SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES | NOTE 3 – SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES Basis of Presentation The accompanying condensed consolidated financial statements are unaudited. The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These interim consolidated financial statements as of and for the three and six months ended June 30, 2019 and 2018 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future period. All references to June 30, 2019 and 2018 in these footnotes are unaudited. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements and the notes thereto for the year ended December 31, 2018, included in the Company's annual report on Form 10-K filed with the SEC on August 6, 2019. The consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America. Certain items have been reclassified to conform to the current period presentation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates include the fair value of derivative instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities. Actual results may differ from those estimates. Research and Development Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs. We incurred research and development expenses of approximately $0.01 million and $0.01 million for the three months ended June 30, 2019 and 2018, respectively. We incurred research and development expenses of approximately $0.02 million and $0.2 million for the six months ended June 30, 2019 and 2018, respectively. Cash Equivalents For purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. We maintain our cash in bank deposit accounts which, at times, may exceed applicable government mandate insurance limits. We have not experienced any losses in our accounts. Restricted Cash Restricted cash consists of funds held in trust for the Company. The use of these funds is restricted to: (i) the payment of professional fees in connection with bringing the Company's filings current, and (ii) the payment of vendors associated with the issuance and trading of the Company's securities, such as transfer agent fees and fees payable to the OTCQB and FINRA. Income (loss) per Share Basic income (loss) per share is calculated by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Basic and diluted income (loss) per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net income (loss) per share. The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of June 30, 2019 and 2018, as they would be anti-dilutive: Six Months Ended 2019 2018 Shares underlying options outstanding 298,749 334,273 Shares underlying warrants outstanding 2,413,318 2,632,973 Shares underlying convertible notes outstanding 809,513,726 347,553,643 Shares underlying convertible preferred stock outstanding 27,395,624 26,395,624 839,621,417 376,916,513 Three Months Ended Six Net income attributable to common shareholders $ 522 $ 266 Income attributable to convertible debentures (863 ) (1,045 ) Expense attributable to convertible debentures 80 160 Diluted loss attributable to common shareholders $ (261 ) $ (619 ) Basic shares outstanding $ 15,601,456 $ 13,663,846 Convertible instruments 134,398,544 136,336,154 Diluted shares outstanding $ 150,000,000 $ 150,000,000 Diluted loss per share $ (0.00 ) $ (0.00 ) Derivative Liability The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company's balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations. Fair Value of Financial Instruments Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments with maturities of three months or less when acquired. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. The derivative liability consists of our convertible notes with a variable conversion feature. The Company uses the Black-Scholes option-pricing model to value its derivative liability which incorporate the Company's stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated life. Fair Value Measurements The U.S. GAAP Valuation Hierarchy establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company has recorded a derivative liability for its convertible notes with a variable conversion feature as of June 30, 2019. The tables below summarize the fair values of our financial liabilities as of June 30, 2019 (in thousands): Fair Value at Fair Value Measurement Using 2019 Level 1 Level 2 Level 3 Derivative liability $ 2,287 $ — $ — $ 2,287 The reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands): Six Months Ended 2019 2018 Balance at beginning of year $ 2,134 $ 2,934 Additions to derivative instruments — — Reclassification on conversion (166 ) (93 ) Loss (gain) on change in fair value of derivative liability 319 (983 ) Balance at end of period $ 2,287 $ 1,858 Stock-Based Compensation We measure the cost of employee services received in exchange for equity awards based on the grant-date fair value of the awards. All awards under our stock-based compensation programs are accounted for at fair value and that cost is recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period). Compensation expense for options granted to non-employees is determined in accordance with the fair value of the consideration received or the fair value of the equity instruments issued, whichever is a more reliable measurement. Compensation expense for awards granted to non-employees is re-measured on each accounting period. Determining the appropriate fair value of stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based compensation and the volatility of our stock price. We use the Black-Scholes option-pricing model to value our stock option awards which incorporates our stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated life. Recent Accounting Pronouncements With the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the six months ended June 30, 2019 that are of significance or potential significance to the Company. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this standard did not have any impact on the Company's consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU No. 2017-04"). ASU No. 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. A public business entity that is a SEC filer should adopt the amendments of ASU No. 2017-04 for its annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect any impact from the adoption of this standard on its consolidated financial statements. |