Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Summary of Significant Accounting Policies | |
Basis of Presentation and Use of Estimates | Basis of Presentation and Use of Estimates |
The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company's consolidated financial statements and accompanying notes. The most significant estimates in the Company's consolidated financial statements relate to the valuation of equity awards, fair value estimates of warrant liabilities, embedded derivatives, purchase price allocations including fair value estimates of intangible assets, estimated useful lives of fixed assets and intangible assets and accruals relating to clinical trials. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. The Company's actual results may differ from these estimates under different assumptions or conditions. |
Prior to becoming a public company through the Merger, the Company utilized significant estimates and assumptions in determining the fair value of its common stock. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date. |
The Company utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation (Practice Aid), to estimate the fair value of its common stock. The methodologies included the probability-weighted expected return method ("PWERM") and option-pricing method ("OPM"). Each valuation methodology included estimates and assumptions that required the Company's judgment. These estimates included assumptions regarding future performance, including the successful completion of preclinical studies and clinical trials and the time to completing an IPO or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date. |
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Principles of Consolidation | Principles of Consolidation |
The consolidated financial statements include the accounts of Epirus and its wholly owned subsidiaries: EB Sub, Inc., a Delaware Corporation, Epirus Biopharmaceuticals Ltd., a United Kingdom corporation, Epirus Switzerland GmbH, a Swiss corporation, Epirus Brasil Tecnologia Ltda, a Brazilian corporation and Zalicus Pharmaceuticals Ltd., a Canadian corporation. All significant intercompany balances and transactions have been eliminated in consolidation. |
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Merger and Exchange Ratio | Merger and Exchange Ratio |
The Merger has been accounted for as a "reverse merger" under the acquisition method of accounting for business combinations with Private Epirus treated as the accounting acquirer of Zalicus. The historical financial statements of Private Epirus have become the historical financial statements of Public Epirus, or the combined company, and are included in this filing labeled Epirus Biopharmaceuticals, Inc. As a result of the Merger, historical common stock, stock options and additional paid-in capital, including share and per share amounts, have been retroactively adjusted to reflect the equity structure of Public Epirus, including the effect of the Merger exchange ratio and the Public Epirus common stock par value of $0.001 per share. See Note 4, "Merger," for additional discussion of the Merger and the exchange ratio. |
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Reverse Stock Split | Reverse Stock Split |
On July 16, 2014, Public Epirus effected a 1-for-10 reverse stock split of its outstanding common stock, par value $0.001 per share ("Public Epirus Common Stock") (the "Reverse Stock Split"). The accompanying consolidated financial statements and these notes to consolidated financial statements, including the Merger exchange ratio (Note 4) applied to historical Private Epirus common stock and stock options, give retroactive effect to the Reverse Stock Split for all periods presented. The shares of Public Epirus Common Stock retained a par value of $0.001 per share. |
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Segment and geographic Information | Segment and Geographic Information |
Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker ("CODM") or decision-making group in making decisions regarding resource allocation and assessing performance. The Company and the Company's CODM view the Company's operations and manage its business in one operating segment: the development and commercialization of biosimilar monoclonal antibodies for emerging markets. The Company's entire business is managed by a single management team, which reports to the Chief Executive Officer. As of December 31, 2014 and 2013, all of the Company's long-lived assets were held within the United States and Switzerland. |
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Cash and Cash Equivalents | Cash and Cash Equivalents |
The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents. As of December 31, 2014 and 2013, all cash and cash equivalents are held in depository accounts at commercial banks. Cash equivalents are reported at fair value. |
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Concentrations of Credit Risk and Off-Balance Sheet Risk | Concentrations of Credit Risk and Off-Balance Sheet Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and restricted cash. The Company maintains its cash and cash equivalent balances in the form of checking and savings accounts with financial institutions that management believes are creditworthy. The Company's investment policy includes guidelines on the quality of the institutions and financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company has no financial instruments with off-balance-sheet risk of loss. |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments |
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The Company determines the fair market values of its financial instruments based on the fair value hierarchy, which is a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the financial instrument based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the inputs that market participants would use in pricing the financial instrument and are developed based on the information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported or disclosed fair value of the financial instruments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy, and its applicability to the Company's financial assets and liabilities, are described below: |
Level 1 Inputs: Unadjusted quoted prices in active markets that are accessible at the measurement date of identical, unrestricted assets and liabilities. |
Level 2 Inputs: Quoted prices for similar assets and liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to the security. |
Level 3 Inputs: Pricing inputs are unobservable for the assets and liabilities, that is, inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the assets. Level 3 includes private investments that are supported by little or no market activity. |
The fair value hierarchy level is determined by asset class based on the lowest level of significant input. In periods of market inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified between levels. During the year ended December 31, 2014 and 2013, there were no transfers between levels. |
The Company measures cash equivalents at fair value on a recurring basis. The fair value of cash equivalents is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The fair value of the warrant liability was determined based on "Level 3" inputs and utilizing the Black-Scholes option-pricing model (Note 11). |
The fair value of the Company's note is determined using current applicable rates for similar instruments with similar settlement features as of the balance sheet date. The carrying value of the Company's long term debt approximates its fair value as the Company's interest rate is near current market rates for instruments with similar settlement features. The fair value of the Company's note was determined using Level 3 inputs. |
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Property and Equipment | Property and Equipment |
Property and equipment consists of office furniture, office and computer equipment and leasehold improvements. Expenditures for repairs and maintenance are recorded to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. Property and equipment are recorded at cost and are depreciated when placed into service using the straight-line method of depreciation, based on their estimated useful lives as follows: |
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Asset Description | | Estimated Useful Lives |
Furniture and fixtures | | 5 years |
Office and computer equipment | | 3 years |
Leasehold improvements | | Shorter of the useful life or remaining lease term |
Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation is removed from the accounts and any resulting gain or loss is recorded in the consolidated statements of operations. |
The Company evaluates the potential of its long-lived assets for impairment if events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful life of the assets is no longer appropriate. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group and its eventual disposition to the carrying value of the asset group. If impairment is indicated, the assets are written down by the amount by which the carrying value of the assets exceeds the related fair value of the assets. Any write-downs are treated as permanent reductions in the carrying value of the assets. No such impairment losses have been recorded through December 31, 2014. |
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Restricted Cash | Restricted Cash |
Restricted cash represents cash held in depository accounts at financial institutions to collateralize a conditional stand-by letter of credit related to the Company's Boston, Massachusetts, facility lease agreement and the Company's subleased Cambridge, Massachusetts facility. Restricted cash is reported as non-current unless the restrictions are expected to be released in the next 12 months. |
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In-process Research & Development | In-process Research & Development |
In-process research & development ("IPR&D") represents the fair value assigned to research and development assets that were not fully developed at the date of acquisition. IPR&D acquired in a business combination or recognized from the application of push-down accounting is capitalized on the Company's consolidated balance sheet at its acquisition-date fair value. Until the project is completed, the assets are accounted for as indefinite-lived intangible assets and subject to impairment testing. Upon completion of a project, the carrying value of the related IPR&D is reclassified to intangible assets and is amortized over the estimated useful life of the asset. |
When performing the impairment assessment, the Company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of its acquired IPR&D. If the Company determines, as a result of the qualitative assessment, that it is more likely than not that the fair value of acquired IPR&D is less than its carrying amount, it calculates the asset's fair value. If the carrying value of the Company's acquired IPR&D exceeds its fair value, then the intangible asset is written down to its fair value. For the year ended December 31, 2014 and 2013, the Company determined that there was no impairment of its IPR&D. |
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Intangible Assets | Intangible Assets |
The Company amortizes its intangible assets using the straight-line method over its estimated economic life, which is approximately 16.5 years. The Company evaluates the potential impairment of its intangible assets if events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful life of the assets is no longer appropriate. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group and its eventual disposition to the carrying value of the asset group. If impairment is indicated, the assets are written down by the amount by which the carrying value of the assets exceeds the related fair value of the assets. Any write-downs are treated as permanent reductions in the carrying value of the assets. For the year ended December 31, 2014 and 2013, the Company determined that there was no impairment of its intangible assets. |
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Goodwill | Goodwill |
Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting for push-down accounting. Goodwill is not amortized but is evaluated for impairment within the Company's single reporting unit on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company's reporting unit below its carrying amount. When performing the impairment assessment, the accounting standard for testing goodwill for impairment permits a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of goodwill is impaired, the Company must perform the first step of the goodwill impairment test. The Company has determined that goodwill was not impaired as of December 31, 2014 and 2013. To date, the Company has not recognized any impairment charges related to goodwill. |
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Revenue Recognition | Revenue Recognition |
Multiple-Element Arrangements |
Under the authoritative guidance for revenue recognition related to multiple-element revenue arrangements, each deliverable within a multiple-element revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. The Company considers a deliverable to have standalone value if the Company sells this item separately or if the item is sold by another vendor or could be resold by the customer. Deliverables not meeting the criteria for being a separate unit of accounting are accounted for on a combined basis. |
In the event the Company enters into a contract in which the deliverables are required to be separated, the Company will allocate arrangement consideration to each deliverable in an arrangement based on its relative selling price. The Company determines selling price using vendor-specific objective evidence ("VSOE"), if it exists; otherwise, the Company uses third-party evidence ("TPE"). If neither VSOE nor TPE of selling price exists for a deliverable, the Company uses estimated selling price ("ESP") to allocate the arrangement consideration. The Company applies appropriate revenue recognition guidance to each unit of accounting. |
Milestones |
Contingent consideration from research and development activities that is earned upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. At the inception of each arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive. This evaluation includes an assessment of whether: (a) the consideration is commensurate with either (1) the entity's performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity's performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment. |
Royalty Revenue |
Under certain license agreements to which the Company is a party, the Company receives royalty payments based upon its licensees' net sales of products. Generally, under these agreements, the Company receives royalty payments from licensees approximately one quarter in arrears after the licensee has sold the income generating product or products. The Company recognizes royalty revenues when it can reliably estimate such amounts and collectability is reasonably assured. As such, the Company generally recognizes royalty revenues in the quarter reported to it by its licensees. Therefore, royalty revenues are recognized one quarter in arrears from the quarter in which sales by its licensees occurred. Under this accounting policy, the royalty revenues the Company recognizes are not based upon estimates and are typically reported in the same period in which the Company receives payment from its licensees. |
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Deferred Revenue | Deferred Revenue |
Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized within 12 months from the balance sheet date are classified as long-term deferred revenue. |
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Deferred Rent | Deferred Rent |
Deferred rent, included within other non-current liabilities, net of the current portion recorded in accrued expenses in the consolidated balance sheet, consists of the difference between cash payments and the recognition of rent expense on a straight-line basis for the facilities the Company occupies. The Company's lease for its Boston, Massachusetts, facility provides for a rent-free period as well as fixed increases in minimum annual rental payments. The total amount of rental payments due over the lease term is being charged to rent expense ratably over the life of the lease. |
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Other Liabilities | Other Liabilities |
In conjunction with the Merger, as discussed in Note 4, the Company assumed a sublease liability for Zalicus' Cambridge, Massachusetts facility, which is included within other non-current liabilities, net of the current portion recorded in other current liabilities on the consolidated balance sheet. The liability represents the fair value of the difference between the total sublease payments to be received by the Company and the total payment obligation for the Company per the lease agreement. |
The Company has an operating lease for office space in Boston, Massachusetts. In connection with this lease, the Company and its third party lessor agreed that the lessor would pay for certain leasehold improvements on behalf of the Company. These leasehold improvements are accounted for as a lease incentive obligation, which is recorded in other non-current liabilities, net of the current portion recorded in other current liabilities. This liability is being amortized over the life of the lease and as a reduction to rent expense. |
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Organizational Costs | Organizational Costs |
All organizational costs are expensed as incurred. |
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Research and Development Costs | Research and Development Costs |
Research and development costs are charged to expense as incurred in performing research and development activities. The costs include employee compensation, facilities and overhead, clinical study and related clinical manufacturing costs, regulatory and other related costs. Nonrefundable advanced payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. |
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued research and development expense, as the case may be. |
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Stock-Based Compensation | Stock-Based Compensation |
The Company accounts for grants of stock options and restricted stock based on their grant date fair value and recognizes compensation expense over the award's vesting period. The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option-pricing model and restricted stock based on the fair value of the underlying common stock, which is determined as the closing trading price of the Company's common stock subsequent to the Merger, in which the Company's common stock became publicly traded, and was determined by management prior to the Merger (Note 13). |
Stock-based compensation expense represents the cost of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis, net of estimated forfeitures. The expense is adjusted for actual forfeitures at the end of each reporting period. Stock-based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest. |
Stock-based awards issued to nonemployees are accounted for based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measured. Awards are revalued at each reporting date and upon vesting and are expensed on a straight-line basis over the vesting period. |
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Income Taxes | Income Taxes |
The Company accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. |
The Company recognizes net deferred tax assets through the recording of a valuation allowance to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future, in excess of its net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. |
The Company records uncertain tax positions on the basis of a two-step process whereby: (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. |
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Net Loss Per Share | Net Loss Per Share |
Basic net loss per share is calculated by dividing net loss by the weighted average shares outstanding during the period, without consideration for common stock equivalents. During periods of income, the Company allocates participating securities a proportional share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the "two-class method"). The Company's convertible preferred stock, which was exchanged for Public Epirus Common Stock in the Merger, participated in any dividends declared by the Company and were therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, the Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. Diluted net loss per share attributable to common stockholders is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, common stock equivalents have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all periods presented. |
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Comprehensive Loss | Comprehensive Loss |
Comprehensive loss is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. The Company's net loss equals comprehensive loss for all periods presented. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements |
Revenue Recognition |
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption not permitted. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. The Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidance will have on its consolidated financial statements. |
Discontinued Operations and Disposals |
In April 2014, the FASB issued ASU No. 2014-8, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-8"). ASU 2014-8 changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has a major effect on an entity's operations and financial results. This accounting guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale. The guidance is effective for fiscal years beginning after December 15, 2014. |
Development Stage Entity |
In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation ("ASU 2014-10"). ASU 2014-10 removes all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification ("ASC"). In addition, the update adds an example disclosure in Risks and Uncertainties, ASC Topic 275, to illustrate one way that an entity that has not begun planned principal operations could provide information about the risks and uncertainties related to the company's current activities and removes an exception provided to development stage entities in Consolidations, ASC Topic 810, for determining whether an entity is a variable interest entity—which may change the consolidation analysis, consolidation decision, and disclosure requirements for a company that has an interest in a company in the development stage. ASU 2014-10 is effective for fiscal years beginning after December 15, 2014 with the revised consolidation standards effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company early adopted the guidance and eliminated the presentation and disclosure requirements of ASC Topic 915 during the three months ending June 30, 2014 and the year ended December 31, 2014. |
Going Concern |
In August 2014, the FASB issued ASC Update No. 2014-15, Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic 205-40) ("ASU 2014-14"). ASU 2014-15 requires management to assess an entity's ability to continue as a going concern every reporting period, and provide certain disclosures if management has substantial doubt about the entities ability to operate as a going concern, or an express statement if not, by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have an impact on the Company's financial position or results of operations. |
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