Table of Contents
Vitae Pharmaceuticals, Inc.
Notes to the Financial Statements (Continued)
For the Years Ended December 31, 2013 and 2012
2. Summary of Significant Accounting Policies and Basis of Accounting
Basis of Accounting
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America ("GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting
Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB").
April 5, 2012, the Jump-Start Our Business Startups Act (the "JOBS Act") was signed into law. The JOBS Act contains provisions that, among other things, reduce certain
reporting requirements for an "emerging growth company." The Company is considered an emerging growth company, but has elected to not take advantage of the extended transition period afforded by the
JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies.
Use of Estimates
Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates
and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including
expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of
future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of
reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from
historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these financial statements, management used
significant estimates in the following areas, among others: stock-based compensation expense, the determination of the fair value of stock-based awards, the fair value of liability-classified
preferred stock warrants, the accounting for research and development costs, accrued expenses and the recoverability of the Company's net deferred tax assets and related valuation allowance.
Unaudited Pro Forma Information
In March 2014, the Company's board of directors (the "Board") authorized the management of the Company to pursue the filing of a
registration statement with the Securities and Exchange Commission ("SEC") for the Company to sell shares of its common stock to the public in an initial public offering ("IPO"). The unaudited pro
forma net income per share is computed using the weighted-average number of common shares outstanding and gives effect to the conversion of all outstanding shares of the Company's preferred stock as
of that date into 218,309,741 shares of common stock as if it had occurred at January 1, 2013, or the date of original issuance, if later. Upon conversion of the convertible preferred stock
into shares of the Company's common stock in the event of an IPO, the holders of the convertible preferred stock are not entitled to receive undeclared dividends. Accordingly, the impact of the
cumulative preferred stock dividends has been excluded from the determination of net income per share.