| SIGNIFICANT ACCOUNTING POLICIES | 2. SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows: Use of estimates The process of preparing 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 disclosure of assets and liabilities at the date of the financial statements and the reported amounts expensed during the reporting period. Actual results could differ from those estimates and changes in estimates may occur. Basis of presentation and principles of consolidation The consolidated financial statements include the accounts of InVivo Therapeutics Holdings Corp. and its wholly-owned subsidiary, InVivo Therapeutics Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Certain reclassifications have been made to the prior year financial statements to conform to the presentation used in the current year. In the current year the Company reclassified other current assets from Prepaid expenses and other current assets and presented them under other current assets on the Consolidated Balance Sheets. These reclassifications did not have an impact on total assets or total liabilities of the Consolidated Balance Sheets or cash flows as previously reported. Cash and cash equivalents The Company considers only those investments that are highly liquid, readily convertible to cash, and that mature within 3 months from date of purchase to be cash equivalents. As of each of December 31, 2022 and 2021, the Company has cash balances in a financial institution in excess of insured limits. The Company has not experienced any losses related to these balances. Management believes it is not exposed to significant credit risk. At December 31, 2022 and 2021, cash equivalents were comprised primarily of money market funds. Cash and cash equivalents consist of the following: December 31, (In thousands) 2022 2021 Cash $ 55 $ 5 Money market funds 16,296 19,026 Total cash and cash equivalents $ 16,351 $ 19,031 Restricted cash Restricted cash as each of December 31, 2022 and 2021 was $150 thousand. Restricted cash as of December 31, 2022 and 2021 included a $50 thousand security deposit related to the Company’s credit card account and a $100 thousand standby letter of credit in favor of a landlord. Fair Value of Financial instruments The carrying amounts reported in the Company’s consolidated balance sheets for cash, cash equivalents and accounts payable approximate fair value based on the short-term nature of these instruments. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2—Valuation is based on observable inputs other than Level 1 prices, 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—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts payable and accrued expenses. Property and equipment Property and equipment of the Company is stated at cost. In accordance with ASC Topic 360 Property, Plant and Equipment, expenditure for fixed assets that substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred. Depreciation is provided principally on the straight-line method over the estimated useful lives of the asset. A summary of the estimated useful lives is as follows: Classification Estimated Useful Life Computer hardware 3 - 5 years Software 3 years Research and lab equipment 5 years Leasehold improvements Remaining life of lease Research and development expenses The Company expenses R&D costs as incurred. As part of the process of preparing the Company's financial statements, the Company to estimate certain research and development expenses. This process involves reviewing clinical agreements and open contracts and purchase orders, communicating with its CRO to identify services that have been performed on its behalf and estimating the level of service performed and the associated costs incurred for the services when the Company has not yet been invoiced or otherwise notified of the actual costs. The majority of the Company's service providers invoice the Company in arrears for services performed, on a predetermined schedule or when contractual milestones are met; however, a few require advanced payments. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known to it at that time. Examples of estimated accrued research and development expenses include fees paid to: ● clinical research organizations, or CROs, in connection with performing research services on its behalf and clinical trials; ● investigative sites or other providers in connection with clinical trials; and ● vendors in connection with clinical development activities The Company bases its expenses related to clinical trials on its estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage clinical trials on its 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 the Company's 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, the Company estimates 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 its estimate, the Company adjusts the accrual or amount of prepaid expense accordingly. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its 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 it reporting amounts that are too high or too low in any particular period. To date, the Company has not made any material adjustments to its prior estimates of accrued research and development expenses. As of December 31, 2022, the Company had $1.2 million in prepayments for CRO services all of which are included in the other current assets balance on the balance sheet. As of December 31, 2021, the Company had $1.2 million in prepayments for CRO services of which $28 thousand is included in prepaid expense and other current assets balance on the balance sheet and the remaining $1.1 million is included within the other long term assets balance on the balance sheet. Concentrations of credit risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash in commercial banks, which may at times exceed Federally Insured limits. The Company has not experienced any loss in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. Segment information 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, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is developing and commercializing biopolymer scaffolding devices for the treatment of spinal cord injuries. As of December 31, 2022 and 2021, all of the Company’s assets were located in one location in the United States. Income taxes For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, the Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are realizable. Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in 2022. There were no material uncertain tax positions that required accrual or disclosure to the financial statements as of December 31, 2022 or 2021. Tax years subsequent to 2019 remain open to examination by U.S. federal and state tax authorities. Impairment of long-lived assets The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets may not be recoverable. An impairment loss is recognized when expected cash flows are less than an asset’s carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. The Company’s policy is to record an impairment loss when it is determined that the carrying value of the asset may not be recoverable. Share-based payments The Company accounts for all stock-based payment awards granted to employees and nonemployees using the fair value method. The Company’s stock-based payments include stock options and grants of common stock, including common stock subject to vesting. The measurement date for both employee and nonemployee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, which is the vesting period, on a straight-line basis. Stock-based compensation costs for nonemployees are recognized as expense over the vesting period on a straight-line basis. Stock-based compensation is classified in the accompanying consolidated statements of operations and comprehensive loss based on the department to which the related services are provided. Derivative instruments The Company generally does not use derivative instruments to hedge exposures to cash-flow or market risks. In the past certain of the Company’s issued and outstanding warrants to purchase common stock previously contained anti-dilution provisions. These warrants did not meet the requirements for classification as equity and were thus recorded as derivative warrant liabilities. In such instances, net-cash settlement is assumed for financial reporting purposes, even when the terms of the underlying contracts do not provide for a net-cash settlement. Such financial instruments are initially recorded at fair value, with subsequent changes in fair value recorded to operations in each reporting period. If these instruments subsequently meet the requirements for classification as equity, the Company reclassifies the fair value to equity. Net loss per common share Basic and diluted net loss per share of common stock has been computed by dividing net loss by the weighted average number of shares outstanding during the period as follows: Year Ended December 31, 2022 2021 Numerator: Net loss (in thousands) $ (10,490) $ (9,895) Denominator: Weighted average shares used in calculating net loss per share — basic and diluted 1,536,474 1,323,659 Net loss per share — basic and diluted $ (6.83) $ (7.48) In a net loss period, options, warrants, unvested restricted stock units and convertible securities are anti-dilutive and are therefore excluded from diluted loss per share calculations. For the year ended December 31, 2022 and 2021, the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive: December 31, 2022 2021 Warrants 3,064,877 563,162 Stock options 136,568 14,582 Unvested RSAs — 254 Total potentially dilutive securities 3,201,445 577,998 New Accounting Pronouncements In May 2021 FASB) issued Accounting Standards Update (“ASU”) No. 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force”. This ASU amends the ASC to provide explicit guidance, and, thus, reduce diversity in practice, on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. This amendment provides that for an entity that presents earnings per share (“EPS’) in accordance with Topic 260, the effects of a modification or an exchange of a freestanding equity-classified written call option that is recognized as a dividend should be an adjustment to net income (or net loss) in the basic EPS calculation. The Company adopted ASU 2021-04 effective January 1, 2022, and it did not have a material impact on the Company's consolidated financial statements. No other accounting standards known by the Company to be applicable to it that have been issued by the FASB or other standard-setting bodies and that do not require adoption until a future date are expected to have a material impact on the Company’s consolidated financial statements upon adoption. |
