Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America or U.S. GAAP. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known. The Company’s most significant estimates and judgments used in the preparation of the financial statements are: • Clinical trial expenses and other research and development expenses; • Collaboration agreements; • Fair value measurements of stock-based compensation and; and • Income taxes. Impact of COVID-19 Pandemic With the ongoing COVID-19 COVID-19 COVID-19 healthcare systems and the other risks and uncertainties associated with the COVID-19 Subsequent Events The Company evaluated all events and transactions that occurred after the balance sheet date through the date of the Annual Report. Except as disclosed below, the Company did not have any material subsequent events that impacted its financial statements or disclosures. On February 4, 2021, the Company entered into an agreement with Watermill Asset Management Corp. and Robert W. Postma. Pursuant to the Settlement Agreement, the Company increased the size of the Company’s Board of Directors from eight to nine directors and appointed Mr. Postma to fill the newly created directorship. Mr. Postma will serve an initial term expiring at the Company’s 2021 annual meeting of stockholders. Additionally, the Company agreed to nominate each of Mr. Postma, Jaime Vieser and Holger Weis for election at any stockholder meeting at which directors are to be elected and will recommend, support, and solicit proxies for the election of each of Messrs. Postma, Vieser and Weis. Additionally, the Company agreed to reimburse Watermill for up to thousand of its reasonable out-of-pocket fees and expenses. This agreement also resulted in $1.0 million in strategic advisory services becoming due. These costs were expensed during the year ended Organizational Changes During the year ended December 31, 2020 there were changes in the members of the Board of Directors. The following Directors left during the quarter: Scott Braunstein on November 16, 2020, Elan Ezickson on December 3, 2020, and Scott Tarriff on December 15, 2020. Messers. Braunstein and Ezickson received an extended period to exercise stock options along accelerated vesting of restricted stock. In turn, the following Directors joined the board: Mary Thistle on November 15, 2020, Jaime Vieser on December 15, 2020, and Holger Weis on December 15, 2020. On December 10, 2020, Satyavrat Shukla notified the Company of his decision to resign from the position of Chief Financial Officer of the Company, effective December 31, 2020. Included in his separation agreement, Mr. Shukla was to receive his annual bonus which was accrued at December 31, 2020. Additionally, on February 25, 2021, the Company announced that Heidi Hagen, formerly Lead Independent Director, was appointed Interim Chief Executive Officer, replacing Dr. Laurence Cooper, MD., Ph.D. Ms. Hagen is remaining a member of the Board of Directors. Dr. Cooper is also stepping down from his seat on the Board of Directors and is expected to continue with the Company in a scientific advisory capacity to support the Company’s R&D programs. Cash and Cash Equivalents Cash equivalents consist primarily of demand deposit accounts, certificates of deposit and deposits in short-term U.S. treasury money market mutual funds. Cash equivalents are stated at cost, which approximates fair market value. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist Property and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense while the costs of significant improvements are capitalized. Depreciation and amortization is calculated on a straight-line basis using the following periods, which represent the estimated useful lives of the assets: ● Office and computer equipment 3 years ● Software 3 years ● Laboratory equipment 5 years ● Leasehold improvements Life of the lease Costs, including certain design, construction and installation costs related to assets that are under construction and are in the process of being readied for their intended use, are recorded as construction in progress and are not depreciated until such time as the subject asset is placed in service. Repairs and maintenance that do not extend the useful life of the asset are expensed as incurred. Upon sale, retirement Long-Lived Assets Assessments of long-lived assets and the remaining useful lives of such long-lived assets are reviewed for impairment whenever a triggering event occurs or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An asset, or group of assets, are considered to be impaired when the undiscounted estimated net cash flows expected to be generated by the asset, or group of assets, are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets, based on the present value of the expected future cash flows associated with the use of the asset. Operating Segments Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, the Company’s chief operating decision maker, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment and does not track expenses on a program-by-program Warrants The Company assesses whether warrants issued require accounting as derivatives. The Company determined that the warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements. • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019 are as follows: ($ in thousands) Fair Value Measurements at Reporting Date Using Description Balance as of Quoted Prices in Significant Other Significant Cash equivalents $ 75,990 $ 75,990 $ — $ — ($ in thousands) Fair Value Measurements at Reporting Date Using Description Balance as of Quoted Prices in Significant Other Significant Cash equivalents $ 68,031 $ 68,031 $ — $ — The cash equivalents represent demand deposit accounts and deposits in a short-term United States treasury money market mutual fund quoted in an active market and classified as a Level 1 asset. Revenue Recognition from Collaboration Agreements The Company adopted Accounting Standards Codification, or ASC Topic 606, Revenue from Contracts with Customers, its assessment and the implementation resulted in a cumulative effect adjustment to accumulated deficit as of January 1, 2018 of approximately $8.1 million and a corresponding increase to the contract liability (formerly deferred revenue). The adjustment to the Company’s financial statements due to the adoption of ASC 606 is related to the Company’s Ares Trading Agreement (Note 6), which was the Company’s sole open revenue contract outstanding at January 1, 2018. There was no revenue for the years ended December 31, 2020 and 2019. The Company primarily generates revenue through collaboration arrangements with strategic partners for the development and commercialization of product candidates. Commencing January 1, 2018, the Company recognized revenue in accordance with ASC 606 which replaced ASC 605, Multiple Element Arrangements The Company recognizes collaboration revenue under certain of the Company’s license or collaboration agreements that are within the scope of ASC 606. The Company’s contracts with customers typically include promises related to licenses to intellectual property, research and development services and options to purchase additional goods and/or services. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front non-refundable, up-front The terms of the Company’s arrangements with customers typically include the payment of one or more of the following: (i) non-refundable, up-front catch-up payments based upon the achievement of a certain level of product sales, the Company recognizes revenue upon the later of: (i) when the related sales occur or (ii) when the performance obligation to which some or all of the payment has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any development, regulatory or commercial milestones or royalty revenue resulting from any of its collaboration arrangements. Consideration that would be received for optional goods and/or services is excluded from the transaction price at contract inception. The Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis. However, certain components of variable consideration are allocated specifically to one or more particular performance obligations in a contact to the extent both of the following criteria are met: (i) the terms of the payment relate specifically to the efforts to satisfy the performance obligation or transfer the distinct good or service and (ii) allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective of the standard whereby the amount allocated depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services. The Company develops assumptions that require judgment to determine the standalone selling price for each performance obligation identified in each contract. The key assumptions utilized in determining the standalone selling price for each performance obligation may include forecasted revenues, development timelines, estimated research and development costs, discount rates, likelihood of exercise and probabilities of technical and regulatory success. Revenue is recognized based on the amount of the transaction price that is allocated to each respective performance obligation when or as the performance obligation is satisfied by transferring a promised good and/or service to the customer. For performance obligations that are satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of the performance obligation using a single method of measuring progress which depicts the performance in transferring control of the associated goods and/or services to the customer. The Company uses input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up The Company recognized the upfront payment received in 2015 associated with a former open contract as a contract liability upon receipt of payment as it requires deferral of revenue recognition to a future period until the Company performs its obligations under the arrangement. Amounts expected to be recognized as revenue within the twelve months following the balance sheet date were classified in current liabilities. Amounts not expected to be recognized as revenue within the twelve months following the balance sheet date were classified as contract liabilities, net of current portion. The Company determined that there were three performance obligations; the first performance obligation consists of the license and research development services and the other two performance obligations are material rights as it relates to potential future targets that have not yet been identified. As described above, the transaction price of $57.5 million was allocated to the performance obligations based on their relative standalone selling prices. There were multiple distinct performance obligations, including material rights; thus, the Company allocated the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. Revenue is recognized by measuring the progress toward complete satisfaction of the performance obligations using an input measure. Furthermore, the Company has not capitalized any contract costs under the guidance in ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers The Company did not believe that any variable consideration should be included in the transaction price at the date of adoption of ASC 606 on January 1, 2018. Such assessment considered the application of the constraint to ensure that estimates of variable consideration would be included in the transaction price only to the extent the Company had a high degree of confidence that revenue would not be reversed in a subsequent reporting period. The Company will re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as other changes in circumstances Impact of Topic 606 Adoption As a result of adopting ASC 606, the Company recorded an $8.1 million adjustment to the opening balance of accumulated deficit in the first quarter of 2018 as a result of the treatment of the up-front d 2015 605-25 ($ in thousands) Impact of Topic 606 Adoption Description As reported under Adjustments Balances without Contract liability, current portion $ 622 $ (5,767 ) $ 6,389 Contract liability, net of current portion $ 49,037 $ 13,898 $ 35,139 Accumulated deficit $ (720,573 ) $ (8,131 ) $ (712,442 ) ($ in thousands) Impact of Topic 606 Adoption Description As reported under Adjustments Balances without Collaboration revenue $ 146 $ (4,732 ) $ 4,878 Net loss $ (53,117 ) $ (4,732 ) $ (48,385 ) Net income (loss) applicable to common shareholders $ 137,246 $ (4,732 ) $ 141,978 Net income (loss) per share - basic $ 0.96 $ (0.03 ) $ 0.99 Net income (loss) per share - diluted $ 0.96 $ (0.03 ) $ 0.99 ($ in thousands) Impact of Topic 606 Adoption Description As reported under Adjustments Balances without Net loss $ (53,117 ) $ (4,732 ) $ (48,385) Changes in contract liability $ — $ — $ — The most significant change above relates to the Company’s collaboration revenue, which to date has been exclusively generated from its collaboration arrangement with Ares Trading and PGEN Therapeutics, a wholly owned subsidiary of Precigen Inc., or Precigen, which was formerly known as Intrexon Corporation, ( Note 7 the research and development services which was estimated to be 9 years. In connection , the Company uses cost-based input method to measure were generally consistent with the units of account identified under ASC 605 , the timing of the allocation of the transaction price to the identified performance obligations under ASC 606 differed from the allocations of consideration under ASC 605 . Accordingly, the transaction price ultimately allocated to each performance obligation under ASC 606 differed from the amounts allocated under ASC 605 . Additionally, at December 31 , 2018 , the contract liability is $0 under both methods of revenue recognition (Note 7) . There is no revenue related to the years ended December 31 , 2020 and 2019 . Research and Development Costs As part of the process of preparing our financial statements estimate • CROs in connection with performing research services on our behalf and clinical trials, • investigative sites or other providers in connection with clinical trials, • vendors in connection with preclinical and clinical development activities, and • vendors related to product manufacturing, development, and distribution of preclinical and clinical supplies. We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses. Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company accounts for uncertain tax positions using a “more-likely-than-not” Accounting for Stock-Based Compensation Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period. Stock-based compensation expense is based on the number of awards ultimately expected to vest and is therefore reduced for an estimate of the awards that are expected to be forfeited prior to vesting. Consistent with prior years, the Company uses the Black-Scholes option pricing model which requires estimates of the expected term option holders will retain their options before exercising them and the estimated volatility of the Company’s common stock price over the expected term. The Company recognizes the full impact of its share-based employee payment plans in the statements of operations for each of the years ended December 31, 2020, 2019, and 2018 and did not capitalize any such costs on the balance sheets. The Company recognized $4.3 million, $4.0 million, and $3.0 million of compensation expense related to stock options during the years ended December 31, 2020, 2019, and 2018, respectively. In the years ended December 31, 2020, 2019, and 2018, the Company recognized $2.5 million, $2.3 million, and $4.5 million of compensation expense, respectively, related to restricted stock (Note 14). The total compensation expense relating to vesting of stock options and restricted stock awards for the years ended December 31, 2020, 2019, and 2018 was $6.8 million, $6.3 million, and $7.5 million, respectively.The following table presents share-based compensation expense included in the Company’s Statements of Operations: Year ended December 31, (in thousands) 2020 2019 2018 Research and development $ 2,098 $ 1,461 $ 1,683 General and administrative 4,731 4,880 5,851 Share based employee compensation expense before tax 6,829 6,341 7,534 Income tax benefit — — — Net share based employee compensation expense $ 6,829 $ 6,341 $ 7,534 The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. The estimated weighted-average fair value of stock options granted to employees in 2020, 2019, and 2018 was approximately volatility, expected . 107 and No . 110 as it continues to meet the requirements promulgated in SAB No . 110 . The assumptions for volatility, expected life, dividend yield and risk-free interest rate are presented in the table below: 2020 2019 2018 Weighted average risk-free interest rate 0.36 - 1.68% 1.39 - 2.53% 2.55 - 3.06% Expected life in years 5.75 - 6.25 5.75 - 6.25 6 Expected volatility 71.11 - 74.41% 71.39 - 85.00% 80.75 - 84.71% Expected dividend yield 0 0 0 Net Income (Loss) Per Share Basic net loss per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding options and warrants, using the treasury stock method and the average market price of the Company’s common stock during the applicable period. For the Year Ended December 31, in thousands, except share and per share data 2020 2019 2018 Basic Net loss $ (79,976 ) $ (117,796 ) $ (53,117 ) Preferred stock dividends — — (16,998 ) Settlement of a related party relationship — — 207,361 Net income / (loss) applicable to common shareholders $ (79,976 ) $ (117,796 ) $ 137,246 Weighted-average common shares outstanding 209,636,456 167,952,114 143,508,674 Earnings per share, basic $ (0.38 ) $ (0.70 ) $ 0.96 Diluted Net Loss $ (79,976 ) $ (117,796 ) $ (53,117 ) Preferred stock dividends — — (16,998 ) Precigen license transaction — — 207,361 Net income / (loss) applicable to common shareholders $ (79,976 ) $ (117,796 ) $ 137,246 Weighted-average common shares outstanding 209,636,456 167,952,114 143,508,674 For the Year Ended December 31, in thousands, except share and per share data 2020 2019 2018 Effect of dilutive securities Stock options — — 201,362 Unvested restricted common stock — — 124 Warrants — — — Dilutive potential common shares — — 201,486 Shares used in calculating diluted earnings per share 209,636,456 167,952,114 143,710,160 Earnings per share, diluted $ (0.38 ) $ (0.70 ) $ 0.96 Certain shares related to some of the Company’s outstanding common stock options, unvested restricted stock, preferred stock, and warrants have not been included in the computation of diluted net earnings (loss) per share for the years ended December , , and as the result would be , , , and consist of the following: December 31, 2020 2019 2018 Stock options 6,832,386 6,872,879 5,075,723 Inducement stock options 588,333 1,030,000 500,000 Unvested restricted stock 786,280 939,636 681,946 Warrants 22,272,727 22,272,727 18,939,394 30,479,726 31,115,242 25,197,063 During the year ended December 31, 2018, the Company and PGEN entered into a License Agreement to replace all existing agreements between the companies that provides the Company with certain exclusive and non-exclusive New Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes 2019-12 |