| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting
Policies
Basis of Presentation and Use of Estimates The accompanying consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States (U.S. GAAP). The
preparation of the accompanying consolidated financial statements
in accordance 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 as
of the date of the consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
Liquidity and Substantial Doubt in Going Concern As of December 31, 2016, the Company has an
accumulated deficit of $196.8 million as well as negative cash
flows from operating activities. Presently, the Company does not
have sufficient cash resources to meet its plans in the next twelve
months from issuance of these financial statements. The Company
will continue to require substantial funds to continue research and
development, including clinical trials of its product
candidate. Management’s plans in order to meet its
operating cash flow requirements include financing activities such
as private placements of its common stock, preferred stock
offerings, issuances of debt and convertible debt instruments and
collaborative or other arrangements with corporate sources. These factors raise substantial doubt regarding the
Company’s ability to continue as a going concern for a period
of one year from the issuance of the statement. There are no
assurances that such additional funding will be achieved and that
the Company will succeed in its future operations. The
Company’s inability to obtain required funding in the near
future or its inability to obtain funding on favorable terms will
have a material adverse effect on its operations and strategic
development plan for future growth. If the Company cannot
successfully raise additional capital and implement its strategic
development plan, its liquidity, financial condition and business
prospects will be materially and adversely affected, and the
Company may have to cease operations. In accordance with ASU No. 2014-15 Presentation of
Financial Statements – Going Concern (Subtopic 205-40), the
Company’s management evaluates whether there are conditions
or events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going
concern within one year after the date that the financial
statements are issued.
The Company has incurred significant operating
losses and had an accumulated deficit of $196.8 million as of
December 31, 2016. The Company has financed its operations
primarily through the sale of equity securities, debt financing and
payments received under its former licensing and collaboration
agreements with pharmaceutical companies. To date, none of the
Company’s product candidates have been approved by the Food
and Drug Administration for sale. The Company will continue to require additional
financing to develop its product candidates and fund operating
losses. Management intends to seek capital to support company
initiatives through equity or debt financing, collaboration or
other arrangements with corporate partners, and/or other sources of
financing. However, if such financing is not available at adequate
levels or on acceptable terms, the Company could be required to
significantly reduce its operating expenses and delay, reduce the
scope of, or eliminate some of its development
programs, out-license
Consolidation The consolidated financial statements include the
accounts of Zosano Pharma Corporation and Opco. Intercompany
balances and transactions have been eliminated in
consolidation.
Segment Reporting The Company operates in one reportable segment to
develop human pharmaceutical products. Management uses one
measurement of profitability and does not segregate its business
for internal reporting. All long-lived assets are maintained in the
United States.
Cash Equivalents The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be
cash equivalents.
Investments in Marketable Securities The Company classifies its investments in
marketable securities as available-for-sale. available-for-sale
Restricted Cash The Company entered into a pledge and security
agreement with a bank whereby $35,000 was held as a security for
corporate purchasing cards. The balance is classified as restricted
cash as of December 31, 2016 and 2015, respectively.
Concentrations of Credit Risk Financial instruments that potentially subject the
Company to a concentration of credit risk consist primarily of
cash, cash equivalents and short-term investments. The Company
invests its excess cash in money market funds, U.S. government
agency bonds, corporate notes, certificates of deposit and
commercial paper. The Company’s investment policy limits
investments to certain types of debt securities issued by the U.S.
government, its agencies and institutions with investment-grade
credit ratings and places restrictions on maturities and
concentration by type and issuer. Other than for obligations of the
U.S. government, the Company’s policy is that no more than 5%
of its investments may be concentrated in a single issuer. Bank
deposits are held by a single financial institution having a strong
credit rating and these deposits may at times be in excess of FDIC
insured limits. The Company is exposed to credit risk in the event
of a default by the financial institutions holding its cash, cash
equivalents and short-term investments and issuers of investments
to the extent recorded on the balance sheets.
Property and Equipment Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the respective assets, which range from three to five
years for computer equipment and software, and nine years for
manufacturing, laboratory, and office equipment. Leasehold
improvements are amortized over the shorter of the lease term or
the estimated useful lives of the respective assets.
Impairment of Long-Lived Assets The Company identifies and records impairment
losses on long-lived assets used in operations when events and
changes in circumstances indicate that the carrying amount of an
asset likely is not recoverable. Recoverability is measured by
comparing the anticipated undiscounted future net cash flows to the
related asset’s carrying value. If an asset is considered
impaired, the asset is written down to fair value, which is
determined based either on discounted cash flows or appraised
value, depending on the nature of the asset. No impairment charge
was recorded for the years ended December 31, 2016 and
2015.
Long-Term Investment In October 2013, the Company entered into a stock
purchase agreement with Zosano, Inc. (the Shell Corporation), a
Delaware corporation, pursuant to which the Company acquired
10,016,973 shares of the Shell Corporation’s common stock,
$0.0001 par value, for an aggregate cash purchase price of
$0.4 million. Immediately following the closing of the
acquisition, 10,027,000 shares of the Shell Corporation’s
common stock were issued and outstanding, approximately 99.9% of
which were held by the Company. The Company accounted for its investment in the
Shell Corporation using the cost method of accounting and
classified it as other long-term assets in its consolidated balance
sheet. In November 2016, the Company sold its interest in
Zosano, Inc. for an aggregate cash selling price of $225,000 and
recorded a realized loss of approximately $57,000 in its
consolidated income statement under the caption Other expense,
net.
Debt Issuance Costs Deferred issuance costs related to the
Company’s debt are presented as a direct deduction from the
carrying amount of the debt liability, consistent with debt
discounts.
Deferred Rent Rent expense is recognized on a straight-line basis
over the non-cancelable non-cancelable
Promissory Notes The Company accounts for its unsecured and secured
promissory notes issued to certain related and non-
Revenue Recognition The Company recognizes revenue when all four of the
following criteria have been met: (i) persuasive evidence of
an arrangement exists, (ii) delivery has occurred or services
have been rendered, (iii) the fee is fixed or determinable,
and (iv) collectability is reasonably assured. Revenue under
collaboration and license arrangements is recognized based on the
performance requirements of the contract.
Research and Development Expenses Research and development costs are charged to
expense as incurred and consist of costs related to
(i) servicing the Company’s collaborative development
efforts with other pharmaceutical companies, (ii) furthering
the Company’s research and development efforts, and
(iii) designing and manufacturing the Company’s
intracutaneous applicator for the Company’s clinical and
nonclinical studies. Research and development costs include
salaries and related employee benefits, costs associated with
clinical trials, nonclinical research and development activities,
regulatory activities, costs of active pharmaceutical ingredients
and raw materials, research and development related overhead
expenses, fees paid to contract research organizations that conduct
clinical trials on behalf of the Company, and fees paid to contract
manufacturing organizations that conduct manufacturing activities
on behalf of the Company. For the year ended December 31, 2016, the
Company incurred research and development costs of approximately
$11.9 million in connection with the Company’s research
and development efforts and approximately $8.6 million in the
manufacturing of the Company’s intracutaneous delivery system
for development of the Company’s product candidate. For the
year ended December 31, 2015, the Company incurred research
and development costs of $0.1 million in support of the
Company’s collaborative development services to Novo Nordisk
A/S (Novo Nordisk), $9.3 million in connection with the
Company’s research and development efforts, and
$10.9 million in the manufacturing of the Company’s
intracutaneous delivery system for the development of the
Company’s product candidates.
Clinical Trial Costs Clinical trial costs are a component of research
and development expenses. The Company expenses clinical trial
activities performed by third parties based upon actual work
completed in accordance with agreements established with clinical
research organizations and clinical sites. The Company accrues
clinical trial expenses each reporting period. The Company
determines the actual costs through discussions with internal
personnel and external service providers as to the progress or
stage of completion of trials or services and the agreed-upon fee
to be paid for such services.
Stock-Based Compensation The Company accounts for its stock-based
compensation, generally recorded as an expense, based on the fair
value of the stock- based awards that are ultimately expected to
vest. The fair value of employee stock option grants is estimated
on the date of grant using the Black-Scholes option pricing model,
and are recognized as expense on a straight- line basis over the
employee’s requisite service period (generally the vesting
period), net of estimated forfeitures. The Company records the expense attributed
to non-employee non-employees re-measurement
Income Taxes The Company uses the liability method to account
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the
financial statement carrying amounts of existing assets and
liabilities and their tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates applied to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. A valuation allowance is
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Financial statement effects of
uncertain tax positions are recognized when it is more-likely-than-not,
Comprehensive Loss Comprehensive loss is comprised of net loss and
other comprehensive loss. The only component of the Company’s
other comprehensive loss is the unrealized losses on the
Company’s marketable securities at December 31,
2015.
Net Loss Per Common Share Basic net loss per common share is calculated by
dividing the net loss by the weighted-average number of common
shares outstanding during the period, without consideration for
potentially dilutive securities. Diluted net loss per common share
is computed by dividing the net loss attributable to common
stockholders by the weighted-average number of common shares and
potentially dilutive securities outstanding for the period
determined using the treasury-stock and if-converted The following outstanding common stock equivalents
were excluded from the computations of diluted net loss per common
share for the periods presented as the effect of including such
securities would be antidilutive:
December 31,
2016 2015
(in shares)
Warrants to purchase common stock 9,672,379 72,379
Options to purchase common stock 1,846,058 (1) 972,951
11,518,437 1,045,330
(1)
Total does not include 670,000 conditional stock
options granted to certain executives since these grants are
subject to approval by the Corporation’s shareholders of an
amendment of the 2014 Plan.
Recently Issued Accounting Standards In November 2016, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update
(ASU) 2016-18, Statement of Cash
Flows
In March 2016, the FASB issued Accounting Standards
Update (ASU) 2016-09, Improvements to Employee
Share-Based Payment Accounting In February 2016, the FASB issued Accounting
Standards Update (ASU) 2016-02, Leases right-of-use In January 2016, the FASB issued ASU 2016-01, Financial Instruments
– Overall: Recognition and Measurement of Financial Assets
and Financial Liabilities In May 2014, the Financial Accounting Standards
Board, or FASB, issued Auditing Standard Updated (ASU), No. 2014-09, Revenue from Contracts with
Customers |
