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, 2020 

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 033-80623

Achieve Life Sciences, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

95-4343413

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

1040 West Georgia Street, Suite 1030, Vancouver, British Columbia, Canada V6E 4H1

(Address of Principal Executive Offices)

(604) 210-2217

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol

Name of exchange on which registered

 

Common Stock, par value $0.001 per share

ACHV

The NASDAQ Capital 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  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 12, 2020, there were 3,617,664 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

 


Achieve Life Sciences, Inc.

Index to Form 10-Q

 

 

Page
Number

 

 

Part I.   Financial Information

3

 

 

 

Item 1

Consolidated Financial Statements (unaudited)

3

 

 

 

 

Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019

3

 

 

 

 

Consolidated Statements of Loss and Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2020 and September 30, 2019

4

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2020 and September 30, 2019

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2020 and September 30, 2019

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

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

21

 

 

 

 

 

 

Item 4.

Controls and Procedures

31

 

 

Part II.   Other Information

33

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 6.

Exhibits

59

 

 

Items 2, 3 and 4 are not applicable and therefore have been omitted.

 

 

 

Signatures

61

2


PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

Achieve Life Sciences, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share and share amounts) 

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents [note 5]

 

$

22,393

 

 

$

16,664

 

Prepaid expenses and other assets

 

 

1,669

 

 

 

670

 

Total current assets

 

 

24,062

 

 

 

17,334

 

Restricted cash [note 5]

 

 

50

 

 

 

50

 

Property and equipment, net

 

 

50

 

 

 

57

 

Right-of-use assets [note 7]

 

 

193

 

 

 

329

 

Other assets

 

 

308

 

 

 

187

 

License agreement [note 3 and 4]

 

 

1,920

 

 

 

2,087

 

Goodwill [note 4]

 

 

1,034

 

 

 

1,034

 

Total assets

 

$

27,617

 

 

$

21,078

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

326

 

 

$

859

 

Accrued liabilities other

 

 

360

 

 

 

304

 

Accrued clinical liabilities

 

 

93

 

 

 

387

 

Accrued compensation

 

 

940

 

 

 

1,116

 

Current portion of long-term obligations [note 7]

 

 

129

 

 

 

203

 

Total current liabilities

 

 

1,848

 

 

 

2,869

 

Long-term obligations [note 7]

 

 

94

 

 

 

159

 

Total liabilities

 

 

1,942

 

 

 

3,028

 

Commitments and contingencies [note 7]

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value, 9,158 shares designated, zero

issued and outstanding at September 30, 2020 and zero issued and outstanding at December 31, 2019.

 

 

 

 

 

 

Series B convertible preferred stock, $0.001 par value, 6,256 shares designated, zero

issued and outstanding at September 30, 2020 and 1,121 issued and outstanding at December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized, 3,616,414 issued and outstanding at September 30, 2020 and 1,474,258 issued and outstanding at December 31, 2019, respectively.

 

 

74

 

 

 

41

 

Additional paid-in capital

 

 

81,307

 

 

 

63,709

 

Accumulated deficit

 

 

(55,710

)

 

 

(45,704

)

Accumulated other comprehensive income

 

 

4

 

 

 

4

 

Total stockholders' equity

 

 

25,675

 

 

 

18,050

 

Total liabilities and stockholders' equity

 

$

27,617

 

 

$

21,078

 

Going concern [note 1]

 

 

 

 

 

 

 

 

Subsequent events [note 8]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

3


Achieve Life Sciences, Inc.

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

(In thousands, except per share and share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,891

 

 

 

1,824

 

 

 

4,535

 

 

 

7,911

 

General and administrative

 

 

1,863

 

 

 

1,893

 

 

 

5,494

 

 

 

5,408

 

Total operating expenses

 

 

3,754

 

 

 

3,717

 

 

 

10,029

 

 

 

13,319

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2

 

 

 

40

 

 

 

47

 

 

 

143

 

Other expenses

 

 

(12

)

 

 

4

 

 

 

(24

)

 

 

(25

)

Total other income (expense)

 

 

(10

)

 

 

44

 

 

 

23

 

 

 

118

 

Net loss and comprehensive loss

 

$

(3,764

)

 

$

(3,673

)

 

 

(10,006

)

 

 

(13,201

)

Basic and diluted net loss per common share

 

$

(1.14

)

 

$

(9.07

)

 

$

(4.55

)

 

$

(35.96

)

Weighted average shares used in computation of basic and diluted net loss per common share

 

 

3,289,252

 

 

 

405,012

 

 

 

2,197,368

 

 

 

367,103

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


Achieve Life Sciences, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,006

)

 

$

(13,201

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization [note 3]

 

 

191

 

 

 

192

 

Stock-based compensation [note 6 [c] and note 6 [d]]

 

 

891

 

 

 

917

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Amounts receivable

 

 

8

 

 

 

 

Prepaid expenses and other assets

 

 

(1,128

)

 

 

597

 

Accounts payable

 

 

(533

)

 

 

430

 

Accrued liabilities other

 

 

56

 

 

 

(320

)

Accrued clinical liabilities

 

 

(294

)

 

 

(462

)

Accrued compensation

 

 

(176

)

 

 

39

 

Lease obligation [note 7]

 

 

(3

)

 

 

6

 

Net cash used in operating activities

 

 

(10,994

)

 

 

(11,802

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from the April 2020 financing, net of issuance costs

 

 

1,579

 

 

 

 

Financing costs relating to December 2019 public offering

 

 

(34

)

 

 

 

Proceeds from exercise of warrants

 

 

3,080

 

 

 

4,199

 

Proceeds from the July 2020 Registered Direct Offering, net of issuance costs

 

 

5,307

 

 

 

 

Proceeds from the August 2020 Public Offering, net of issuance costs

 

 

6,822

 

 

 

 

Proceeds from purchase agreement with Lincoln Park Capital, net of issuance costs

 

 

 

 

 

423

 

Financing costs relating to purchase agreement with Lincoln Park Capital

 

 

(14

)

 

 

 

Net cash provided by financing activities

 

 

16,740

 

 

 

4,622

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(17

)

 

 

(52

)

Purchase of investments

 

 

 

 

 

(25

)

Proceeds from maturities of investments

 

 

 

 

 

5,114

 

Net cash provided by (used in) investing activities

 

 

(17

)

 

 

5,037

 

Effect of exchange rate changes on cash

 

 

 

 

 

3

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

5,729

 

 

 

(2,140

)

Cash, cash equivalents and restricted cash at beginning of the period

 

 

16,714

 

 

 

9,565

 

Cash, cash equivalents and restricted cash at end of the period

 

$

22,443

 

 

$

7,425

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


 

 

 

 

 

 

Achieve Life Sciences, Inc.

 

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total,

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2019

 

 

1,474,258

 

 

$

41

 

 

 

1,121

 

 

$

 

 

$

63,709

 

 

$

4

 

 

$

(45,704

)

 

$

18,050

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

302

 

 

 

 

 

 

 

 

 

302

 

Costs relating to December 2019 financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

 

 

 

 

 

 

(34

)

Costs relating to purchase agreement with Lincoln Park Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

(13

)

Shares issued on conversion of Series B preferred shares

 

 

93,379

 

 

 

2

 

 

 

(1,121

)

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,320

)

 

 

(3,320

)

Balance, March 31, 2020

 

 

1,567,637

 

 

$

43

 

 

 

 

 

$

 

 

$

63,962

 

 

$

4

 

 

$

(49,024

)

 

$

14,985

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

308

 

 

 

 

 

 

 

 

 

308

 

Costs relating to purchase agreement with Lincoln Park Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Shares issued on exercise of warrants

 

 

89,281

 

 

 

 

 

 

 

 

 

 

 

 

589

 

 

 

 

 

 

 

 

 

589

 

Shares issued - April 2020 private placement

 

 

280,782

 

 

 

6

 

 

 

 

 

 

 

 

 

1,573

 

 

 

 

 

 

 

 

 

1,579

 

Shares issued on conversion of preferred shares

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Adjustment of fractional shares on reverse stock split

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,922

)

 

 

(2,922

)

Balance, June 30, 2020

 

 

1,937,703

 

 

$

51

 

 

 

 

 

$

 

 

$

66,429

 

 

$

4

 

 

$

(51,946

)

 

$

14,538

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

281

 

 

 

 

 

 

 

 

 

281

 

Shares issued - July 2020 Registered Direct Offering

 

 

731,707

 

 

 

15

 

 

 

 

 

 

 

 

 

5,292

 

 

 

 

 

 

 

 

 

5,307

 

Shares issued - August 2020 Public Offering

 

 

569,043

 

 

 

1

 

 

 

 

 

 

 

 

 

6,821

 

 

 

 

 

 

 

 

 

6,822

 

Shares issued on exercise of warrants

 

 

377,845

 

 

 

7

 

 

 

 

 

 

 

 

 

2,484

 

 

 

 

 

 

 

 

 

2,491

 

Restricted stock unit settlements

 

 

128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment of fractional shares on reverse stock split

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,764

)

 

 

(3,764

)

Balance, September 30, 2020

 

 

3,616,414

 

 

$

74

 

 

 

 

 

$

 

 

$

81,307

 

 

$

4

 

 

$

(55,710

)

 

$

25,675

 

 

 

 

6


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total,

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2018

 

 

336,055

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,161

 

 

$

4

 

 

$

(25,381

)

 

$

15,802

 

Restricted stock unit settlements

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

 

 

 

290

 

Adjustments to final October 2018 financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Cumulative adjustment on adoption of lease standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,904

)

 

 

(5,904

)

Balance, March 31, 2019

 

 

336,059

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,455

 

 

$

4

 

 

$

(31,288

)

 

$

10,189

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

317

 

Shares issued - from purchase agreement with Lincoln Park Capital

 

 

6,200

 

 

 

 

 

 

 

 

 

 

 

 

423

 

 

 

 

 

 

 

 

 

423

 

Shares issued on exercise of warrants

 

 

55,390

 

 

 

1

 

 

 

 

 

 

 

 

 

4,198

 

 

 

 

 

 

 

 

 

4,199

 

Issuance of inducement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,925

 

 

 

 

 

 

(3,925

)

 

 

 

Shares issued on conversion of preferred shares

 

 

7,237

 

 

 

 

 

 

(579

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,624

)

 

 

(3,624

)

Balance, June 30, 2019

 

 

404,886

 

 

$

19

 

 

 

 

 

$

 

 

$

50,318

 

 

$

4

 

 

$

(38,837

)

 

$

11,504

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

310

 

 

 

 

 

 

 

 

 

310

 

Restricted stock unit settlements

 

 

250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,673

)

 

 

(3,673

)

Balance, September 30, 2019

 

 

405,136

 

 

$

19

 

 

 

 

 

$

 

 

$

50,628

 

 

$

4

 

 

$

(42,510

)

 

$

8,141

 

 

See accompanying notes.

 

7


Achieve Life Sciences, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY

Achieve Life Sciences, Inc. (referred to as “Achieve,” “we,” “us,” or “our”) is a clinical-stage pharmaceutical company committed to the global development and commercialization of cytisinicline for smoking cessation. We were incorporated in the state of Delaware, and operate out of Vancouver, British Columbia and Seattle, Washington.

The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated Balance Sheet at December 31, 2019 has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year then ended. The unaudited consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2019 and filed with the United States Securities and Exchange Commission, or the SEC, on March 13, 2020.

The consolidated financial statements include the accounts of Achieve and our wholly owned subsidiaries, Achieve Life Sciences Technologies Inc., Achieve Life Science, Inc., Extab Corporation, and Achieve Pharma UK Limited. All intercompany balances and transactions have been eliminated.

Reverse Stock Split

 

On July 29, 2020, we filed a certificate of amendment to our Second Amended and Restated Certificate of Incorporation, as amended, and effected as of July 31, 2020 a 1-for-20 reverse stock split of our issued and outstanding shares of common stock. As a result of the reverse stock split, each 20 shares of the outstanding common stock were combined into one share of common stock without any change to the par value per share. The reverse stock split did not affect the number of authorized shares of common stock which remains at 150,000,000. The reverse stock split was approved by our board of directors and stockholders and is intended to allow us to regain compliance with the NASDAQ’s continued listing criteria related to the Minimum Bid Price Rule. On August 14, 2020, we received written confirmation from NASDAQ that we regained compliance with the Minimum Bid Price Rule and the matter has been closed.

Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.

 

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business.

We have historically experienced recurring losses from operations that have generated an accumulated deficit of $55.7 million through September 30, 2020. During the three and nine months ended September 30, 2020, we incurred a net loss of $3.8 million and $10.0 million. As of September 30, 2020, we had a cash and cash equivalents balance of $22.4 million and a positive working capital balance of $22.2 million. During the nine months ended September 30, 2020, net cash used in operations was $11.0 million.

 

Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is uncertain and dependent on our ability to obtain additional financing. There is no assurance that we will obtain financing from other sources. We have, thus far, financed our operations through the closing of the arrangement between us and OncoGenex Pharmaceuticals, Inc. pursuant to a Merger Agreement dated January 5, 2017, or the Arrangement, and through debt and equity financings (Note 6—Common Stock). Without additional funds, we may be forced to delay, scale back or eliminate some of our research and development activities or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected.

8


Our current resources are insufficient to fund our planned operations for the next 12 months. We will continue to require substantial additional capital to continue our clinical development activities. Accordingly, we will need to raise substantial additional capital to continue to fund our operations from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidate. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, will have a negative impact on our financial condition and our ability to develop our product candidate. The uncertainty with respect to our operations and the market generally due to the COVID-19 pandemic may also make it challenging to raise additional capital on favorable terms, if at all. We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidate in clinical development.

The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern. Such adjustments could be material.

 

 

2. ACCOUNTING POLICIES

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our audited financial statements for the year ended December 31, 2019 in our Annual Report on Form 10-K filed with the SEC, on March 13, 2020. Since December 31, 2019, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them. 

 

 

3. INTANGIBLES

All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated useful life.

We acquired license and supply agreements in relation to cytisinicline upon the acquisition of Extab Corporation, or Extab, on May 18, 2015. The agreements were determined to have a fair value of $3.1 million with an estimated useful life of 14 years.

The components of intangible assets were as follows:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Value