Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | |
2. Summary of Significant Accounting Policies |
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Use of Estimates |
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The preparation of financial statements in conformity with U.S. 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. |
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Revenue Recognition |
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Revenue is recognized when persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable, and collection is reasonably assured. |
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Milestone, Royalty and License Revenues |
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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: |
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| · | | 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. | | | | |
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| · | | Minimum royalties are recognized as earned, and royalties in excess of minimum amounts are recognized upon receipt of payment when collection is assured. | | | | |
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| · | | Milestone payments are recognized when both the milestone is achieved and the related payment is received. | | | | |
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Diagnostic Service Revenues |
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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, bill third-party payors for testing. |
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Diagnostic services revenue is recognized when the criteria described above has been met as well as upon cash collection until the Company can reliably estimate the amount that will be ultimately collected for our LDTs, at which time the Company will recognize diagnostic services revenues on an accrual basis. |
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Derivative Financial Instruments—Warrants |
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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 FASB ASC 815 Derivatives and Hedging (“ASC 815”) and 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. Changes in fair value of derivative liabilities are recorded in the consolidated statement of operations under the caption “Change in fair value of derivative instruments.” |
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The fair value of warrants is determined using the Black-Scholes option-pricing model using assumptions regarding volatility of Trovagene’s common share price, remaining life of the warrant, and 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 ASC 820, Fair Value Measurements. At March 31, 2015, and December 31, 2014, the fair value of these warrants was $4,952,749 and $3,006,021, respectively, and were included in the derivative financial instruments liability on the balance sheet. |
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Net Loss Per Share |
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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. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. |
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The following table sets forth the computation of basic and diluted earnings per share: |
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| | Three Months Ended March 31, | |
| | 2015 | | 2014 | |
Numerator: | | | | | |
Net loss attributable to common shareholders | | $ | (7,180,441 | ) | $ | (3,199,006 | ) |
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Denominator for basic and diluted net loss per share: | | | | | |
Weighted average shares - basic and diluted | | 21,817,710 | | 18,902,782 | |
Net loss per share attributable to common stockholders - basic and diluted | | $ | (0.33 | ) | (0.17 | ) |
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The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive: |
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| | March 31, | | | |
| | 2015 | | 2014 | | | |
Options to purchase Common Stock | | 5,875,138 | | 4,423,638 | | | |
Warrants to purchase Common stock | | 5,993,952 | | 6,233,483 | | | |
Series A Convertible Preferred Stock | | 63,125 | | 63,125 | | | |
| | 11,932,215 | | 10,720,246 | | | |
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Recent Accounting Pronouncements |
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In April 2015, a new accounting standard was issued that amends the presentation for debt issuance costs. Upon adoption, such costs shall be presented on our consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability and not as a deferred charge presented in Other assets on our consolidated balance sheets. This new standard will be effective for interim and annual periods beginning on January 1, 2016, and is required to be retrospectively adopted. Adoption of this new standard is not expected to have a material impact on our consolidated balance sheets or related disclosures. |
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In August 2014, the FASB issued an amendment to the accounting guidance related to the evaluation of an entity to continue as a going concern. The amendment establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. The amendment also gives guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. The amended guidance is effective prospectively for fiscal years beginning after December 15, 2016. The new guidance will not have an impact on the Company’s financial position, results of operations or cash flows. |
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In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements. |
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