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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   .

Commission File Number: 001-39094

 

PHATHOM PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

82-4151574

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

100 Campus Drive, Suite 102

Florham Park, New Jersey

 

07932

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (877) 742-8466

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

PHAT

 

Nasdaq Global Select Market

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No      

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes           No      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No ☑

As of November 3, 2021, the registrant had 31,414,827 shares of common stock ($0.0001 par value) outstanding.

 

 

 


 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1

 

Financial Statements (unaudited)

F-1

 

 

Balance Sheets

F-1

 

 

Statements of Operations and Comprehensive Loss

F-2

 

 

Statements of Stockholders’ Equity   

F-3

 

 

Statements of Cash Flows

F-5

 

 

Notes to Unaudited Financial Statements

F-6

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4

 

Controls and Procedures

32

 

PART II. OTHER INFORMATION

 

Item 1

 

Legal Proceedings

33

Item 1A

 

Risk Factors

33

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3

 

Defaults Upon Senior Securities

33

Item 4

 

Mine Safety Disclosures

33

Item 5

 

Other Information

33

Item 6

 

Exhibits

34

 

 

Signatures

35

 

 

 

 

2

 

 


 

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements (unaudited)

PHATHOM PHARMACEUTICALS, INC.

Balance Sheets

(Unaudited)

(in thousands, except share and par value amounts)

 

 

 

September 30,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

224,618

 

 

$

287,496

 

Prepaid expenses and other current assets (including related party amounts of $0 and $82, respectively)

 

 

695

 

 

 

3,872

 

Total current assets

 

 

225,313

 

 

 

291,368

 

Property, plant and equipment, net

 

 

692

 

 

 

986

 

Operating lease right-of-use assets

 

 

2,031

 

 

 

2,373

 

Other long-term assets

 

 

341

 

 

 

384

 

Total assets

 

$

228,377

 

 

$

295,111

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable (including related party amounts of $311 and $173, respectively)

 

$

5,582

 

 

$

16,782

 

Accrued clinical trial expenses

 

 

10,491

 

 

 

19,997

 

Accrued expenses (including related party amounts of $1,847 and $734, respectively)

 

 

11,040

 

 

 

10,606

 

Accrued interest

 

 

214

 

 

 

312

 

Current portion of long-term debt

 

 

 

 

 

7,353

 

Operating lease liabilities, current

 

 

484

 

 

 

474

 

Total current liabilities

 

 

27,811

 

 

 

55,524

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of discount

 

 

88,305

 

 

 

39,634

 

Operating lease liabilities

 

 

1,280

 

 

 

1,557

 

Other long-term liabilities

 

 

7,500

 

 

 

4,125

 

Total liabilities

 

 

124,896

 

 

 

100,840

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; authorized shares - 40,000,000 at

September 30, 2021 and December 31, 2020 ; no shares issued and

outstanding at September 30, 2021 and December 31, 2020

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value; authorized shares  — 400,000,000; issued shares  — 31,414,827 and 31,262,769 at September 30, 2021 and December 31, 2020, respectively; outstanding shares — 30,047,428 and 28,516,010 at September 30, 2021 and December 31, 2020, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

597,022

 

 

 

579,755

 

Accumulated deficit

 

 

(493,544

)

 

 

(385,487

)

Total stockholders’ equity

 

 

103,481

 

 

 

194,271

 

Total liabilities and stockholders’ equity

 

$

228,377

 

 

$

295,111

 

 

See accompanying notes.

 

 

 

F-1

 

 


 

 

PHATHOM PHARMACEUTICALS, INC.

Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (includes related party amounts of $849,

$1,023, $2,695, and $1,676, respectively)

 

$

16,608

 

 

$

25,770

 

 

$

58,786

 

 

$

56,494

 

General and administrative (includes related party amounts of $0, $62,

$16, and $139, respectively)

 

 

16,529

 

 

 

7,060

 

 

 

43,254

 

 

 

16,732

 

Total operating expenses

 

 

33,137

 

 

 

32,830

 

 

 

102,040

 

 

 

73,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(33,137

)

 

 

(32,830

)

 

 

(102,040

)

 

 

(73,226

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

8

 

 

 

15

 

 

 

35

 

 

 

1,075

 

Interest expense

 

 

(1,485

)

 

 

(1,286

)

 

 

(4,013

)

 

 

(3,286

)

Change in fair value of warrant liabilities

 

 

 

 

 

 

 

 

 

 

 

95

 

Other income (expense)

 

 

(2,048

)

 

 

(4

)

 

 

(2,039

)

 

 

(5

)

Total other income (expense)

 

 

(3,525

)

 

 

(1,275

)

 

 

(6,017

)

 

 

(2,121

)

Net loss and comprehensive loss

 

$

(36,662

)

 

$

(34,105

)

 

$

(108,057

)

 

$

(75,347

)

Net loss per share, basic and diluted

 

$

(0.98

)

 

$

(1.02

)

 

$

(2.94

)

 

$

(2.29

)

Weighted-average shares of common stock outstanding, basic

   and diluted

 

 

37,299,351

 

 

 

33,366,237

 

 

 

36,748,492

 

 

 

32,946,128

 

 

See accompanying notes

 

 

 

 

F-2

 

 


 

 

PHATHOM PHARMACEUTICALS, INC.

Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

28,516,010

 

 

$

3

 

 

$

579,755

 

 

$

(385,487

)

 

$

194,271

 

Issuance of common stock from exercise of stock options

 

 

36,998

 

 

 

 

 

 

412

 

 

 

 

 

 

412

 

401(k) matching contribution

 

 

8,356

 

 

 

 

 

 

323

 

 

 

 

 

 

323

 

Vesting of restricted shares

 

 

301,656

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,818

 

 

 

 

 

 

3,818

 

ESPP shares issued

 

 

13,490

 

 

 

 

 

 

358

 

 

 

 

 

 

358

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(34,843

)

 

 

(34,843

)

Balance at March 31, 2021

 

 

28,876,510

 

 

$

3

 

 

$

584,666

 

 

$

(420,330

)

 

$

164,339

 

Issuance of common stock from exercise of stock options

 

 

8,000

 

 

 

 

 

 

104

 

 

 

 

 

 

104

 

Vesting of restricted shares

 

 

301,659

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,237

 

 

 

 

 

 

4,237

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(36,552

)

 

 

(36,552

)

Balance at June 30, 2021

 

 

29,186,169

 

 

$

3

 

 

$

589,007

 

 

$

(456,882

)

 

$

132,128

 

Issuance of common stock from exercise of stock options

 

 

50,073

 

 

 

 

 

 

1,265

 

 

 

 

 

 

1,265

 

401(k) matching contribution

 

 

18,394

 

 

 

 

 

 

580

 

 

 

 

 

 

580

 

Vesting of restricted shares

 

 

776,045

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,419

 

 

 

 

 

 

4,419

 

ESPP shares issued

 

 

16,747

 

 

 

 

 

 

461

 

 

 

 

 

 

461

 

Issuance of warrants

 

 

 

 

 

 

 

 

1,290

 

 

 

 

 

 

1,290

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(36,662

)

 

 

(36,662

)

Balance at September 30, 2021

 

 

30,047,428

 

 

 

3

 

 

 

597,022

 

 

 

(493,544

)

 

 

103,481

 

 

 

 

F-3

 

 


 

 

PHATHOM PHARMACEUTICALS, INC.

Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

24,728,258

 

 

$

2

 

 

$

484,372

 

 

$

(256,419

)

 

$

227,955

 

Conversion of Lender Warrants into equity

 

 

 

 

 

 

 

 

318

 

 

 

 

 

 

318

 

Vesting of restricted shares

 

 

425,295

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

563

 

 

 

 

 

 

563

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(20,141

)

 

 

(20,141

)

Balance at March 31, 2020

 

 

25,153,553

 

 

 

2

 

 

 

485,253

 

 

 

(276,560

)

 

 

208,695

 

Vesting of restricted shares

 

 

460,859

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

828

 

 

 

 

 

 

828

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,101

)

 

 

(21,101

)

Balance at June 30, 2020

 

 

25,614,412

 

 

$

3

 

 

$

486,081

 

 

$

(297,661

)

 

$

188,423

 

Vesting of restricted shares

 

 

301,681

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,070

 

 

 

 

 

 

2,070

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(34,105

)

 

 

(34,105

)

Balance at September 30, 2020

 

 

25,916,093

 

 

$

3

 

 

$

488,151

 

 

$

(331,766

)

 

$

156,388

 

 

See accompanying notes.

 

 

 

F-4

 

 


 

 

PHATHOM PHARMACEUTICALS, INC.

Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(108,057

)

 

$

(75,347

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

386

 

 

 

217

 

Stock-based compensation

 

 

12,474

 

 

 

3,461

 

Issuance of PIK interest debt

 

 

130

 

 

 

 

Amortization of debt discount

 

 

3,088

 

 

 

904

 

Change in fair value of warrant liabilities

 

 

 

 

 

(95

)

Other

 

 

722

 

 

 

158

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets (includes the change in related party

   amounts of $82, and $0, respectively)

 

 

3,177

 

 

 

11,034

 

Accounts payable and accrued expenses (includes the change in related party

   amounts of $1,251 and $238, respectively)

 

 

(9,629

)

 

 

7,661

 

Accrued clinical trial expenses

 

 

(9,506

)

 

 

10,845

 

Accrued interest

 

 

(98

)

 

 

146

 

Operating right-of-use asset and lease liabilities

 

 

75

 

 

 

(272

)

Other long-term assets

 

 

43

 

 

 

(200

)

Net cash used in operating activities

 

 

(107,195

)

 

 

(41,488

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Cash paid for property, plant and equipment

 

 

(228

)

 

 

(916

)

Net cash used in investing activities

 

 

(228

)

 

 

(916

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock from exercise of stock options

 

 

1,781

 

 

 

 

Repayment of long-term debt

 

 

(54,125

)

 

 

 

Net proceeds from issuance of long-term debt

 

 

96,889

 

 

 

25,000

 

Net cash provided by financing activities

 

 

44,545

 

 

 

25,000

 

Net (decrease) in cash and cash equivalents

 

 

(62,878

)

 

 

(17,404

)

Cash and cash equivalents – beginning of period

 

 

287,496

 

 

 

243,765

 

Cash and cash equivalents – end of period

 

$

224,618

 

 

$

226,361

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest paid

 

$

2,920

 

 

$

2,235

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

 

 

Issuance of common stock warrants in connection with long-term debt

 

$

1,290

 

 

$

 

Property and equipment purchases included in accounts payable and accrued liabilities

 

$

9

 

 

$

39

 

Final interest payment fee

 

$

7,500

 

 

$

2,063

 

Settlement of ESPP liability in common stock

 

$

819

 

 

$

 

Settlement of 401(k) liability in common stock

 

$

903

 

 

$

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

 

 

$

1,396

 

Conversion of Lender Warrants into equity

 

$

 

 

$

318

 

 

See accompanying notes.

 

 

 

F-5

 

 


 

 

PHATHOM PHARMACEUTICALS, INC.

Notes to Unaudited Financial Statements

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

Phathom Pharmaceuticals, Inc. (the “Company” or “Phathom”) was incorporated in the state of Delaware in January 2018 under the name North Bridge IV, Inc. On March 13, 2019, the Company changed its name to Phathom Pharmaceuticals, Inc. and merged with YamadaCo IIA, Inc. (“YamadaCo”), a Delaware corporation formed in September 2017, with Phathom being the surviving entity (the “Merger”). All activities of YamadaCo prior to 2018 related to formation and were insignificant. The Company is a late clinical-stage biopharmaceutical company focused on developing and commercializing novel treatments for gastrointestinal diseases.

Basis of Presentation

The Company’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company and YamadaCo were entities under the common control of Frazier Life Sciences IX, L.P. (“Frazier”) as a result of, among other things, Frazier’s; (i) ownership of a majority of the outstanding capital stock of both companies, (ii) financing of both companies, (iii) control of the board of directors of both companies, and (iv) management of both companies. Both the Company and YamadaCo were formed for the purpose of identifying potential assets around which to form an operating company. All intercompany accounts and transactions have been eliminated.

Interim results may not be indicative of the results that may be expected for the full year. In the opinion of management, these unaudited financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited financial statements.

Certain prior year amounts have been reclassified to conform to the current year's presentation.

Liquidity and Capital Resources

From inception to September 30, 2021, the Company has devoted substantially all of its efforts to organizing and staffing the Company, business planning, raising capital, in-licensing its initial product candidate, vonoprazan, meeting with regulatory authorities, preparing for and managing the Phase 3 clinical trials of vonoprazan, building a commercial organization in preparation for a potential product launch following successful development and approval, and providing other general and administrative support for these operations. The Company has a limited operating history, has never generated any revenue, and the sales and income potential of its business is unproven. The Company has incurred net losses and negative cash flows from operating activities since its inception and expects to continue to incur net losses into the foreseeable future as it continues the development and preparation for commercialization of vonoprazan. From inception to September 30, 2021, the Company has funded its operations through the issuance of convertible promissory notes, commercial bank debt and the sale of 10,997,630 shares of common stock for net proceeds of approximately $191.5 million in its 2019 IPO and the sale of 250,000 shares of common stock for net proceeds of approximately $88.6 million in its December 2020 follow-on public offering.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty. Management is required to perform a two-step analysis over the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (Step 2).

Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these financial statements were available to be issued. There can be no assurance that the Company will be successful in acquiring additional funding (if needed), that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.


 

 

F-6

 

 


 

 

Use of Estimates

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, and the valuation of convertible promissory notes, warrant liabilities and various other equity instruments. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results could differ materially from those estimates and assumptions.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, are classified within the Level 1 designation discussed above, while prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. Warrant liabilities and convertible promissory notes were recorded at fair value on a recurring basis.

The Company has no financial assets measured at fair value on a recurring basis. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

The warrant liabilities consisted of warrants (the “Lender Warrants”) issued in connection with the loan and security agreement with Silicon Valley Bank (the “SVB Term Loan”) for commercial bank debt (see Note 6). The Lender Warrants were accounted for as liabilities as they contained a holder put right under which the lenders could have required the Company to pay cash in exchange for the Lender Warrants. The fair value of the Lender Warrants was estimated on the date of grant using the Black-Scholes option-pricing model with an expected term equal to the remaining contractual term of the warrants. The Company estimates its expected stock volatility based on the historical volatility of a set of peer companies, which are publicly traded, and expects to continue to do so until it has adequate historical data regarding the volatility of its own publicly-traded stock price. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. When the Company drew down the Term Loan B under the SVB Term Loan in March 2020 (see Note 6), the Lenders’ put right expired, and the Company recorded a final fair value adjustment and reclassified the Lender Warrants balance of $0.3 million to additional paid-in-capital.

The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs (in thousands):

 

 

 

Warrant

Liabilities

 

 

Balance at December 31, 2019

 

 

413

 

 

Change in fair value

 

 

(95

)

 

Reclassification of Lender Warrants into equity (Note 6)

 

 

(318

)

 

Balance at September 30, 2020

 

$

 

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and money market funds.

 

 

F-7

 

 


 

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Property, Plant, and Equipment, Net

Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. Computer equipment and related software are depreciated over two to three years. Furniture and fixtures are depreciated over three years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the related assets. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Impairment of Long-Lived Assets