| Summary of Significant Accounting Policies | Note 1. Summary of Significant Accounting Policies
Nature of Business.
StemCells, Inc., a Delaware corporation, is a biopharmaceutical
company that operates in one segment, the research, development,
and commercialization of stem cell therapeutics and related
technologies.
The accompanying financial data as of June 30, 2015 and for
the three and six months ended June 30, 2015 and 2014 have
been prepared by us, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP) have
been condensed or omitted pursuant to these rules and regulations.
The December 31, 2014 condensed consolidated balance sheet was
derived from audited financial statements, but does not include all
disclosures required by U.S. GAAP. However, we believe that the
disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the notes thereto included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2014.
We have incurred significant operating losses since inception. We
expect to incur additional operating losses over the foreseeable
future. We have very limited liquidity and capital resources and
must obtain significant additional capital and other resources in
order to provide funding for our product development efforts, the
acquisition of technologies, businesses and intellectual property
rights, preclinical and clinical testing of our products, pursuit
of regulatory approvals, acquisition of capital equipment,
laboratory and office facilities, establishment of production
capabilities, general and administrative expenses and other working
capital requirements. We rely on our cash reserves, proceeds from
equity and debt offerings, credit facilities, proceeds from the
transfer or sale of intellectual property rights, equipment,
facilities or investments, government grants and funding from
collaborative arrangements, to fund our operations. If we exhaust
our cash reserves and are unable to obtain adequate financing, we
may be unable to meet our operating obligations and we may be
required to initiate bankruptcy proceedings. The financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result
from the outcome of this uncertainty.
Principles of Consolidation
The condensed consolidated financial statements include the
accounts of StemCells, Inc., and our wholly-owned subsidiaries,
including StemCells California, Inc., Stem Cell Sciences Holdings
Ltd, and Stem Cell Sciences (UK) Ltd (SCS). All significant
intercompany accounts and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to the prior year
financial statements in order to conform to the current
year’s presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make judgments, assumptions and
estimates that affect the amounts reported in our condensed
consolidated financial statements and accompanying notes. Actual
results could differ materially from these estimates.
Significant estimates include the following:
• the grant date fair value of
stock-based awards recognized as compensation expense (see Note 5,
“Stock-Based Compensation”); and
• the fair value of warrants recorded
as a liability (see Note 8, “Warrant Liability”).
Discontinued Operations
The results of operations of a business that either has been
disposed of or is classified as held-for-sale are reported in
discontinued operations if the operations and cash flows of the
component have been or will be eliminated from our ongoing
operations as a result of the disposal transaction and we will not
have any significant continuing involvement in the operations of
the component after the disposal transaction. We present the
operations of a business that meet this criteria as a discontinued
operation, and retrospectively reclassify operating results for all
prior periods presented. In the fourth quarter of 2014, as part of
our strategy to focus on our clinical operations, we sold our SC
Proven reagent and cell culture business and wound-down our
business operations at our Stem Cell Sciences Subsidiary in
Cambridge, UK (SCS). The results of operations for this component
have been classified as discontinued operations for all periods in
our Consolidated Statement of Operations.
Financial Instruments
Cash and Cash Equivalents
Cash equivalents are money market accounts, money market funds and
investments with maturities of 90 days or less from the date of
purchase.
Receivables
Our receivables generally consist of interest income on our
financial instruments and royalties due from licensing
agreements.
Warrant Liability
We account for our warrants in accordance with U.S. GAAP which
defines how freestanding contracts that are indexed to and
potentially settled in a company’s own stock should be
measured and classified. Authoritative accounting guidance
prescribes that only warrants issued by us under contracts that
cannot be net-cash settled, and are both indexed to and settled in
our common stock, can be classified as equity. As part of our
December 2011 financing, we issued Series A Warrants with a five
year term to purchase 8,000,000 shares at $1.40 per share and
Series B Warrants with a ninety trading day term to purchase
8,000,000 units at $1.25 per unit. Each unit underlying the Series
B Warrants consisted of one share of our common stock and one
Series A Warrant. In the first and second quarter of 2012, an
aggregate of 2,700,000 Series B Warrants were exercised. For the
exercise of these warrants, we issued 2,700,000 shares of our
common stock and 2,700,000 Series A Warrants. The remaining
5,300,000 Series B Warrants expired unexercised by their terms on
May 2, 2012. The Series A Warrants contain full ratchet
anti-dilution price protection so that, in most situations, upon
the issuance of any common stock or securities convertible into
common stock at a price below the then-existing exercise price of
the Series A Warrants, the Series A exercise price will be reset to
the lower common stock sales price As a result of our April 2015
financing, the exercise price of the outstanding Series A warrants
were reduced from $1.40 per share to $0.6999999 per share. As terms
of the Series A Warrants do not meet the specific conditions for
equity classification, we are required to classify the fair value
of these warrants as a liability, with subsequent changes in fair
value to be recorded as income (loss) due to change in fair value
of warrant liability. The fair value of the Series A Warrants
is determined using a Monte Carlo simulation model (see Note 8,
“Warrant Liability”). The fair value is affected by
changes in inputs to these models including our stock price,
expected stock price volatility, the contractual term, and the
risk-free interest rate. The use of a Monte Carlo simulation model
requires input of additional assumptions including the progress of
our R&D programs and its affect on potential future financings.
We will continue to classify the fair value of the warrants as a
liability until the warrants are exercised, expire or are amended
in a way that would no longer require these warrants to be
classified as a liability. The estimated fair value of our warrant
liability at June 30, 2015, was approximately $1,044,000.
Intangible Assets
Prior to fiscal year 2001, we capitalized certain patent costs,
which are being amortized over the estimated life of the patent and
would be expensed at the time such patents are deemed to have no
continuing value. Since 2001, all patent costs are expensed as
incurred. License costs are capitalized and amortized over the
estimated life of the related license agreement.
Revenue Recognition
We currently recognize revenue resulting from the licensing and use
of our technology and intellectual property. Licensing agreements
may contain multiple elements, such as upfront fees, payments
related to the achievement of particular milestones and royalties.
Revenue from upfront fees for licensing agreements that contain
multiple elements are generally deferred and recognized on a
straight-line basis over the term of the agreement. Fees associated
with substantive at risk performance-based milestones are
recognized as revenue upon completion of the scientific or
regulatory event specified in the agreement, and royalties received
are recognized as earned. Revenue from licensing agreements is
recognized net of a fixed percentage due to licensors as
royalties.
Stock-Based Compensation
Compensation expense for stock-based payment awards to employees is
based on their grant date fair value as calculated and amortized
over their vesting period. See Note 5, “Stock-Based
Compensation” for further information.
We use the Black-Scholes model to calculate the fair value of
stock-based awards.
Per Share Data
Basic net income or loss per share is computed by dividing net
income or loss by the weighted average number of shares of common
stock outstanding during the period. Diluted net income or loss per
share is computed based on the weighted average number of shares of
common stock and other dilutive securities. To the extent these
securities are anti-dilutive, they are excluded from the
calculation of diluted earnings per share.
The following is a reconciliation of the numerators and
denominators of the basic and diluted net loss per share
computations:
Three months ended
June 30, Six months ended
June 30,
2015 2014 2015 2014
Net loss from continuing operations $ (8,461,714 ) $ (11,970,735 ) $ (17,812,415 ) $ (19,533,263 )
Net loss from discontinued operations
— (144,489 )
— (202,217 )
Net loss $ (8,461,714 ) $ (12,115,224 ) $ (17,812,415 ) $ (19,735,480 )
Weighted average shares outstanding used to compute basic and
diluted net income or loss per share 95,190,823 55,711,717 82,277,137 55,529,818
Basic and diluted net loss per share from continuing operations $ (0.09 ) $ (0.22 ) $ (0.22 ) $ (0.36 )
Basic and diluted net loss per share from discontinued
operations
—
—
—
—
Basic and diluted net loss per share $ (0.09 ) $ (0.22 ) $ (0.22 ) $ (0.36 )
The following outstanding potentially dilutive securities were
excluded from the computation of diluted net income or loss per
share because the effect would have been anti-dilutive as of
June 30:
2015 2014
Options 2,765,229 375,670
Restricted stock units 9,358,518 3,137,440
Warrants 53,882,369 14,207,426
Total 66,006,116 17,720,536
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income or loss and
other comprehensive income or loss (OCL). OCL includes certain
changes in stockholders’ equity that are excluded from net
income or loss. Specifically, when applicable, we include in OCL
changes in unrealized gains and losses on foreign currency
translations. Accumulated other comprehensive income was $49,800 as
of June 30, 2015, and accumulated other comprehensive income
was $65,390, as of December 31, 2014. |
