| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES The
consolidated balance sheet as of October 31, 2019 and the consolidated statements of operations, stockholders' equity, and
cash flows for the periods presented have been prepared by the Company and are unaudited. The consolidated financial statements
are prepared in accordance with the requirements for unaudited interim periods pursuant to Rule 8-03 of Regulation S-X, and consequently,
do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States
of America. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present
fairly the financial position, results of operations, changes in stockholders' equity and cash flows for all periods presented
have been made. The information for the consolidated balance sheet as of January 31, 2019 was derived from audited financial statements
of the Company. The Company's significant accounting policies are found below. These policies should be read in conjunction
with Note 1 in the Company's audited financial statements for the year ended January 31, 2019. Principles
of Consolidation The
consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated. The operations of 4P Therapeutics are included in the Company's financial
statements from the date of acquisition of August 1, 2018. Use
of Estimates The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company
evaluates its estimates including, but not limited to, those related to such items as income tax exposures, accruals, depreciable/useful
lives, allowance for doubtful accounts and valuation allowances. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results could differ from those estimates. Revenue
Recognition The
Company recognized revenue in accordance with Topic 606 "Revenue from Contracts with Customers. Topic 606 is based on principles
that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to a customer.
The Company adopted the guidance under the new revenue standards using the modified retrospective method effective February 1,
2018 and determined no cumulative effect adjusted to retained earnings was necessary upon adoption. Topic 606 requires the Company
to recognize revenues when control of the promised goods or services and receipt of payment is probable. The Company recognizes
revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify
separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance
obligations, and 5) recognize revenue as the performance obligations are satisfied. Upon
adoption, Topic 606 replaced most existing revenue recognition guidance in U.S. GAAP. The adoption of Topic the new revenue recognition
standards did not have any impact on its consolidated financial statements since the Company did not recognize any revenue prior
to the third quarter of 2018, and all revenue is recognized pursuant to Topic 606. Revenue
Service Types The
following is a description of the Company's revenue service types, which include professional services and sale of goods:
● Professional
services include contract research and development related services with clients in the
life sciences field on an as-needed basis. Deliverables primarily consist of detailed
findings and conclusion reports provided to the client for each given research project
engaged.
● Sales
revenues are derived from the sale of products. To date, sales related to consumer products
sold to the Company's South Korean distributor. Upon receipt of a purchase order,
the Company has the order filled and shipped. Contracts
with Customers A
contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party's
rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services,
(ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration
for services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. Performance
Obligations A
performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account
in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized
as revenue when, or as, the performance obligation is satisfied. For the Company's different revenue types, the performance
obligation is satisfied at different times. The Company's performance obligations include providing products and professional
services in the area of research. The Company recognizes product revenue performance obligations in most cases when the product
has shipped to the customer. When the Company performs professional service work, it recognizes revenue when it has the right
to invoice the customer for the work completed, which typically occurs on a monthly basis for the work performed during that month. All
revenue recognized in the statement of operations is revenue from contracts with customers. Disaggregation
of Revenues The
Company disaggregates its revenue from contracts with customers by service type and by geographical location. The following tables
set forth revenue by service type and by geographical location. Revenue
by service type:
Three
months ended October 31, Nine months ended October 31,
2019 2018 2019 2018
Sale of goods $ - $ 49,000 $ 142,450 $ 49,000
Services 82,567 113,815 208,620 113,815
Total $ 82,567 $ 162,815 $ 351,070 $ 162,815 Revenue
by geographic location:
Three
months ended October 31, Nine
months ended October 31,
2019 2018 2019 2018
United States $ 82,567 $ 113,815 $ 208,620 $ 113,815
Non-United States - 49,000 142,450 49,000
Total $ 82,567 $ 162,815 $ 351,070 $ 162,815 Property,
Plant and Equipment The
Company depreciates its plant and equipment on a straight-line basis over the estimated useful life of the assets. Property, plant
and equipment is stated at historical cost. Expenditures for minor repairs, maintenance and replacement parts which do not increase
the useful lives of the assets are charged to expense as incurred. All major additions and improvements are capitalized. Depreciation
is computed using the straight-line method. The lives over which the fixed assets are depreciated range from 3 to 5 years as follows:
Lab equipment 5 years
Furniture, fixtures and equipment 3 years Intangibles
Assets Intangibles
assets include trademarks, intellectual property and customer base acquired through business combinations. The Company accounts
for Other Intangible Assets under the guidance of ASC 350, "Intangibles-Goodwill and Other." The Company capitalizes
certain costs related to patent technology. A substantial component of the purchase price related to the Company's acquisition
of 4P Therapeutics in 2018 has also been assigned to intellectual property and other intangibles. Under the guidance, other intangible
assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested
annually for impairment. Trademarks, intellectual property and customer base are being amortized over their estimated useful lives
of ten years. Goodwill Goodwill
represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities
at the date of acquisition. Goodwill is reviewed for impairment annually, and more frequently as circumstances warrant, and written
down only in the period in which the recorded value of such assets exceed their fair value. The Company does not amortize goodwill
in accordance with ASC 350. Long-lived
Assets Management
reviews long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment exists when the carrying amount of the long-lived asset is
not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds
the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If
an impairment exists, the resulting write-down would be the difference between fair market value of the long-lived asset and the
related net book value. Earnings
per Share Basic
earnings per share of common stock is computed by dividing net earnings by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average
number of shares of common stock and potential shares of common stock outstanding during the period. Potential shares of
common stock consist of shares issuable upon the exercise of outstanding options and common stock purchase warrants. As of October
31, 2019 and 2018, there were 133,214 and 182,500 common stock equivalents outstanding, respectively, that were not included in
the calculation of dilutive earnings per share as their effect would be anti-dilutive. Stock-Based
Compensation ASC
718, "Compensation - Stock Compensation," prescribes accounting and reporting standards for all share-based payment
transactions in which employee services, and, since February 1, 2019, non-employees, are acquired. Transactions include incurring
liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans
and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as
compensation expense in the financial statements based on their fair values. That expense is recognized over the period during
which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the
vesting period). For
the nine months ended October 31, 2018, the Company accounted for stock-based compensation issued to non-employees and consultants
in accordance with the provisions of ASC 505-50, "Equity - Based Payments to Non-Employees." Measurement of share-based
payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or
services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at
the earlier of performance commitment date or performance completion date. As of February 1, 2019, pursuant to ASU 2018-07, ASC
718 was applied to stock-based compensation for both employees and non-employees. Leases In
February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842), to provide a new comprehensive model for lease accounting
under this guidance, lessees and lessors should apply a "right-of-use" model in accounting for all leases (including
subleases) and eliminate the concept of operating leases and off-balance-sheet leases. Recognition, measurement and presentation
of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting
in-line with revenue recognition guidance. The
Company adopted ASU 2016-02 as amended effective February 1, 2019 using the modified retrospective approach. In connection with
the adoption, the Company elected to utilize the Comparative Under 840 Option whereby the Company will continue to present prior
period financial statements and disclosures under ASC 840. In addition, the Company elected the transition package of three practical
expedients permitted under the standard, which eliminates the requirements to reassess prior conclusions about lease identification,
lease classification and initial direct costs. The Company completed the necessary changes to its accounting policies, processes,
disclosure and internal control over financial reporting. Adoption
of the new standard resulted in the recording of right-to-use assets in the amount of $28,827 and lease liabilities related to
operating leases in the amount of $28,827 on the Company's consolidated balance sheet as of February 1, 2019. See Note 10,
Leases, for Topic 842 disclosures in connection with the adoption of ASU 2016-02. Fair
Value Measurements FASB
ASC 820, "Fair Value Measurements and Disclosure" ("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 participants on the measurement date. ASC 820 also establishes a
fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. ASC 820 describes three levels of inputs that may be to measure fair value. The
Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities
and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements
on a recurring basis during the reporting period. The fair value is an exit price, representing the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use
of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would
use in pricing the asset or liability. ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers are defined as follows: Level
1 -Observable inputs such as quoted market prices in active markets. Level
2 -Inputs other than quoted prices in active markets that are either directly or indirectly observable. Level
3 -Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. The
carrying value of our financial instruments including cash and cash equivalents, accounts receivable, prepaid expenses, and accrued
expenses approximate their fair value due to the short maturities of these financial instruments. Derivative
liabilities are determined based on "Level 3" inputs, which are significant and unobservable and have the lowest priority.
The recorded values of all other financial instruments approximate their current fair value because of their nature and respective
short maturity dates or durations. Our
financial assets and liabilities carried at fair value measured on a recurring basis as of October 31, 2019, consisted of the
following:
Total fair value at October 31, 2019 Quoted Price in active markets Significant other observable inputs Significant other unobservable inputs
$ $ $ $
Description:
Derivative liability (1) 478,852 - - 478,852
Total 478,852 - - 478,852
(1) The
Company has estimated the fair value of this liability using the Binomial Model. Derivative
Liabilities The
Company accounts for derivative instruments in accordance with ASC Topic 815, "Derivatives and Hedging" and all derivative
instruments are reflected as either assets or liabilities at fair value on the balance sheet. The Company uses estimates at fair
value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly
transaction between willing and able market participants. In general, the Company's policy in estimating fair values is
to first look at observable market prices for identical assets and liabilities in active markets, when available. When these are
not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment
speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability
of observable inputs and prices, different valuation models could produce materially different fair value estimates. The value
presented may not represent future fair values and may not be reliable. The Company categorizes its fair value estimates in accordance
with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring
financial instruments at fair value as discussed above. As of October 31, 2019, the Company had a $478,852 derivative liability. Fair
value estimates are made at a specific point in time, based on relevant market information about the financial statement. These
estimates are subjective in nature and involve uncertainties and matter of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the estimates. Recent
Accounting Standards The
Company has implemented all new pronouncements, including the adoption of ASC 842 and 718, that are in effect and that may impact
its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been
issued that might have a material impact on its consolidated financial statements or results of operations. |
