The selling price for each unit is based on vendor-specific objective evidence, or VSOE, if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available. The applicable revenue recognition criteria are then applied to each of the units.
The Company recognizes revenue when the four basic criteria of revenue recognition are met: (1) a contractual agreement exists; (2) the transfer of technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. For each source of revenue, the Company complies with the above revenue recognition criteria in the following manner:
Research and Development Expenses
Research and development expenses are composed of both internal and external costs. Internal costs include salaries and employment-related expenses of scientific personnel and direct project costs. External research and development expenses consist primarily of sponsored stem cell research and development costs, costs associated with clinical and non-clinical development of AV-101, the Companys small molecule prodrug candidate for neuropathic pain, depression and potentially other neurological conditions, and costs related to the application and prosecution of patents related to the Companys stem cell technology platform, Human Clinical Trials in a Test Tube, and AV-101. All such costs are charged to expense as incurred.
The Company recognizes compensation cost for all stock-based awards to employees based on the grant date fair value of the award. Stock-based compensation expense is recognized over the period during which the employee is required to perform services in exchange for the award, which generally represents the scheduled vesting period. The Company has no awards with market or performance conditions. For equity awards to non-employees, the Company re-measures the fair value of the awards as they vest and the resulting value is recognized as an expense during the period over which the services are performed.
The table below summarizes stock-based compensation expense included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss for the quarter and nine months ended December 31, 2013:
During the nine months ended December 31, 2013, the Company granted options to purchase an aggregate of 156,000 shares of its common stock at exercise prices from $0.40 per share to $0.82 per share (the quoted market price on the grant dates) to certain employees and consultants. During the quarter ended December 31, 2013, the Company modified certain outstanding options granted from its 2008 Stock Incentive Plan to reduce the exercise price to $0.40 per share or $0.50 per share and modified certain options granted from its 1999 Stock Incentive Plan to reduce the exercise price to $0.50 per share. The expense indicated in the table above for the three and nine months ended December 31, 2013 includes an aggregate of $252,000 attributable to these modifications. The Company modified certain options during the quarter ended December 31, 2012 and recognized an aggregate of $788,800 attributable to such modifications in the three and nine month periods ended December 31, 2012. At December 31, 2013, there were options outstanding to purchase 4,705,270 shares of the Companys common stock at a weighted average exercise price of $0.59 per share.
The Company has issued certain warrants to Platinum and, subject to Platinums exercise of its rights to exchange shares of the Companys Series A preferred stock that it holds, the Company is also obligated to issue an additional warrant to Platinum, that contain an exercise price adjustment feature in the event the Company subsequently issues additional equity instruments at a price lower than the exercise price of the warrants. The Company accounts for these warrants as non-cash liabilities and estimates their fair value as described in Note 4, Fair Value Measurements; Note 7, Convertible Promissory Notes and Other Notes Payable, and Note 9, Capital Stock. The Company computes the fair value of the warrant liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in determining the fair value of the warrant and the related liability is the Companys stock price, which is subject to significant fluctuation and is not under the Companys control. The resulting change in the fair value of the warrant liability on the Companys net income or loss is therefore also subject to significant fluctuation and will continue to be so until all of the warrants are issued and exercised, amended or expire. Assuming all other fair value inputs remain generally constant, the Company will record an increase in the warrant liability and non-cash expense when its stock price increases and a decrease in the warrant liability and non-cash income when its stock price decreases.
The Company has no components of other comprehensive loss other than net loss, and accordingly the Companys comprehensive loss is equivalent to its net loss for the periods presented.
Income (Loss) per Common Share
Basic income (loss) per share of common stock excludes the effect of dilution and is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted income (loss) per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock were exercised or converted into shares of common stock. In calculating diluted net income (loss) per share, the numerator is adjusted for the change in the fair value of the warrant liability attributable to outstanding warrants, only if dilutive, and the denominator is increased to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method. Based on the market price of the Companys common stock for the quarter ended December 31, 2013, no potentially dilutive securities were assumed to be converted into common shares and outstanding during the period for purposes of calculating diluted earnings per share. For all loss periods presented, potentially dilutive securities have been excluded from the computation as their effect would be antidilutive.
Basic net income (loss) and diluted net loss attributable to common stockholders per share was computed as follows:
Potentially dilutive securities excluded in determining diluted net loss per common share are as follows:
(1) assumes exchange under the terms of the October 11, 2012 Note Exchange and Purchase Agreement with Platinum
(2) assumes conversion under the terms of the October 11, 2012 Note Exchange and Purchase Agreement with Platinum and the terms of the individual notes
Recent Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended December 31, 2013, as compared to the recent accounting pronouncements described in the Companys Form 10-K for the fiscal year ended March 31, 2013, that are of significance or potential significance to the Company.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://www.xbrl.org/2003/role/presentationRef