Trovagene, Inc. (“Trovagene” or the “Company”) is a molecular diagnostics company headquartered in San Diego, California.California, is a clinical-stage, precision medicine oncology therapeutics company. The Company’s primary focus is to leverage its cell-free DNA molecular diagnostic technology in cancer and other diseases. Trovagene's goal is to broadly commercialize its molecular diagnostic technology via direct sales as well as external license agreements and/or collaborations to democratizedevelop oncology therapeutics for improved cancer care, optimizing drug development by establishing the best access for patient care. The Company’sleveraging its proprietary Precision Cancer Monitoring® (“PCM”) platform measures circulating tumor DNA (“ctDNA”) in urine and blood, enabling personalized patient care.  The Company’s PCM platform as well as urine and blood based tests, also known as liquid biopsies, have the potential to dramatically improve cancer care and usher in an era of precision oncology. Trovagene’s tests are available to clinicians for the assessment of known driver mutations in lung, pancreatic, colorectal, neuroendocrine cancers, melanoma and histiocytic disorders. The Company’s noninvasivediagnostic technology provides for clinically actionable information through the detection of cancer mutations and the monitoring of changes in tumor dynamics before, during,genomics.

Trovagene’s lead drug candidate, PCM-075, is a Polo-like Kinase 1 (“PLK1”) selective adenosine triphosphate (“ATP”) competitive inhibitor. PCM-075 has shown preclinical antitumor activity as a single agent and after treatment.synergy in combination with more than ten different chemotherapeutics and targeted therapies, such as Zytiga® (abiraterone acetate), Beleodaq® (belinostat), Quizartinib (AC220), a development stage FLT3 inhibitor, and Velcade® (bortezomib) in Acute Myeloid Leukemia (“AML”), metastatic Castration-Resistant Prostate Cancer (“mCRPC”) and other liquid and solid tumor cancers.

The accompanying unaudited interim condensed consolidated financial statements of Trovagene, which include all accounts of its wholly owned subsidiary, Trovagene, Srl, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and the results of its operations and cash flows for the periods presented. All such adjustments areThe unaudited condensed balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of a normalthe information and recurring nature.disclosures required by GAAP for annual financial statements. The operating results presented in these unaudited interim condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 20152016 included in the Company’s annual report on Form 10-K filed with the SEC on March 10, 2016.15, 2017.

Trovagene’s condensed consolidated financial statements as of September 30, 20162017 have been prepared under the assumption that Trovagene will continue as a going concern.concern, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning the Company’s ability to continue as a going concernconcern.

The Company cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company can raise additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution.  Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct its business.

 

If the Company is unable to raise additional capital when required or on acceptable terms, it may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of its product candidates.candidates, all of which may have a material adverse impact on the Company’s operations. The Company may also be required to:

 

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The following table sets forth the computation of basic and diluted earnings per share:

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their effect was anti-dilutive:

The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of September 30, 20162017 and December 31, 2015:2016:

(1) Included as a component of cash and cash equivalents on the accompanying condensed consolidated balance sheets.

(2) Included in short-term investments on the accompanying condensed consolidated balance sheets.

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the nine months ended September 30, 2016:2017:

The unrealized gainrealized gains or losses on the derivative financial instruments - instruments—warrants isare recorded as a change in fair value of derivative financial instruments - instruments—warrants in the Company’s condensed consolidated statementsstatement of operations. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC Topic 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments whichthat trade infrequently and therefore have little or no price transparency are classified as Level 3.

Investments consistAs of corporate debt securities and commercial paper. The Company classifies debt securities as available-for-sale, as the sale of such securities may be required prior to maturity to execute management strategies. Investments classified as available-for-sale are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis. A decline in the market value of any available-for-sale security below cost that is determined to be other than temporary will result in an impairment charge to earnings and a new cost basis for the security is established. No such impairment charges were recorded for any period presented. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the straight-line method and included in interest income. Interest income is recognized when earned. Realized gains and losses on investments in securities will be included in other income (loss) within the condensed consolidated statements of operations. There were no realized gains and losses for the nine months ended September 30, 2016.2017, all short-term investments have been sold to satisfy the Company’s outstanding obligations under the Loan and Security Agreement dated as of June 30, 2014 upon demanding repayment by the lenders.

The following table sets forth the composition of securities available-for-saleshort-term investments as of September 30,December 31, 2016.

Property and equipment consist of the following:

In November 2015, the Company entered into a Loan and Security Agreement (“Equipment Line of Credit”) with Silicon Valley BankSVB that provided for cash borrowings for equipment (“Equipment Advances”) of up to $2.0 million, secured by the equipment financed. Under the terms of the agreement, interest is equal to 1.25% above the Prime Rate. At September 30, 2017, the interest rate was 5.50%. Interest only payments are due on borrowings through November 30, 2016, with both interest and principal payments commencing in December 2016. Any equipment advances after November 30, 2016 are subject to principal and interest payments immediately over a 36-month period following the advance. All unpaid principal and interest on each Equipment Advance will be due on November 1, 2019. The Company has an obligation to make a final payment equal to 7% of total amounts borrowed at the loan maturity date.

On June 20, 2017, the Company received a Notice of Event of Default (“Default Letter”) from SVB which stated that Events of Default had occurred and SVB will decide in its sole discretion whether or not to exercise rights and remedies. Pursuant to the Default Letter, the Company has classified the entire balance of $1,488,041 as a current liability as of September 30, 2016, the Company was in compliance with all covenants.

In June 2014, the Company entered into a $15,000,000 loanLoan and security agreementSecurity Agreement (“Agreement”) under which the lenders provided the Company a term loan. The loan is secured by a security interest in all of the Company’s assets except intellectual property, which is subject to a negative pledge. In connection with the loan, the lenders received a warrant to purchase an aggregate 85,470 shares of the Company’s common stock at an exercise price of $3.51 per share exercisable for ten years from the date of issuance. 

On June 1, 2017, the Company received a Notice of Event of Default from the lenders received a warrant to purchase an aggregate 30,992 shareswhich stated that Events of Default had occurred and all of the obligation under the Agreement were immediately due and payable. On June 6, 2017, the lenders took the total pay-off amount of $16,668,583 for the principal, interest, final payment, and other amounts out of the Company’s common stock at an exercise price of $4.84 per share exercisable for ten years from the date of issuance. The fair value of the warrants, totaling $148,885, was recorded as debt discount and additional paid-in capital as the warrants were equity classified. As of September 30, 2016, warrants to purchase 73,727 shares of common stock remains outstanding.

The range of assumptions used to determine the fair value of the warrants valued using the Black-Scholes option pricing model during the periods indicated was:

During the nine months ended September 30, 2016,2017, the Company issued a total of 861,5397,408,460 shares of Common Stock. The Company received gross proceeds of approximately $2.4$7.1 million from the sale of 421,8106,191,500 shares of its common stock and 4,643,626 share of warrants through registered direct offering and private placement in July 2017. The Company received gross proceeds of approximately $0.1 million from the sale of 102,081 shares of its common stock at a weighted average price of $5.61$1.08 under the agreement with Cantor Fitzgerald & Co. (“Agent”). In addition, 98,396369,487 shares were issued upon exercisevesting of options for a weighted average price of $3.73,restricted stock units (“RSU”), and 341,333745,392 shares were issued upon net exercisevesting of 1,236,875 options at a weighted average exercise price of $3.81.restricted stock awards (“RSA”).

Stock-based compensation expense related to Trovagene equity awards have been recognized in operating results as follow:

The unrecognized compensation cost related to non-vested stock options outstanding at September 30, 20162017 and 2015,2016, net of expected forfeitures, was $3,271,046 and $10,416,565, and $10,308,131, respectively, bothwhich is expected to be recognized over a weighted-average remaining vesting period of approximately three years.2.2 and 3.0 years, respectively. The weighted averageweighted-average remaining contractual term of outstanding options as of September 30, 2017 was approximately 7.2 years. The total fair value of stock options vested during the nine months ended September 30, 2017 and 2016 was approximately eight years.$3,378,243 and $5,416,168, respectively.

The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted averageweighted-average assumptions during the following periods indicated:

A summary of stock option activity and changes in stock options outstanding is presented below:

DuringOn June 13, 2017, the nine months ended September 30, 2016, the Company had issued 996,000 options to its executive officers and non-employee directors that were over the authorized number of authorized shares available in the Trovagene 2014 Equity Incentive Plan (2014 EIP) and were subject(“2014 EIP”) was increased from 7,500,000 to shareholder approval. As per ASC Topic 815-40, the options were accounted for as liabilities and recorded at fair value with the changes in fair value being recorded in the Company’s condensed consolidated statements of operations. Stockholder approval was obtained on May 17, 2016 to increase the number of authorized shares in the 2014 EIP from 5,000,000 to 7,500,000. Accordingly, the options were remeasured as of the date of stockholder approval with the change recorded in stock based compensation expense and the $217,333 liability was reclassified to additional paid in capital.9,500,000. As of September 30, 20162017 there were 2,346,4783,670,232 shares available for issuance under the 2014 EIP.

A summary of the restricted stock unitRSU activity is presented below:

A summary of warrant activity and changes in warrants outstanding, including both liability and equity classifications is presented below:

The Company has longer-term contractual commitments with various consultants and employees. Certain employment agreements provide for severance payments.

The Company previously leasedleases approximately 22,60026,100 square feet of office and laboratory space at a monthly rental rate of approximately $60,000. On April 4, 2016, the Company entered into an amendment to the lease agreement which expanded the square footage of its office space to approximately 26,100 square feet at a revised monthly rental rate of approximately $68,000. Under the amendment, the lessor provided the Company with a $1,860,000 tenant improvement allowance which the Company recorded as a deferred rent obligation. The Company will amortize the deferred rent on a straight-line basis over the life of the lease. The new lease will expire on December 31, 2021. The Company currently subleases certain office space and records the rental receipt under the subleases as a reduction of its rent expense. The Company also leasesleased certain lab and office space in Torino, Italy, of approximately 2,300 square feet, at a monthly rental rate of approximately $3,100. The lease is for a period$3,100 through the end of three years and expires December 31, 2018.September 2017.

The Company has entered into a variety of collaborationclinical trial and specimen transfercollaboration agreements relating to its drug development efforts. Included in research and development expense, the Company has recorded approximately $0.8 million$291,000 for the nine months ended September 30, 20162017 relating to services provided by the collaborators in connection with these agreements.

The Company is a party to various agreements under which it licenses technology on an exclusive basis in the field of human diagnostics. License fees are generally calculated as a percentage of product revenues, with rates that vary by agreement. To date, payments have not been material.

Trovagene does not believe that the Company has entered intolegal liabilities that are probable or reasonably possible that require either accrual or disclosure, except for the following: On March 28, 2016 the Company filed a collaborative research program under which it will workcomplaint in the Superior Court of the State of California for the County of San Diego against the Company’s former CEO and CFO, for, among other things, breach of fiduciary duty for failing to designpresent a lucrative corporate opportunity to the Company concerning promising new therapeutics in the field of precision medicine and validate custom enrichment panels--as specified byinstead taking that opportunity for their own personal benefit (the “Complaint”). The Complaint asks that these two former executives be required to turn over their interests in these new therapeutics to the Company. The research partner will be reimbursed former CEO and CFO filed a cross complaint in the Superior Court of the State of California

On May 27, 2016March 15, 2017, the Company filed a Form S-3 Registration Statement424B5 to amend and supplement the information in the Company’s registration statement and prospectus, dated June 13, 2016, to offer and sell in one or more offerings, any combinationadditional shares of the Company’s common stock preferred stock, debt securities, warrants, or units having an aggregate initial offering price not exceeding $250,000,000. The preferred stock, debt securities, warrants, and units may be convertible or exercisable or exchangeable for common stock or preferred stock or other Trovagene securities. This form was declared effective on June 13,

In March 2016, the Company engaged Rutan & Tucker, LLP, a law firm to represent Trovagene, Inc. with respect to various lawsuits. One of the partners from Rutan & Tucker, LLP, is the son of the Company’s Chairman of the Board. The fees for legal services are based on the hourly rates of the individuals performing the legal services. As ofDuring the nine months ended September 30, 2017 and 2016, the Company has incurred approximately $376,000$763,075 and $377,464 of legal expenses, net of insurance reimbursements, for services performed by Rutan & Tucker, LLP.

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding the future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions.

In addition, our business and financial performance may be affected by the factors that are discussed under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2015,2016, filed on March 15, 2017, on Form 10-Q

You should not rely upon forward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

The following discussion and analysis is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

We are a molecular diagnosticsprecision medicine biotechnology company that focuses ondeveloping oncology therapeutics for improved cancer care, optimizing drug development by leveraging our proprietary PCM technology in tumor genomics. Our broad intellectual property and proprietary technology enables us to measure ctDNA in urine and blood to identify and quantify clinically actionable markers for predicting response to cancer therapies. We offer our PCM technology at our CLIA-certified/CAP-accredited laboratory and plan to continue to vertically integrate our PCM technology with the development and commercialization of both proprietary urine and blood-based cell-free molecular diagnostic technologies for use in the detection and monitoring ofprecision cancer mutations across a variety of medical disciplines. Our primary internal focus istherapeutics.

We believe we have an opportunity to leverage our novel urine-based molecular diagnostic platform to facilitate improvements in the field of oncology, while our external focus includes entering into collaborations to develop the Company’s technology in areas such as infectious disease, urology transplantation, and prenatal genetics. Our current goal isutilize precision diagnostics to improve treatment outcomes for cancer patients using our proprietary technology to detect clinically actionable mutations and quantitatively monitor cell-free DNA in urine and/or blood.patient response to therapy. On March 15, 2017, we announced the licensing of PCM-075, a PLK1 inhibitor, from Nerviano. We have a supplier agreement with NerPharMa, S.r.l., a pharmaceutical manufacturing company and a subsidiary of Nerviano, to manufacture drug product for PCM-075. The agreement covers the clinical and commercial supply of PCM-075, and includes both Active Pharmaceutical Ingredients and Good Manufacturing Process production of capsules. The licensing of global development and commercialization rights to PCM-075 allows us to execute our strategy to vertically integrate our PCM technology with precision cancer therapeutics, by developing drugs where our deep understanding of tumor genomics may allow for effective targeting of appropriate cancer patients.

We have completed a Phase 1 safety study of PCM-075 in patients with advanced metastatic solid tumors and we received notification from the U.S. Food and Drug Administration (“FDA”) that our Phase 1b/2 clinical trial of PCM-075 in patients with AML may proceed. PCM-075 has positive preclinical data as a single agent and in combination with select chemotherapeutics and targeted agents used in many hematologic and solid cancers, including AML, Non-Hodgkin Lymphoma, mCRPC, Adrenocortical Carcinoma, and Triple Negative Breast Cancer.

We have significant experience and expertise with biomarkers and technology in cancer, including AML. We are leveraging our proprietary molecular diagnostic technologyone of the patent holders of NPM1 for the detectiondiagnosis and monitoring of cell-free DNA originating from diseased cell death that can be isolated and detected from urine, blood, and tissue samples to improve disease management. 

Our accumulated deficit through September 30, 20162017 is $139,561,491.$170,470,696. To date, we have generated minimal revenues and expect to incur additional losses to perform further research and development activities and expand commercial operations. During 2016,2017, we have advanced our business with the following activities:

Our productdrug development and commercialization efforts are in their early stages, and we cannot make estimates of the costs or the time that our development efforts will take to complete, or the timing and amount of revenues related to the sale of our tests or our diagnostic services and revenues related to our license agreements.drugs. The risk of completion of any program is high because of the many uncertainties involved in bringingdeveloping new diagnostic productsdrug candidates to market, including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, and/or Clinical Laboratory Improvement Amendments (“CLIA”) requirements, extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of

We had no off-balance sheet arrangements as of September 30, 2016.2017.

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our accounting policies are described in ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS of our Annual Report on Form 10-K as of and for the year ended December 31, 2015,2016, filed with the SEC on March 10, 2016.15, 2017. There have been no changes to our critical accounting policies since December 31, 2015.2016.

Our total revenues were $89,114$123,329 and $57,327$89,114 for the three months ended September 30, 20162017 and 2015,2016, respectively. The components of our revenues were as follows:

The increase in royalty income related primarily to higher receipts of payments in excess of minimum royalties in comparison to the same period of the prior year. Revenue from diagnostic services is recognized when payment is received for the test results. The number of tests billed and payments received werewas higher in 20162017 as compared to the same period in the prior year. Revenue from clinical research services consists primarily of revenue from the sale of urine and blood collection supplies and tests performed under agreements with our

We expect our royalties to fluctuate as the royalties are based on the minimum royalty payments as well as the timing of when payments are received for royalties in excess of minimum royalties. In addition, we expect our diagnostic service revenue from diagnostic services to increase in future periods, but as the revenue recognition is based on cash receipts, the timing of these revenues is also uncertain.may be impacted by our expansion into oncology therapeutics. We expect revenue from clinical research services to fluctuate based on timing of delivery of supplies and/or test results under agreements.

Our total cost of revenues was $424,559$473,202 for the three months ended September 30, 2016,2017, compared to $173,537$424,559 in the same period of 2015.2016. Cost of revenues mainly relates to the costs of our diagnostic service revenues. The costs are recognized at the completion of testing. Increase in cost of revenues for the three months ended September 30, 2017 compared to the same period of last year is mainly due to the higher percentage allocation of volume of tests processed. Due to revenue being recognized when cash is received, costs incurred in one period may relate to revenue recognized in a later period. Gross margins areperiod which could result in negative as we begin to build test volume to cover costs associated with running our diagnostic tests as well as inefficiencies in realizing capacity related issues. Increase in cost of revenues for the three months ended September 30, 2016 compared to the same period of last year is mainly due to the increased volume of tests processed offset by decreased average cost per test.gross margins. 

Research and development expenses consisted of the following:

Research and development expenses increaseddecreased by $1,390,865$2,522,692 to $3,937,398$1,414,706 for the three months ended September 30, 20162017 from $2,546,533$3,937,398 for the same period in 2015. Our2016. As a result of the two strategic restructuring activities which occurred in December 2016 and March 2017, our average internal research and development personnel decreased from thirty-four to six, resulting in a decrease of expenses in salaries and staff costs, have increased mainlystock-based compensation, and travel and scientific conferences. In addition, due to the shifting of our business focus, we terminated certain clinical studies and collaboration agreements. Research and development expenses incurred related to samples processed and validated in connection with the clinical collaborations, as well as lab supplies, decreased accordingly. We expect a reduction of research and development costs that relate to CLIA services as a result of our internal research and development personnel increasing from twenty-seven to thirty-four and the use of additional consulting and outside services. We utilize clinical studies to provide data that supports our technology for the monitoring of responsiveness to therapy and the status of diseases. The number of samples processed in connection with our research and development clinical studies increased for the three months ended September 30, 2016 as compared to the same period in 2015. We expect research and development expenses toexpansion into oncology therapeutics; however, other costs may increase as we enter into additional collaborations, and complete the development of our urine collection and DNA extraction kits and multi-plex panels.

Selling and marketing expenses consisted of the following:

Selling and marketing expenses increaseddecreased by $1,142,599$2,520,935 to $2,940,862$419,927 for the three months ended September 30, 20162017 from $1,798,263$2,940,862 for the same period in 2015.2016. The overall decrease in selling and marketing expenses was primarily due to our strategic restructuring activities. During the three months ended September 30, 20162017 we increaseddecreased the number of our field sales, customer support and marketing personnel, bringing our average headcount to twenty-twotwo from fourteentwenty-two in the same period of the prior year. These additions to our commercial team support our salesAs a result, costs associated with selling and marketing activities resulting in the increase in salaries and staffas well as personnel related costs and stock-based compensation. The increase in outside services and consultants is due to our utilization of outside marketing consultants and agents for targeted marketing activities such as website design, product branding and printing services.were decreased accordingly. We expect our sellingdecreases in personnel and marketing expenses to change based onrelated costs as a result of the composition of commercial team members that are focused on increasing market acceptance of our commercially available tests and the commercial introduction of future product offerings, such as our urine collection and DNA extraction kits.reduction in force.

General and administrative expenses consisted of the following:

General and administrative expenses increased by $762,236$948,805 to $2,710,782$3,659,587 for the three months ended September 30, 2016,2017, from $1,948,546$2,710,782 for the same period in 2015.2016. The overallsignificant components of the increase waswere primarily due to the increase of personnel and outside services costs and legal and accounting fees. The increase ofin personnel and outside services cost is primarily dueand stock-based compensation. In August 2017, a total of 745,392 shares of immediately vested RSA were granted to an increase in generalour CEO. Per the agreement, the CEO’s income taxes associated with the RSA were also paid by our Company. Therefore, personnel costs and administrative employees, an increase in investor relations activities as our investor base has grown, and increased services related to information technology to support our overall headcount growth. The increase in legal and accounting fees primarily resulted from the lawsuit against the Company’s former CEO and CFO. Stock-basedstock-based compensation a non-cash expense, will fluctuate based on the timing and amount of options granted, forfeitures and the fair value of the options at the time of grant or remeasurement. We expect ourexpenses were increased. Our general and administrative costs may increase in future periods in order to increasesupport fundraising activities and general business activities as our commercial operationswe continue to develop and research and development teams grow and if we need to retain additional legal resources.introduce new product offerings.

Net interest expense was $354,993$16,473 and $335,359$354,993 for the three months ended September 30, 20162017 and 2015,2016, respectively. The increasedecrease of net interest expense is primarily due to an increasea decrease in interest expense, offset by an increase in interest income of approximately $62,000. This increase is due to the investment of a portionresulting from pay-off of our cash and cash equivalents in short-term investments which have a higher average yield as well as overall higher average cash and investment balances during the three months ended September 30, 2016 as compared to the same period of the prior year.$15.0 million term loan. We expect net interest expense to increasedecrease as a result of repayment of our debt refinancing and as our average cash and investment balances decrease.equipment line of credit.

Net loss and per share amounts were as follows: