| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared according to United States generally accepted accounting principles ("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, share-based compensation cost, revenue recognition, as well as liability in respect of warrants to purchase Convertible Preferred Shares. The Company's management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
b. Principles of consolidation:
The consolidated financial statements include the accounts of the Company, Inc. and Holdings. All intercompany balances and transactions have been eliminated upon consolidation.
c. Financial statements in U.S. dollars:
The accompanying financial statements have been prepared in U.S. dollars.
The Company's financing activities are conducted in U.S. dollars. Although a portion of the Company's expenses are denominated in New Israeli Shekels ("NIS") (mostly salaries and rent), and Pounds Sterling (consultant costs), a substantial portion of its expenses are denominated in U.S. dollars. The Company's management believes that the currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of the Company.
Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with ASC No. 830, "Foreign Currency Matters". All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of comprehensive loss as financial income or expense, as appropriate.
d. Cash and cash equivalents:
The Company considers all highly liquid investments, which are readily convertible to cash with a maturity of three months or less at the date of acquisition, to be cash equivalents. Cash equivalents are comprised of money market funds and reverse repurchase agreements ("RRAs") which are fully collateralized and are generally outstanding for a short period of time with maturities significantly less than three months from the date of purchase. The required collateral for the RRAs is either U.S. Treasury or Federal Agency securities at a minimum rate of 102% of the RRAs' principal balance.
e. Restricted cash:
Restricted cash represents cash that is used as collateral for a Company's credit card issued by a commercial bank.
f. Research and development costs:
Research and development expenses are charged to the statement of comprehensive loss as incurred. Research and development expenses include costs incurred in performing research and development activities, including salaries and benefits, facilities cost, overhead costs, contract services, supplies and other outside costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
g. Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:
%
Computers and peripheral equipment
33
Laboratory equipment
7 - 15
Office furniture and equipment
6
Leasehold improvements
Over the shorter of the lease term or useful economic life
Property and equipment are reviewed for impairment in accordance with ASC No. 360, "Property, Plant and Equipment," whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2017 and 2016, $388 and $0 of assets in excess were written off.
h. Concentrations of credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and restricted cash.
The vast majority of cash and cash equivalents of the Company, Inc. and Holdings is invested in short-term RRAs fully-collateralized by U.S. Treasury and Federal Agency securities. Such cash and cash equivalents in U.S. banks may be in excess of insured limits and are not insured in other jurisdictions. Generally, cash and cash equivalents may be redeemed and therefore a minimal credit risk exists with respect to these investments.
i. Advertising costs:
Advertising costs related to ongoing activities are expenses as incurred. For the years ended December 31, 2017 and 2016, advertising costs totaled $32 and $126, respectively.
j. Revenue recognition:
The Company generates revenue from the Agreement described in Note 1c. Pursuant to the Agreement, the Company identified the following performance deliverables at the inception of the Agreement: (i) an exclusive royalty bearing license to certain of the Company's patents related to Trevyent, which was transferred immediately upon signing of the Agreement, (ii) certain Services that were performed over a period until the fourth quarter of 2017 and (iii) Supply Services.
The Company recognizes revenue in accordance with ASC 605-25, "Multiple-Element Arrangements" pursuant to which each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has "stand-alone value" to the customer. The arrangement's consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable which is based on the Estimated Selling Price ("ESP").
The License and Services are determined to be one unit of accounting since the License has no value to Cardiome on a stand-alone basis. The Supply Services are also determined to be a unit of accounting. The consideration allocated to the License and Services of $3,000 is recognized as revenue on a straight-line basis over the performance period of the Services.
Contingent payments related to milestones will be recognized immediately upon satisfaction of the milestone and contingent payments related to royalties will be recognized in the period that the related sales have occurred.
Revenues from product sales will be recognized when delivery has occurred, persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable, no future obligation exists and collectability is reasonably assumed.
k. Income taxes:
The Company accounts for income taxes in accordance with ASC No. 740, "Income Taxes," ("ASC 740"), using the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis for assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely than not to be realized.
ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Interest and penalties, if any, are included as components of taxes on income.
l. Severance pay:
The liability for severance pay is calculated pursuant to Israel's Severance Pay Law (the "ISPL") based on the most recent salary of the employees located in Israel multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The liability for all of its employees in Israel is fully provided by monthly deposits with insurance policies and by an accrual.
The deposited funds include interest accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to ISPL or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies, and includes immaterial interest on the investments underlying the insurance policies.
Since inception, some of the Company's employees are included under Section 14 of the ISPL. Under this section, the employees are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made on their behalf with insurance companies. Payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. Deposits under Section 14 are not recorded as an asset in the Company's balance sheet.
Total expense related to severance pay is $66 and $71, for the years ended December 31, 2017 and 2016, respectively.
m. Fair value of financial instruments:
The Company applies ASC 820, "Fair Value Measurements and Disclosures", ("ASC 820"), which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1:
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:
Observable inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3:
Unobservable inputs reflecting the Company's own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
The carrying amounts of cash and cash equivalents, restricted cash, other accounts receivable, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. Money Market Funds were classified as Level 1, Reverse Repurchase Agreements were classified as Level 2 as the fair value is determined using a discounted cash flow model with all significant inputs derived from or corroborated with observable market data. Warrants to purchase Ordinary Shares were classified as Level 3 as the fair value is determined using a Monte Carlo option pricing model, which takes into account the anti-dilution features of the warrants and certain subjective assumptions made by Management.
The Company's financial assets and liabilities that are measured at fair value on a recurring basis, consisted of the following types of instruments as of the following dates:
Assets:
December 31, 2016
Fair value measurements
Description
Fair value
Level 1
Level 2
Level 3
Reverse Repurchase Agreements
$
$
—
$
$
—
Money Market Funds
—
—
Total financial assets
$
$
$
$
—
December 31, 2017
Fair value measurements
Description
Fair value
Level 1
Level 2
Level 3
Reverse Repurchase Agreements
$
$
—
$
$
—
Money Market Funds
—
—
Total financial assets
$
$
$
$
—
Liabilities:
December 31, 2016
Fair value measurements
Description
Fair value
Level 1
Level 2
Level 3
Warrants to purchase Ordinary Shares
$
)
$
—
$
—
$
)
Total financial liabilities
$
)
$
—
$
—
$
)
December 31, 2017
Fair value measurements
Description
Fair value
Level 1
Level 2
Level 3
Warrants to purchase Ordinary Shares
$
)
$
—
$
—
$
)
Total financial liabilities
$
)
$
—
$
—
$
)
n. Accounting for stock-based compensation:
The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation Stock Compensation", ("ASC 718"), which requires companies to estimate the fair value of equity based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite or derived service periods in the Company's consolidated statement of comprehensive loss.
The Company recognizes compensation expense for the value of its awards granted based on the straight-line method over the requisite or derived service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. See also Note 2q.
The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model which requires a number of assumptions, of which the most significant are the Company's expected stock price volatility and the expected option term. Expected volatility was calculated based upon historical volatilities of similar entities in the related sector index. The expected option term represents the period that the Company's stock options are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
o. Basic and diluted net loss per share:
Basic and diluted net loss per share is computed based on the weighted-average number of Ordinary Shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of Ordinary Shares outstanding during the year, plus dilutive potential shares considered outstanding during the year, in accordance with ASC 260-10. Basic and diluted net loss per share of Ordinary Shares was the same for each period presented as the inclusion of all potential Ordinary Shares outstanding was anti-dilutive.
For the years ended December 31, 2017 and 2016, all outstanding options, restricted share units and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive. The total number of options, restricted share units and warrants that have been excluded from the calculation was 10,033,173 and 8,253,762 for the year ended December 31, 2017 and 2016, respectively.
p. Legal and other contingencies:
The Company accounts for its contingent liabilities in accordance with ASC 450. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2017 and 2016, the Company is not a party to any litigation that could have a material adverse effect on the Company's business, financial position, results of operations or cash flows.
q. Recently adopted accounting pronouncements:
1.
In March 2016, FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in ASU 2016-09 affect all entities that issue share-based payment awards to their employees and involve multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU 2016-09 during the three months ended March 31, 2017, at which time it changed its accounting policy to account for forfeitures as they occur. The change was applied on a modified retrospective basis and the cumulative impact to the accumulated deficit as of January 1, 2017 is de minimus .
r. Recently issued accounting pronouncements:
1.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), an updated standard on revenue recognition and issued subsequent amendments to the initial guidance in March 2016, April 2016, May 2016 and December 2016 within ASU 2016-08, 2016-10, 2016-12, and 2016-20, respectively. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods and services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services, In addition, the new standard requires expanded disclosures. The Company adopted the new standard effective January 1, 2018, using the modified retrospective transition method. The adoption of this standard does not have a material impact on our consolidated financial statements and the cumulative impact to the Company's accumulated deficit as of January 1, 2018 is nil.
2.
In February 2016, FASB issued ASU 2016-02-Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of their classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASC 842 supersedes the previous leases standard, ASC 840. The standard is effective on January 1, 2019, with early adoption permitted. The Company currently anticipates adopting the new standard effective January 1, 2019 and is evaluating the impact of the adoption of this standard on its consolidated financial statements.
3.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company will adopt the new standard effective January 1, 2018, using the retrospective transition approach for all periods presented. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
4.
In May 2017, FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company is evaluating the impact of ASU 2017-09.
5.
In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging, which changes the accounting treatment and the earnings per share calculation for certain instruments with down round features. The amendments in this update should be applied using a cumulative-effect adjustment as of the beginning of the fiscal year of adoption or retrospective adjustment to each period presented. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those periods. The Company is in the process of determining the impact the adoption will have on its consolidated financial statements. |
