Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172018
 
oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to            
 
COMMISSION FILE NUMBER 001-35558
 
TROVAGENE, INC.
(Exact Name of registrant as specified in its charter)
Delaware 27-2004382
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
11055 Flintkote Avenue, Suite B, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
   
(858) 952-7570
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 x   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See 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 o  Accelerated filer o 
        
 Non-accelerated filer o(Do not check if a smaller reporting company) Smaller reporting company x 
        
     Emerging growth companyo 
        
 
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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x
 
As of October 31, 2017,2018, the issuer had 38,106,46022,990,942 shares of Common Stock issued and outstanding.
 


Table of Contents

TROVAGENE, INC.
 
Table of Contents
 
  Page
 
   
 
   
 
   
 
   
 
   
 
   
 
   
   
   
   
 
   
   
   
   
   
   
   
   
 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TROVAGENE, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Assets      
Current assets:      
Cash and cash equivalents$7,434,298
 $13,915,094
$15,065,913
 $8,225,764
Short-term investments
 23,978,022
Accounts receivable178,127
 100,460
Accounts receivable and unbilled receivable128,577
 77,095
Prepaid expenses and other current assets939,200
 956,616
849,082
 1,165,828
Total current assets8,551,625
 38,950,192
16,043,572
 9,468,687
Property and equipment, net3,126,969
 3,826,915
1,627,605
 2,426,312
Other assets539,309
 1,173,304
249,645
 389,942
Total Assets$12,217,903
 $43,950,411
$17,920,822
 $12,284,941
      
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable$675,499
 $1,130,536
$476,300
 $825,244
Accrued expenses2,620,250
 4,021,365
1,718,060
 1,454,587
Deferred rent298,213
 285,246
Current portion of long-term debt (in default)1,488,041
 2,360,109
Deferred rent, current portion472,251
 334,424
Current portion of long-term debt
 1,331,515
Total current liabilities5,082,003
 7,797,256
2,666,611
 3,945,770
Long-term debt, less current portion
 14,176,359
Derivative financial instruments—warrants2,037,712
 834,940
70,347
 649,387
Deferred rent, net of current portion1,153,316
 1,373,717
1,204,109
 1,183,677
Total Liabilities8,273,031
 24,182,272
3,941,067
 5,778,834
      
Commitments and contingencies (Note 9)

 

Commitments and contingencies (Note 8)

 

      
Stockholders’ equity      
Preferred stock, $0.001 par value, 20,000,000 shares authorized; 60,600 shares outstanding at September 30, 2017 and December 31, 2016; designated as Series A Convertible Preferred Stock with liquidation preference of $606,000 at September 30, 2017 and December 31, 201660
 60
Common stock, $0.0001 par value, 150,000,000 shares authorized; 38,105,251 and 30,696,791 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively3,811
 3,070
Preferred stock, $0.001 par value, 20,000,000 shares authorized; 277,100 designated as Series A Convertible Preferred Stock; 60,600 shares outstanding at September 30, 2018 and December 31, 2017 with liquidation preference of $606,000 at September 30, 2018 and December 31, 2017; 8,860 designated as Series B Convertible Preferred Stock; 0 shares outstanding at September 30, 2018 and December 31, 2017, respectively60
 60
Common stock, $0.0001 par value, 150,000,000 shares authorized; 22,957,192 and 4,399,299 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively7,738
 5,279
Additional paid-in capital174,426,891
 167,890,984
201,998,634
 179,546,954
Accumulated other comprehensive loss(15,194) (10,773)
Accumulated deficit(170,470,696) (148,115,202)(188,026,677) (173,046,186)
Total stockholders’ equity3,944,872
 19,768,139
13,979,755
 6,506,107
Total liabilities and stockholders’ equity$12,217,903
 $43,950,411
$17,920,822
 $12,284,941
 
See accompanying notes to the unaudited condensed consolidated financial statements.

TROVAGENE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
Revenues:              
Royalties$58,779
 $47,236
 $169,415
 $207,869
$72,568
 $58,779
 $174,046
 $169,415
Diagnostic services58,119
 37,978
 142,482
 69,558
4,303
 58,119
 83,650
 142,482
Clinical research services6,431
 3,900
 8,481
 35,573
11,490
 6,431
 42,614
 8,481
Total revenues123,329
 89,114
 320,378
 313,000
88,361
 123,329
 300,310
 320,378
Costs and expenses:              
Cost of revenues473,202
 424,559
 1,427,831
 1,143,293
26,677
 473,202
 597,457
 1,427,831
Research and development1,414,706
 3,937,398
 6,676,251
 11,221,876
1,830,441
 1,414,706
 5,667,046
 6,676,251
Selling and marketing419,927
 2,940,862
 2,442,931
 9,127,450
General and administrative3,659,587
 2,710,782
 9,915,359
 9,183,761
Restructuring (benefit) charges(46,472) 
 1,669,526
 
Selling, general and administrative1,665,200
 4,079,514
 6,321,048
 12,358,290
Restructuring charges (benefit)421,351
 (46,472) 664,686
 1,669,526
Total operating expenses5,920,950
 10,013,601
 22,131,898
 30,676,380
3,943,669
 5,920,950
 13,250,237
 22,131,898
              
Loss from operations(5,797,621) (9,924,487) (21,811,520) (30,363,380)(3,855,308) (5,797,621) (12,949,927) (21,811,520)
              
Net interest expense(16,473) (354,993) (877,741) (967,522)
Gain from change in fair value of derivative financial instruments—warrants1,528,669
 88,208
 2,012,747
 674,834
Loss on extinguishment of debt
 
 (1,655,825) 
Other loss, net(6,541) 
 (4,975) 
Interest income85,938
 20,650
 143,911
 132,515
Interest expense(16) (37,123) (25,177) (1,010,256)
(Loss) gain from change in fair value of derivative financial instruments—warrants(2,500) 1,528,669
 579,040
 2,012,747
Gain (loss) on extinguishment of debt
 
 17,974
 (1,655,825)
Other income (loss), net2,318
 (6,541) (68,521) (4,975)
Net loss(4,291,966) (10,191,272) (22,337,314) (30,656,068)(3,769,568) (4,291,966) (12,302,700) (22,337,314)
              
Preferred stock dividend(6,060) (6,060) (18,180) (18,180)
Preferred stock dividend payable on Series A Convertible Preferred Stock(6,060) (6,060) (18,180) (18,180)
Deemed dividend recognized on beneficial conversion features of Series B Convertible Preferred Stock issuance
 
 (2,769,533) 
              
Net loss attributable to common stockholders$(4,298,026) $(10,197,332) $(22,355,494) $(30,674,248)$(3,775,628) $(4,298,026) $(15,090,413) $(22,355,494)
              
Net loss per common share — basic$(0.12) $(0.34) $(0.68) $(1.02)$(0.18) $(1.41) $(1.38) $(8.17)
Net loss per common share — diluted$(0.12) $(0.34) $(0.68) $(1.04)$(0.18) $(1.41) $(1.38) $(8.17)
              
Weighted-average shares outstanding — basic36,465,672
 30,339,774
 32,826,306
 30,018,841
20,622,660
 3,038,806
 10,945,249
 2,735,526
Weighted-average shares outstanding — diluted36,465,672
 30,339,774
 32,826,306
 30,136,572
20,622,660
 3,038,806
 10,945,249
 2,735,526
 
See accompanying notes to the unaudited condensed consolidated financial statements.


TROVAGENE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
Net loss$(4,291,966) $(10,191,272) $(22,337,314) $(30,656,068)$(3,769,568) $(4,291,966) $(12,302,700) $(22,337,314)
Other comprehensive income (loss):              
Foreign currency translation loss(1,544) (81) (13,486) (1,877)
 (1,544) 
 (13,486)
Unrealized gain or reversal of previous losses on securities available-for-sale
 (7,997) 9,065
 (2,865)
 
 
 9,065
Total other comprehensive income (loss)(1,544) (8,078) (4,421) (4,742)
Total other comprehensive loss
 (1,544) 
 (4,421)
              
Total comprehensive loss(4,293,510) (10,199,350) (22,341,735) (30,660,810)(3,769,568) (4,293,510) (12,302,700) (22,341,735)
              
Preferred stock dividend(6,060) (6,060) (18,180) (18,180)
Preferred stock dividend payable on Series A Convertible Preferred Stock(6,060) (6,060) (18,180) (18,180)
Deemed dividend recognized on beneficial conversion features of Series B Convertible Preferred Stock issuance
 
 (2,769,533) 
              
Comprehensive loss attributable to common stockholders$(4,299,570) $(10,205,410) $(22,359,915) $(30,678,990)$(3,775,628) $(4,299,570) $(15,090,413) $(22,359,915)

See accompanying notes to the unaudited condensed consolidated financial statements.


TROVAGENE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

 Preferred Stock
Shares
 Preferred Stock
Amount
 Common Stock
Shares
 Common Stock
Amount
 Additional
Paid-In Capital
 Accumulated Deficit Total
Stockholders’ Equity
Balance, January 1, 201860,600
 $60
 4,399,299
 $5,279
 $179,546,954
 $(173,046,186) $6,506,107
Stock-based compensation
 
 
 
 1,905,652
 
 1,905,652
Sale of common stock and warrants, net of expenses
 
 9,140,000
 914
 11,778,611
 
 11,779,525
Sale of Series B Convertible Preferred Stock, net of expenses8,860
 9
 
 
 4,386,753
 
 4,386,762
Deemed dividend recognized on beneficial conversion features of Series B Convertible Preferred Stock issuance
 
 
 
 2,769,533
 (2,769,533) 
Issuance of common stock upon exercise of warrants
 
 473,497
 569
 1,612,098
 
 1,612,667
Issuance of common stock upon vesting of restricted stock units
 
 77,572
 90
 (90) 
 
Issuance of common stock upon conversion of Series B Convertible Preferred Stock(8,860) (9) 8,860,000
 886
 (877) 
 
Preferred stock dividend payable on Series A Convertible Preferred Stock
 
 
 
 
 (18,180) (18,180)
Issuance of common stock for share rounding as a result of reverse stock split
 
 6,824
 
 
 
 
Cumulative adjustment upon adoption of ASC 606
 
 
 
 
 109,922
 109,922
Net loss
 
 
 
 
 (12,302,700) (12,302,700)
Balance, September 30, 201860,600
 $60
 22,957,192
 $7,738
 $201,998,634
 $(188,026,677) $13,979,755

See accompanying notes to the unaudited condensed consolidated financial statements.


TROVAGENE, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
September 30,
Nine Months Ended September 30,
2017 20162018 2017
Operating activities      
Net loss$(22,337,314) $(30,656,068)$(12,302,700) $(22,337,314)
Adjustments to reconcile net loss to net cash used in operating activities:      
Loss on disposal of assets28,199
 
197,490
 28,199
Impairment loss485,000
 
187,500
 485,000
Depreciation and amortization956,995
 693,485
701,774
 956,995
Stock based compensation expense3,117,364
 5,942,392
1,905,652
 3,117,364
Loss on extinguishment of debt1,655,825
 
(Gain) loss on extinguishment of debt(17,974) 1,655,825
Accretion of final fee premium293,614
 266,423

 293,614
Amortization of discount on debt113,780
 105,710

 113,780
Net realized loss on short-term investments6,400
 

 6,400
Amortization of premiums on short-term investments9,230
 61,719

 9,230
Deferred rent(207,435) (133,378)(266,556) (207,435)
Interest income accrued on short-term investments(90,330) 10,122

 (90,330)
Change in fair value of derivative financial instruments—warrants(2,012,747) (674,834)(579,040) (2,012,747)
Changes in operating assets and liabilities:      
Decrease in other assets
 2,761
(Increase) decrease in accounts receivable(77,667) 13,584
Decrease (increase) in prepaid expenses and other current assets18,230
 (157,051)
(Decrease) increase in accounts payable and accrued expenses(1,908,796) 2,490,137
Increase in other assets(170,602) 
Decrease (increase) in accounts receivable and unbilled receivable58,440
 (77,667)
Decrease in prepaid expenses and other current assets316,746
 18,230
Increase (decrease) in accounts payable and accrued expenses383,037
 (1,908,796)
Net cash used in operating activities(19,949,652) (22,034,998)(9,586,233) (19,949,652)
      
Investing activities:      
Capital expenditures, net(136,251) (797,781)
Proceeds from disposals of capital equipment27,942
 
Capital expenditures(5,100) (136,251)
Maturities of short-term investments16,431,837
 

 16,431,837
Purchases of short-term investments(8,804,604) (24,451,611)(31,500) (8,804,604)
Sales of short-term investments16,434,553
 
31,500
 16,434,553
Net cash provided by (used in) investing activities23,925,535
 (25,249,392)
Net cash provided by investing activities22,842
 23,925,535
      
Financing activities:      
Proceeds from sales of common stock and warrants, net of expenses6,634,803
 2,293,857
Proceeds from exercise of options
 366,966
Borrowings under equipment line of credit
 792,251
Borrowings under long-term debt, net of costs
 7,805,086
Proceeds from sales of common stock and warrants, net of expenses of $1,336,123 and $575,516, respectively11,779,525
 6,634,803
Proceeds from sales of Series B Convertible Preferred Stock, net of expenses of $497,6174,386,762
 
Proceeds from exercise of warrants1,612,667
 
Payment upon debt extinguishment(1,613,067) 
(175,381) (1,613,067)
Repayments of long-term debt(15,000,000) (8,896,166)
 (15,000,000)
Repayments of equipment line of credit(469,578) 
(1,200,033) (469,578)
Net cash (used in) provided by financing activities(10,447,842) 2,361,994
Net cash provided by (used in) financing activities16,403,540
 (10,447,842)
Effect of exchange rate changes on cash and cash equivalents(8,837) (1,544)
 (8,837)
Net change in cash and equivalents(6,480,796) (44,923,940)
Net change in cash and cash equivalents6,840,149
 (6,480,796)
Cash and cash equivalents—Beginning of period13,915,094
 67,493,047
8,225,764
 13,915,094
Cash and cash equivalents—End of period$7,434,298
 $22,569,107
$15,065,913
 $7,434,298
      
Supplementary disclosure of cash flow activity:      
Cash paid for taxes$800
 $4,560
$800
 $800
Cash paid for interest$650,331
 $806,228
$22,482
 $650,331
Supplemental disclosure of non-cash investing and financing activities:      
Preferred stock dividends accrued$18,180
 $18,180
Leasehold improvements paid for by lessor$
 $1,860,000
Preferred stock dividend payable on Series A Convertible Preferred Stock$18,180
 $18,180
Deemed dividend recognized for beneficial conversion features of Series B Convertible Preferred Stock issuance$2,769,533
 $
Common stock issued upon conversion of Series B Convertible Preferred Stock$886
 $
 
See accompanying notes to the unaudited condensed consolidated financial statements.

TROVAGENE, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. Organization and Basis of Presentation
 
Business Organization and Overview
 
Trovagene, Inc. (“Trovagene” or the “Company”) headquartered in San Diego, California, is a clinical-stage, precision medicine oncology therapeutics company. The Company’s primary focus iscompany, taking a precision cancer medicine approach to develop oncology therapeutics for improveddrugs that target mitosis (cell division) to treat various types of cancer, care, optimizing drug development by leveraging its proprietary Precision Cancer Monitoring® (“PCM”) diagnostic technology in tumor genomics.including leukemias, lymphomas and solid tumors.

Trovagene’s lead drug candidate, PCM-075, is a Polo-like Kinase 1intellectual property and proprietary technology enables the Company to analyze circulating tumor DNA (“PLK1”) selective adenosine triphosphate (“ATP”) competitive inhibitor. PCM-075 has shown preclinical antitumor activity as a single agent and 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”ctDNA”) and other liquidclinically actionable markers. Unique to the Company’s clinical development plan, and solid tumor cancers.

PCM-075 was developeda key component of its precision cancer medicine approach, is the integration of predictive clinical biomarkers to have high selectivityidentify patients most likely to PLK1,respond to be administered orally, and to have a relatively short drug half-life of approximately 24 hours compared to other PLK inhibitors. PCM-075 has completed a safety study in patients with advanced metastatic solid tumors with a phase 1b/2 clinical trial in patients with AML underway.treatment.
 
Basis of Presentation
 
The accompanying unaudited interim condensed consolidated financial statements of Trovagene, which include all accounts of its wholly owned subsidiary, Trovagene, Srl (dissolved in October 2017), 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.eliminated in consolidation.
 
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. The unaudited condensed balance sheet at December 31, 20162017 has been derived from the audited financial statements at that date but does not include all of the information and 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, 20162017 included in the Company’s annual report on Form 10-K filed with the SEC on March 15, 2017.February 26, 2018.

The Company made a reverse split of its common stock, $0.0001 par value, at a ratio of 1 for 12, effective June 1, 2018. All share and per share information in the unaudited condensed consolidated financial statements and the accompanying notes have been retroactively adjusted to reflect the reverse stock split for all periods presented.

Liquidity
 
Trovagene’s condensed consolidated financial statements as of September 30, 20172018 have been prepared under the assumption that Trovagene will continue as a going 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 concern.
 
However, theThe Company has incurred net losses since its inception and has negative operating cash flows. TheConsidering the Company’s current cash resources, including the net proceeds received from the offering of its equity securities in June 2018, management believes the Company’s existing resources will be sufficient to fund the Company’s planned operations through July 2019. On April 6, 2018, the Company also received a default letter frompaid off the outstanding Loan and Security Agreement (“Equipment Line of Credit”) entered in November 2015 to Silicon Valley Bank (“SVB”) regarding the Loan and Security Agreement entered in November 2015 which stated that events of default had occurred and SVB will decide in its sole discretion whether or not to exercise rights and remedies.. Based on its current business plan and assumptions, the Company expects to continue to incur significant losses and require significant additional capital to further advance its clinical trial programs and support its other operations. Considering the Company’s current cash resources, including the net proceeds received from the offering of its equity securities in July 2017, management believes the Company’s existing resources will be sufficient to fund the Company’s

planned operations into the first quarter of 2018. In addition, theThe Company has based its cash sufficiency estimates on its current business plan

and its assumptions that may prove to be wrong. The Company could utilize its available capital resources sooner than it currently expects, and it could need additional funding to sustain its operations even sooner than currently anticipated. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. For the foreseeable future, the Company’s ability to continue its operations is dependent upon its ability to obtain additional capital.

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, all of which maywould have a material adverse impact on the Company’s operations. The Company may also be required to:
 
Seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; and

Relinquish licenses or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize themselves, on unfavorable terms.
 
The Company is evaluating the following options to raise additional capital, increase revenue, as well as reduce costs, in an effort to strengthen its liquidity position:

Raising capital through public and private equity offerings;

Adding capital through short-term and long-term borrowings;

Introducing operation and business development initiatives to bring in new revenue streams by leveraging capabilities within our CLIA lab, as well as monetizing our proprietary NextCollect™ DNA collection and preservation cup;streams;

Reducing operating costs by identifying internal synergies; and

Engaging in strategic partnerships; andpartnerships.

Taking actions to reduce or delay capital expenditures.

OnAs of October 25, 2017,31, 2018, the Company filed a registration statement on Form S-1has received approximately $1.6 million upon exercise of 5,681,667 warrants in connection with the SEC for a best effortsDecember 2017 public offering of up to $17.5 million of common stock and warrants.offering. The Company continually assesses anyits spending plans including a review of its discretionary spending in connection with certain strategic contracts, to effectively and efficiently address its liquidity needs.

NASDAQ Notice

On September 5, 2017, the Company received a written notice from the NASDAQ Stock Market LLC (“NASDAQ”) that it was not in compliance with NASDAQ Listing Rule 5550(a)(2) for continued listing on the NASDAQ Capital Market, as the minimum bid price of the Company’s common stock had been below $1.00 per share for 30 consecutive business days. In accordance with NASDAQ Listing Rule 5810(c)(3)(A), the Company hashad a period of 180 calendar days, or until March 5, 2018, to regain compliance with the minimum bid price requirement.

On March 6, 2018, the NASDAQ Capital Market informed the Company that it is eligible for an additional 180 calendar day period until September 4, 2018 to regain compliance with the minimum $1.00 bid price per share requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period.

On September 7, 2018, the Company received a letter from NASDAQ indicating that, based upon the Company’s continued non-compliance with the Minimum Bid Price Rule, the Company’s common stock would be subject to delisting unless the Company timely requests a hearing before a NASDAQ Hearings Panel (the “Panel”). The Company timely requested a hearing before the Panel on September 14, 2018, which request will stay any further action by NASDAQ at least pending the issuance of a decision following the hearing and the expiration of any additional extension that may be granted by the Panel. The Company is scheduled to attend the hearing before the Panel on November 8, 2018. The Company is considering all of its options to regain compliance; however, there can be no assurance that the Panel will grant the Company’s request for continued listing or that the Company will be able to evidence compliance with the continued listing criteria within the period of time that the Panel may grant it to do so.


2. Summary of Significant Accounting Policies
 
Use of Estimates
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.

Short-Term Investments

Short-term investments consisted of corporate debt securities, U.S. treasury securities, and commercial paper. The Company classified its short-term investments 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 consolidated accumulated other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses from the sale of available-for-sale securities were 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 were 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 was recognized when earned. Realized gains and losses on investments in securities were included in other income (loss) within the consolidated statements of operations. As of September 30, 2017, all of the 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. As a result, the Company recognized net realized loss of approximately $6,400 forDuring the nine months ended September 30, 2017.2018, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, except as described below.
 
Revenue Recognition
 
RevenueThe Company recognizes revenue when control of its products and services is recognizedtransferred to its customers in an amount that reflects the consideration it expects to receive from its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when persuasive evidencethe performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that an arrangement exists, deliveryare readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has occurred,transferred control of a good or service to the price is fixedcustomer, meaning the customer has the ability to use and obtain the benefit of the good or determinable, and collection is reasonably assured.service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control. For sales-based royalties, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
 
Milestone, Royalty and License Revenues
 
The Company licenses and sublicenses its patent rights to healthcare companies, medical laboratories and biotechnology partners. These agreements may involve multiple elements such as license fees, royalties and milestone payments. Revenue is recognized when the criteria described above have been met as well as the following:

Up-front nonrefundable license fees pursuant to agreements under which the Company has no continuing performance obligations are recognized as revenues on the effective date of the agreement and when collection is reasonably assured.

Minimum royalties are recognized as earned, and royalties are earned based on the licensee’s use. The Company is unable to predictestimates and records licensee’s sales based on historical usage rate and thus revenue is recognized upon receipt of notification from licensee and payment when collection is assured. Notification is generally one quarter in arrears.

Milestone payments are recognized when both the milestone is achieved and the related payment is received.collectability.
 
Diagnostic Service Revenues
 
Revenue for clinical laboratory tests may come from several sources, including commercial third-party payors, such as insurance companies and health maintenance organizations, government payors, such as Medicare and Medicaid in the United States, patient self-pay and, in some cases, from hospitals or referring laboratories who, in turn, might bill third-party payors for testing. TheThis revenue stream does not meet the criteria for contracts with a customer under ASC 606 because it is not probable that the Company will collect substantially all the consideration to which it will be entitled in exchange for the goods and services transferred, nor can it reliably determine the expected transaction price. Therefore, the Company is recognizing diagnostic service revenue on the cash collection basis until such time as it is able to properly estimate collections on third party reimbursements.

As a result of disposition of the its Clinical Laboratory Improvement Amendments (“CLIA”) - certified laboratory, this revenue stream is declining and overall insignificant to the Company.

Clinical Research Services Revenue

Revenue from clinical research services consists of revenue from the sale of urine and blood collection supplies and tests performed under agreements with our clinical research and business development partners. Revenue wasis recognized when supplies and/or test results were delivered.are delivered, which is when control of the product is deemed to be transferred.

Cost of RevenueRestructuring

Restructuring costs are included in loss from operations in the consolidated statements of operations. The Company has accounted for these costs in accordance with ASC Topic 420, Exit or DisposalCost Obligations. One-time termination benefits are recorded at the time they are communicated to the affected employees. In March 2017, the Company announced a restructuring plan which was completed as of revenue representsDecember 31, 2017. In May 2018, the cost of materials, personnel costs and costs associated with processing specimens including pathological review, quality control analyses, and delivery charges necessary to render an individualized test result.Company closed its CLIA laboratory

operations. Costs associated with performing tests are recorded aswinding down the tests are processed. However, the revenue on diagnostic services is recognized on a cash collection basis resulting in costs incurred before the collection of related revenue.
Derivative Financial Instruments—Warrants
The Company has issued common stock warrants in connection with the execution of certain equity financings. Such warrants are classified as derivative liabilities under the provisions of Financial Accounting Standards Board (“FASB”) ASC 815 Derivatives and Hedging (“ASC 815”) or ASC 480 Distinguishing Liabilities from Equity (“ASC 480”)are recorded at their fair market value as of each reporting period. Such warrants do not meet the exemption that a contract should not be considered a derivative instrument if it is (1) indexed to its own stock and (2) classified in stockholders’ equity. The warrants within the scope of ASC 480 contain a feature that could require the transfer of cash in the event a change of control occurs without an authorization of our Board of Directors, and therefore classified as a liability. Changes in fair value of derivative liabilities areCLIA laboratory were recorded in the consolidated statement of operations underrestructuring cost in the caption “Change in fair value of derivative instruments.”
The fair value of warrants is determined using the Black-Scholes option-pricing model using assumptions regarding the volatility of Trovagene’s common stock price, the remaining life of the warrants, and the risk-free interest rates at each period end. The Company thus uses model-derived valuations where inputs are observable in active markets to determine the fair value and accordingly classifies such warrants in Level 3 per FASB ASC Topic 820, Fair Value Measurements (“ASC 820”). At September 30, 2017 and December 31, 2016, the fair value of these warrants was $2,037,712 and $834,940, respectively, and was recorded as a liability under the caption “derivative2018 financial instrumentswarrants” onstatements. See Note 9 to the consolidated balance sheets.financial statements for further information.
 
Net Loss Per Share
 
Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share, for all periods presented. In accordance with this guidance, basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. Preferred dividends are included in income available to common stockholders in the computation of basic and diluted earnings per share. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common share equivalents are only included when their effect is dilutive.

 
The following table sets forth the computation of basic and diluted earnings per share:
 
Three Months
Ended September 30,
 Nine Months
Ended September 30,
Three Months
Ended September 30,
 Nine Months
Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
Numerator: Net loss attributable to common shareholders$(4,298,026) $(10,197,332) $(22,355,494) $(30,674,248)$(3,775,628) $(4,298,026) $(15,090,413) $(22,355,494)
Adjustment for gain from change in fair value of derivative financial instrumentswarrants

 
 
 (533,750)
 
 
 
Net loss used for diluted loss per share$(4,298,026) $(10,197,332) $(22,355,494) $(31,207,998)$(3,775,628) $(4,298,026) $(15,090,413) $(22,355,494)
Denominator for basic and diluted net loss per share:              
Weighted-average shares used to compute basic loss per share36,465,672
 30,339,774
 32,826,306
 30,018,841
20,622,660
 3,038,806
 10,945,249
 2,735,526
Adjustments to reflect assumed exercise of warrants
 
 
 117,731

 
 
 
Weighted-average shares used to compute diluted net loss per share36,465,672
 30,339,774
 32,826,306
 30,136,572
20,622,660
 3,038,806
 10,945,249
 2,735,526
Net loss per share attributable to common stockholders:              
Basic$(0.12) $(0.34) $(0.68) $(1.02)$(0.18) $(1.41) $(1.38) $(8.17)
Diluted$(0.12) $(0.34) $(0.68) $(1.04)$(0.18) $(1.41) $(1.38) $(8.17)

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:
 
 September 30,
 2017 2016
Options to purchase Common Stock4,257,031
 6,051,186
Warrants to purchase Common Stock8,972,503
 4,546,939
Restricted Stock Units1,277,302
 392,000
Series A Convertible Preferred Stock63,125
 63,125
 14,569,961
 11,053,250
License Fees
 September 30,
 2018 2017
Options to purchase Common Stock500,246
 354,753
Warrants to purchase Common Stock22,189,533
 747,709
Restricted Stock Units214,872
 106,442
Series A Convertible Preferred Stock5,261
 5,261
 22,909,912
 1,214,165

The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale.

RestructuringRecently Adopted Accounting Pronouncement

Restructuring costs are includedIn June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which amends the FASB Accounting Standards Codification in loss from operations inorder to simplify the condensed consolidated statementsaccounting for share-based payments granted to nonemployees for goods and services. Under the ASU 2018-07, most of operations.the guidance on such payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. The guidance mandates the modified retrospective approach and is effective for annual and interim reporting periods beginning after December 31, 2018, with early adoption permitted. The Company has accounted for these costs in accordance with ASC Topic 420, Exit or DisposalCost Obligations. One-time termination benefits are recorded atelected to early adopt this ASU 2018-07 as of September 30, 2018 and the time they are communicated toadoption did not have an impact on the affected employees. In March 2017, the Company announced a restructuring plan which is expected to be completed in the last quarter of 2017. See Note 10 to the condensedCompany’s consolidated financial statements for further information.statements.


Recent Accounting PronouncementsPronouncement Not Yet Adopted
 
In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which includes amendments that clarify how certain cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 also provides guidance clarifying when an entity should

separate cash receipts and cash payments and classify them into more than one class of cash flows. The new amendments and guidance are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted provided that all amendments are adopted in the same period. The Company is currently evaluating the impact of adoption of ASU 2016-15 on its consolidated statements of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model thatASU 2016-02 changes accounting for leases and requires a lesseelessees to record a ROU assetrecognize the assets and a lease liabilityliabilities arising from most leases, including those classified as operating leases under previous accounting guidance, on the balance sheet for most leases.and requires disclosure of key information about leasing arrangements to increase transparency and comparability among organizations. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, which provides narrow amendments to clarify how to apply certain aspects of the new lease standard. In July 2018, ASU 2018-11, Leases: Targeted Improvements, was issued to provide relief to companies from restating comparative periods. Pursuant to this ASU, in the period of adoption the Company will not restate comparative periods presented in its financial statements. The new standard isguidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presentedCompany starting in the financial statements, with certain practical expedients available.first quarter of fiscal year 2019. The new standardstandards will impact the Company’s accounting for its equipment andoffice leases and the Company is currently evaluating the impact of the new standardstandards on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The new standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since its initial release, the FASB has issued several amendments to the standard, which include clarification of accounting guidance related to identification of performance obligations, intellectual property licenses, and principle versus agent considerations. ASU 2014-09 and all subsequent amendments (collectively, the “new standards”) will be effective for the Company beginning in the first quarter of fiscal year 2018 and may be applied using either the full retrospective method, in which case the new standards would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the new standards would be recognized at the date of initial application. The Company has reviewed its revenue streams to identify potential differences in accounting as a result of the new standards. Currently, the Company does not have any significant contracts with customers given its stage of development. The Company has derived its revenues primarily from a limited number of royalty, license and diagnostic service agreements. The consideration the Company is eligible to receive under these agreements includes upfront license payments, milestone payments and royalties. Each of these agreements has unique terms that are being evaluated separately under the new standards. The new standards differ from the current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments. For example, the Company currently recognizes milestone revenue using the milestone method specified in ASC 605-28, which generally results in recognition of milestone revenue in the period that the milestone event is achieved. However, under the new standards, it is possible to start to recognize milestone revenue before the milestone is achieved if management determines with a high degree of certainty that amounts recorded as revenues will not have to be reversed when the uncertainty associated with the variable consideration is subsequently resolved. The Company is also continuing to assess the potential impact that the new standards may have with respect to its diagnostic service revenue which is currently recognized on a cash collection basis. Under the new standards, the Company may recognize diagnostic service revenue upon delivery of test results if management determines with a high degree of certainty that amounts recorded as revenues will not have to be reversed when the uncertainty associated with the variable consideration is subsequently resolved. The Company is continuing to assess the impact the new standards will have on its financial statements and expects to complete the assessment on or before the year-end 2017. The Company does not expect a significant change in the timing and recognition of its revenue upon adoption of the new standards. The Company expects to adopt the new standards using the modified retrospective method with an adjustment, if any, to beginning retained earnings for the cumulative effect of the change.processes.

3. Fair Value Measurements
 
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, 20172018 and December 31, 2016:2017:
 

Fair Value Measurements at
September 30, 2017
Fair Value Measurements at
September 30, 2018
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total
Assets:              
Money market fund (1)$6,510,214
 $
 $
 $6,510,214
$14,974,256
 $
 $
 $14,974,256
Total Assets$6,510,214
 $
 $
 $6,510,214
$14,974,256
 $
 $
 $14,974,256
Liabilities:              
Derivative financial instrumentswarrants
$
 $
 $2,037,712
 $2,037,712
$
 $
 $70,347
 $70,347
Total Liabilities$
 $
 2,037,712
 $2,037,712
$
 $
 $70,347
 $70,347
Fair Value Measurements at
December 31, 2016
Fair Value Measurements at
December 31, 2017
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total
Assets:              
Money market fund (1)$12,095,620
 $
 $
 $12,095,620
$8,309,964
 $
 $
 $8,309,964
Corporate debt securities (2)
 14,160,686
 
 14,160,686
Commercial paper (3)
 2,393,948
 
 2,393,948
U.S. treasury securities (2)
 8,621,892
 
 8,621,892
Total Assets$12,095,620
 $25,176,526
 $
 $37,272,146
$8,309,964
 $
 $
 $8,309,964
Liabilities:              
Derivative financial instrumentswarrants
$
 $
 $834,940
 $834,940
$
 $
 $649,387
 $649,387
Total Liabilities$
 $
 $834,940
 $834,940
$
 $
 $649,387
 $649,387
 
(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.

(3) $0 and $1,198,504 of commercial paper was included as a component of cash and cash equivalents at September 30, 2017 and December 31, 2016, respectively, and the remaining amount was included in short-term investments on the accompanying 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, 2017:2018:
 
Description Balance at
December 31, 2016
 Issuance of Derivative Financial Instruments 
Realized
Gain
 Balance at
September 30, 2017
 Balance at
December 31, 2017
 Realized (gains) or losses Balance at
September 30, 2018
Derivative financial instrumentswarrants
 $834,940
 3,215,519
 $(2,012,747) $2,037,712
 $649,387
 $(579,040) $70,347
 
The realized gains or losses onchange in the derivativefair value of the “derivative financial instruments—warrants arewarrants” is recorded as a change in fair value of derivative financial instruments—warrantsgain or loss in the Company’s consolidated statement 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 815-40.815-40 and ASC Topic 480-10. At each reporting period, all assets and

liabilities for which the fair value measurement is based on significant unobservable inputs or instruments that trade infrequently and therefore have little or no price transparency are classified as Level 3.

4. Short-Term Investments

As of September 30, 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 short-term investments as of December 31, 2016.

 December 31, 2016
     Unrealized  
 Maturity in Years Cost Gains Losses Fair Value
Corporate debt securitiesLess than 1 year $14,165,915
 $44
 $(5,273) $14,160,686
Commercial paperLess than 1 year 1,195,444
 
 
 1,195,444
U.S. treasury securitiesLess than 1 year 8,625,728
 330
 (4,166) 8,621,892
Total Investment  $23,987,087
 $374
 $(9,439) $23,978,022

5. Property and Equipment
 
Property and equipment consist of the following:
 
As of September 30,
2017
 As of December 31,
2016
As of September 30,
2018
 As of December 31,
2017
Furniture and office equipment$1,076,709
 $1,144,741
$1,072,156
 $1,076,709
Leasehold improvements1,994,514
 1,994,514
1,994,514
 1,994,514
Laboratory equipment2,584,363
 2,449,645
912,940
 1,426,581
5,655,586
 5,588,900
3,979,610
 4,497,804
Less—accumulated depreciation and amortization(2,528,617) (1,761,985)(2,352,005) (2,071,492)
Property and equipment, net$3,126,969
 $3,826,915
$1,627,605
 $2,426,312
 

6. Debt
5. Equipment Line of Credit

In November 2015, the Company entered into a Loan and Security Agreement (“Equipment Line of Credit”) with SVB 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 arewere due on borrowings through November 30, 2016, with both interest and principal payments commencing in December 2016. 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. The Company is also subject to certain affirmative and negative covenants under the Equipment Line of Credit.

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,On April 6, 2018, the Company has classifiedpaid approximately $1,100,000 to SVB. This payment repaid the entire balanceoutstanding Equipment Line of $1,488,041 as a current liability as of September 30, 2017 and also started recording accrued interest at a default rate.Credit loan in full. The Company recorded $209,082$25,161 in interest expense related to the Equipment Line of Credit during the nine months ended September 30, 2017. The Company is currently working with lender for resolution.

Loan and Security Agreement
In June 2014, the Company entered into a $15,000,000 Loan and Security Agreement (“Agreement”) under which the lenders provided the Company a term loan. On July 20, 2016, the Company signed the 5th Amendment to Loan and Security Agreement to refinance its existing term loan. Under the Amendment, interest is equal to 3.75% plus the Wall Street Journal Prime Rate, subject to a floor of 7.25%. The Company is required to make interest only payments on the outstanding amount of the loan on a monthly basis through September 1, 2017, after which equal monthly payments of principal and interest are due until the loan maturity date of February 1, 2020.

On June 1, 2017, the Company received a Notice of Event of Default from the lenders which 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 bank accounts which satisfied all of the Company’s outstanding obligations under the Agreement. Accordingly, the Agreement was terminated in June 2017. Upon termination of the Agreement, the prepayment fee of $450,000, unamortized debt discount of $400,562 and unamortized final fee of $738,196 were recorded as loss on debt extinguishment. The Company recorded total interest expense of $801,173 related to the Agreement during the nine months ended September 30, 2017.2018.
 
7.6. Derivative Financial Instruments — Warrants
 
Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”) or ASC Topic 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”), Trovagene determined that certain warrants issued in connection with the execution of certain equity financings must be recorded as derivative liabilities. In accordance with ASC 815-40 and ASC 480-10, the warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant change in fair value is being recorded in the Company’s condensed consolidated statements of operations. The Company estimates the fair value of these warrants using the Black-Scholes option pricing model.
 
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:
 
Nine Months Ended September 30,Nine Months Ended September 30,
2017 20162018 2017
Estimated fair value of Trovagene common stock0.73-1.26
 4.49-4.65
0.77-4.20
 8.76-15.12
Expected warrant term1.3-5.5 years
 2.3-2.8 years
0.3-5.1 years
 1.3-5.5 years
Risk-free interest rate1.27-1.95%
 0.71-0.87%
1.76-2.92%
 1.27-1.95%
Expected volatility86-109%
 82-89%
47-131%
 86-109%
Dividend yield0% 0%0% 0%

Expected volatility is based on historical volatility of Trovagene’s common stock. The warrants have a transferability provision and based on guidance provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB No.

107”), for instruments issued with such a provision, Trovagene used the remaining contractual term as the expected term of the warrants. The risk freerisk-free rate is based on the U.S. Treasury security rates consistent with the expected remaining term of the warrants at each balance sheet date.
 
The following table sets forth the components of changes in the Company’s derivative financial instrumentswarrants liability balance, valued using the Black-Scholes option pricing method, for the periods indicated.
 
Date Description Number of Warrants 
Derivative
Instrument
Liability
December 31, 2016 
Balance of derivative financial instrumentswarrants liability
 967,295
 $834,940
  Issuance of derivative financial instruments 4,643,626
 3,215,519
  
Change in fair value of derivative financial instrumentswarrants during the period recognized as a gain in the condensed consolidated statements of operations
 
 (2,012,747)
September 30, 2017 
Balance of derivative financial instrumentswarrants liability
 5,610,921
 $2,037,712
Date Description Number of Warrants 
Derivative
Instrument
Liability
December 31, 2017 
Balance of derivative financial instrumentswarrants liability
 467,584
 $649,387
  
Change in fair value of derivative financial instrumentswarrants during the period recognized as a gain in the condensed consolidated statements of operations
 
 (579,040)
September 30, 2018 
Balance of derivative financial instrumentswarrants liability
 467,584
 $70,347
 
8.7. Stockholders’ Equity
 
Common Stock
 
During the nine months ended September 30, 2017,2018, the Company issued a total of 7,408,46018,557,893 shares of Common Stock. The Company received gross proceeds of approximately $7.1$18.0 million from the sale of 6,191,5009,140,000 shares of its common stock, 20,700,000 warrants, and 4,643,626 share8,860 shares of Series B Convertible Preferred Stock through an underwritten public offering in June 2018. 473,497 shares were issued upon exercise 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 atfor a weighted averageweighted-average price of $1.08 under the agreement with Cantor Fitzgerald & Co. (“Agent”). In addition, 369,487$3.41. 77,572 shares were issued upon vesting of restricted stock units (“RSU”RSUs”), and 745,3928,860,000 shares were issued upon vestingconversion of restricted8,860 shares of Series B Convertible Preferred Stock. In addition, 6,824 shares were issued for share rounding as a result of the reverse stock awards (“RSA”).split.
 
Stock Options
 
Stock-based compensation expense related to Trovagene equity awards have been recognized in operating results as follow:
 
Three Months Ended
September 30,
 Nine Months Ended
September 30,
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
Included in research and development expense$219,480
 $872,792
 $798,143
 $1,862,069
$130,300
 $219,480
 $637,821
 $798,143
Included in cost of revenue15,633
 42,639
 56,998
 99,164

 15,633
 30,488
 56,998
Included in selling and marketing expense118,434
 476,865
 550,317
 1,493,744
Included in general and administrative expense1,067,633
 437,075
 1,837,128
 2,487,415
Included in selling, general and administrative expense147,921
 1,186,067
 1,237,343
 2,387,445
Benefit from restructuring
 
 (125,222) 

 
 
 (125,222)
Total stock-based compensation expense$1,421,180
 $1,829,371
 $3,117,364
 $5,942,392
$278,221
 $1,421,180
 $1,905,652
 $3,117,364
 
The unrecognized compensation cost related to non-vested stock options outstanding at September 30, 20172018 and 2016,2017, net of expected forfeitures, was $3,271,046$499,861 and $10,416,565,$3,271,046, respectively, which is expected to be recognized over a weighted-average remaining vesting period of 2.21.3 and 3.02.2 years, respectively. The weighted-average remaining contractual term of outstanding options as of September 30, 20172018 was approximately 7.27.6 years. The total fair value of stock options vested during the nine months ended September 30, 2018 and 2017 was $1,515,946 and 2016 was $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-average assumptions during the following periods indicated:
 
Nine Months Ended
September 30,
Nine Months Ended September 30,
2017 20162018 2017
Risk-free interest rate1.82% 1.48%2.5% 1.82%
Dividend yield0% 0%0% 0%
Expected volatility87% 103%91% 87%
Expected term5.2 years
 5.5 years
5.2 years
 5.2 years

A summary of stock option activity and changes in stock options outstanding is presented below:
 
Total Options 
Weighted-Average
Exercise Price
Per Share
 
Intrinsic
Value
Total Options 
Weighted-Average
Exercise Price
Per Share
 
Intrinsic
Value
Balance outstanding, December 31, 20165,528,628
 $5.49
 $
Balance outstanding, December 31, 2017374,251
 $48.52
 $
Granted823,106
 $0.84
  
316,744
 $3.12
  
Canceled / Forfeited(2,077,246) $6.24
  
(189,540) $36.50
  
Expired(17,457) $4.74
  
(1,209) $36.00
  
Balance outstanding, September 30, 20174,257,031
 $4.23
 $381
Exercisable at September 30, 20172,492,242
 $4.79
 $
Balance outstanding, September 30, 2018500,246
 $24.35
 $3,370
Exercisable at September 30, 2018355,696
 $30.21
 $1,950
 
On June 13, 2017,May 30, 2018, the number of authorized shares in the Trovagene 2014 Equity Incentive Plan (“2014 EIP”) was increased from 7,500,000791,667 to 9,500,000.1,458,334. As of September 30, 20172018 there were 3,670,232637,798 shares available for issuance under the 2014 EIP.

Restricted Stock Units

The weighted-average grant date fair value of the RSURSUs was $1.59$0.77 and $4.06$19.08 per share during the nine months ended September 30, 20172018 and 2016,2017, respectively.

A summary of the RSU activity is presented below:
Number of Shares 
Weighted-Average
Grant Date Fair Value
Per Share
 Intrinsic ValueNumber of Shares 
Weighted-Average
Grant Date Fair Value
Per Share
 Intrinsic Value
Non-vested RSU outstanding, December 31, 2016272,000
 $3.99
 $571,200
Non-vested RSUs outstanding, December 31, 2017106,200
 $17.22
 $391,878
Granted2,249,242
 $1.59
  204,750
 $0.77
  
Vested(369,487) $3.48
 $645,775
(77,572) $13.83
 $268,151
Forfeited(874,453) $1.75
  (18,506) $24.60
  
Non-vested RSU outstanding, September 30, 20171,277,302
 $1.44
 $932,430
Non-vested RSUs outstanding, September 30, 2018214,872
 $2.14
 $175,121

At September 30, 2018 and 2017, total unrecognized compensation cost related to non-vested RSU wasRSUs were $263,695 and $1,011,494, which isare expected to be recognized over a weighted-average period of 2.0 and 2.5 years.years, respectively. The total fair value of vested RSURSUs during the nine months ended September 30, 2018 and 2017 was $1,285,578.

Restricted Stock Awards

During the nine months ended September 30, 2017, a total of 745,392 shares of RSA were granted, all of which were vested immediately. The total fair value of vested RSA during the nine months ended September 30, 2017 was $596,314. The weighted-average grant date fair value of the RSA was $0.80 per share during the nine months ended September 30, 2017. There were no such awards granted during the nine months ended September 30, 2016.$1,072,714 and $1,285,578, respectively.

Warrants
 
A summary of warrant activity and changes in warrants outstanding, including both liability and equity classifications is presented below:
 
 Total Warrants 
Weighted-Average
Exercise Price
Per Share
 
Weighted-Average
Remaining Contractual
Term
Balance outstanding, December 31, 20165,505,901
 $3.83
 1.6
Granted4,643,626
 $1.41
  
Expired(1,177,024) $5.32
  
Balance outstanding, September 30, 20178,972,503
 $2.38
 3.3
 Total Warrants (1) 
Weighted-Average
Exercise Price
Per Share
 
Weighted-Average
Remaining Contractual
Term (1)
Balance outstanding, December 31, 20171,936,641
 $11.34
 4.4
Granted20,700,000
 $1.10
  
Exercised(447,108) $3.60
  
Balance outstanding, September 30, 201822,189,533
 $1.94
 4.6
(1) Excluded the pre-funded warrants to purchase 26,389 shares of common stock at a nominal exercise price of $0.12 per share. The pre-funded warrants were exercised in full during the nine months ended September 30, 2018.

Series B Convertible Preferred Stock

On June 12, 2018, the Company closed an underwritten public offering for total gross proceeds of $18.0 million. The total related offering costs were approximately $1.8 million. The securities offered by the Company consisted of (i) 9,140,000 shares of common stock, at an offering price of $1.00 per share, (ii) warrants to purchase an aggregate of 20,700,000 shares of common stock, including the over-allotment option for 2,700,000 option warrants, at an exercise price of $1.10 per share, and (iii) 8,860 shares of Series B Convertible Preferred Stock, with a stated value of $1,000, and convertible into an aggregate of 8,860,000 shares of common stock. The conversion feature of the Series B Convertible Preferred Stock at the time of issuance was determined to be beneficial on commitment date. Because the Series B Convertible Preferred Stock is perpetual with no stated maturity date, and the conversions may occur any time from inception, the Company immediately recorded a one-time, non-cash deemed dividend of $2.8 million related to the beneficial conversion feature arising from the issuance of Series B Convertible Preferred Stock. This one-time, non-cash deemed dividend increased the Company’s net loss attributable to common stockholders and net loss per share.

The holders of Series B Convertible Preferred Stock are entitled to receive dividends on an as-if-converted-to-Common-Stock basis when, as and if such dividends are paid on shares of the Common Stock. Each share of Series B Convertible Preferred Stock shall entitle the holder to vote on an as-if-converted-to-Common-Stock basis (not exceeding the Beneficial Ownership Limitation). Upon any liquidation, dissolution or winding-up of the Company, the holders of Series B Convertible Preferred Stock are entitled to participate on an as-if-converted-to-Common Stock basis (without giving effect to the Beneficial Ownership Limitation) with holders of the Common Stock in any distribution of assets of the Company. Each share of Series B Convertible Preferred Stock is convertible at the option of the holder into that number of shares of Common Stock determined by dividing the stated value of $1,000 per share, by the conversion price of $1.00 per share.

As of September 30, 2018, there were no shares of Series B Convertible Preferred Stock outstanding.

9.8. Commitments and Contingencies
 
Executive and Consulting Agreements
 
The Company has longer-term contractual commitments with various consultants and employees. Certain employment agreements provide for severance payments.
 
Lease Agreements
 
The Company leases approximately 26,100 square feet of office and laboratory space at a monthly rental rate of approximately $68,000.$73,000. The 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 leased certain lab and office space in Torino, Italy, of approximately 2,300 square feet, at a monthly rental rate of approximately $3,100 through the end of September 2017.
 

Research and Development and Clinical Trial Agreements

In March 2017, the Company entered into a license agreement with Nerviano Medical Sciences S.r.l. (“Nerviano”) which granted the Company development and commercialization rights to NMS-1286937, which Trovagene refers to as PCM-075. PCM-075onvansertib. Onvansertib is an oral, investigative drug and a highly-selective adenosine triphosphate competitive inhibitor of the serine/threonine PLK 1. The Company plans to develop PCM-075 initiallyonvansertib in patients with AML.leukemias/lymphomas and solid tumor cancers. Upon execution of the agreement, the Company paid $2.0 million in license fees which were expensed to research and development costs duringcosts. Under the nine months ended September 30, 2017. Theagreement, the Company is committed to pay $1.0 million for future services provided by Nerviano, such as the costs to manufacture drug product, no later than June 30, 2019. As of September 30, 2018, approximately $368,000 has been paid for services provided. Terms of the agreement also provide for the Company to pay royalties based on certain development and sales milestones.
 
The Company has entered into a variety of clinical trial and collaboration agreements relating to its drug development efforts. Included in research and development expense, the Company has recorded approximately $291,000 for the nine months ended September 30, 2017 relating to services provided 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.diagnostics and oncology therapeutics. License fees are generally calculated as a percentage of product revenues, with rates that vary by agreement. To date, payments have not been material.

Litigation
 
Trovagene does not believe that the Companyit has legal 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 complaint 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 present a lucrative corporate opportunity to the Company concerning promising new therapeutics in the field of precision medicine and instead 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 former CEO and CFO filed a cross complaint in the Superior Court of the State of California

for the County of San Diego against the Company on May 23, 2016 for, among other things, breach of contract (the “Cross Complaint”, and together with the Complaint, collectively, the “Litigation”). On July 28, 2017, the parties settled the Litigation.  The settlement involved mutual releases by all parties involved. The net cost to Trovagene in connection with the settlement is approximately $2.1 million. Of that amount, $975,000 was the net amount paid directly to the former CEO and CFO.disclosure. From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in matters may arise from time to time that may harm the Company’s business. As of the date of this report, management believes that there are no claims against the Company, which it believes will result in a material adverse effect on the Company’s business or financial condition.

Public Offering and Controlled Equity Offering

On March 15, 2017, the Company filed a Form 424B5 to amend and supplement the information in the Company’s registration statement and prospectus, dated June 13, 2016, to offer and sell additional shares of the Company’s common stock having an aggregate offering price up to $20,698,357. The Company entered into an agreement with Cantor Fitzgerald & Co. (“Agent”) on January 25, 2013 to issue and sell up to $30,000,000 of shares of common stock through the Agent. As payment for its services, the Agent is entitled to a commission on gross proceeds of up to 3%. Gross proceeds of approximately $110,000 have been raised in 2017.

10.9. Restructuring Charges

OnIn May 2018, the Company closed its CLIA laboratory operations in order to streamline the Company’s business model. The loss recognized from disposition of CLIA laboratory was reported as restructuring charges, a component of operating loss, in the condensed consolidated financial statements. During the nine months ended September 30, 2018, the Company recorded total restructuring charges of approximately $664,000 for CLIA laboratory disposal transactions, of which, approximately $187,000 was related to impairment loss on CLIA laboratory license, approximately $52,000 was related to loss on disposal of property and equipment and other non-capital assets, and approximately $425,000 was related to loss on sublease of office and laboratory space.

In March 15, 2017, the Company announced a strategic restructuring plan in connection with the additionexpansion of precision medicine therapeutics to its business, the Company announced abusiness. The restructuring plan (the “Restructuring”) which included a reduction in force. The Restructuring is expected to beforce and was completed in the last quarter of 2017. The Company estimates that it will incurRestructuring charges of approximately $2.0$1.7 million in charges related to this Restructuring. Duringwere incurred and have been included as a component of operating loss for the nine months ended September 30, 2017,2017. Of the Company incurred approximately $1.7 million intotal restructuring charges, which included approximately $1.2 million was related to termination of personnel termination costsemployees and an approximately $0.5 million charge related to impairment of capitalizedimpaired license fees. As of September 30, 2017, approximately $0.4 million of these restructuring costs were included in accrued liabilities in the condensed consolidated balance sheet.

11. Related Party Transactions10. Subsequent Event

In March 2016,Subsequent to the quarter end, the Company engaged Rutan & Tucker, LLP,entered into an arrangement with Leucadia Life Sciences (“Leucadia”) pursuant to which Leucadia will develop a law firm to represent Trovagene, Inc. with respect to various lawsuits. OnePCR-based assay for onvansertib for AML. The cost of the partners from Rutan & Tucker, LLP,services under the arrangement are expected to be up to $575,000. The Company’s Interim Chief Executive Officer (“CEO”), Dr. Thomas Adams, is a principal stockholder of Leucadia. In addition, in connection with the arrangement, the Company may enter into a consulting agreement with Tommy Adams, VP of Operations of Leucadia, who 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. During the nine months ended September 30, 2017 and 2016, the Company has incurred approximately $763,075 and $377,464 of legal expenses, net of insurance reimbursements, for services performed by Rutan & Tucker, LLP, respectively.Dr. Adams.

12. Subsequent Event

On October 25, 2017, the Company filed a registration statement on Form S-1 with the SEC for a best efforts public offering of up to $17.5 million of common stock and warrants. H.C. Wainwright & Co. is acting as placement agent.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
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, 2016, filed on March 15, 2017, on Form 10-Q

for the period ended March 31, 2017, filed on May 10, 2017, and on Form 10-Q for the period ended June 30, 2017, filed on August 9, 2017.February 26, 2018. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
 
You should not rely upon forward lookingforward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward lookingforward-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.
 
Overview

 We are a precision medicine biotechnology company developingclinical-stage, oncology therapeutics company, taking a precision cancer medicine approach to develop drugs that target mitosis (cell division) to treat various types of cancer, including leukemias, lymphomas and solid tumors.

On March 15, 2017, we announced that we licensed onvansertib (PCM-075), a PLK1 inhibitor, from Nerviano, pursuant to a license agreement with Nerviano dated March 13, 2017. Onvansertib was developed to have high selectivity to PLK1 (at low nanomolar IC50 levels), to have ideal pharmacokinetics, including oral bioavailability and administration and a drug half-life of approximately 24 hours, allowing for improved cancer care, optimizing drug developmentflexible dosing and scheduling, and is well tolerated and safe with only mild- to moderate side effects reported to-date. A safety study of onvansertib has been successfully completed in patients with advanced metastatic solid tumors and published in 2017 in Investigational New Drugs. We currently are enrolling a Phase 1b/2 open-label clinical trial of onvansertib in combination with standard-of-care chemotherapy in patients with AML. The Phase 1b/2 clinical trial is led by leveraging our proprietary PCM technologyHematologist Jorge Eduardo Cortes, M.D., Deputy Department Chair, Department of Leukemia, Division of Cancer Medicine, The University of Texas MD Anderson Cancer Center and Amer Zeidan, MBBS, MHS, assistant professor of Medicine at Yale School of Medicine, Hematology expert at Yale Cancer Center. Nine clinical trial sites across the U.S. are currently participating in tumor genomics. this trial. In addition, the Company is enrolling patients for its Phase 2 open-label clinical trial of onvansertib in combination with abiraterone acetate (Zytiga®) and prednisone in patients with mCRPC. This trial is being led by David Einstein, M.D., at the Genitourinary Oncology Program at BIDMC and Harvard Medical School and, in addition to BIDMC, this trial is being conducted at DFCI and MGH.

Our broad intellectual property and proprietary technology enables us to measureanalyze ctDNA in urine and bloodclinically actionable markers. Unique to our clinical development plan, and a key component of our precision cancer medicine approach, is the integration of predictive clinical biomarkers to identify patients most likely to respond to treatment.


Onvansertib is a first-in-class, 3rd generation, oral and quantifyhighly-selective PLK1 inhibitor with apparent antitumor activity in different pre-clinical models. Polo-like kinase family consists of 5 members (PLK1-PLK5) and they are involved in multiple functions in cell division, including the regulation of centrosome maturation, checkpoint recovery, spindle assembly, cytokinesis, apoptosis and many others. PLK1 is essential for the maintenance of genomic stability during cell division. The over-expression of PLK1 can lead to immature cell division followed by aneuploidy and cell death, a hallmark of cancer. PLK1 is over-expressed in a wide variety of leukemias/lymphomas and solid tumor cancers, including acute myeloid leukemia, non-hodgkin lymphoma, prostate, lung, breast, ovarian, colorectal and adrenocortical carcinoma. In addition, several studies have shown that over-expression of PLK1 is associated with poor prognosis. Blocking the expression of PLK1 by kinase inhibitors, such as onvansertib, can effectively inhibit growth of, and induce, tumor cell death.

Studies have shown that inhibition of polo-like-kinases can lead to tumor cell death, including a Phase 2 study in AML where response rates with a prior PLK inhibitor of up to 31% were observed when used in conjunction with a standard therapy for AML (LDAC) versus a 13.3% response rate with LDAC alone. We believe the more selective nature of onvansertib to PLK1, its 24-hour half-life and oral bioavailability, as well as its demonstrated safety and tolerability, with only mild- to moderate side effects reported, may prove useful in addressing clinical therapeutic needs across a variety of cancers.

Onvansertib has been tested in vivo in different xenograft and transgenic models suggesting tumor growth inhibition or tumor regression when used in combination with other therapies. Onvansertib has been tested for antiproliferative activity on a panel of 148 tumor cell lines and appeared highly active with an IC50 (a measure concentration for 50% target inhibition) below 100 nM in 75 cell lines and IC50 values below 1 uM in 133 out of 148 cell lines. Onvansertib also appears active in cells expressing multi-drug resistant (“MDR”) transporter proteins and we believe its apparent ability to overcome the MDR transporter resistance mechanism in cancer cells could prove useful in broader drug combination applications.

In in-vitro and in-vivo pre-clinical studies, synergy (interaction of discrete drugs such that the total effect is greater than the sum of the individual effects) has been demonstrated with onvansertib when used in combination with numerous different chemotherapies, including cisplatin, cytarabine, doxorubicin, gemcitabine and paclitaxel, as well as targeted therapeutics, such as abiraterone acetate (Zytiga®), HDAC inhibitors, such as belinostat (Beleodaq®), Quizartinib (AC220), a development stage FLT3 inhibitor, and bortezomib (Velcade®). These therapies are used clinically actionable markersfor the treatment of leukemias, lymphomas and solid tumor cancers, including AML, NHL, mCRPC, CRC, and TNBC.

We continue to focus on advancing our two active clinical trials with onvansertib. We have achieved a number of key milestones during the nine months ended September 30, 2018 and anticipate achieving the following milestones throughout the remainder of 2018 and early 2019:

Phase 1b/2 Trial of Onvansertib in Combination with Either Low-Dose Cytarabine or Decitabine for the Treatment of Acute Myeloid Leukemia.

Complete Phase 1b dose escalation cohorts and identify the recommended Phase 2 dose (“RP2D”) for the Phase 2 continuation trial (dependent upon the number of dose escalation cohorts required to reach the maximum tolerated dose or RP2D of onvansertib).
Provide topline preliminary safety and efficacy data on the combination of onvansertib + LDAC and the combination of onvansertib + decitabine in patients treated through the end of 2018.
Present data from the AML trial at the 60th annual American Society of Hematology (“ASH”) conference in December 2018.
Initiate the Phase 2 segment of the AML trial, which will enroll approximately 32 patients for continued evaluation of safety and preliminary efficacy of onvansertib in combination with either LDAC or decitabine (provided the RP2D has been determined in Phase 1b).
Phase 2 trial of Onvansertib in Combination with Abiraterone Acetate (Zytiga®) and Prednisone for the Treatment of Metastatic Castration-Resistant Prostate Cancer.
Complete enrollment and evaluation of the 3 safety lead-in patients with onvansertib at 24 mg/m2 in combination with abiraterone acetate (Zytiga®) and prednisone.
Provide topline preliminary safety and efficacy data of onvansertib in combination with abiraterone acetate (Zytiga®) and prednisone in patients treated.
Present data from the mCRPC trial at the 2019 Genitourinary Cancers Symposium (“ASCO GU”)


During 2018, we have advanced our business with the following activities:

Announced New Patent Claim Allowances Affirming Broad Patent Portfolio Coverage of NPM1 Mutations by the United States Patent and Trademark Office.

On October 24, 2018, we announced that the U.S. Patent and Trademark Office (“USPTO”) has allowed claims that affirm broad coverage of NPM1 mutation testing; Patent Application 14/750331, entitled “Nucleophosmin Protein (“NPM”) Mutants, Corresponding Gene Sequences and Uses Thereof.” This patent encompasses broad claims around the assessment of NPM1 mutational status in any cancer type, including AML.

Announced Exclusive License Agreement with Massachusetts Institute of Technology (“MIT”) for Combination Therapy of Anti-Androgens and Polo-like Kinase Inhibitors in Prostate Cancer.

On October 3, 2018, we announced that we have entered into an exclusive patent license agreement with the MIT. Under the agreement, we have exclusive rights to develop combination therapies that include anti-androgen or androgen antagonist and a Polo-like Kinase (“PLK”) inhibitor for the treatment of cancer. The exclusive license agreement is part of our strategy to explore the efficacy of onvansertib in combination with anti-androgen drugs in cancers including prostate, breast, pancreatic, lung and gastrointestinal.

Announced Completion of Dosing Cohort of Patients Treated with Onvansertib in Combination with Decitabine in Ongoing Phase 1b/2 AML Trial.

On September 27, 2018, we announced completion of the second dosing cohort of onvansertib in combination with standard-of-care decitabine, in our Phase1b/2 clinical trial in patients with AML. All three patients in the cohort successfully completed treatment with onvansertib at 18mg/m2, administered orally, once daily, on days 1-5 of the treatment cycle, in combination with decitabine and the combination was well tolerated.  The Safety Review Committee (“SRC”) has recommended escalating to the next dose level of onvansertib at 27mg/m2 (approximately a 50% increase) in combination with decitabine.

Announced Predictive Clinical Biomarker Approach to Identify AML Patients Most Likely to Respond to Onvansertib.

On September 5, 2018, we announced we have developed a method for predicting response to cancer therapies. We offer our PCM technology at our CLIA-certified/CAP-accredited laboratorytreatment by measuring the ability of onvansertib to inhibit PLK1 in patients with AML. PLK1 uniquely phosphorylates translational control tumor protein (“TCTP”) to form pTCTP and planinhibition of this enzymatic activity by onvansertib appears to continue to vertically integrate our PCM technology with the developmentbe predictive of precision cancer therapeutics.

We believe we have an opportunity to utilize precision diagnostics to improve treatment outcomes for cancer patients using our proprietary technology to detect clinically actionable mutations and monitor patient response to therapy. treatment. In the ongoing Phase1b/2 open label clinical trial in AML, PLK1 inhibition is being assessed 3-hours following administration, at the approximate peak concentration (Cmax) of onvansertib. In the first six patients treated, the greatest target engagement, or inhibition of PLK1, was observed in the three patients who showed a response to treatment. We have filed a U.S. patent application with the United States Patent and Trademark Office (“USPTO”) to protect our method for evaluating responsiveness of a cancer to a PLK1 inhibitor by determining the ability of the PLK1 inhibitor to inhibit phosphorylation of a unique target of PLK1 in cells of the cancer.

Announced European Commission Grants Orphan Drug Designation to Onvansertib (PCM-075) for Treatment of Acute Myeloid Leukemia in Europe.

On MarchAugust 29, 2018, we announced that the European Commission (“EC”) has endorsed the positive opinion of the Committee for Orphan Medicinal Products (“COMP”) and has granted Orphan Drug Designation (“ODD”) for onvansertib for the treatment of patients with AML. Orphan drug designation by the EC provides regulatory and financial incentives to us, including reduced fees during the product development phase, direct access to centralized marketing authorization in the EU, and 10-year market exclusivity following product approval.

Announced Completion of Second Dosing Cohort of Patients Treated with Onvansertib (PCM-075) in Ongoing Phase 1b/2 AML Trial.

On August 16, 2018, we announced completion of the second dosing cohort of onvansertib, in combination with standard-of-care LDAC, in our Phase1b/2 clinical trial in patients with AML. All three patients in the cohort successfully completed treatment with onvansertib at 18 mg/m2, administered orally, once daily, on days 1-5 of the treatment cycle, in combination with LDAC and the combination was well tolerated. The SRC has recommended escalating to the next dose level of onvansertib at 27 mg/m2 (approximately a 50% increase) in combination with

LDAC. Additionally, two patients in the three-patient cohort of onvansertib at 18 mg/m2 in combination with decitabine have also successfully completed at least one cycle of treatment and recruitment of the third patient to complete this cohort is in process. Four of the eleven patients treated to-date remain on treatment, three are currently receiving a second cycle of treatment and one patient is scheduled to start a fifth cycle of treatment.

Received United States Adopted Name (“USAN”) Approval for “Onvansertib” as Nonproprietary Name for First-in-Class, 3rd Generation PLK1 Inhibitor Drug Candidate, PCM-075.

On August 15, 2017,2018, we announced that the USAN Council has approved “onvansertib” as the nonproprietary (generic) name for our drug candidate, PCM-075.  

Received Positive Opinion for Orphan Drug Designation in the European Union for Onvansertib (PCM-075), Our Investigational Cancer Drug.

On August 1, 2018, we announced that the European Medicines Agency (“EMA”) COMP has adopted a positive opinion recommending onvansertib (PCM-075) for designation as an orphan medicinal product for the treatment of AML.  The opinion letter sent to us by the COMP stated that “although satisfactory methods of treatment of the condition have been authorized in the EU, PCM-075 will be of significant benefit to those affected by AML.”

Announced Preliminary Clinical Data from First Dosing Cohort Demonstrating Durable Treatment Effect of Onvansertib (PCM-075) in Combination with Cytarabine or Decitabine in Patients with Relapsed or Refractory AML.

On June 27,2018, we announced preliminary clinical data from the first dosing cohort showing a treatment effect with onvansertib (PCM-075) in combination with LDAC or decitabine, as measured by decreases in leukemic cells in both peripheral blood and bone marrow in patients in its ongoing Phase 1b/2 trial in relapsed or refractory AML. Both blood and bone marrow samples were obtained from patients with relapsed or refractory AML enrolled in the Phase 1b/2 trial prior to, and at timepoints following administration of onvansertib (PCM-075), in combination with cytarabine or decitabine. Among the 6 patients evaluated, no dose-limiting toxicities were observed that would prohibit further escalation of the onvansertib (PCM-075) dosing. Three patients exhibited substantial reductions in the percentage of both circulating leukemic cells within the blood and leukemic cells within the bone marrow. Two of these three patients continued on treatment in the second cycle and further decreases in circulating leukemic cells in the blood and within the bone marrow were observed. One patient had a decrease in his bone marrow blasts from 96% to 40% at the end of cycle 2 and has continued on treatment in cycle 3.

Announced the Start of Recruitment and Enrollment for Phase 2 Clinical Trial of Onvansertib (PCM-075) in Combination with Zytiga® in Patients with mCRPC.
On June 21, 2018, we announced we have received Institutional Review Board approval from Dana-Farber/Harvard Cancer Center and our Phase 2 clinical trial of onvansertib (PCM-075) in combination with Zytiga® (abiraterone acetate) and prednisone in mCRPC is officially activated and recruiting patients. The trial is being conducted by BIDMC, DFCI, and MGH. David Einstein, MD, Genitourinary Oncology Program at BIDMC, is the principal investigator for the trial.

Announced Completion of First Dosing Cohort of Patients Treated with Onvansertib (PCM-075) in Combination with Decitabine in Ongoing Phase 1b/2 AML trial.

On June 15, 2018, we announced completion of the first dose cohort of onvansertib (PCM-075) in combination with decitabine in our Phase 1b/2 clinical trial in patients with AML. Three patients were treated with onvansertib (PCM-075) at 12 mg/m2, administered orally, once daily, on days 1-5 of the treatment cycle, in combination with decitabine. The combination of onvansertib (PCM-075) and decitabine was well tolerated in all patients. The independent SRC has recommended escalating to the second dose cohort of three patients at 18 mg/m2 of onvansertib (PCM-075) (approximately a 50% increase) in combination with decitabine.

Announced Completion of First Dosing Cohort of Patients in Ongoing Phase 1b/2 AML trial of Onvansertib (PCM-075) in AML.

On May 17, 2018, we announced the licensingcompletion 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-075first dose cohort 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 onvansertib (PCM-075) in combination with LDAC, in AML. Three patients were treated with onvansertib (PCM-075) at 12 mg/

m2, administered orally, once daily, on days 1-5 of the treatment cycle, in combination with LDAC. Patients eligible for Phase 1b have relapsed or refractory disease and may have received as many as three prior regimens for treatment of their AML. The combination of onvansertib (PCM-075) and LDAC was well tolerated in all patients. The independent SRC has recommended escalating to the second dose cohort of three patients at onvansertib (PCM-075) at 18 mg/m2 (approximately a 50% increase) in combination with LDAC.

Announced Presentation of Data at American Association for Cancer Research (“AACR”) Meeting 2018 on Pharmacodynamic and Tumor Biomarkers During Treatment with Onvansertib (PCM-075) and Low-Dose Cytarabine.

On April 17, 2018, we announced the presentation of pharmacodynamic and biomarker data from the first patient to complete a safety treatment cycle in our Phase 1b/2 clinical trial of onvansertib (PCM-075) in AML at the AACR annual meeting in Chicago, IL. The poster entitled Pharmacodynamic and Tumor Biomarker Analysis of a PLK1 Inhibitor, PCM-075, in a Phase 1b/2 Trial for Acute Myeloid Leukemia presents the methodology developed to track dynamic changes in blood leukemic cells, genomic alterations and PLK1 inhibition in AML patients treated with onvansertib (PCM-075) in combination with LDAC.

Announced Presentation of data at AACR Meeting 2018 Showing Synergy of Onvansertib (PCM-075) in Combination with FLT3 Inhibitors in AML.

On April 16, 2018, we announced the presentation of data showing that onvansertib (PCM-075) exhibits synergistic activity when combined with FLT3 inhibitors in a human xenograft AML model, at the AACR Annual Meeting in Chicago, IL. The poster entitled Selective Polo-like Kinase 1 (PLK1) Inhibitor PCM-075 is Highly Active Alone and Shows Synergy When Combined with FLT3 Inhibitors in Models of Acute Myeloid Leukemia (AML) presents data demonstrating that onvansertib (PCM-075) in combination with quizartinib (Daiichi-Sankyo) resulted in 97.3% tumor growth inhibition, compared to 77.9% with quizartinib and 80.2% with onvansertib (PCM-075) as monotherapy.

Announced First Patient Successfully Completes Cycle 1 of Treatment with Onvansertib (PCM-075) in Combination with Low-Dose Cytarabinein AML Trial.

On March 5, 2018, we announced that the initial patient successfully completed the first cycle 1 of treatment in our Phase 1b/2 multicenter trial of onvansertib (PCM-075) in combination with LDAC in patients with AML may proceed. PCM-075 has positiveAML. The patient tolerated the combination well and correlative analyses of blood samples, taken at specified time points, also indicated activity on leukemic blood cells. A significant decrease in the percentage of blood leukemic cells was observed within 24 hours of administering onvansertib (PCM-075) + LDAC. By day 15, within the treatment cycle, the greatest effect was observed with blood leukemic cells showing a decrease from greater than 40% to less than 5%. Additionally, the same tumor DNA mutations (ASXL1 and SRSF2) were detected in the bone marrow and blood, indicating consistency across samples and validity of the analyses. Both DNA mutations appeared to quantitatively track with the decrease in blood leukemic cells.

Announced Presentation of Data Showing Synergy of Onvansertib (PCM-075) in Combination with Zytiga® (abiraterone acetate) in Castration-Resistant Prostate Cancer Model at 2018 Genitourinary Cancers Symposium.

On February 9, 2018, we announced that preclinical data as a single agent anddemonstrating the synergy of onvansertib (PCM-075), our highly-selective PLK1 Inhibitor, in combination with select chemotherapeuticsabiraterone acetate (Zytiga® - Johnson & Johnson), will be featured as a Poster Presentation at the 2018 Genitourinary Cancers Symposium on February 9th, in San Francisco, California. The poster entitled Combination of Selective Polo-like Kinase 1 (PLK1) Inhibitor PCM-075 with Abiraterone in Prostate Cancer and targeted agents used in many hematologicNon-Androgen-Driven Cancer Models showcases data from Dr. Michael Yaffe’s lab at the Koch Institute for Integrative Cancer Research at Massachusetts Institute of Technology and solid cancers, including AML, Non-Hodgkin Lymphoma, mCRPC, Adrenocortical Carcinoma,will be presented by Dr. Jesse Patterson. The underlying mechanism of synergy was further examined by performing gene-expression comparison across more than 30 different synergistic and Triple Negative Breast Cancer.

We have significant experience and expertise with biomarkers and technology in cancer, including AML. We arenon-synergistic cell lines across multiple tumor types. From this analysis, multiple hypothesis-generating mechanisms were identified, one of which was the patent holdersretinoic acid pathway, which when activated is predictive of NPM1 for diagnosis and monitoring of patients. NPM1-mutated AML is a genetic marker in leukemia and accounts for approximately one-third of all AML patients. We plan to use our PCM technology to profile other dominant AML markers, such as FLT3, DNMT3A, NRAS, and KIT, as well as to measure PLK1 enzymatic activity to potentially identify patients most likely to respond to PCM-075 and to measure patient therapy response.synergy.

Our accumulated deficit through September 30, 20172018 is $170,470,696.$188,026,677. 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 2017, we have advanced our business with the following activities:

Announced preclinical research demonstrating synergy of PCM-075 with Zytiga® (abiraterone acetate) in Castration-Resistant Prostate Cancer tumor cells.

Announced that the FDA granted Orphan Drug Designation to PCM-075 for the treatment of patients with AML.


Announced the expansion and strengthening of its Board of Directors with the appointment of Athena Countouriotis, M.D. Dr. Countouriotis brings significant experience in oncology clinical development and orphan indications

Announced PCM-075 synergy with a HDAC Inhibitor in Non-Hodgkin Lymphoma Cell Lines. Additionally, PCM-075 demonstrates synergy in combination with more than ten chemotherapeutic and targeted therapies across a broad range of solid tumor and hematologic cancers.

Announced preclinical AML data shows PCM-075 significantly enhances the efficacy of a FLT3 inhibitor in combination therapy.

Announced FDA approval of IND for Phase 1b/2 trial of PCM-075 in patients with AML.

Announced peer-reviewed publication of first-in-human Phase 1 trial results with PCM-075 in the journal Investigational New Drugs. The data from the trial demonstrated PCM-075’s potential as safe and effective treatment for solid tumor and hematological malignancies.

Completed a registered direct offering of 6,191,500 shares of common stock and a concurrent private placement issuing warrants to purchase up to 4,643,626 shares of common stock. The net proceeds from the registered direct offering and concurrent private placement were approximately $6.5 million in July 2017.

Entered into an agreement with Novogene Co. Ltd. (“Novogene”), a leading global provider of genomic services and solutions and the largest sequencing capacity in the world, whereby Novogene will purchase NextCollect™, our proprietary urine collection and nucleic acid preservation device for validation in the Chinese market.

Engaged PRA Health Sciences, a leading, global contract research organization, to conduct our Phase 1b/2 clinical trial of PCM-075.

Executed a supplier agreement with NerPharMa, S.r.l., a pharmaceutical manufacturing company and a subsidiary of Nerviano Medical Sciences S.r.l., to manufacture drug product for PCM-075.

Submitted an IND application to FDA to conduct a Phase 1b/2 clinical trial of PCM-075 in AML.

Announced expansion of key claims for our NPM1 patent portfolio for AML.

Entered into an agreement with a global biopharmaceutical company to utilize Trovera® ctDNA tests and services in cancer clinical trials.

Entered into an agreement with AstraZeneca to utilize Trovera® ctDNA test and services in prospective biomarker study.

Announced phase 1 safety study conducted by Nerviano Medical Sciences supports planned development of PCM-075 in AML.

Established a Clinical Advisory Board, appointing Dr. Jorge Cortes, of MD Anderson, Dr. Sandra Silberman, a leading clinical researcher in hematology/oncology, and practicing physician at the Duke VAMC, Dr. Filip Janku, of City of Hope Cancer Center, and Dr. David Berz, of the Beverly Hills Cancer Center. Dr. Cortes and Dr. Silberman have extensive experience in the development of novel therapies for the treatment of hematologic cancers. Dr. Cortes will serve as the Principal Investigator for the Phase 1b/2 clinical trial in AML.

Entered into a license agreement with Nerviano that grants us exclusive global development and commercialization rights to NMS-1286937, which we refers to as PCM-075.  PCM-075 is an oral, investigative drug and a highly-selective PLK 1 inhibitor for the treatment of AML.activities. 

Our drug development 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 drugs. The risk of

completion of any program is high because of the many uncertainties involved in developing new drug candidates to market, including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of

research and development expenses, and competing technologies being developed by organizations with significantly greater resources.
 
Off-Balance Sheet Arrangements
 
We had no off-balance sheet arrangements as of September 30, 2017.2018.
 
Critical Accounting Policies
 
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, 2016,2017, filed with the SEC on March 15, 2017.February 26, 2018. There have been no changes to our critical accounting policies other than adoption of ASC 606 and ASU 2018-07 since December 31, 2016.2017.

RESULTS OF OPERATIONS
 
Three Months Ended September 30, 20172018 and 20162017
 
Revenues
 
Our total revenues were $123,329$88,361 and $89,114$123,329 for the three months ended September 30, 20172018 and 2016,2017, respectively. The components of our revenues were as follows:
 
Three Months Ended September 30,Three Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Royalties$58,779
 $47,236
 $11,543
$72,568
 $58,779
 $13,789
Diagnostic services58,119
 37,978
 20,141
4,303
 58,119
 (53,816)
Clinical research services6,431
 3,900
 2,531
11,490
 6,431
 5,059
Total revenues$123,329
 $89,114
 $34,215
$88,361
 $123,329
 $(34,968)
 
The increase in royalty income related primarily to higher receiptsthe adoption of paymentsASU 606. We recognized more revenue based on historical data for three months ended September 30, 2018, whereas in excess of minimum royalties in comparison to the same period of the prior year.2017 revenue was recognized on a cash basis. Revenue from diagnostic services is recognized when payment is received for the test results. The numberamount of payments received was higherlower in 20172018 as compared to the same period in the prior year.year as we closed down our CLIA laboratory. Revenue from clinical research services consists of revenue from the sale of urine and blood collection supplies and tests performed under agreements with our clinical research and business development partners. Revenue is recognized when control of supplies and/or test results are delivered.transferred to customers (upon delivery). There were more sales of clinical research services for the three months ended September 30, 20172018 as compared to the same period of 2016.2017.

We expect our royalties to fluctuate as the royalties are basedsales-based or usage-based royalties on our intellectual property license. Revenue recognition of the royalty depends on the minimum royalty payments as well astiming and overall sales activities of the timing of when payments are received for royalties in excess of minimum royalties.licensees. In addition, we expect a decrease in our diagnostic service revenue may be impacted by our expansion into oncology therapeutics. We expect revenue fromand clinical research services to fluctuate basedrevenue as a result of disposition of our CLIA laboratory and as we focus on timingthe development of delivery of supplies and/or test results under agreements.oncology therapeutics.
 
Cost of Revenues
 
Our total cost of revenues was $473,202$26,677 for the three months ended September 30, 2017,2018, compared to $424,559$473,202 in the same period of 2016.2017. Cost of revenues mainly relates to the costs of our diagnostic service revenues. The costs are recognized at the completion of testing. IncreaseThe decrease in cost of revenues for the three months ended September 30, 20172018 compared to the same period of last year is mainly due to the higher percentage allocationdisposition 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 which could result in negative gross margins.our CLIA laboratory. 
 

Research and Development Expenses
 
Research and development expenses consisted of the following:
 
Three Months Ended September 30,Three Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Salaries and staff costs$301,919
 $1,407,529
 $(1,105,610)$354,643
 $301,919
 $52,724
Stock-based compensation219,480
 872,792
 (653,312)130,300
 219,480
 (89,180)
Outside services, consultants and lab supplies604,140
 1,215,889
 (611,749)1,023,201
 604,140
 419,061
Facilities254,681
 372,891
 (118,210)270,032
 254,681
 15,351
Travel and scientific conferences28,000
 51,203
 (23,203)32,242
 28,000
 4,242
Other6,486
 17,094
 (10,608)
Fees, license and other20,023
 6,486
 13,537
Total research and development$1,414,706
 $3,937,398
 $(2,522,692)$1,830,441
 $1,414,706
 $415,735
 
Research and development expenses decreasedincreased by $2,522,692$415,735 to $1,414,706$1,830,441 for the three months ended September 30, 20172018 from $3,937,398$1,414,706 for the same period in 2016. As a result of the two strategic restructuring activities which occurred2017. The overall increase 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, stock-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 expansion into oncology therapeutics; however, other costs may increase as we complete the development of PCM-075.

Selling and Marketing Expenses
Selling and marketing expenses consisted of the following:
 Three Months Ended September 30,
 2017 2016 Increase (Decrease)
Salaries and staff costs$158,097
 $1,427,254
 $(1,269,157)
Stock-based compensation118,434
 476,865
 (358,431)
Outside services and consultants51,717
 441,699
 (389,982)
Facilities51,388
 112,573
 (61,185)
Trade shows, conferences and marketing31,017
 243,692
 (212,675)
Travel54
 212,375
 (212,321)
Other9,220
 26,404
 (17,184)
Total sales and marketing$419,927

$2,940,862

$(2,520,935)
Selling and marketing expenses decreased by $2,520,935 to $419,927 for the three months ended September 30, 2017 from $2,940,862 for the same period in 2016. The overall decrease in selling and marketing expenses was primarily due to our strategic restructuring activities. During the three months ended September 30, 2017 we decreasedincreased outside service costs for clinical studies related to the numberdevelopment of our field sales, customer support and marketing personnel, bringing our average headcount to two from twenty-two in the same period of the prior year. As a result, costs associated with selling and marketing activities as well as personnel related costs were decreased accordingly.lead drug candidate, onvansertib. We expect decreasesan increase in personnelresearch and relateddevelopment costs as a resultwe advance the development of the reduction in force.
onvansertib.

Selling, General and Administrative Expenses
 
GeneralSelling, general and administrative expenses consisted of the following:
 
Three Months Ended September 30,Three Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Personnel and outside services costs$1,450,261
 $1,136,266
 $313,995
Salaries and staff costs$535,582
 $1,327,743
 $(792,161)
Board of Directors’ fees120,085
 122,187
 (2,102)105,233
 120,085
 (14,852)
Stock-based compensation1,067,633
 437,075
 630,558
147,921
 1,186,067
 (1,038,146)
Outside services and consultants158,285
 318,378
 (160,093)
Legal and accounting fees595,194
 695,061
 (99,867)230,690
 609,149
 (378,459)
Facilities and insurance291,547
 149,921
 141,626
249,209
 342,935
 (93,726)
Travel14,185
 47,769
 (33,584)
Fees, licenses, taxes and other120,682
 122,503
 (1,821)
Total general and administrative$3,659,587

$2,710,782
 $948,805
Travel and conferences164,136
 45,256
 118,880
Fees, license and other74,144
 129,901
 (55,757)
Total selling, general and administrative$1,665,200

$4,079,514

$(2,414,314)
 
GeneralSelling, general and administrative expenses increaseddecreased by $948,805$2,414,314 to $3,659,587$1,665,200 for the three months ended September 30, 2017,2018 from $2,710,782$4,079,514 for the same period in 2016.2017. The significant components of the increasedecrease were primarily due to the increasedecrease in personnelsalaries and outside services coststaff costs and stock-based compensation. In August 2017, a total of 745,39262,116 shares of immediately vested RSArestricted stock awards (“RSA”) were granted to our former CEO. Per the agreement, the CEO’s income taxes associated with the RSA were also paid by our Company. Therefore, personnel costs and stock-based compensation expenses were increased.higher for the three months ended September 30, 2017 as compared to the same period of 2018. Also, stock-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. Our selling, general and administrative costs may increase in future periods in order to support fundraising activities and general business activities as we continue to develop and introduce new product offerings.

Restructuring

OnIn May 2018, we closed our CLIA laboratory operations in order to streamline our business model. The loss recognized from disposition of CLIA laboratory was reported as restructuring charges in the September 30, 2018 condensed consolidated financial statements. For the three months ended September 30, 2018, we recorded total restructuring charges of approximately$421,000, the majority of which was related to loss on sublease of office and laboratory space.


In March 15, 2017, we announced a strategic restructuring plan in connection with the expansion of precision medicine therapeutics to our business. The restructuring plan includesincluded a reduction in force and is expected to bewas completed in the last quarter of 2017. The $46,472 restructuring benefit for the three months ended September 30, 2017 was primarily due to certain employee termination costs expensed was less than estimated.

Net Interest Income and Expense
 
NetInterest income was $85,938 from the three months ended September 30, 2018 as compared to $20,650 for the same period of 2017. The increase of interest income is primarily due to a higher money market fund balance and higher interest rate. Interest expense was $16,473 and $354,993$16 for the three months ended September 30, 2017 and 2016, respectively.2018 as compared to $37,123 for the same period of 2017. The decrease of net interest expense is primarily due to a decrease in interest expense, resulting from pay-off of our $15.0 million term loan. We expect net interest expense to decrease as a resultloan and Equipment Line of repayment of our equipment line of credit.Credit.

Change in Fair Value of Derivative Financial Instruments Warrants
 
We have issued warrants that are accounted for as derivative liabilities. As of September 30, 2017,2018, the derivative financial instrumentswarrants liabilities were revalued to $2,037,712,$70,347, resulting in an increase in value of $1,686,850$2,500 from June 30, 2017,2018, based primarily upon the issuance of new derivative financial instruments—warrants in connection with July fundraising activities, offset by the decreaseincrease in our stock price as well as the changes in the expected term, volatility, and risk freerisk-free interest rates for the expected term. The issuance of new warrants was recorded as a liability under derivative financial instrumentswarrants in the condensed consolidated balance sheets. The decreaseincrease in value upon remeasurement at September 30, 20172018 was recorded as a gainloss from the change in fair value of derivative financial instrumentswarrants in the condensed consolidated statement of operations.


Net Loss
 
Net loss and per share amounts were as follows:

Three Months Ended September 30,Three Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Net loss attributable to common shareholders$(4,298,026) $(10,197,332) $(5,899,306)$(3,775,628) $(4,298,026) $(522,398)
Net loss per common share — basic$(0.12) $(0.34) $(0.22)$(0.18) $(1.41) $(1.23)
Net loss per common share — diluted$(0.12) $(0.34) $(0.22)$(0.18) $(1.41) $(1.23)
          
Weighted average shares outstanding — basic36,465,672
 30,339,774
 6,125,898
20,622,660
 3,038,806
 17,583,854
Weighted average shares outstanding — diluted36,465,672
 30,339,774
 6,125,898
20,622,660
 3,038,806
 17,583,854
 
The $5,899,306$522,398 decrease in net loss attributable to common shareholders and the $0.22$1.23 decrease in basic net loss per share was primarily the result of a decrease in operating expenses of $4,092,651$2.0 million for the three months ended September 30, 20172018 compared to the same period in the prior year.year, offset by a gain from change in fair value of derivative financial instruments—warrants of $1.5 million from the same period of 2017. Basic net loss per share in 2018 was also impacted by the increase in basic weighted average shares outstanding resulting primarily from the sales of approximately 10.4 million shares of common stock through public offerings and the issuance of approximately 8.9 million shares of common stock upon conversion of Series B Convertible Preferred Stock.

Nine Months Ended September 30, 20172018 and 20162017
 
Revenues
 
Our total revenues were $320,378$300,310 and $313,000$320,378 for the nine months ended September 30, 20172018 and 2016,2017, respectively. The components of our revenues were as follows:

Nine Months Ended September 30,Nine Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Royalties$169,415
 $207,869
 $(38,454)$174,046
 $169,415
 $4,631
Diagnostic services142,482
 69,558
 72,924
83,650
 142,482
 (58,832)
Clinical research services8,481
 35,573
 (27,092)42,614
 8,481
 34,133
Total revenues$320,378
 $313,000
 $7,378
$300,310
 $320,378
 $(20,068)

 
The $38,454 decrease in royalties related primarily to lower 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 numberamount of tests payments received were higher for the nine months ended September 30, 2017was lower in 2018 as compared to the same period in the prior year.year as we closed down our CLIA laboratory. Revenue from clinical research services consists of revenue from the sale of urine and blood collection supplies and tests performed under agreements with our clinical research and business development partners. Revenue wasis recognized when control of supplies and/or test results are transferred to customers (upon delivery). There were delivered.more sales of clinical research services for the nine months ended September 30, 2018 as compared to the same period of 2017.

We expect our royalties to fluctuate as the royalties are basedsales-based or usage-based royalties on our intellectual property license. Revenue recognition of the royalty depends on the minimum royalty payments as well astiming and overall sales activities of the timing of when payments are received for royalties in excess of minimum royalties. Our diagnostic service revenue may be impacted by our expansion into oncology therapeutics.licensees. In addition, we expect a decrease in our diagnostic service revenue fromand clinical research services to fluctuate basedrevenue as a result of disposition of our CLIA laboratory and as we focus on timingthe development of delivery of supplies under agreements.oncology therapeutics.
 
Cost of Revenues
 
Our total cost of revenues was $1,427,831$597,457 for the nine months ended September 30, 2017,2018, compared to $1,143,293$1,427,831 in the same period of 2016.2017. Cost of revenues mainly relates to the costs of our diagnostic service revenues. The costs are recognized at the completion of testing. IncreaseThe decrease in cost of revenues for the nine months ended September 30, 20172018 compared to the same period of last year is mainly due to the higher percentage allocation oflower volume of tests. Due to revenue being recognized when cash is received, costs incurred in one period may relate to revenue recognized in a later period which could result in negative gross margins.tests processed and the disposition of the CLIA laboratory. 
 

Research and Development Expenses
 
Research and development expenses consisted of the following:

Nine Months Ended September 30,Nine Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Salaries and staff costs$1,468,491
 $4,263,595
 $(2,795,104)$1,270,042
 $1,468,491
 $(198,449)
Stock-based compensation798,143
 1,862,069
 (1,063,926)637,821
 798,143
 (160,322)
Outside services, consultants and lab supplies1,456,504
 3,837,485
 (2,380,981)2,988,198
 1,456,504
 1,531,694
Facilities842,196
 1,042,682
 (200,486)644,750
 842,196
 (197,446)
Travel and scientific conferences72,901
 157,445
 (84,544)91,670
 72,901
 18,769
Fees, licenses and other2,038,016
 58,600
 1,979,416
34,565
 2,038,016
 (2,003,451)
Total research and development$6,676,251
 $11,221,876
 $(4,545,625)$5,667,046
 $6,676,251
 $(1,009,205)

Research and development expenses decreased by $4,545,625$1,009,205 to $6,676,251$5,667,046 for the nine months ended September 30, 20172018 from $11,221,876$6,676,251 for the same period in 2016.2017. Our costs have decreased primarily due to the average number of our internal researchdecrease in fees, licenses and development personnel decreasing from thirty-three to eleven. In addition, research and development expenses incurred related to clinical studies, samples processed and validated in connection with the clinical collaborations, as well as lab supplies, decreased for the nine months ended September 30, 2017 as compared to the same period in 2016 as a result of the shifting of our business focus. The total decrease of research and development expenses wasother, offset by the increase in fees, licenseoutside services, consultants and other.lab supplies costs. The increasedecrease in fees, license and other was primarily due to the $2.0 million license fee payment in March 2017 to Nerviano for development and commercialization rights to PCM-075.onvansertib. The increase in services, consultants and lab supplies costs was mainly due to the clinical studies related to the development of onvansertib. We expect a reduction ofincrease in research and development costs that relate to CLIA services as a result of our expansion into oncology therapeutics; however, other costs may increaseexpenses as we continue the development of PCM-075. our lead drug candidate.


Selling, and Marketing Expenses
Selling and marketing expenses consisted of the following:

 Nine Months Ended September 30,
 2017 2016 Increase (Decrease)
Salaries and staff costs$977,040
 $4,266,029
 $(3,288,989)
Stock-based compensation550,317
 1,493,744
 (943,427)
Outside services and consultants219,800
 1,117,368
 (897,568)
Facilities220,860
 362,339
 (141,479)
Trade shows, conferences and marketing357,233
 1,082,883
 (725,650)
Travel71,865
 716,473
 (644,608)
Other45,816
 88,614
 (42,798)
Total sales and marketing$2,442,931
 $9,127,450
 $(6,684,519)
Selling and marketing expenses decreased by $6,684,519 to $2,442,931 for the nine months ended September 30, 2017 from $9,127,450 for the same period in 2016. The overall decrease in selling and marketing expenses was primarily due to our strategic restructuring activities. As part of our restructuring, we reduced the number of our field sales, customer support and marketing personnel, bringing down our average headcount to five from twenty-two in the same period of the prior year. We expect decreases in personnel and related costs due to the reduction in force.

General and Administrative Expenses
 
GeneralSelling, general and administrative expenses consisted of the following:

Nine Months Ended September 30,Nine Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Personnel and outside services costs$3,270,134
 $3,279,860
 $(9,726)
Salaries and staff costs$2,335,228
 $3,504,507
 $(1,169,279)
Board of Directors’ fees347,205
 345,240
 1,965
355,177
 347,205
 7,972
Stock-based compensation1,837,128
 2,487,415
 (650,287)1,237,343
 2,387,445
 (1,150,102)
Outside services and consultants625,890
 925,808
 (299,918)
Legal and accounting fees3,358,411
 2,077,585
 1,280,826
518,743
 3,395,070
 (2,876,327)
Facilities and insurance742,405
 551,382
 191,023
780,237
 963,265
 (183,028)
Travel81,106
 151,355
 (70,249)
Fees, licenses, taxes and other278,970
 290,924
 (11,954)
Total general and administrative$9,915,359
 $9,183,761
 $731,598
Travel and conferences264,634
 510,205
 (245,571)
Fees, license and other203,796
 324,785
 (120,989)
Total selling, general and administrative$6,321,048
 $12,358,290
 $(6,037,242)
 
GeneralSelling, general and administrative expenses increaseddecreased by $731,598$6,037,242 to $9,915,359$6,321,048 for the nine months ended September 30, 2017,2018 from $9,183,761$12,358,290 for the same period in 2016.2017. The increaseoverall decrease in selling, general and administrative expenses was primarily due to an increasethe decrease in legal fees offset byand the decrease of stock-based compensation.reduction in force. Legal fees increaseddecreased primarily as a result of a litigation related loss contingency accrual of $2.1 million expensed during the nine months ended September 30, 2017. Stock-based compensation, a non-cash expense, will fluctuate based onAs part of our restructuring in 2017, we reduced the timingnumber of our selling, general and amount of options granted, forfeitures andadministrative personnel, bringing down our average headcount to eight from thirteen in the fair valuesame period of the options atprior year. In addition, in August 2017, a total of 62,116 shares of immediately vested RSA were granted to our former CEO. Per the timeagreement, the income taxes associated with the RSA were also paid by our Company. This event further increased the personnel costs and stock-based compensation expenses for the nine months ended September 30, 2017 as compared to the same period of grant or remeasurement.2018.

Restructuring

OnIn May 2018, we closed our CLIA laboratory operations in order to streamline our business model. The loss recognized from disposition of CLIA laboratory was reported as restructuring charges in the September 30, 2018 condensed consolidated financial statements. For the nine months ended September 30, 2018, we recorded total restructuring charges of $664,000 for CLIA laboratory disposal transactions, of which, approximately $187,000 was related to impairment loss on CLIA laboratory license, approximately $52,000 was related to loss on disposal of property and equipment and other non-capital assets, and approximately $425,000 was related to loss on sublease of office and laboratory space.

In March 15, 2017, we announced a strategic restructuring plan in connection with the addition of precision medicine therapeutics to our business. The restructuring plan includesincluded a reduction in force and is expected to bewas completed in the last quarter of 2017. Restructuring charges of approximately $1.7 million were incurred and have been included as a component of operating loss for the nine months ended September 30, 2017. Of the total restructuring charges, approximately $1.2 million was related to termination of employees and an approximately $0.5 million charge related to impaired license fees.

Net Interest Income and Expense
 
Net interest expenseInterest income was $877,741 and $967,522$143,911 for the nine months ended September 30, 2017 and 2016, respectively.2018 as compared to $132,515 for the same period of 2017. The increase of interest income is primarily due to the overall increase of money market fund balance. Interest expense was $25,177 for the nine months ended September 30, 2018, compared to $1,010,256 for the same period of 2017. The decrease of net interest expense is due to a decrease in interest expense of approximately $184,000, resulting from pay-off of our $15.0 million term loan offset by a decrease in interest income as a resultand Equipment Line of liquidation of our short-term investments.Credit.

Change in Fair Value of Derivative Financial Instruments Warrants
 
We have issued warrants that are accounted for as derivative liabilities. As of September 30, 2017,2018, the derivative financial instrumentswarrants liabilities were revalued to $2,037,712,$70,347, resulting in an increasea decrease in value of $1,202,772$579,040 from December 31, 2016,2017, based primarily upon the issuance of new derivative financial instruments—warrants in connection with July fundraising activities, offset by the decrease in our stock price as well as the changes in the expected term, volatility, and risk freerisk-free interest rates for the expected term. The issuance of new warrants was recorded as a liability under derivative financial instrumentswarrants in the condensed consolidated balance sheets. The decrease in value was recorded as a gain from the change in fair value of derivative financial instrumentswarrants in the condensed consolidated statement of operations.


Net Loss
 
Net loss and per share amounts were as follows:

Nine Months Ended September 30,Nine Months Ended September 30,
2017 2016 Increase (Decrease)2018 2017 Increase (Decrease)
Net loss attributable to common shareholders$(22,355,494) $(30,674,248) $(8,318,754)$(15,090,413) $(22,355,494) $(7,265,081)
Net loss per common share — basic$(0.68) $(1.02) $(0.34)$(1.38) $(8.17) $(6.79)
Net loss per common share — diluted$(0.68) $(1.04) $(0.36)$(1.38) $(8.17) $(6.79)
          
Weighted average shares outstanding — basic32,826,306
 30,018,841
 2,807,465
10,945,249
 2,735,526
 8,209,723
Weighted average shares outstanding — diluted32,826,306
 30,136,572
 2,689,734
10,945,249
 2,735,526
 8,209,723
 
The $8,318,754$7,265,081 decrease in net loss attributable to common shareholders and the $0.34$6.79 decrease in basic net loss per share was primarily the result of a decrease in operating expenses compared to the same period in the prior year. This decrease wasyear, offset by a one-time, non-cash deemed dividend recognized from beneficial conversion features of Series B Convertible Preferred Stock issuance. Basic net loss on extinguishmentper share in 2018 was also impacted by the increase in basic weighted average shares outstanding resulting primarily from the sales of debtapproximately 10.4 million shares of $1.7 million.common stock through public offerings and direct registered offering and the issuance of approximately 8.9 million shares of common stock upon conversion of Series B Convertible Preferred Stock.

Non-GAAP Disclosure

Adjusted net loss per common share is not a measure of financial performance under GAAP and should not be construed as substitutes for, or superior to, GAAP net loss per common share as a measure of financial performance. However, management may from time to time use both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage our operations and to better understand our business. Further, management believes the addition of non-GAAP financial measures provides meaningful supplementary information to, and facilitates analysis by, investors in evaluating our financial performance, results of operations and trends. Our calculations of adjusted net loss per common share may not be comparable to similarly designated measures reported by other companies, since companies and investors may differ as to what type of events warrant adjustment.

The following table reconciles reported net loss per common share to adjusted net loss per common share::

 Nine Months Ended September 30,
 2018 2017 Increase (Decrease)
Net loss attributable to common shareholders$(15,090,413) $(22,355,494) $(7,265,081)
Adjustment for preferred stock dividend recognized from beneficial conversion features of Series B Convertible Preferred Stock issuance2,769,533
 
 2,769,533
Total adjusted net loss attributable to common shareholders$(12,320,880) $(22,355,494) $(4,495,548)
      
Adjusted net loss per common share — basic and diluted$(1.13) $(8.17) $(7.04)
      
Weighted average shares outstanding — basic and diluted10,945,249
 2,735,526
 8,209,723
Adjustment for Series B Convertible Preferred Stock
 
 
Total adjusted weighted average shares outstanding — basic and diluted10,945,249
 2,735,526
 8,209,723

Series B Convertible Preferred Stock was offered to purchasers of the Class A units (common stock) in the June underwritten public offering if, together with the purchase of Class A units, the purchaser, with its affiliates and certain related parties, would beneficially own more than 4.99% of our outstanding stock immediately following the consummation of the offering. The Series B Convertible Preferred Stock serves solely as an ownership blocker. Each share of Series B Convertible

Preferred Stock is convertible at the option of the holder into that number of shares of Common Stock determined by dividing the stated value of $1,000 per share, by the conversion price equal to $1.00 per share ($1.00 being the purchase price of each Class A unit). The fair value of the common stock into which the Series B Preferred Stock is convertible exceeded the allocated purchase price fair value of the Series B Convertible Preferred Stock at the date of issuance. As such, we concluded that the Series B Convertible Preferred Stock contained a beneficial conversion feature and a corresponding accounting entry and financial statement disclosure was required. Because our Series B Convertible Preferred Stock is perpetual with no stated maturity date, and the conversions may occur any time from inception, we immediately recognized the beneficial conversion feature as a one-time, non-cash deemed dividend at issuance. There will be no need to account for any subsequent similar one-time, non-cash dividends for Series B Convertible Preferred Stock issued in the June public offering.

If not for the requirement to account for this one-time, non-cash deemed dividend arising from this conversion feature which solely accommodated purchasers allowing them to not own more than 4.99% of the Common Stock, the net loss per common share — basic and diluted would have been reduced by $2,769,533 to $12,320,880, and would result in a net loss per share of $1.13.

LIQUIDITY AND CAPITAL RESOURCES
 
As of September 30, 2017,2018, we had $7,434,298$15,065,913 in cash and cash equivalents. Net cash used in operating activities for the nine months ended September 30, 20172018 was $19,949,652,$9,586,233, compared to $22,034,998$19,949,652 for the nine months ended September 30, 2016.2017. Our use of cash was primarily a result of the net loss of $22,337,314$12,302,700 for the nine months ended September 30, 2017,2018, adjusted for non-cash items related to stock-based compensation of $3,117,364, loss$1,905,652, gain on extinguishment of debt of $1,655,825,$17,974, impairment loss of $485,000,$187,500, depreciation and amortization of $956,995,$701,774, and the gain from the change in fair value of derivative financial instrumentswarrants of $2,012,747.$579,040. The changes in our operating assets and liabilities consisted of lowerhigher accounts payable and accrued expenses, an increase in other asset, and a decrease in accounts receivable and a decreasedunbilled receivable and prepaid expenses. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow for the next several years.
 
Net cash provided by investing activities was $23,925,535$22,842 during the nine months ended September 30, 2017,2018, compared to $25,249,392 used in investing activities$23,925,535 for the same period in 2016.2017. Investing activities during the nine months ended September 30, 2018 consisted primarily of proceeds from disposal of capital equipment of $27,942, while investing activities during the six months ended June 30, 2017 consisted primarily of net sales and maturities of short-term investments of $24,061,786 offset by net purchases for capital equipment of $136,251.$24,061,786.
 
Net cash usedprovided in financing activities was $10,447,842$16,403,540 during the nine months ended September 30, 2017,2018, compared to $2,361,994 provided$10,447,842 used in financing activities for the same period in 2016.2017. Financing activities during the nine months ended September 30, 20172018 related primarily to sales of Common Stock and Series B Convertible Preferred Stock and proceeds from exercise of warrants, offset by the pay-off of long-term debt resulting in debt extinguishment offset by the saleour Equipment Line of common stock, while financingCredit. Financing activities during the same period of the prior year consisted primarily of salesthe pay-off of term loan resulting in debt extinguishment offset by the sale of common stock offset by repayment of long-term debt. On June 1, 2017, we received a Notice of Event of Default from the lenders which stated that Events of Default had occurred and all of the obligation under the Loan and Security Agreement dated as of June 30, 2014 were immediately due and payable. On June 6, 2017, the lenders took the total pay-off amount of $16,668,583 out of our bank accounts which satisfied all of our outstanding obligations under the Agreement. We disagree with the lenders that any Event of Default has occurred and are reserving all of our options with respect to the Agreement. stock.
 
As of September 30, 2017,2018, and December 31, 2016,2017, we had working capital of $3,469,622$13,376,961 and $31,152,936,$5,522,917, respectively. 
 
On October 25, 2017, we filed a registration statement on Form S-1 with the SEC for a best efforts public offering of up to $17.5 million of common stock and warrants. H.C. Wainwright & Co. is acting as placement agent.

Based on our current business plan and assumptions, we expect to continue to incur significant losses and require significant additional capital to further advance our clinical trial programs and support our other operations. Considering our current cash resources, including the net proceeds received from the offering of our equity securities in July 2017, we believe our existing resources will be sufficient to fund the Company’sour planned operations into the first quarter of 2018.through July 2019. In addition, we have based our cash sufficiency estimates on our current business plan and assumptions that may prove to be wrong. We could utilize our available capital resources sooner than we currently expect, and we could need additional funding to sustain

our operations even sooner than currently anticipated. These circumstances raise substantial doubt about our ability to continue as a going concern.

Our working capital requirements will depend upon numerous factors including but not limited to the nature, cost and timing of our research and development programs. To date, our sources of cash have been primarily limited to the sale of equity securities. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates, all of which may have a material adverse impact on our operations. We may also be required to (i) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (ii) relinquish or otherwise dispose of

rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms. We are evaluating the followingall options to raise additional capital, increase revenue, as well as reduce costs, in an effort to strengthen our liquidity position:position, which may include the following: (1) Raising capital through public and private equity offerings; (2) Adding capital through short-term and long-term borrowings; (3) Introducing operation and business development initiatives to bring in new revenue streams by leveraging capabilities within our CLIA lab, as well as monetizing our proprietary NextCollect™ DNA collection and preservation cup; (4)streams; (3) Reducing operating costs by identifying internal synergies; (5)(4) Engaging in strategic partnerships; and (6) Taking actions to reduce or delay capital expenditures.partnerships. We continually assess anyour spending plans including a review of our discretionary spending in connection with certain strategic contracts, to effectively and efficiently address our liquidity needs.

NASDAQ Notice

On September 5, 2017, we received a written notice from the NASDAQ Stock Market LLC (“NASDAQ”) that we were not in compliance with NASDAQ Listing Rule 5550(a)(2) for continued listing on the NASDAQ Capital Market, as the minimum bid price of our common stock had been below $1.00 per share for 30 consecutive business days. The Notice had no immediate effect on the listing of our common stock, and our common stock continuecontinued to trade on the NASDAQ Capital Market under the symbol “TROV”.

In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, orhad until March 5, 2018, to regain compliance with the minimum bid price requirement.

On March 6, 2018, the NASDAQ Capital Market informed the Company that it was eligible for an additional 180 calendar day period until September 4, 2018 to regain compliance with the minimum $1.00 bid price per share requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period.

On September 7, 2018, we received a letter from NASDAQ indicating that, based upon our continued non-compliance with the Minimum Bid Price Rule, our common stock would be subject to delisting unless we timely request a hearing before the Panel. We timely requested a hearing before the Panel on September 14, 2018, which request will stay any further action by NASDAQ at least pending the issuance of a decision following the hearing and the expiration of any additional extension that may be granted by the Panel. We are scheduled to attend the hearing before the Panel on November 8, 2018. We are considering all of our options to regain compliance; however, there can be no assurance that the Panel will grant our request for continued listing or that we will be able to evidence compliance with the continued listing criteria within the period of time that the Panel may grant us to do so.

CONTRACTUAL OBLIGATIONS
 
For a discussion of our contractual obligations see (i) our Financial Statements and Notes to Consolidated Financial Statements Note 9. Commitments and Contingencies, and (ii) Item 7 Management Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Commitments, included in our Annual Report on Form 10-K as of December 31, 2016.2017.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Interest Rate Risk
 
Our primary exposure to market risk is interest income and expense sensitivity, which is affected by changes in the general level of interest rates, particularly because our equipment line of credit has a floating interest rate as of September 30, 2017. Changes in interest rates could affect the amounts of interest that we pay in the future.

Our cash and cash equivalent primary consists of deposits and money market deposits managed by commercial banks as of September 30, 2017.2018. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments.

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates, particularly because our investments are in short-term money marketable funds. Due to the short-term duration of our investment portfolio and the relatively low risk profile of our investments, a sudden change in interest rates would not have a material effect on the fair market value of our portfolio, nor our operating results or cash flows.


We do not believe our cash and cash equivalents have significant risk of default issues; however, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. Given the current stability of financial institutions, we believe that we will not experience losses on these deposits.

Foreign Currency Risk
 
Our foreign currency exchange risk mainly arises from our operations in Italy. Our functional and reporting currency is the United States dollar. We translate our foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of consolidated accumulated other comprehensive income. In addition, we face the foreign currency risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Changes in foreign currency exchange rates can create foreign exchange gains or losses to us.
 
Effects of Inflation
 
We do not believe that inflation and changing prices during the nine months ended September 30, 20172018 had a significant impact on our results of operations.


ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We have performed an evaluation under the supervision and with the participation of our management, including our principal executive and financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based on that evaluation, our principal executive and financial officer concluded that our disclosure controls and procedures were effective as of September 30, 20172018 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
 
Changes in Internal Control over Financial Reporting
 
There was no change in our internal control over financial reporting during the three months ended September 30, 20172018 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
 
See Note 9 to the unaudited Condensed Consolidated Financial Statements for a summary of legal proceedings.None.

ITEM 1A. RISK FACTORS
 
There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the periods ended March 31, 2017, and Form 10-Q for the periods ended June 30, 2017 except for the following:

Our financial statements include an explanatory paragraphCommon Stock will be delisted from the Nasdaq Capital Market if the Nasdaq Hearing Panel does not grant our request for continued listing.
On September 7, 2018, we received a letter from NASDAQ indicating that, expresses substantial doubt aboutbased upon our abilitycontinued non-compliance with the Minimum Bid Price Rule, our common stock would be subject to continue asdelisting unless we timely request a going concern, indicatinghearing before the possibilityPanel. We timely requested a hearing before the Panel on September 14, 2018. We are scheduled to attend the hearing before the Panel on November 8, 2018. We are considering all of our options to regain compliance; however, there can be no assurance that the Panel will grant our request for continued listing or that we may notwill be able to operateevidence compliance with the continued listing criteria within the period of time that the Panel may grant us to do so. If our common stock is delisted from NASDAQ, they may trade in the future.

Primarily asU.S. on the over-the-counter market, which is a result ofless liquid market. In such case, our losses incurred to date, our expected continued future losses, and limited cash balances, we have included an explanatory paragraph in our financial statements expressing substantial doubt about ourshareholders’ ability to continue as a going concern. Our ability to continue as a going concern is contingent upon, among other factors, the saletrade, or obtain quotations of the sharesmarket value of, our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or obtaining alternate financing.at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS
 
Exhibit
Number
 Description of Exhibit
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 TROVAGENE, INC.
   
November 9, 20177, 2018By:/s/ William J. WelchThomas Adams
  William J. WelchThomas Adams
  Interim Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)


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