| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
During the three months ended March 31, 2018, there have been
no changes to the Company’s significant accounting policies
as described in its Annual Report on
Form 10-K
Revenue Recognition
The Company recognizes revenue when control of its products and
services is transferred 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 the
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 are readily available to
the customer and is separately identified in the contract. The
Company considers a performance obligation satisfied once it has
transferred control of a good or service to the customer, meaning
the customer has the ability to use and obtain the benefit of the
good or 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).
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
• Minimum royalties are recognized as
earned, and royalties are earned based on the licensee’s use.
The Company estimates and records licensee’s sales based on
historical usage rate and 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
Clinical Research Revenue
Revenue from clinical research 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 supplies and/or test results
are delivered, which is when control of the product is deemed to be
transferred.
Refer to Note 3 to the condensed consolidated 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
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months
2018 2017
Numerator: Net loss attributable to common shareholders $ (4,792,237 ) $ (10,005,597 )
Adjustment for gain from change in fair value of derivative
financial instruments —
—
—
Net loss used for diluted loss per share $ (4,792,237 ) $ (10,005,597 )
Denominator for basic and diluted net loss per share:
Weighted-average shares used to compute basic loss per share 4,613,704 2,580,085
Adjustments to reflect assumed exercise of warrants
—
—
Weighted-average shares used to compute diluted net loss per
share 4,613,704 2,580,085
Net loss per share attributable to common stockholders:
Basic $ (1.04 ) $ (3.88 )
Diluted $ (1.04 ) $ (3.88 )
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:
March 31,
2018 2017
Options to purchase Common Stock 632,359 390,586
Warrants to purchase Common Stock 1,534,905 458,826
Restricted Stock Units 30,800 81,416
Series A Convertible Preferred Stock 5,261 5,261
2,203,325 936,089
Change in Accounting Principle
In August 2016, the FASB issued Accounting Standards Update
(“ASU”) 2016-15, Classification
of Certain Cash Receipts and Cash
Payments 2016-15”), 2016-15 2016-15 2016-15
In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with
Customers 2014-09”). 2014-09
Recent Accounting Pronouncements
In February 2016, the FASB issued
ASU 2016-02, Leases right-of-use | 2. Summary of Significant Accounting Policies
Use of Estimates
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of operating and money market
accounts as of December 31, 2017 and operating,
money market accounts and commercial paper as of
December 31, 2016 on deposit. Cash equivalents are
considered by the Company to be highly liquid investments purchased
with original maturities of three months or less from the date of
purchase.
Short-Term Investments
Short-term investments consist of corporate debt securities, U.S.
treasury securities, and commercial paper. The Company classifies
its short-term investments as available-for-sale, available-for-sale available-for-sale available-for-sale
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash
and cash equivalents and short-term investments. The Company
maintains deposit accounts at financial institutions that are in
excess of federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to
significant risk on its cash due to the financial position of the
depository institution in which those deposits are held. We limit
our exposure to credit loss by generally placing our cash and
short-term investments in high credit quality financial
institutions and investment in fixed income instruments denominated
and payable in U.S. dollars. Additionally, we have established
guidelines regarding diversification of our investments and their
maturities, which are designed to maintain principal and maximize
liquidity.
Revenues
Revenue is recognized when persuasive evidence that an arrangement
exists, delivery has occurred, the price is fixed or determinable,
and collection is reasonably assured.
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
• Minimum royalties are recognized as
earned, and royalties are earned based on the licensee’s use.
The Company is unable to predict licensee’s sales and thus
revenue is recognized upon receipt of notification from licensee
and payment when collection is assured. Notification is generally
one quarter in arrears.
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
Clinical Research Services Revenue
Revenue from clinical research services consists primarily of
revenue from the sale of urine and blood collection supplies under
agreements with our clinical research and business development
partners. Revenue is recognized when supplies are delivered.
Allowance for Doubtful Accounts
The Company reviews the collectability of accounts receivable based
on an assessment of historic experience, current economic
conditions, and other collection indicators.
At December 31, 2017 and 2016 the Company
had not recorded an allowance for doubtful accounts. When accounts
are determined to be uncollectible, they are written off against
the reserve balance and the reserve is reassessed. When payments
are received on reserved accounts, they are applied to the
individual’s account and the reserve is reassessed.
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 Distinguishing Liabilities from
Equity
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 —
Stock-Based Compensation
FASB ASC Topic 718 “ Compensation—Stock
Compensation non-employee non-employees non-employees 505-50 Equity-Based
Payment to Non-Employees , non-employees
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, debt
and derivative liabilities. The Company has adopted ASC 820 for
financial assets and liabilities that are required to be measured
at fair value and non-financial
In accordance with FASB ASC Subtopic 820-10,
• Level 1 — Quoted prices
for identical instruments in active markets.
• Level 2 — Quoted prices
for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and model-derived valuations where inputs are observable or where
significant value drivers are observable.
• Level 3 — Instruments
where significant value drivers are unobservable to third
parties.
Long-Lived Assets
Long-lived assets consist of property and equipment and
finite-lived intangible assets. The Company records property and
equipment at cost, and records other intangible assets based on
their fair values at the date of acquisition. Depreciation on
property and equipment is calculated using the straight-line method
over the estimate useful life of five years for
laboratory equipment and three to five years
for furniture and office equipment. Amortization of leasehold
improvements is computed based on the shorter of the life of the
asset or the term of the lease. Amortization of intangible assets
is calculated using the straight line method over the estimate
useful life of the assets, based on when the Company expect to
receive cash inflows generated by the intangible assets.
Impairment losses on long-lived assets used in operations are
recorded when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets
are less than the assets carrying amount. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the estimated fair value of the assets. During the year
ended December 31, 2017, the Company
recorded $104,700 of impairment loss on long-lived
intangible assets. No impairment losses were recorded on
long-lived assets to be held and used during the year
ended December 31, 2016.
Restructuring
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
Disposal Cost
Obligations One-time
Income Taxes
Income taxes are determined using the asset and liability approach
of accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the
reported amounts of assets and liabilities are recovered or paid.
Deferred taxes result from differences between the financial
statement and tax bases of Trovagene’s assets and liabilities
and are adjusted for changes in tax rates and tax laws when changes
are enacted. Valuation allowances are recorded to reduce deferred
tax assets when it is more likely than not that a tax benefit will
not be realized. The assessment of whether or not a valuation
allowance is required often requires significant judgment.
Contingencies
In the normal course of business, Trovagene is subject to loss
contingencies, such as legal proceedings and claims arising out of
its business, that cover a wide range of matters, including, among
others, government investigations, stockholder lawsuits, product
and environmental liability, and tax matters. In accordance with
FASB ASC Topic 450, Accounting for Contingencies
Cost of Revenue
Cost of revenue represents the cost of materials, personnel costs,
costs associated with processing specimens including pathological
review, quality control analyses, and delivery charges necessary to
render an individualized test result. Costs associated with
performing tests are recorded as 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.
Research and Development
Research and development expenses, which include expenditures in
connection with an in-house in-process 730-10-55-2, Research
and Development.
While certain of the Company’s research and development costs
may have future benefits, the Company’s policy of expensing
all research and development expenditures is predicated on the fact
that Trovagene has no history of successful commercialization of
molecular diagnostic products to base any estimate of the number of
future periods that would be benefited.
FASB ASC Topic 730, Research and
Development non-refundable
Net Loss Per Share
Basic and diluted net loss per share is presented in conformity
with FASB ASC Topic 260, Earnings per Share
December 31,
2017 2016
Options to purchase Common Stock 374,207 460,719
Warrants to purchase Common stock 1,962,960 378,218
Restricted Stock Units 106,192 22,667
Series A Convertible Preferred Stock 5,261 5,261
2,448,620 866,865
The following table summarizes the Company’s diluted net loss
per share:
December 31,
2017 2016
Numerator:
Net loss attributable to common stockholders $ (24,930,984 ) $ (39,227,959 )
Adjustment for gain from change in fair value of derivative
financial instruments—warrants
— (2,321,053 )
Net loss used for diluted loss per share $ (24,930,984 ) $ (41,549,012 )
Denominator:
Weighted-average shares used to compute basic net loss per
share 2,890,031 2,514,570
Adjustments to reflect assumed exercise of warrants
— 8,869
Weighted-average shares used to compute diluted net loss per
share 2,890,031 2,523,439
Net loss per share attributable to common stockholders:
Basic $ (8.63 ) $ (15.60 )
Diluted $ (8.63 ) $ (15.55 )
Change in Accounting Principle
In March 2016, the FASB issued ASU 2016-09, Improvements to
Employee Share-Based Payment
Accounting 2016-09”), 2016-09, 2016-09 2016-09
Recent Accounting Pronouncements
In August 2016, the FASB issued Accounting Standards Update
(“ASU”) 2016-15, Classification of
Certain Cash Receipts and
Cash 2016-15”), 2016-15 2016-15
In February 2016, the FASB issued
ASU 2016-02, Leases right-of-use
In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with
Customers 2014-09”). 2014-09
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 have been 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, year-end |
