Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2014 |
Summary of Significant Accounting Policies | ' |
Summary of Significant Accounting Policies | ' |
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Note 3. Summary of Significant Accounting Policies |
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Use of Estimates |
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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and notes. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Actual results may differ materially from those estimates. |
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Cost of Sales |
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Cost of sales includes the costs related to the processing of cells for LAVIV®, including direct and indirect costs. Beginning in 2014, cost of sales is accounted for using a standard cost system which allocates the direct costs associated with the Company’s manufacturing, facility, quality control, and quality assurance operations as well as overhead costs. The principal reason for the relatively small level of revenue as compared to the cost of sales is that the Company changed corporate strategy in late 2013 to de-emphasize sales of LAVIV® into the aesthetic markets, and towards further research and development of the underlying azficel-T process as well as on developing first-in-class treatments for rare and serious skin and connective tissue diseases with high unmet medical needs. |
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Research and Development Expenses |
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Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third party contractors to perform research, conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilities cost. Research and development costs also include costs to manufacture product for clinical trial use and to develop manufacturing, cell collection and logistical process improvements. |
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Clinical trial costs are a significant component of research and development expenses and include costs associated with third party contractors. Invoicing from third party contractors for services performed can lag several months. The Company accrues the costs of services rendered in connection with third party contractor activities based on its estimate of management fees, site management and monitoring costs and data management costs. |
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Property and Equipment |
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Property and equipment is carried at acquisition cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful life of the asset. The cost of repairs and maintenance is charged to expense as incurred. As of December 31, 2013, the useful life for all property and equipment was three years, except for leasehold improvements which were depreciated over the remaining lease term or the life of the asset, whichever was shorter. In the first quarter of 2014, the Company adjusted its useful lives to reflect the expected consumption of the economic benefit of these assets as noted in the following table: |
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Property and equipment category | | Useful life |
Laboratory equipment | | 6 years |
Computer equipment and software | | 3 years |
Furniture and fixtures | | 10 years |
Leasehold improvements | | Lesser of remaining lease term or life of asset |
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In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) ASC Topic 250 Accounting Changes and Error Corrections, the Company accounted for this change in useful lives as a change in estimate, with prospective application only. The impact of this change in estimate on depreciation expense for the three and nine months ended September 30, 2014 was immaterial to the results on the Consolidated Statements of Operations. |
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Intangible Assets |
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Intangible assets are research and development assets related to the Company’s primary study on azficel-T that was recognized upon emergence from bankruptcy. Azficel-T has three current or target indications: the Company’s commercial product, LAVIV®, a clinical development program for vocal cord scarring and a clinical development program for restrictive burn scarring. Effective January 1, 2012, the Company launched LAVIV® and as a result, the research and development intangible assets related to the Company’s primary study were considered to be finite-lived intangible assets and are being amortized over the 12 year period of exclusivity, commencing in June 2011, granted by the FDA. |
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Finite-lived intangible assets are recorded at cost, net of accumulated amortization and, if applicable, impairment charges. Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis. In accordance with the FASB’s ASC Subtopic 360-10-35 Impairment or Disposal of Long-Lived Assets, the Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There was no impairment expense recognized for either the three or nine months ended September 30, 2014 or 2013. |
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Income Taxes |
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Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which provides for reporting of amounts that are currently payable and also for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. |
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The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2013 and September 30, 2014, the Company did not have any uncertain tax positions. |
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Recently Issued Accounting Pronouncements |
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In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements—Going Concern (ASC Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This ASU requires that an entity’s management shall evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Implementation of this ASU is effective for the annual and interim periods ending after December 15, 2016 and early application is permitted. |
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In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” under ASC Topic 606 which supersedes the current revenue recognition requirements under ASC Topic 605 Revenue Recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. It also provides a five step approach to achieve this principle. For public entities, the new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact that the adoption of ASU 2014-09 will have on its consolidated financial statements. |
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Subsequent Events |
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The Company evaluates all subsequent events, through the date the consolidated financial statements are issued, to determine if there are any events that require disclosure. No such events have been identified through the date of this filing. |
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