| Summary of Significant Accounting Policies | NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial
statements. Such financial statements and accompanying notes are the representations of Company’s management, who is responsible
for their integrity and objectivity. Principles of Consolidation The consolidated financial statements
include the accounts of IThenaPharma Inc. and Marina Biotech, Inc. and the wholly-owned subsidiaries, Cequent, MDRNA, and Atossa,
and eliminate any inter-company balances and transactions. Reverse Stock Split On August 1, 2017, we filed a Certificate
of Amendment of our Amended and Restated Certificate of Incorporation to effect a one-for-ten reverse split of our issued and outstanding
shares of common stock. Our common stock commenced trading on the OTCQB tier of the OTC Markets on a split-adjusted basis on August
3, 2017. Unless indicated otherwise, all share and per share information included in these financial statements give effect to
the reverse split. Going Concern and Management’s
Liquidity Plans The accompanying consolidated financial
statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and
the satisfaction of liabilities in the normal course of business. At December 31, 2017, we had a significant accumulated deficit
of approximately $8 million and a negative working capital of approximately $6 million. Our operating activities consume
the majority of our cash resources. We anticipate that we will continue to incur operating losses as we execute our commercialization
and research and development plans, as well as strategic and business development initiatives. In addition, we have had and will
continue to have negative cash flows from operations, at least into the near future. We have previously funded, and plan to continue
funding, our losses primarily through the sale of common and preferred stock, combined with or without warrants, the sale of notes,
revenue provided from our license agreements and, to a lesser extent, equipment financing facilities and secured loans. However,
we cannot be certain that we will be able to obtain such funds required for our operations at terms acceptable to us or at all. On April 16, 2018, we held the initial
closing of our private placement of shares of our Series E Convertible Preferred Stock, and warrants to purchase shares of our
common stock, as a result of which we raised over $10 million in net proceeds to our company. For our assessment as of December
31, 2017, we have considered the amount raised and we will continue to reassess our ability to address the going concern. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability of and classification of assets carrying amounts or the
amount and classification of liabilities that might result should the Company be unable to continue as a going concern. Use of Estimates The preparation of the accompanying
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reported period. Significant areas requiring the use of management
estimates include valuation allowance for deferred income tax assets and fair value of financial instruments. Actual results could
differ materially from such estimates under different assumptions or circumstances. Cash and Cash Equivalents The Company considers all highly liquid
investments with maturities of three months or less at the time of purchase to be cash equivalents. There are no cash equivalents
as of December 31, 2017 or 2016. The Company deposits its cash with major
financial institutions and may at times exceed the federally insured limit. At December 31, 2017 and 2016, the Company had no cash
balances in excess of the federal insurance limit. Goodwill The Company periodically reviews the
carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist.
Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment
using fair value measurement techniques. These events could include a significant change in the business climate, legal factors,
a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors.
Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment
test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including
goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit.
A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows,
growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget
and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units.
If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and
the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second
step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill
impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.
If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss
is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets
and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The Company did not record an impairment
loss on goodwill for the years ended December 31, 2017 or 2016. Fair Value of Financial Instruments We consider the fair value of cash,
accounts payable, due to related parties, notes payable, notes payable to related parties, convertible notes payable and accrued
liabilities not to be materially different from their carrying value. These financial instruments have short-term maturities. We
follow authoritative guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”)
for financial assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain
disclosures. The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques,
such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and
the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following
is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. Our cash is subject to fair value measurement
and is determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed share number using Level
1 inputs. We measured the liability for price adjustable warrants and certain features embedded in notes, using the probability
adjusted Black-Scholes option pricing model (“Black-Scholes”), which management has determined approximates values
using more complex methods, using Level 3 inputs. There were no liabilities measured at fair value as of December 31, 2017 (see
Recent Accounting Pronouncements below). The following tables summarize our liabilities measured at fair value on a recurring basis
as of December 31, 2016:
Balance at December 31, 2016 Level 1 Quoted prices in active markets for identical assets Level 2 Significant other observable inputs Level 3 Significant unobservable inputs
Liabilities:
Fair value liability for price adjustable warrants $ 141,723 $ - $ - $ 141,723
Total liabilities at fair value $ 141,723 $ - $ - $ 141,723 The following presents activity of the
fair value liability of price adjustable warrants determined by Level 3 inputs for the period ended December 31, 2017:
Fair value liability for price adjustable warrants
Balance at December 31, 2016 $ 141,723
Reclassification of derivative liability due to adoption of ASU 2017-11 (See Recent Accounting Pronouncements below) (141,723 )
Balance at December 31, 2017 $ - Impairment of Long-Lived Assets We review all of our long-lived assets
for impairment indicators throughout the year and perform detailed testing whenever impairment indicators are present. In addition,
we perform detailed impairment testing for indefinite-lived intangible assets, at least annually, at December 31. When necessary,
we record charges for impairments. Specifically:
● For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, we compare the undiscounted amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
● For indefinite-lived intangible assets, such as acquired in-process R&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any. Management determined that no impairment indicators were
present and that no impairment charges were necessary as of December 31, 2017 or 2016. Revenue Recognition Revenue will be recognized when persuasive
evidence that an arrangement exists, delivery has occurred, collectability is reasonably assured, and fees are fixed or determinable.
Deferred revenue expected to be recognized within the next 12 months will be classified as current. Substantially, a majority of
our revenues is planned to be generated from the sales of product. We plan to launch Prestalia, our FDA approved product. We also
expect some of our revenue will be generated from licensing arrangements that do not involve multiple deliverables and have no
ongoing influence, control or R&D obligations. Our license arrangements may include upfront non-refundable payments, development
milestone payments, patent-based or product sale royalties, and commercial sales, all of which are treated as separate units of
accounting. In addition, we may receive revenues from sub-licensing arrangements. For each separate unit of accounting, we will
determine that the delivered items have value to the other party on a stand-alone basis, we will have objective and reliable evidence
of fair value using available internal evidence for the undelivered item(s) and our arrangements generally do not contain a general
right of return relative to the delivered item. Product Sales Revenue from our product sales will
be recognized when title and risk of loss have transferred to our customer, and the following additional criteria are met:
(1) appropriate evidence of a binding arrangement exists with our customer;
(2) price is substantially fixed or determinable;
(3) collection from our customer is reasonably assured;
(4) our customer’s obligation to pay us is not contingent on resale of the product;
(5) we do not have significant continued performance obligations to our customer; and
(6) we have a reasonable basis to estimate returns. Our gross revenue will be reduced by
our gross-to-net, or GTN, estimates each period, resulting in our reported “product sales, net.” We will defer revenue
recognition in full if these estimates are not reasonably determinable at the time of sale. These estimates will be based upon
information received from external sources (such as written or oral information obtained from our customers with respect to their
period-end inventory levels and their sales to end-users during the period), in combination with management’s informed judgments.
Due to the inherent uncertainty of estimates, the actual amount we incur may be materially different than our GTN estimates, and
require prospective revenue adjustments in periods after the initial sale was recorded. Our GTN estimates may be comprised of
the following categories:
● Product Returns Allowances: Our customers may be permitted to return purchased product beginning at its expiration date, and within six months thereafter. Returned product is generally destroyed and not resold. Returns outside of the above referenced criteria for expiry.
● Prompt Pay Discounts: Discounts for prompt payment will be estimated at the time of sale, based on our future eligible customers’ prompt payment history and the contractual discount percentage.
● Medicaid Rebates: Our products may be subject to state government-managed Medicaid programs, whereby rebates are issued to participating state governments. These rebates arise when a patient treated with our product is covered under Medicaid, resulting in a discounted price for our product under the applicable Medicaid program. Our Medicaid rebate accrual calculations will require us to project the magnitude of our sales, by state, that will be subject to these rebates. There could be a significant time lag in us receiving rebate notices from each state (generally several months or longer after our sale is recognized). Our estimates will be based on our historical claim levels by state, as supplemented by management’s judgment. Revenue from licensing arrangements
will be recorded when earned based on the specific terms of the contracts. Upfront non-refundable payments, where we are not providing
any continuing services as in the case of a license to our IP, are recognized when the license becomes available to the other party. Milestone payments typically represent
nonrefundable payments to be received in conjunction with the uncertain achievement of a specific event identified in the contract,
such as initiation or completion of specified development activities or specific regulatory actions such as the filing of an Investigational
New Drug Application (“IND”). We believe a milestone payment represent the culmination of a distinct earnings process
when it is not associated with ongoing research, development or other performance on our part and it is substantive in nature.
We recognize such milestone payments as revenue when it becomes due and collection is reasonably assured. Royalty and earn-out payment revenues
will generally be recognized upon commercial product sales by the licensee as reported by the licensee. Stock-based Compensation We use Black-Scholes for the valuation
of stock-based awards. Stock-based compensation expense is based on the value of the portion of the stock-based award that will
vest during the period, adjusted for expected forfeitures. The estimation of stock-based awards that will ultimately vest requires
judgment, and to the extent actual or updated results differ from our current estimates, such amounts will be recorded in the period
the estimates are revised. Black-Scholes requires the input of highly subjective assumptions, and other reasonable assumptions
could provide differing results. Our determination of the fair value of stock-based awards on the date of grant using an option
pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to, the expected life of the award and expected stock price volatility over the term
of the award. Stock-based compensation expense is recognized immediately for immediately-vested portions of the grant, with the
remaining portions recognized on a straight-line basis over the applicable vesting periods based on the fair value of such stock-based
awards on the grant date. Forfeiture rates have been estimated based on historical rates and compensation expense is adjusted for
general forfeiture rates in each period. Beginning in September 2014, Marina did not use historical forfeiture rates and did not
apply a forfeiture rate as the historical forfeiture rate was not believed to be a reasonable estimate of the probability that
the outstanding awards would be exercised in the future. Given the specific terms of the awards and the recipient population, we
expect these options will all be exercised in the future. Non-employee stock compensation expense
is recognized immediately for immediately-vested portions of a grant, with the remaining portions recognized on a straight-line
basis over the applicable vesting periods. At the end of each financial reporting period prior to vesting, the value of the unvested
stock options, as calculated using Black-Scholes, is re-measured using the fair value of our common stock, and the stock-based
compensation recognized during the period is adjusted accordingly. Net Income (Loss) per Common Share Basic net income (loss) per common share
(after giving effect of the one for ten reverse stock split) is computed by dividing the net income (loss) by the weighted average
number of common shares outstanding during the period, excluding any unvested restricted stock awards. Diluted net income (loss)
per share includes the effect of common stock equivalents (stock options, unvested restricted stock, and warrants) when, under
either the treasury or if-converted method, such inclusion in the computation would be dilutive. Net income (loss) is adjusted
for the dilutive effect of the change in fair value liability for price adjustable warrants, if applicable. The following number
of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:
Year ended December 31,
2017 2016
Stock options outstanding 745,707 168,811
Warrants 2,559,612 2,446,678
Shares to be issued upon conversion of notes payable 319,617 89,286
Total 3,624,936 2,704,775 Income Taxes Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards,
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. The Company accounts for income taxes
using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related
financial amounts, using currently enacted tax rates. Reclassification of Prior Year Presentation Certain prior year amounts have been
reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results
of operations or cash flows. Under the provisions of ASC 740, Income
Taxes The Company recognizes a tax benefit
only if it is more likely than not that the position is sustainable, based solely on its technical merits and considerations of
the relevant taxing authorities; administrative practice and precedents. The Company completed its analysis of uncertain tax positions
in accordance with applicable accounting guidance and determined no amounts were required to be recognized in the financial statements
at December 31, 2017 and 2016. Recent Accounting Pronouncements In July 2017, the Financial Accounting
Standards Board issued Accounting Standads Update (“ASU”) 2017-11, Earnings Per Share (Topic ), Distinguishing
Liabilities from Equity (Topic ), Derivatives and Hedging (Topic ) – I. Accounting for Certain Financial
Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments
of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception In May 2017, the FASB issued ASU 2017-09,
Compensation – Stock Compensation (Topic ) – Scope of Modification Accounting In January
2017, the FASB issued ASU No. 2017-04, “ Intangibles—Goodwill and Other (Topic 350) In August 2016, the FASB issued ASU
2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (Topic ) In March 2016, FASB issued (“ASU”)
2016-09, Compensation – Stock Compensation – Improvements to Employee Shared-Based Payment Accounting . In February 2016, the FASB issued Accounting
Standards Update, Leases In January 2016, FASB ASU 2016-01, Recognition
and Measurement of Financial Assets and Financial Liabilities In May 2014, FASB issued changes to
the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all
industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue
recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing
a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the
following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii)
determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v)
recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB deferred the effective date
by one year, making these changes effective for the Company on January 1, 2018. The Company does not expect the adoption of this
standard to have a material effect on its financial statements. Subsequent Event Policy Management has evaluated all activity
since December 31, 2017, through the date the financial statements were issued and has concluded that no subsequent events have
occurred that would require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements, other
than those described in Note 11. |
