Summary of Significant Accounting Policies

Principles of Consolidation — The consolidated financial statements include the accounts of Bio-Path Holdings, Inc., and its wholly-owned subsidiary Bio-Path, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition — We have not generated significant revenues to date. During 2016, the Company entered into a fixed fee service agreement with a preclinical stage biotechnology company in connection with a development project involving our DNAbilize™ technology, pursuant to which we agreed to perform certain evaluation services in exchange for $50,000. As of December 31, 2016, the Company has recorded $13,000 in revenue under the agreement. Payments received prior to the Company’s performance of work are recorded as deferred revenue and recognized as revenue once the work is performed.

Cash and Cash Equivalents — The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Concentration of Credit Risk — Financial instruments that potentially subject us to a significant concentration of credit risk consist of cash. The Company maintains its cash balances with one major commercial bank, JPMorgan Chase Bank. The balances are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to $250,000. As a result, as of December 31, 2016, approximately $9.1 million of our cash balances was not covered by the FDIC. As of December 31, 2015 we had approximately $8.9 million in cash on-hand, of which approximately $8.6 million was not covered by the FDIC.

Furniture, fixtures and equipment— Furniture, fixtures and equipment are stated at cost and depreciated using the straight line method over the estimated useful lives of the assets. Depreciation expense was $43,000, $41,000 and $10,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

The estimated useful lives are as follows:

Computers and equipment – 3 years

Furniture and fixtures – 7 years

Scientific equipment – 7 years

Leasehold improvements – Lesser of useful life or lease term

Major additions and improvements are capitalized, while costs for minor replacements, maintenance, and repairs that do not increase the useful life of an asset are expensed as incurred.

Long Lived Assets — Our long lived assets consist of furniture, fixtures and equipment, leasehold improvements and a technology license. Long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by a comparison of the asset’s carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Intangible Assets/Impairment of Long-Lived Assets — As of December 31, 2016, other assets totaled $0.9 million for our technology license, comprised of $2.5 million in value acquiring our technology license and our intellectual property, less accumulated amortization of $1.6 million. The technology value consists of $0.8 million in cash paid to MD Anderson, plus 3.1 million shares of common stock granted to MD Anderson valued at $2.4 million less $0.7 million for impairment expense taken in December of 2011 and June of 2012. This value is being amortized over a 15-year period from November 7, 2007, the date that the technology license became effective. Long-lived assets are reviewed for events of changes in circumstances which indicate that their carrying value may not be recoverable. Approximately $0.2 million will be amortized per year for each future year for the current value of the technology licenses acquired until approximately 2022. As of December 31, 2015 other assets totaled $1.1 million, comprised of $2.5 million in value acquiring our technology licenses and our intellectual property, less accumulated amortization of $1.4 million.

Research and Development Costs — Costs and expenses that can be clearly identified as research and development are charged to expense. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts will be recognized as an expense as the related goods are delivered or the related services are performed. If the goods will not be delivered, or services will not be rendered, then the capitalized advance payment is charged to expense.

The Company estimates its clinical trial expense accrual each period based on a cost per patient calculation which is derived from estimated start-up costs, clinical trial costs based on the number of patients and length of the study and clinical study report costs. These services are performed by the Company’s third-party clinical research organizations, laboratories and clinical investigative sites. The expense accrual is recorded in research and development expense each period. Amounts that have been prepaid in advance of work performed are recorded in other current assets.

For the year ended December 31, 2016, we had $5.5 million of costs classified as research and development expense. For the year ended December 31, 2015, we had $3.0 million of costs classified as research and development expense. Research and development – related party expense has been consolidated with research and development expense on our financial statements beginning in 2015 as MD Anderson is no longer a greater than 5% stockholder in the Company. For the year ended December 31, 2014, we had $1.6 million of costs classified as research and development expense and $0.2 million of related party research and development expense.

Stock-Based Compensation — The Company has accounted for stock-based compensation under the provisions of generally accepted accounting principles (“GAAP”). The provisions require us to record an expense associated with the fair value of stock-based compensation. We currently use the Black-Scholes option valuation model to calculate stock based compensation at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.

Related Party — Based on its stock ownership in the Company during 2014, MD Anderson met the criteria to be deemed a related party of the Company. Research and development – related party expense has been consolidated with research and development expense on our financial statements in 2015 and 2016 as MD Anderson is no longer a greater than 5% stockholder in the Company. For the year ending December 31, 2014, MD Anderson related party research and development expense was $0.2 million. MD Anderson related party research and development expense for the year ending December 31, 2014 included license expense of $0.1 million for the license annual maintenance fee and $31,000 for license patent expenses not capitalized in the technology license other asset and clinical trial hospital expense of $0.1 million. As of December 31, 2014, we had $0.1 million in accrued research and development related expense for the clinical trial and $0.1 million in accrued license payments for past patent expenses and the annual license maintenance fee.

Net Loss Per Share — Basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Although there were warrants and stock options outstanding during 2016, 2015 and 2014, no potential common shares shall be included in the computation of any diluted per-share amount when a loss exists, as it would be anti-dilutive. Consequently, diluted net loss per share as presented in the financial statements is equal to basic net loss per share for the years 2016, 2015 and 2014. The calculation of diluted earnings per share for 2016 did not include 5,441,673 shares and 5,951,176 shares issuable pursuant to the exercise of vested common stock options and outstanding warrants, respectively, as of December 31, 2016 as the effect would be anti-dilutive. The calculation of diluted earnings per share for 2015 did not include 5,078,611 shares and 2,760,000 shares issuable pursuant to the exercise of vested common stock options and outstanding warrants, respectively, as of December 31, 2015 as the effect would be anti-dilutive. The calculation of diluted earnings per share for 2014 did not include 4,734,861 shares and 2,760,000 shares issuable pursuant to the exercise of vested common stock options and outstanding warrants, respectively, as of December 31, 2014 as the effect would be anti-dilutive.

Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates and judgments, which are based on historical and anticipated results and trends as well as on various other assumptions that the Company believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from the Company’s estimates.

Income Taxes — Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Liquidity — Since its inception, the Company has devoted substantially all of its efforts to product development, raising capital and building infrastructure, and has not generated significant revenues from its planned principal operations. The Company does not anticipate generating significant revenues for the foreseeable future. The Company’s activities are subject to significant risks and uncertainties.

The Company has experienced significant losses since its inception, including net losses of $6.8 million and $5.4 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company had an accumulated deficit of $32.1 million and $9.4 million in cash and cash equivalents. The Company has no debt commitments. Substantially all of the Company’s net losses have resulted from costs incurred in connection with its research and development activities and its general and administrative expenses to support operations. The Company’s net losses may fluctuate significantly from quarter to quarter and year to year.

The Company believes that its available cash at December 31, 2016 will be sufficient to fund liquidity and capital expenditure requirements for at least the next twelve months from the date of issuance of these financial statements. However, the Company expects to continue to incur net losses for the foreseeable future. The Company expects to continue to incur significant operating expenses in connection with its ongoing activities, including conducting clinical trials, manufacturing development and seeking regulatory approval of its drug candidates, prexigebersen and BP1002. Accordingly, the Company will continue to require substantial additional capital to fund its projected operating requirements. Such additional capital may not be available when needed or on terms favorable to the Company. In addition, the Company may seek additional capital due to favorable market conditions or strategic considerations, even if it believes it has sufficient funds for our current and future operating plan. There can be no assurance that the Company will be able to continue to raise additional capital through the sale of securities in the future. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, financial condition and future prospects.

Recent Accounting Pronouncements — From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The new standard provides comprehensive guidance for recognizing revenue as goods or services are delivered to the customer in an amount that is expected to be earned from those same goods or services. ASU 2014-09 was scheduled to be effective for annual reporting periods beginning after December 15, 2016, and early adoption was not permitted. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of Effective Date”, which defers the effective date of ASU 2014-09 by one year. ASU 2014-19 is now effective for annual periods after December 15, 2017 including interim periods within that reporting period. Early application is permitted only for annual periods beginning after December 15, 2016, including interim periods within that reporting period and allows for adoption using a full retrospective method, or a modified retrospective method. We currently anticipate adopting this standard on its effective date under the full retrospective method of adoption. We have not experienced significant issues in our implementation process and we do not anticipate any if we begin to generate revenues from the drug candidates the Company currently has under development.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to perform interim and annual assessments as to the entity’s ability to continue as a going concern and provides related disclosure guidance. ASU 2014-15 is effective for reporting periods ending after December 15, 2016, with early adoption permitted. The Company adopted this pronouncement for the year ended December 31, 2016 and analyzed its operations. The Company has determined that it has enough cash on hand to meet obligations and fund operations for at least the next 12 months from the report date included herein and does not have going concern uncertainty.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Management is currently evaluating the impact of future adoption of the new standard on the Company’s consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Stock Compensation. The new standard simplifies certain aspects of the accounting for share-based payment award transactions by allowing entities to continue to use current GAAP by estimating the number of awards that are expected to vest or, alternatively, entities can elect to account for forfeitures as they occur. Another aspect of the standard requires an entity to recognize all excess tax benefits and deficiencies associated with stock-based compensation as a reduction or increase to tax expense in the income statement. Previously, such amounts were recognized in additional paid-in capital. The new standard is now effective and management adopted the standard effective December 31, 2016 and did not elect to use actual forfeitures as they occur. Management also notes that the adoption of the standard to recognize excess tax benefits and deficiencies related to stock-based compensation in the income statement would not have a material impact on the Company’s consolidated financial statements as the Company has a full valuation allowance in place against its deferred tax asset.

Management has reviewed all other recently issued pronouncements and has determined they will have no material impact on the Company’s consolidated financial statements.