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Basis of Presentation and Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2014
Basis of Presentation and Significant Accounting Policies |
Basis of Presentation and Significant Accounting Policies | 2.Basis of Presentation and Significant Accounting Policies Basis of Presentation These financial statements are expressed in U.S. dollars. Following the Company’s repositioning as a specialty biopharmaceutical company in 2013, the Company is organized into one operating and one reporting segment. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). On March 7, 2014, the Company effected a one-for-100 reverse split of its outstanding common stock. All share data have been adjusted retroactively to reflect the one-for-100 reverse stock split effected on March 7, 2014. Fourth Quarter Correction of Prior Period Misstatements Subsequent to the filing of its Quarterly Report on Form 10-Q for the interim period ending September 30, 2014, the Company identified certain misstatements related to prior interim and annual periods. Management evaluated the effects of these misstatements on the prior periods to which they related and concluded that no prior periods were materially misstated. Accordingly, all misstatements have been corrected in the fourth quarter of 2014. The net impact of correcting these misstatements in the fourth quarter is a reduction of Loss from Continuing Operations in the fourth quarter of 2014 by approximately $2.4 million, and reduction of Net Loss for the fourth quarter of 2014 by approximately $2.2 million. Such misstatements had no impact on cash flows in any period. The primary misstatements corrected in the fourth quarter of 2014 include: (a)Accrued Rent Liability - Due to formula errors in a worksheet and a difference between the underlying support and the general ledger balance, the amount reported for “rent liability for facilities no longer occupied”, which is included in “other accrued expenses and liabilities” in the consolidated balance sheets was overstated as of December 31, 2013, and as of the end of each of the first three quarterly periods in 2014, and should have been $808,418, rather than $1,121,495. $313,077 was recorded in the fourth quarter of 2014 to reduce the amount of the liability with the effect of reducing “general and administrative expense” in both the fourth quarter and for the full year of 2014 by $313,077. Other than this correcting entry there was no activity affecting this liability during 2014. (b)Loss on Settlement of Notes Payable - During the fourth quarter of 2014 the amounts originally recorded during the second quarter of 2014 for the “loss on settlement of notes payable”, the “loss on settlement of notes payable — related parties” and the “loss related to the settlement of certain accounts payable and accrued liabilities in exchange for common stock” (included within “general and administrative expense”) were adjusted by $474,200, $1 91,55 5, and $49 6,10 4, respectively, for a total adjustment recorded in the fourth quarter of 2014 related to these items of approximately $1.2 million as a result of computational errors made when such losses were originally calculated. (c)During the fourth quarter of 2014, in evaluating its products and technologies in connection with the Company’s strategic review, management of the Company determined that certain of the intangible assets it acquired in the Canterbury/Hygeia and Paloma/VasculoMedics acquisitions represented in-process research and development (IPR&D) assets given their state of development at the time of the acquisition. IPR&D intangible assets are accounted for as indefinite-lived intangible assets and are not subject to amortization. The Company had previously been recognizing amortization on all of its identified intangible assets and therefore concluded that amortization expense had been incorrectly recorded in earlier quarterly periods in 2014, and that there was an immaterial difference related to 2013. To correct for this misstatement, the Company recorded adjustments in the fourth quarter of 2014 to reduce 2014 “amortization expense” and increase “intangible assets” by approximately $449,006. This adjustment also resulted in an adjustment for the deferred tax effect of the amortization which caused the “deferred tax liability” to increase by about $182,388 with a corresponding decrease in the “benefit of income taxes” recorded in the consolidated statements of operations. (d)Goodwill — During the fourth quarter of 2014, management of the Company determined that goodwill recorded in connection with the Canterbury and Hygeia acquisitions in 2013 was understated by $300,000 due to the omission of $300,000 of accrued liabilities from the initial acquisition date balance sheet that was recorded upon acquisition. Such amount was recorded as general and administrative expense when paid in the fourth quarter of 2013. Similarly, management also determined that goodwill recorded in connection with the Paloma acquisition in the first quarter of 2014 was understated by $135,000 due to the omission of $135,000 of accrued liabilities from the initial acquisition date balance sheet that was recorded upon acquisition. Such amount was recorded as general and administrative expense when paid in the second quarter of 2014. In the fourth quarter of 2014, to correct these errors and properly state goodwill as of December 31, 2014, the Company recorded a $435,000 adjustment to increase goodwill and a reduction in general and administrative expense in the same amount. Reclassifications Certain 2013 amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications included: (a)The break-out of $342,916 of research and development expenses for 2013 into a separate line item in the consolidated statements of operations. In the prior year, such amount had been included in the line item “general, administrative, research and development.” (b)$557,451 of expense recognized in 2013 from amortizing the prepaid expense asset for general financial advisory and investment banking services described in note 4 was reclassified to “general and administrative” expense in the current year consolidated statements of operations from “depreciation and amortization” expense in the prior year presentation. In the consolidated statements of cash flows, the same amount was reclassified within the “cash flows used in operating activities” section from “depreciation and amortization” in the prior year presentation to “prepaid expenses, deposits and other assets” in the current year presentation. (c)The combination of various line items within current liabilities on the consolidated balance sheets into a single line item for “other accrued expenses and liabilities.” (d)$4,228,317 of expense recognized in 2013 from stock-based compensation and warrant expense described in notes 14 and 15 was reclassified to “general and administrative” expense in the 2014 consolidated statements of operations presentation from “warrants, options and stock” expense in the prior year presentation. In the consolidated statements of cash flows, the same amount was reclassified within the “cash flows used in operating activities” section from “warrants, options and stock” in the prior year presentation to “employee and director stock-based compensation — non-cash” in the amount of $2,225,989 and “stock warrant expense — non-cash” in the amount of $2,002,328 in the current year presentation. (e)$1,071,392 of expense recognized in 2013 from legal and professional services was reclassified to “general and administrative” expense in the 2014 consolidated statements of operations presentation from “legal and professional services” expense in the prior year presentation. Consolidation The consolidated balance sheet at December 31, 2014 consolidates the accounts of ProElite, Canterbury, Hygeia, Paloma and VasculoMedics and the consolidated balance sheet at December 31, 2013 consolidates the accounts of ProElite, Canterbury and Hygeia. The consolidated statements of operations for the year ended December 31, 2014 consolidate the accounts of Canterbury, Hygeia, as well as Paloma and VasculoMedics from their respective dates of acquisition. The consolidated statements of operations for the year ended December 31, 2013 consolidate the accounts of Canterbury and Hygeia from the date of acquisition and include ProElite as discontinued operations. All significant intercompany balances were eliminated in consolidation. Use of Estimates The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. Although these estimates are based on the Company’s knowledge of current events and actions that the Company may undertake in the future, actual results may differ from such estimates and assumptions. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Fair Value of Financial Instruments The carrying value of certain of the Company’s financial instruments, including cash and cash equivalents and accounts payable, approximate fair value due to their short maturities. Other information about the Company’s assets and liabilities recorded at fair value is included in note 3. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. The Company records depreciation using the straight-line method over the following estimated useful lives:
Equipment |  | 3 – 5 years |
Furniture and fixtures |  | 5 years |
Leasehold improvements |  | Lesser of lease term or life of improvements |
Long-Lived Assets Long-lived assets are reviewed for potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. The Company does this by comparing the carrying value of the long-lived assets with the estimated future undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. If it is determined an impairment exists, the asset is written down to its estimated fair value. Business Combinations For all business combinations, the Company records all assets and liabilities of the acquired business, including goodwill and other identified intangible assets, at their fair values starting in the period when the acquisition is completed. Acquisition-related transaction costs are expensed as incurred. Intangible Assets Intangible assets as of December 31, 2014 consisted of identifiable intangible assets arising from the acquisition of Paloma. Intangible assets as of December 31, 2013 consisted of identifiable intangible assets arising from the acquisitions of Canterbury and Hygeia, which assets were deemed to be impaired in the fourth quarter of 2014. Purchased intangible assets subject to amortization, are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business, a significant decrease in the benefit realized from an acquired business, difficulties or delays in integrating the business or a significant change in the operations of an acquired business. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. An impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. The fair value of in-process research and development (“IPR&D”) projects acquired in a business combination are capitalized and accounted for as indefinite-lived intangible assets until the underlying project receives regulatory approval, at which point the intangible asset will be accounted for as a definite-lived intangible asset, or discontinuation, at which point the intangible asset will be recognized as an impairment charge. Research and development costs incurred after the acquisition are expensed as incurred. Goodwill Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. The Company has a single reporting unit and all goodwill relates to that reporting unit. The Company performs its annual goodwill impairment test during the fourth quarter of its fiscal year or more frequently if changes in circumstances or the occurrence of events suggest that an impairment exists. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit’s goodwill is less than the carrying value of the reporting unit’s goodwill. Research and Development All research and development costs are expensed as incurred. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. As of December 31, 2014 and 2013, the Company had net operating loss (“NOL”) carryforwards as follows:
|  | December 31, |
|  | 2014 |  | 2013 |
Combined NOL Carryforwards: |  |  |  |  |
Federal |  | $ | 57,521,560 |  | $ | 47,728,300 |
California |  | 50,440,965 |  | 44,482,850 |
For federal tax purposes, the NOL carryforwards for 2014 and 2013 begin expiring in 2020. From December 31, 2012 to December 31, 2014, the number of outstanding shares of common stock increased from 8 90,837 to 18,614,968. This increase in the number of shares of common stock outstanding constitutes a change of ownership, under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions, and is likely to significantly limit the ability of the Company to utilize these NOL carryforwards to offset future income. Accordingly, the Company recorded a 100% valuation allowance of the deferred tax assets at December 31, 2014 and December 31, 2013. Stock-Based Compensation Compensation cost is measured and recognized at fair value for all stock-based payments, including stock options. For stock options, the Company estimates fair value using the Black-Scholes option-pricing model, which requires assumptions, such as expected volatility, risk-free interest rate, expected life, and dividends. Stock-based compensation expense is recognized net of estimated forfeitures on a straight-line basis over the related service period of the awards taking into account the effects of the employees’ expected exercise and post-vesting employment termination behavior, and is included in general and administrative expenses in the Company’s consolidated statements of operations. For 2014, the Company estimated a forfeiture rate of nil when computing stock-based compensation expense given the small population of primarily senior officers to whom the stock options were granted. The Company reassesses its estimated forfeiture rate periodically based on new facts and circumstances. The Company accounts for equity instruments issued to non-employees in accordance with ASC Topic 718 and Emerging Issues Tax Force (“EITF”) Issue No. 96-18. The fair value of each stock option and warrant granted is estimated as of the grant date using the Black-Scholes option pricing model. Derivative Liabilities The Company’s derivative liabilities as of December 31, 2013 were related to the Company’s former series E convertible preferred stock warrants described in note 13. Such derivative liabilities were recognized in the consolidated balance sheets at fair value and changes in fair value were recognized in the statement of operations each period. Basic and Diluted Loss Per Share Basic loss per share is computed by dividing the net loss attributable to RestorGenex Corporation by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all of the Company’s potential shares, warrants and stock options had been issued and if the additional shares were dilutive. The computation of diluted loss per share does not include the Company’s stock options or warrants as such securities have an antidilutive effect on loss per share. Because of their anti-dilutive effect, 8,472,013 and 907,505 shares of the Company’s common stock equivalents comprised of stock options and warrants for the years ended December 31, 2014 and 2013, respectively, have been excluded from the calculation of diluted earnings per share. Comprehensive Income (Loss) The Company does not have items of other comprehensive income (loss) for the years ended December 31, 2014 or 2013; and therefore, comprehensive loss equals net loss for those years. Recently Issued Accounting Pronouncements In April 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. The change is effective for fiscal years, and interim reporting periods within those years, beginning on or after December 15, 2014, which means the first quarter of 2015, with early adoption permitted. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. This new guidance will not affect the Company’s consolidated financial position, results of operations or cash flows. In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (ASC Topic 606).” 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 that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligation in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, this ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. Entities have the option of applying either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company is evaluating the potential impact of adoption of this ASU on its consolidated financial statements. In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This pronouncement provides additional guidance surrounding the disclosure of going concern uncertainties in the financial statements and implementing requirements for management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The Company will adopt this guidance as of January 1, 2017. The Company does not anticipate that the adoption of this guidance will result in additional disclosures; however, management will begin performing the periodic assessments required by ASU 2014-15 on its effective date.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
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