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Cardiff Oncology, Inc. - Quarter Report: 2012 June (Form 10-Q)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

 

o         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                   to                  

 

COMMISSION FILE NUMBER 000-54556

 

TROVAGENE, INC.

(Exact Name of small business issuer as specified in its charter)

 

Delaware

 

27-2004382

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

11055 Flintkote Avenue, Suite B, San Diego, California 92121

(Address of principal executive offices) (Zip Code)

 

Issuer’s telephone Number: (858) 217-4838

 

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, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

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 August 9, 2012 the issuer had 14,178,097 shares of Common Stock issued and outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

 

PART I

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

22

 

 

 

Item 4

Controls and Procedures

27

 

 

 

 

PART II

 

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 6.

Exhibits

28

 

2



Table of Contents

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS.

 

INDEX TO FINANCIAL STATEMENTS

 

 

Page

 

 

Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Net Loss for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited) and the period August 4, 1999 (Inception) to June 30, 2012 (period from January 1, 2012 to June 30, 2012 unaudited)

5

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the period August 4, 1999 (Inception) to June 30, 2012 (period from January 1, 2012 to June 30, 2012 unaudited)

6

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited) and the period August 4, 1999 (Inception) to June 30, 2012 (period from January 1, 2012 to June 30, 2012 unaudited)

13

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

15

 

3



Table of Contents

 

Trovagene, Inc. and Subsidiaries

 

(A development stage company)

 

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,304,410

 

$

700,374

 

Accounts receivable

 

106,027

 

99,140

 

Prepaid expenses

 

29,738

 

42,658

 

Total current assets

 

9,440,175

 

842,172

 

Property and equipment, net

 

149,498

 

22,504

 

Other assets

 

362,081

 

174,581

 

Total assets

 

$

9,951,754

 

$

1,039,257

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity (Deficiency)

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

530,785

 

$

928,364

 

Accrued expenses

 

704,810

 

501,517

 

Total current liabilities

 

1,235,595

 

1,429,881

 

Derivative financial instruments

 

3,226,858

 

3,840,644

 

Total liabilities

 

4,462,453

 

5,270,525

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

Stockholders’ equity (deficiency)

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 20,000,000 shares authorized, 95,600 shares outstanding at June 30, 2012 and December 31, 2011, designated as Series A Convertible Preferred Stock with liquidation preference of $956,000 at June 30, 2012 and December 31, 2011

 

96

 

96

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 and 100,000,000 shares authorized at June 30, 2012 and December 31, 2011, respectively; 14,175,060 and 10,737,026 issued and outstanding at June 30, 2012 and December 31, 2011, respectively

 

1,418

 

1,073

 

 

 

 

 

 

 

Additional paid-in capital

 

53,694,388

 

39,365,994

 

Deficit accumulated during development stage

 

(48,206,601

)

(43,598,431

)

Total stockholders’ equity (deficiency)

 

5,489,301

 

(4,231,268

)

 

 

 

 

 

 

 

 

$

9,951,754

 

$

1,039,257

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

4



Table of Contents

 

Trovagene, Inc. and Subsidiaries
(A Development Stage Company)

Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

August 4, 1999
(Inception) to

 

 

 

2012

 

2011

 

2012

 

2011

 

June 30, 2012

 

Royalty income

 

$

41,500

 

$

79,863

 

$

75,653

 

$

148,946

 

$

720,723

 

License fees

 

 

 

 

20,000

 

1,363,175

 

Total revenues

 

41,500

 

79,863

 

75,653

 

168,946

 

2,083,898

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

477,151

 

143,288

 

814,558

 

401,304

 

16,343,713

 

Purchased in process research and development

 

 

 

 

 

2,666,869

 

General and administrative

 

809,868

 

584,025

 

1,636,830

 

1,135,068

 

24,177,684

 

Total operating expenses

 

1,287,019

 

727,313

 

2,451,388

 

1,536,372

 

43,188,266

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(1,245,519

)

(647,450

)

(2,375,735

)

(1,367,426

)

(41,104,368

)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

170

 

266,883

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(28,126

)

 

(56,637

)

(1,325,372

)

Amortization of deferred debt costs and original issue discount

 

 

 

 

 

(2,346,330

)

Change in fair value of derivative instruments—warrants

 

(2,180,891

)

226,417

 

(2,213,315

)

422,749

 

(987,307

)

Gain on extinguishment of debt

 

 

 

 

 

623,383

 

Liquidated damages and other forbearance agreement settlement costs

 

 

 

 

 

(1,758,111

)

Net loss and comprehensive loss

 

(3,426,410

)

(449,159

)

(4,589,050

)

(1,001,144

)

(46,631,222

)

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend

 

(9,560

)

(9,560

)

(19,120

)

(19,120

)

(327,038

)

Series A Convertible Preferred stock conversion rate change accreted as a dividend

 

 

 

 

 

(455,385

)

Cumulative effect of early adopting ASC Topic 815-40

 

 

 

 

 

(792,956

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and comprehensive loss available to common stockholders

 

$

(3,435,970

)

$

(458,719

)

$

(4,608,170

)

$

(1,020,264

)

$

(48,206,601

)

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE-BASIC AND DILUTED:

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(.28

)

$

(.05

)

$

(.40

)

$

(.11

)

 

 

Weighted average shares outstanding:

 

12,086,528

 

9,152,482

 

11,544,112

 

9,088,090

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

5



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

Common Stock

 

Treasury Shares

 

Additional
Paid-In

 

Deferred
Stock
Based

 

Deficit
Accumulated
During
Development

 

Total
Stockholders’
Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Compensation

 

Stage

 

(Deficiency)

 

Balance, August 4, 1999 (Inception)

 

0

 

$

0

 

0

 

$

0

 

$

0

 

$

0

 

$

0

 

$

0

 

Issuance of common stock to founders for cash at $0.0012 per share

 

37,000,000

 

3,700

 

 

 

 

 

38,300

 

 

 

 

 

42,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,760

)

(14,760

)

Balance, January 31, 2000

 

37,000,000

 

$

3,700

 

0

 

$

0

 

$

38,300

 

0

 

(14,760

)

27,240

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(267,599

)

(267,599

)

Balance, January 31, 2001

 

37,000,000

 

$

3,700

 

0

 

$

0

 

$

38,300

 

0

 

(282,359

)

(240,359

)

Capital contribution of cash

 

 

 

 

 

 

 

 

 

45,188

 

 

 

 

 

45,188

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(524,224

)

(524,224

)

Balance, January 31, 2002

 

37,000,000

 

$

3,700

 

0

 

$

0

 

$

83,488

 

0

 

(806,583

)

(719,395

)

Issuance of common stock for cash at $0.003 per share

 

1,258,000

 

126

 

 

 

 

 

3,274

 

 

 

 

 

3,400

 

Capital contribution of cash

 

0

 

0

 

 

 

 

 

2,500

 

 

 

 

 

2,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(481,609

)

(481,609

)

Balance, January 31, 2003

 

38,258,000

 

$

3,826

 

0

 

$

0

 

$

89,262

 

0

 

(1,288,192

)

(1,195,104

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(383,021

)

(383,021

)

Balance, January 31, 2004

 

38,258,000

 

$

3,826

 

0

 

$

0

 

$

89,262

 

0

 

(1,671,213

)

(1,578,125

)

Waiver of founders’ deferred compensation

 

0

 

0

 

 

 

 

 

1,655,031

 

 

 

 

 

1,655,031

 

Private placement of common stock

 

440,868

 

44

 

 

 

 

 

2,512,906

 

 

 

 

 

2,512,950

 

Redemption of shares held by Panetta Partners, Inc.

 

(36,477,079

)

(3,648

)

 

 

 

 

(496,352

)

 

 

 

 

(500,000

)

Costs associated with recapitalization

 

 

 

 

 

 

 

 

 

(301,499

)

 

 

 

 

(301,499

)

Share exchange with founders

 

376,334

 

38

 

 

 

 

 

(38

)

 

 

 

 

0

 

Issuance of treasury shares

 

 

 

 

 

58,333

 

6

 

(6

)

 

 

 

 

0

 

Issuance of treasury shares to escrow

 

58,333

 

6

 

(58,333

)

(6

)

0

 

 

 

 

 

0

 

Issuance of common stock and warrants for cash at $11.70 per share

 

228,026

 

23

 

 

 

 

 

2,667,877

 

 

 

 

 

2,667,900

 

Issuance of 20,610 warrants to selling agents

 

 

 

 

 

 

 

 

 

403,038

 

 

 

 

 

403,038

 

Finders warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

(403,038

)

 

 

 

 

(403,038

)

Deferred stock-based compensation

 

 

 

 

 

 

 

 

 

1,937,500

 

(1,937,500

)

 

 

0

 

Amortization of deferred stock-based compensation

 

 

 

 

 

 

 

 

 

0

 

245,697

 

 

 

245,697

 

Options issued to consultants

 

 

 

 

 

 

 

 

 

1,229,568

 

 

 

 

 

1,229,568

 

Warrants issued to consultants

 

 

 

 

 

 

 

 

 

2,630,440

 

 

 

 

 

2,630,440

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,371,027

)

(5,371,027

)

Balance, January 31, 2005

 

2,884,482

 

$

289

 

0

 

$

0

 

$

11,924,689

 

$

(1,691,803

)

$

(7,042,240

)

$

3,190,935

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

Preferred Stock

 

Common Stock

 

Treasury Shares

 

Additional
Paid-In

 

Deferred
Stock
Based

 

Deficit
Accumulated
During
Development

 

Total
Stockholders’
Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Compensation

 

Stage

 

(Deficiency)

 

Balance, January 31, 2005

 

0

 

$

0

 

2,884,482

 

$

289

 

0

 

$

0

 

$

11,924,689

 

$

(1,691,803

)

$

(7,042,240

)

$

3,190,935

 

Private placement of common stock

 

 

 

 

 

17,094

 

2

 

0

 

$

0

 

$

199,998

 

 

 

 

 

200,000

 

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(179,600

)

 

 

 

 

(179,600

)

Common stock issued to selling agents

 

 

 

 

 

4,077

 

 

 

 

 

 

 

0

 

 

 

 

 

0

 

Private placement of common stock

 

 

 

 

 

252,564

 

25

 

 

 

 

 

2,954,974

 

 

 

 

 

2,954,999

 

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(298,000

)

 

 

 

 

(298,000

)

Issuance of 20,205 warrants issued to selling agents

 

 

 

 

 

 

 

 

 

 

 

 

 

222,188

 

 

 

 

 

222,188

 

Selling agents warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

 

 

 

 

(222,188

)

 

 

 

 

(222,188

)

Private placement of preferred stock and warrants for cash at $10.00 per share (restated)

 

277,100

 

277

 

 

 

 

 

 

 

 

 

2,770,723

 

 

 

 

 

2,771,000

 

Accretion of preferred stock dividends (restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

792,956

 

 

 

(792,956

)

0

 

Value of warrants reclassified to derivative financial instrument liability

 

 

 

 

 

 

 

 

 

 

 

 

 

(567,085

)

 

 

 

 

(567,085

)

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(277,102

)

 

 

 

 

(277,102

)

Issuance of 17,572 warrants issued to selling agents

 

 

 

 

 

 

 

 

 

 

 

 

 

167,397

 

 

 

 

 

167,397

 

Selling agents warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

 

 

 

 

(167,397

)

 

 

 

 

(167,397

)

Return of treasury shares from escrow

 

 

 

 

 

(58,333

)

(6

)

58,333

 

6

 

0

 

 

 

 

 

0

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

 

(58,333

)

(6

)

6

 

 

 

 

 

0

 

Common stock issued for services

 

 

 

 

 

833

 

 

 

 

 

 

 

16,500

 

 

 

 

 

16,500

 

Stock-based compensation expense for non- employees

 

 

 

 

 

 

 

 

 

 

 

 

 

2,928,298

 

 

 

 

 

2,928,298

 

Amortization of deferred stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

645,832

 

 

 

645,832

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

(60,741

)

(60,741

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,844,326

)

(7,844,326

)

Balance, January 31, 2006

 

277,100

 

$

277

 

3,100,717

 

$

310

 

0

 

$

0

 

$

20,266,357

 

$

(1,045,971

)

$

(15,740,263

)

$

3,480,710

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

Preferred Stock

 

Common Stock

 

Additional
Paid-In

 

Deferred
Stock
Based

 

Deficit
Accumulated
During
Development

 

Total
Stockholders’
Equity

 

Temporary
Equity—
Unregistered
Common Stock

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Compensation

 

Stage

 

(Deficiency)

 

Shares

 

Amount

 

Balance, January 31, 2006

 

277,100

 

$

277

 

3,100,717

 

$

310

 

$

20,266,357

 

$

(1,045,971

)

$

(15,740,263

)

$

3,480,710

 

 

$

 

Conversion of Series A preferred stock and issuance of common stock

 

(174,000

)

(174

)

137,739

 

14

 

160

 

 

 

 

 

 

 

 

Implementation of ASC 718

 

 

 

 

 

 

 

 

 

(1,045,971

)

1,045,971

 

 

 

0

 

 

 

 

 

Private placement of common stock

 

 

 

 

 

125,787

 

13

 

943,388

 

 

 

 

 

943,401

 

 

 

 

 

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

(118,341

)

 

 

 

 

(118,341

)

 

 

 

 

Issuance of 15,779 warrants to selling agents

 

 

 

 

 

 

 

 

 

55,568

 

 

 

 

 

55,568

 

 

 

 

 

Selling agents warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

(55,568

)

 

 

 

 

(55,568

)

 

 

 

 

Issuance of common stock and warrants for cash at $6.00 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

166,667

 

1,000,000

 

Payment of finder’s fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(80,000

)

Value of warrants classified as derivative financial instrument liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,000

)

Issuance of 27,425 units to finder

 

 

 

 

 

 

 

 

 

167,856

 

 

 

 

 

167,856

 

 

 

 

 

Common Stock issued for services

 

 

 

 

 

1,449

 

0

 

9,566

 

 

 

 

 

9,566

 

 

 

 

 

Value attributed to warrants issued with 6% convertible debentures

 

 

 

 

 

 

 

 

 

1,991,822

 

 

 

 

 

1,991,822

 

 

 

 

 

Reclassification of derivative financial instruments to stockholders’ equity upon adoption of ASC 815-40

 

 

 

 

 

 

 

 

 

567,085

 

 

 

(455,385

)

111,700

 

 

 

 

 

Warrants issued for services

 

 

 

 

 

 

 

 

 

101,131

 

 

 

 

 

101,131

 

 

 

 

 

Donated services

 

 

 

 

 

 

 

 

 

62,500

 

 

 

 

 

62,500

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

1,572,545

 

 

 

 

 

1,572,545

 

 

 

 

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

(59,164

)

(59,164

)

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,134,067

)

(7,134,067

)

 

 

 

 

Balance, January 31, 2007

 

103,100

 

$

103

 

3,365,692

 

$

337

 

$

24,518,098

 

$

0

 

$

(23,388,879

)

$

1,129,659

 

166,667

 

$

905,000

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

8



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

Preferred Stock

 

Common Stock

 

Additional
Paid-In

 

Deficit
Accumulated
During
Development

 

Total
Stockholders’
Equity

 

Temporary Equity—
Unregistered
Common Stock

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stage

 

(Deficiency)

 

Shares

 

Amount

 

Balance, January 31, 2007

 

103,100

 

$

103

 

3,365,692

 

$

337

 

$

24,518,098

 

$

(23,388,879

)

1,129,659

 

166,667

 

$

905,000

 

Conversion of preferred stock to common stock

 

(7,500

)

(7

)

7,813

 

1

 

6

 

 

 

 

 

 

 

 

Private placement of common stock

 

 

 

 

 

283,333

 

28

 

849,972

 

 

 

850,000

 

 

 

 

 

Payment of selling agent fees and expenses

 

 

 

 

 

 

 

 

 

(51,733

)

 

 

(51,733

)

 

 

 

 

Issuance of warrants to selling agents

 

 

 

 

 

 

 

 

 

45,403

 

 

 

45,403

 

 

 

 

 

Selling agent warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

(45,403

)

 

 

(45,403

)

 

 

 

 

Derivative liability—warrants at issuance

 

 

 

 

 

 

 

 

 

(45,371

)

 

 

(45,371

)

 

 

 

 

Donated services

 

 

 

 

 

 

 

 

 

275,000

 

 

 

275,000

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

914,847

 

 

 

914,847

 

 

 

 

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(35,054

)

(35,054

)

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,683,141

)

(4,683,141

)

 

 

 

 

Balance, December 31, 2007

 

95,600

 

$

96

 

3,656,838

 

$

366

 

$

26,460,819

 

$

(28,107,074

)

(1,645,793

)

166,667

 

$

905,000

 

Reclassification of common stock initially recorded as temporary equity

 

 

 

 

 

166,667

 

17

 

904,983

 

 

 

905,000

 

(166,667

)

(905,000

)

Private placement of common stock

 

 

 

 

 

330,682

 

33

 

1,144,967

 

 

 

1,145,000

 

 

 

 

 

Payment of selling agents fees and expenses

 

 

 

 

 

 

 

 

 

(74,500

)

 

 

(74,500

)

 

 

 

 

Conversion of debenture to common stock

 

 

 

 

 

31,214

 

3

 

93,638

 

 

 

93,641

 

 

 

 

 

Derivative liability—warrants at issuance

 

 

 

 

 

 

 

 

 

(201,122

)

 

 

(201,122

)

 

 

 

 

Donated services

 

 

 

 

 

 

 

 

 

390,750

 

 

 

390,750

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

543,697

 

 

 

543,697

 

 

 

 

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(38,240

)

(38,240

)

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,166,240

)

(5,166,240

)

 

 

 

 

Balance, December 31, 2008

 

95,600

 

$

96

 

4,185,401

 

$

419

 

$

29,263,232

 

$

(33,311,554

)

$

(4,047,807

)

0

 

$

0

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

9



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

Preferred Stock

 

Common Stock

 

Additional
Paid-In

 

Deficit
Accumulated
During
Development

 

Total
Stockholders’
Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stage

 

(Deficiency)

 

Balance December, 31, 2008

 

95,600

 

$

96

 

4,185,401

 

$

419

 

$

29,263,232

 

$

(33,311,554

)

$

(4,047,807

)

Issuance of shares of common stock in connection with convertible debenture forbearance agreement

 

 

 

 

 

906,245

 

91

 

1,739,868

 

 

 

1,739,959

 

Issuance of shares of common stock in payment of convertible debenture interest

 

 

 

 

 

60,147

 

6

 

112,285

 

 

 

112,291

 

Private placements of common stock

 

 

 

 

 

488,333

 

49

 

1,464,951

 

 

 

1,465,000

 

Issuance of common stock pursuant to a non-exclusive selling agent’s agreement

 

 

 

 

 

68,897

 

7

 

306,730

 

 

 

306,737

 

Issuance of shares of common stock re settlement for consulting services rendered

 

 

 

 

 

159,630

 

16

 

478,874

 

 

 

478,890

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

177,836

 

 

 

177,836

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(38,240

)

(38,240

)

Derivative liability—warrants and price protected units upon issuance

 

 

 

 

 

 

 

 

 

(1,497,568

)

 

 

(1,497,568

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,483,807

)

(2,483,807

)

Balance, December 31, 2009

 

95,600

 

$

96

 

5,868,653

 

$

588

 

$

32,046,208

 

$

(35,833,601

)

$

(3,786,709

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

10



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

Preferred Stock

 

Common Stock

 

Additional
Paid-In

 

Accumulated
Deficit
During
Development

 

Total
Stockholders’
Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stage

 

(Deficiency)

 

Balance, December 31, 2009

 

95,600

 

$

96

 

5,868,653

 

$

588

 

$

32,046,208

 

(35,833,601

)

$

(3,786,709

)

Issuance of shares of common stock in payment of convertible debenture interest

 

 

 

 

 

85,619

 

9

 

115,962

 

 

 

115,971

 

Issuance of common stock to selling agents

 

 

 

 

 

79,333

 

8

 

(8

)

 

 

 

Private placement of units

 

 

 

 

 

578,233

 

58

 

1,734,642

 

 

 

1,734,700

 

Derivative liabilitiy—price protected units upon issuance

 

 

 

 

 

 

 

 

 

(1,010,114

)

 

 

(1,010,114

)

Consulting services settled via issuance of stock

 

 

 

 

 

70,833

 

7

 

212,493

 

 

 

212,500

 

Shares issued in settlement of legal fees

 

 

 

 

 

29,240

 

3

 

99,997

 

 

 

100,000

 

Stock issued in payment of deferred salary to former CEO

 

 

 

 

 

12,745

 

1

 

28,345

 

 

 

28,346

 

Shares issued in connection with Agreement & Plan of Merger with Etherogen, Inc.

 

 

 

 

 

2,043,797

 

204

 

2,771,185

 

 

 

2,771,389

 

Stock Based Compensation expense

 

 

 

 

 

 

 

 

 

325,930

 

 

 

325,930

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(38,240

)

(38,240

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,449,138

)

(5,449,138

)

Balance, December 31, 2010

 

95,600

 

$

96

 

8,768,453

 

$

878

 

$

36,324,640

 

$

(41,320,979

)

$

(4,995,365

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

11



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

Preferred
Stock
Shares

 

Preferred
Stock
Amount

 

Common
Stock
Shares

 

Common
Stock
Amount

 

Additional
Paid-In
Capital

 

Deficit
Accumulated
During
Development
Stage

 

Total
Stockholders’
Deficiency

 

Balance, December 31, 2010

 

95,600

 

$

96

 

8,768,453

 

$

878

 

$

36,324,640

 

$

(41,320,979

)

$

(4,995,365

)

Issuance of shares of common stock in payment of convertible debenture interest in accordance with Forbearance Agreement

 

 

 

 

 

64,214

 

6

 

85,269

 

 

 

85,275

 

Private placement of units

 

 

 

 

 

857,833

 

85

 

2,573,415

 

 

 

2,573,500

 

Derivative liability-fair value of warrants and price protected units issued

 

 

 

 

 

 

 

 

 

(1,298,618

)

 

 

(1,298,618

)

Shares issued in connection with Board Compensation

 

 

 

 

 

41,750

 

4

 

125,246

 

 

 

125,250

 

Issuance of common stock to shareholder as finder’s fees

 

 

 

 

 

90,258

 

9

 

(9

)

 

 

 

Issuance of common stock in connection with consulting services

 

 

 

 

 

58,333

 

6

 

174,994

 

 

 

175,000

 

Stock issued in connection with conversion of convertible debentures

 

 

 

 

 

856,185

 

85

 

1,130,079

 

 

 

1,130,164

 

Stock based compensation

 

 

 

 

 

 

 

 

 

250,978

 

 

 

250,978

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(38,240

)

(38,240

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,239,212

)

(2,239,212

)

Balance, December 31, 2011

 

95,600

 

$

96

 

10,737,026

 

$

1,073

 

$

39,365,994

 

$

(43,598,431

)

$

(4,231,268

)

Units issued via registered direct public offering and private placement of units

 

 

 

 

 

3,278,334

 

328

 

12,479,672

 

 

 

12,480,000

 

Fees and expenses related to financing transactions — paid in cash

 

 

 

 

 

 

 

 

 

(1,533,395

)

 

 

(1,533,395

)

Derivative liability-fair value of warrants and price protected units issued

 

 

 

 

 

 

 

 

 

(765,329

)

 

 

(765,329

)

Correction of error in derivative liability—fair value of warrants price protected units issued

 

 

 

 

 

 

 

 

 

274,967

 

 

 

274,967

 

Warrants classified to Additional Paid in Capital

 

 

 

 

 

 

 

 

 

3,317,463

 

 

 

3,317,463

 

Issuance of common stock and warrant to shareholder as finder’s fees

 

 

 

 

 

30,450

 

3

 

(3

)

 

 

 

Issuance of common stock in connection with Asset Purchase Agreement with MultiGen Diagnostics, Inc.

 

 

 

 

 

125,000

 

13

 

187,487

 

 

 

187,500

 

Issuance of common stock in connection with consulting services

 

 

 

 

 

4,250

 

1

 

6,374

 

 

 

6,375

 

Issuance of warrant in connection with advisory services

 

 

 

 

 

 

 

 

 

142,508

 

 

 

142,508

 

Stock based compensation

 

 

 

 

 

 

 

 

 

218,650

 

 

 

218,650

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(19,120

)

(19,120

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,589,050

)

(4,589,050

)

Balance, June 30, 2012 (unaudited)

 

95,600

 

$

96

 

14,175,060

 

$

1,418

 

$

53,694,388

 

$

(48,206,601

)

$

5,489,301

 

 

12



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

 

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months
ended June 30,
2012

 

Six Months
ended June 30,
2011

 

For the period
August 4, 1999
(Inception) to
June 30, 2012

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(4,589,050

)

$

(1,001,144

)

$

(46,631,222

)

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

13,975

 

5,132

 

235,774

 

Stock based compensation expense

 

218,650

 

120,705

 

11,698,975

 

 

 

 

 

 

 

 

 

Founders compensation contributed to equity

 

 

 

1,655,031

 

 

 

 

 

 

 

 

 

Donated services contributed to equity

 

 

 

829,381

 

 

 

 

 

 

 

 

 

Settlement of consulting services in stock

 

 

 

478,890

 

Amortization of deferred debt costs and original issue discount

 

 

 

2,346,330

 

Liquidated damages and other forbearance agreement settlement costs paid in stock

 

 

 

1,758,111

 

 

 

 

 

 

 

 

 

Interest expense on convertible debentures paid in stock

 

 

56,637

 

757,198

 

 

 

 

 

 

 

 

 

Change in fair value of financial instruments

 

2,213,315

 

(422,749

)

987,307

 

 

 

 

 

 

 

 

 

Gain on extinguishment of debt

 

 

 

(623,383

)

 

 

 

 

 

 

 

 

Purchased in process research and development expense-related party

 

 

 

2,666,869

 

Stock issued in connection with payment of deferred salary

 

 

 

28,346

 

Stock issued in connection with settlement of legal fees

 

 

 

100,000

 

Stock issued in connection with consulting services

 

148,883

 

12,500

 

436,383

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Decrease (increase) in other assets

 

 

10,824

 

(69,881

)

Decrease (increase) in accounts receivable

 

(6,887

)

75,000

 

(106,028

)

Decrease (increase) in prepaid expenses

 

12,920

 

24,364

 

(29,738

)

Increase (decrease) in accounts payable, accrued expenses and other

 

(213,406

)

101,839

 

1,202,965

 

Net cash used in operating activities

 

(2,201,600

)

(1,016,892

)

(22,278,692

)

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Assets acquired in Etherogen, Inc. merger

 

 

 

(104,700

)

Capital expenditures

 

(140,969

)

(1,529

)

(385,272

)

Net cash used in investing activities

 

(140,969

)

(1,529

)

(489,972

)

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Proceeds from sale of 6% convertible debenture

 

 

 

2,335,050

 

Debt issuance costs

 

 

 

(297,104

)

Proceeds from sale of common stock, net of expenses

 

10,946,605

 

975,000

 

28,378,610

 

Proceeds from a non-exclusive selling agent’s agreement

 

 

 

142,187

 

Note (repayment)

 

 

 

 

Costs associated with recapitalization

 

 

 

(362,849

)

Proceeds from sale of preferred stock

 

 

 

2,771,000

 

Payment of finders’ fee on preferred stock

 

 

 

(277,102

)

Redemption of common stock

 

 

 

(500,000

)

Payment of preferred stock dividends

 

 

 

(116,718

)

Net cash provided by financing activities

 

10,946,605

 

975,000

 

32,073,074

 

Net change in cash and equivalent-increase(decrease)

 

8,604,036

 

(43,421

)

9,304,410

 

Cash and cash equivalents—Beginning of period

 

700,374

 

58,703

 

 

Cash and cash equivalents—End of period

 

$

9,304,410

 

$

15,282

 

$

9,304,410

 

 

13



Table of Contents

 

 

 

Six months
ended June 30,
2012

 

Six months
ended June 30,
2011

 

For the period
August 4, 1999
(Inception) to
June 30, 2012

 

Supplementary disclosure of cash flow activity:

 

 

 

 

 

 

 

Cash paid for taxes

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Conversion of 174,000 shares of preferred stock into 137,739 shares of common stock:

 

 

 

 

 

 

 

Surrender of 174,000 shares of preferred stock

 

$

 

$

 

$

(1,740,000

)

Issuance of 137,739 shares of common stock

 

$

 

$

 

$

1,740,000

 

Issuance of 125,000 shares of common stock pursuant to Asset Purchase Agreement with Multigen Diagnostics, Inc.

 

$

187,500

 

$

 

$

187,500

 

Reclassification of derivative financial instruments to additional paid in capital

 

$

(3,317,463

)

 

 

$

(3,317,463

)

Correction of error in derivative financial instruments

 

$

(274,967

)

 

 

$

(274,967

)

 

 

 

 

 

 

 

 

Issuance of 41,750 shares of common stock for Board of Directors’ fees in lieu of cash payment

 

$

 

$

125,250

 

$

125,250

 

Conversion of $2,335,050 of 6% debentures

 

$

 

$

 

$

1,130,164

 

Series A Preferred beneficial conversion feature accreted as a dividend

 

$

 

$

 

$

455,385

 

Preferred stock dividends accrued

 

$

19,120

 

$

19,120

 

$

162,520

 

Interest paid on common stock

 

$

 

$

56,637

 

$

1,325,372

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

14



Table of Contents

 

Trovagene, Inc. and Subsidiaries

(A Development Stage Company)

 

Notes to Condensed Consolidated Financial Statements

 

1. Condensed Consolidated Financial Statements

 

Business Overview

 

Trovagene, Inc. (“Trovagene” or the “Company”) is a development stage molecular diagnostic company that focuses on the development and marketing of urine-based nucleic acid tests for patient/disease screening and monitoring. The Company’s novel tests predominantly use transrenal DNA (Tr-DNA) and transrenal RNA (Tr-RNA). Trovagene’s primary focus is to leverage its urine-based (i.e. transrenal) testing platform to facilitate improvements in the management of cancer care and women’s healthcare. Tr-DNAs and Tr-RNAs are fragments of nucleic acids derived from dying cells inside the body. The intact DNA is fragmented in dying cells and released into the blood stream. These fragments have been shown to cross the kidney barrier and can be detected in urine. In addition, there is evidence that some species of RNA or their fragments are stable enough to cross the renal barrier. These RNA can also be isolated from urine, detected and analyzed. The Company believes its technology is applicable to all transrenal nucleic acids (Tr-NA). Trovagene’s patented technology uses safe, non-invasive, cost effective and simple urine collection which can be applied to a broad range of testing including: tumor detection and monitoring (e.g., KRAS mutations in pancreatic cancer), prenatal genetic testing, infectious diseases, tissue transplantation, forensic identification and for patient selection in clinical trials. Trovagene’s technology is ideally suited to be used in developing molecular diagnostic assays that will allow physicians to provide very simple, non-invasive and convenient screening and monitoring tests for their patients by identifying specific biomarkers involved in the disease process. If the  Company is successful, its novel assays may facilitate  improved testing compliance resulting in earlier diagnosis of disease, more targeted treatment which will be more cost effective, and improvements in the quality of life for the patient.

 

Underwritten Public Offering of Common Stock and Reverse Stock Split

 

On May 30, 2012, the Company completed a underwritten public offering in which an aggregate of 1,150,000 units, with each unit consisting of two shares of its common stock and one warrant to purchase one share of common stock were sold at a purchase price of $8.00 per unit. On June 13, 2012, the underwriters exercised their overallotment option in full for an additional 172,500 units.  The Company raised a total of $9.1 million in net proceeds after deducting underwriting discounts and commissions of $0.7 million and offering expenses of $0.7 million.   The units began trading on The NASDAQ Capital Market on May 30, 2012 under the symbol “TROVU”. The common stock and warrants became separately transferable upon the exercise in full of the underwriters’ overallotment.  Each warrant has an exercise price of $5.32 per share, and expires five years from the closing of the offering.  The warrants trade on The NASDAQ Capital Market under the symbol “TROVW”. Warrants issued in connection with the underwritten public offering and sale of units in May 2012 are not considered derivatives based on our analysis of the criteria of ASC 815, as the Company is not required to make any cash payments or net cash settlement to the registered holder in lieu of issuance of warrant shares.

 

On March 15, 2012, the Board of Directors and on April 27, 2012 a majority of the stockholders approved a proposal to amend the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s issued and outstanding common stock at a ratio of not less than one-for-two and not greater than one-for-six at any time prior to April 27, 2013 at the discretion of the Board of Directors. On May 24, 2012, the Board of Directors approved a 1-for-6 reverse stock split of the Company’s issued and outstanding common stock effective on May 29, 2012. All the relevant information relating to number of shares and per share information contained in these consolidated financial statements has been retrospectively adjusted to reflect the reverse stock split for all periods presented.

 

Private Placements

 

During the six months ended June 30, 2012, the Company closed four private placement financings which raised gross proceeds of $1,900,000. The Company issued 633,334 shares of its common stock and warrants to purchase 633,334 shares of common stock. The purchase price paid by the investor was $3.00 for each unit, determined by the price paid by investors in recent private placements. The warrants expire on December 31, 2018 and are exercisable at $3.00 per share. The Company paid $96,500 in cash for a finder’s fee. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Trovagene has determined that the warrants issued in connection with these private placements should be recorded as derivative liabilities since they are all price protected (Note 6). The fair value is disclosed in Note 7.

 

During the six months ended June 30, 2012, the Company issued 30,450 units to a selling agent, who is also a shareholder of the Company, consisting of 30,450 shares of common stock and warrants to purchase 30,450 shares of common stock. The warrants have an exercise price of $3.00 per share, are immediately exercisable and expire December 31, 2018. The units were issued as a finder’s fee in connection with certain private placements closed during the six months ended June 30, 2012. The issuance of these units was treated as a non-compensatory cost of capital.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Trovagene, which include its wholly owned subsidiary Xenomics, Inc., a California corporation (“Xenomics Sub”) 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. Certain items in the comparable prior period’s financial statements have been reclassified to conform to the current period’s presentation. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements as of December 31, 2011 and December 31, 2010 and for each of the two years ended December 31, 2011 and from inception (August 4, 1999) to December 31, 2011 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2012.  The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 30, 2012, results of operations, and cash flows for the three and six months ended June 30, 2012, and for all periods presented herein, have been made. The

 

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results of operations for the periods ended June 30, 2012 and 2011 are not necessarily indicative of the operating results for the full year.

 

Going Concern

 

Trovagene’s consolidated financial statements as of June 30, 2012 have been prepared under the assumption that Trovagene will continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate additional revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company will be required to raise additional capital within the next year to complete the development and commercialization of current product candidates and to continue to fund operations at its current cash expenditure levels.

 

Cash used in operating activities was $2,201,600 and $1,016,892, for the six months ended June 30, 2012 and 2011, respectively. During the six months ended June 30, 2012 and 2011, the Company incurred net losses attributable to common stockholders of $4,608,170 and $1,020,264, respectively.

 

To date, Trovagene’s sources of cash have been primarily limited to the sale of debt and equity securities. Net cash provided by financing activities for the six months ended June 30, 2012 and 2011 was $10,946,605 and $975,000, respectively. 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. 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 has approximately $8.3 million of cash in the bank at August 10, 2012. Based on the Company’s projections of future ordinary expenses and expected receipts the Company has enough cash to pay expenses through July of 2013.

 

2. 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 and diluted net income/loss per common share was determined by dividing net income/loss applicable to common stockholders by the weighted-average common shares outstanding during the period.

 

Diluted weighted-average shares are the same as basic weighted-average shares when the shares issuable pursuant to the exercise of dilutive instruments would have been antidilutive.

 

For the three months and six months ended June 30, 2012 and 2011, certain of the outstanding stock options and other common stock equivalents were excluded from the calculation of diluted net loss per share because the effect was anti-dilutive. The amounts excluded in the three months ended June 30, 2012 and 2011 were 8,887,170 and 955,768, respectively. The amounts excluded in the six months ended June 30, 2012 and 2011 were 7,889,789 and 3,563,808.

 

3.              Accounting for Share-Based Payments

 

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. Trovagene accounts for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received. The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “ Equity-Based Payment to Non-Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a

 

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performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined. The weighted-average fair value per share of all options granted during the six months ended June 30, 2012 and 2011 estimated as of the grant date using the Black-Scholes option valuation model was $0.16 and $0.10, respectively.

 

Stock-based compensation expense related to Trovagene options has been recognized in operating results as follow:

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30

 

 

 

2012

 

2011

 

2012

 

2011

 

Included in research and development expense

 

$

23,897

 

$

2,810

 

$

31,480

 

$

5,759

 

Included in general and administrative expense

 

91,922

 

57,473

 

187,170

 

114,946

 

 

 

 

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

115,819

 

$

60,283

 

$

218,650

 

$

120,705

 

 

The unrecognized compensation cost related to non-vested stock options outstanding at June 30, 2012 and 2011, net of expected forfeitures, was $1,224,040 and $223,641, respectively, to be recognized over a weighted-average remaining vesting period of approximately four years and six years, 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.

 

 

 

Six Months
Ended
June
30, 2012

 

Six Months
Ended
June
30, 2011

 

Risk-free interest rate

 

.72-1.04

%

1.23

%

Dividend yield

 

0

%

0

%

Expected volatility

 

90

%

90

%

Expected term (in years)

 

5 yrs.

 

5 yrs.

 

 

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

 

 

 

Number of
Options

 

Exercise Price
Per Share

 

Weighted Average
Exercise Price
Per Share

 

Intrinsic
Value

 

Balance outstanding, December 31, 2011

 

2,426,192

 

$

3.00 to $15.00

 

$

5.22

 

$

 

Granted

 

645,000

 

3.00 to 4.68

 

3.69

 

244,400

 

Forfeited

 

(9,375

)

3.00

 

3.00

 

 

Balance outstanding, June 30, 2012

 

3,061,817

 

$

3.00 to 15.00

 

$

4.79

 

$

1,495,837

 

Exercisable at June 30, 2012

 

1,591,732

 

$

3.00 to 15.00

 

$

6.25

 

$

501,178

 

 

Warrants

 

The Company issued 2,128,284 warrants, whose weighted average exercise price was $4.61 per share, in the six months ended June 30, 2012, of which, 663,784 were issued in connection with private placements of its common stock, 92,000 were issued to underwriters in connection with the underwritten public offering, 1,322,500 were issued in connection with the underwritten public offering of its common stock, and 50,000 were issued for services provided by a related party.

 

4.              Stockholders’ Equity (Deficiency)

 

During the six months ended June 30, 2012, the Company closed four private placement financings which raised gross proceeds of $1,900,000. The Company issued 633,334 shares of its common stock and warrants to purchase 633,334 shares of common stock. The purchase price paid by the investor was $3.00 for each unit, determined by the price paid by investors in recent private placements.  The warrants expire after eight years and are exercisable at $3.00 per share. The Company paid $96,500 in cash for a finder’s fee. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Trovagene has determined that the warrants issued in connection with these private placements should be recorded as derivative liabilities at the time of issuance since they are all price protected (Note 6), however the completion of the underwritten public offering on May 30, 2012 removed the condition which required these warrants to be treated as derivative liabilities.  Accordingly, the fair value of these warrants were marked to market through May 30, 2012 and then reclassified from a liability to additional paid in capital.

 

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During the six months ended June 30, 2012, the Company issued 30,450 units to a selling agent, who is also a shareholder of the Company, consisting of 30,450 shares of common stock and warrants to purchase 30,450 shares of common stock. The warrants have an exercise price of $3.00 per share, are immediately exercisable and expire December 31, 2018.  The units were issued as a finder’s fee in connection with certain private placements closed during the six months ended June 30, 2012. The issuance of these units was treated as a non-compensatory cost of capital.

 

During the six months ended June 30, 2012, the Company issued 125,000 shares of common stock in connection with an asset purchase agreement with MultiGen Diagnostics, Inc.  See Note 5.

 

On May 30, 2012, the Company completed an underwritten public offering in which an aggregate of 1,150,000 units, with each unit consisting of two shares of its common stock and one warrant to purchase one share of common stock were sold at a purchase price of $8.00 per unit. On June 13, 2012 the underwriters exercised their overallotment option in full for an additional 172,500 units.  Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, Trovagene determined that the warrants issued in connection with this transaction were not derivative liabilities.  The Company raised a total of $9.1 million in net proceeds after deducting underwriting discounts and commissions of $0.7 million and offering expenses of $0.7 million.

 

5. Asset Purchase Agreement

 

On February 1, 2012 the Company entered into an asset purchase agreement with MultiGen Diagnostics, Inc.  The Company determined that the acquired asset does not meet the definition of a business, as defined in ASC 805, Business Combinations and will be accounted for under ASC 350, Intangibles- Goodwill and Other.  In connection with the acquisition, the Company issued 125,000 shares of restricted common stock to MultiGEN.  In addition, up to an additional $3.7 million may be paid in a combination of common stock and cash to MultiGEN upon the achievement of specific sales and earnings targets. In addition, in connection with the acquisition, the Company entered into a Reagent Supply Agreement dated as of February 1, 2012 pursuant to which MultiGEN will supply and deliver reagents to be used in connection with a Clinical Laboratory Improvement Amendment (CLIA) laboratory.  The total purchase consideration was determined to be $187,500 which was paid in the Company’s common stock.

 

Under ASC Topic 805, Business Combinations, the Company was required to assess the fair value of the assets acquired and the contingent consideration at the date of acquisition. Therefore, the Company assessed the fair value of the assets purchased and concluded that the purchase price would be allocated entirely to one intangible asset, a CLIA license.  The contingent consideration of the $3.7 million milestone was determined to have a fair value of $0 by applying a weighted average probability on the achievement of the milestones developed during the valuation process.  The Company will assess the fair value of the contingent consideration at each quarter and make adjustments as necessary until the milestone dates have expired.

 

6.  Derivative Financial Instruments

 

Effective January 1, 2009, the Company adopted provisions of ASC Topic 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity” (“ASC Topic 815-40”). ASC Topic 815-40 clarifies the determination of whether an instrument issued by an entity (or an embedded feature in the instrument) is indexed to an entity’s own stock, which would qualify as a scope exception under ASC Topic 815-10.

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Trovagene has determined that the warrants issued in connection with certain of its private placements and with its debentures must be recorded as derivative liabilities. Accordingly the warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value are being recorded in the Company’s statement of operations.

 

The Company estimates the fair value of the warrants issued in connection with certain of its private placements and with its debentures using the Black-Scholes model in order to determine the associated derivative instrument liability and change in fair value described above. The range of assumptions used to determine the fair value of the warrants at the end of each six month period, June 30, 2012 and June 30, 2011 were as follows:

 

 

 

Six Months Ended
June 30, 2012

 

Six Months Ended
June 30, 2011

 

Estimated fair value of Trovagene common stock

 

$

1.20-3.07

 

$

1.32

 

Expected warrant term

 

5 years

 

5 years

 

Risk-free interest rate

 

0.09-0.92

 

0.29-0.62

%

Expected volatility

 

90

%

125

%

Dividend yield

 

 

 

 

The following table sets forth the components of changes in the Company’s derivative financial instruments liability balance, valued using the Black-Scholes option pricing method, for the periods indicated:

 

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Date

 

Description

 

Warrants

 

Derivative
Instrument
Liability

 

 

 

 

 

 

 

 

 

December 31, 2011

 

Balance of derivative financial instruments liability

 

1,103,727

 

$

994,627

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrants during the six months ended June 30, recognized as a loss in the statement of operations

 

 

2,232,231

 

 

 

 

 

 

 

 

 

June 30, 2012

 

Balance of derivative financial instruments liability

 

1,103,727

 

$

3,226,858

 

 

The following table sets forth the components of changes in the Company’s derivative financial instruments liability balance, valued using the Binomial option pricing method, for the periods indicated:

 

 

 

 

 

 

 

Change In

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

 

 

 

 

 

 

of Derivative

 

 

 

 

 

 

 

 

 

Liability

 

 

 

 

 

Number of

 

 

 

For Previously

 

Ending

 

 

 

Price Protected

 

 

 

Outstanding

 

Balance

 

 

 

Units at

 

Derivative Liability

 

Price Protected

 

Derivative

 

Quarter

 

Issuance

 

For Issued Units

 

Units

 

Liability

 

 

 

 

 

 

 

 

 

 

 

Total at December 31, 2011

 

2,321,451

 

$

2,967,283

 

$

(121,266

)

$

2,846,017

 

Correction of error

 

(224,087

)

(274,967

)

 

 

2,571,050

 

Fair value of new warrants issued during the period

 

633,334

 

765,329

 

 

 

3,336,379

 

Change in fair value of warrants during the period

 

 

 

 

 

(18,916

)

3,317,463

 

Reclassificatin of derivative liability to equity

 

 

 

(3,317,463

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2012

 

2,730,698

 

$

140,182

 

$

(140,182

)

$

_

 

The total derivative liability for the Company at June 30, 2012 was $3,226,858.

 

7. Fair Value Measurements

 

Fair value of financial instruments

 

The Company has adopted FASB ASC 820 Fair Value Measurements and Disclosures (“ASC 820”) for financial assets and liabilities that are required to be measured at fair value, and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. Financial instruments consist of cash and cash equivalents, accounts receivable and accounts payable. These financial instruments are stated at their respective historical carrying amounts which approximate fair value due to their short term nature.

 

The following tables present the Company’s 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 December 31, 2011 and June 30, 2012:

 

Description

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
December 31, 2011

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

3,840,644

 

$

3,840,644

 

 

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Description

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
June 30,
2012

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

3,226,858

 

$

3,226,858

 

 

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the six months ended June 30, 2012:

 

Description 

 

Balance at
December 31,
2011

 

Correction
of error

 

Fair Value of
Warrants
Reclassified to
Additional Paid in
Capital

 

Fair value of
New Warrants
Issued During
the Period

 

Unrealized
gains or
(losses)

 

Balance as of
June 30,
2012

 

Derivative liabilities related  to Warrants

 

$

3,840,644

 

$

(274,967

)

$

(3,317,463

)

$

765,329

 

$

2,213,315

 

$

3,226,858

 

 

The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities in the Company’s 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. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

 

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8. Commitments and Contingencies

 

Employment

 

On February 1, 2012, the Company entered into an executive agreement with Stephen Zaniboni in which he agreed to serve as Trovagene’s Chief Financial Officer. The term of the agreement is effective as of February 1, 2012 and continues until February 1, 2013 and is automatically renewed for successive one year periods at the end to each term. Mr. Zaniboni’s compensation is $200,000 per year. Mr. Zaniboni is eligible to receive a cash bonus of up to 50% of his base salary per year based on meeting certain performance objectives and bonus criteria. Upon entering the agreement, Mr. Zaniboni was granted 166,667 non-qualified stock options which have an exercise price of $3.60 per share and vest annually in equal amounts over a period of four years.

 

If the executive agreement is terminated by us for cause or as a result of Mr. Zaniboni’s death or permanent disability or if Mr. Zaniboni terminates his agreement voluntarily, Mr. Zaniboni shall receive a lump sum equal to (i) any portion of unpaid base compensation then due for periods prior to termination, (ii) any bonus or realization bonus earned but not yet paid through the date of termination and (iii) all expenses reasonably incurred by Mr. Zaniboni prior to date of termination. If the executive agreement is terminated by us without cause Mr. Zaniboni shall receive a severance payment equal to base compensation for three months if termination occurs ten months after the effective date of the agreement and six months if termination occurs subsequent to ten months from the effective date. If the executive agreement is terminated as a result of a change of control, Mr. Zaniboni shall receive a severance payment equal to base compensation for twelve months and all unvested stock options shall immediately vest and become fully exercisable for a period of six months following the date of termination.

 

Consulting Agreements

 

On February 1, 2012 the Company entered into a consulting agreement whereby the Company retained the services of an independent contractor who will provide business development services for the Company. As compensation for the consultant’s services, the Company granted a stock option to purchase up to 166,667 shares of common stock at $3.00 per share.  The Stock option vests as follows: 33,333 shares vest ratably over a four year period and 133,334 Shares vest upon achievement of various milestones. See Note 3.

 

On February 1, 2012 the Company entered into a consulting agreement whereby the Company retained the services of an independent contractor who will provide public relations and publicity services for the Company. As compensation for the consultant’s services, the Company will pay a monthly fee and issue 1,417 shares of restricted common stock monthly.  See Note 3.

 

On April 26, 2012 the Company entered into a consulting agreement whereby the Company retained the services of an independent contractor who will provide scientific consulting services as a member of the Company’s Scientific Advisory Board. As compensation for the consultant’s services, the Company granted a stock option to purchase up to 100,000 shares of common stock at $3.66 per share.  Options to purchase the shares of common stock vest ratably over a three year period. See Note 3.

 

9. Subsequent Events

 

Consulting Agreements

 

On July 1, 2012 the Company entered into a consulting agreement whereby the Company retained the services of an independent contractor who will provide business development services. As compensation for the consultant’s services, the Company will pay a monthly fee of $5,000 and granted a non-qualified vested stock option to purchase 20,000 shares of common stock at an exercise price equal to the fair market value of the common stock on the date of grant upon the Company entering into a transaction that was sourced by the Consultant and closed on and approved by the CEO, subject to Board approval.

 

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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, 2011, filed with the SEC on March 30, 2012. 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 looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

 

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. 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

 

From August 4, 1999 (inception) through June 30, 2012 we have sustained cumulative deficit of $48,206,601. From inception through June 30, 2012, we have generated minimal out-licensing revenue and expect to incur additional losses to perform further research and development activities and do not currently have any material revenues from commercial diagnostic or biopharmaceutical products.

 

Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new diagnostics or biopharmaceutical products to market potentially including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the 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.

 

Recent Developments

 

On March 15, 2012, the Board of Directors and on April 27, 2012 a majority of the stockholders approved a proposal to amend the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s issued and outstanding common stock at a ratio of not less than one-for-two and not greater than one-for-six at any time prior to April 27, 2013 at the discretion of the Board of Directors. On May 24, 2012, the Board of Directors approved a 1-for-6 reverse stock split of the Company’s issued and outstanding common stock effective on May 29, 2012.

 

On May 30, 2012, we completed an underwritten public offering in which an aggregate of 1,150,000 units, with each unit consisting of two shares of its common stock and one warrant to purchase one share of common stock were sold at a purchase price of $8.00 per unit. On June 13, 2012, the underwriters exercised their overallotment option in full for an additional 172,500 units.  We raised a total of $9.1 million in net proceeds after deducting underwriting discounts and commissions of $0.7 million and offering expenses of $0.7 million.   The units began trading on The NASDAQ Capital Market on May 30, 2012 under the symbol “TROVU”. The common stock and warrants became separately transferable on the exercise in full of the underwriters’ overallotment.   Each warrant has an

 

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exercise price of $5.32 per share, and will expire five years from the closing of the offering.  The warrants trade on The NASDAQ Capital Market under the symbol “TROVW”.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Inflation

 

It is our opinion that inflation has not had a material effect on our operations.

 

Critical Accounting Policies

 

Royalty and License Revenues

 

We license and sublicense our 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 for each element when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable, and collection is reasonably assured.

 

·                  Up-front nonrefundable license fees pursuant to agreements under which we have 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 in excess of minimum amounts are recognized upon receipt of payment when collection is assured.

 

·                  Milestone payments are recognized when both the milestone is achieved and the related payment is received.  The Company has not received or recognized milestone payment revenues to date.

 

Derivative Financial Instruments-Warrants

 

Our derivative liabilities are related to warrants issued in connection with financing transactions and are therefore not designated as hedging instruments.  All derivatives are recorded on our balance sheet at fair value in accordance with current accounting guidelines for such complex financial instruments.

 

We have issued common stock warrants in connection with the execution of certain equity and debt financings.  Certain 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.”    Warrants issued in connection with the underwritten public offering and sale of units in May 2012 are not considered derivatives based on our analysis of the criteria of ASC 815, as we are not required to make any cash payments or net cash settlement to the registered holder in lieu of issuance of warrant shares.

 

Research and Development

 

Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, regulatory and scientific consulting fees, as well as contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730-10-55-2, Research and Development. Also, as prescribed by this guidance, patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense.  Costs are not allocated to projects as the majority of the costs relate to employees and facilities costs and we do not track employees’ hours by project or allocate facilities costs on a project basis.

 

Share-based Compensation

 

Share-based compensation expense for employees and directors is recognized in the statement of operations based on estimated amounts, including the grant date fair value and the expected service period. For stock options, we estimate the grant date fair value using a binomial valuation model, which requires the use of multiple subjective inputs including estimated future volatility, expected forfeitures and the expected term of the awards. Share-based compensation recorded in our statement of operations is based

 

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on awards expected to ultimately vest and has been reduced for estimated forfeitures.  We recognize the value of the awards on a straight-line basis over the awards’ requisite service periods. The requisite service period is generally the time over which our share-based awards vest.

 

We account for equity instruments granted to non-employees in accordance with ASC Topic 505-50 “Equity-Based Payment to Non-Employees” where the value of the share-based compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.  Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

 

Fair value of financial instruments

 

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debentures and derivative liabilities. We have adopted FASB ASC 820 Fair Value Measurements and Disclosures (“ASC 820”) for financial assets and liabilities that are required to be measured at fair value, and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. These financial instruments are stated at their respective historical carrying amounts which approximate to fair value due to their short term nature.

 

ASC 820 provides that the measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

 

· 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.

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2012 and 2011

 

Revenues

 

Our total revenues were $41,500 and $79,863 for the three months ended June 30, 2012 and 2011, respectively, and consisted only of royalty income.  The decrease of $38,363 was a result of a decrease in royalty agreements due to the termination of the agreement with Sequenom, Inc. in 2011.

 

Research and Development Expenses

 

Research and development expenses consisted of the following:

 

 

 

For the three months ended June 30,

 

 

 

2012

 

2011

 

Increase

 

Salaries and staff costs

 

255,563

 

114,934

 

$

140,629

 

Outside services, consultants and lab supplies

 

110,362

 

6,989

 

103,373

 

Facilities

 

98,626

 

19,997

 

78,629

 

Other

 

12,600

 

1,368

 

11,232

 

Total research and development

 

$

477,151

 

$

143,288

 

$

333,863

 

 

Research and development expenses increased by $333,863 to $477,151 for the three months ended June 30, 2012, from $143,288 for the same period in 2011. The $140,629 increase in salaries and staff costs was comprised of an approximately $21,000 increase related to the addition of personnel for our CLIA lab operations, $80,000 increase from new personnel added in 2012 as well as bonuses paid to existing personnel, and an increase of approximately $40,000 in stock based compensation related to

 

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options granted to research and development personnel during 2012.  Of the $103,373 increase in outside services, consultants and lab supplies, approximately $66,000 results from the start-up of our CLIA lab in February 2012, and the remaining increase is due to an increase in lab supplies purchased to support new projects.  The increase in facilities expense is comprised of approximately $33,000 related to the addition of the CLIA lab and the remainder of approximately $46,000 relates to the expansion of our lab space in the third quarter of 2011.

 

General and Administrative Expenses

 

General and administrative expenses consisted of the following:

 

 

 

For the three months ended June 30,

 

 

 

2012

 

2011

 

Increase/(Decrease)

 

Salaries and staff costs

 

$

277,203

 

145,227

 

131,976

 

Outside services and Board of Director fees

 

428,564

 

109,205

 

319,359

 

Legal and accounting fees

 

27,033

 

317,246

 

(290,213

)

Facilities

 

32,861

 

6,754

 

26,107

 

Insurance

 

18,170

 

22,225

 

(4,055

)

Other

 

26,037

 

(16,632

)

42,669

 

 

 

$

809,868

 

$

584,025

 

$

225,843

 

 

General and administrative expenses increased by $225,843 to $809,868 for the three months ended June 30, 2012 from $584,025 for the same period in 2011. This overall increase was primarily due to an increase of $451,335 in salaries and staff costs and outside services, partially offset by a decrease of $290,213 in legal and accounting fees.  Salaries and staff costs increased due to an increase in bonuses and stock based compensation.  The increase in outside services resulted primarily from the addition of a Chief Executive Officer and Chief Financial Officer, as well as share based compensation related to a warrant granted to a BOD member and an increase in costs associated with filing required documents with the Securities and Exchange Commission (SEC).  Legal and accounting fees decreased in the three month period ended June 30, 2012 as compared to the same period in 2011, as we incurred significant expenses related to audit and review of our Form 10 initially filed in the fourth quarter of 2011.

 

Interest Expense

 

There was no interest expense in the three months ended June 30, 2012 compared to $28,126 in the three months ended June 30, 2011.  The interest expense in the three months ended June 30, 2011 related to convertible debentures which were extinguished in July 2011.

 

Change in Fair Value of Derivative Instruments

 

We issued securities that were accounted for as derivative liabilities at issuance during the three months ended June 30, 2012.  On May 30, 2012 we closed an underwritten public offering which removed the condition that required the securities issued during the three months ended June 30, 2012, as well as certain securities issued in prior periods, to be treated as derivative liabilities.   Accordingly, the fair value of these securities of $3,317,463 was reclassified from a liability to additional paid in capital.  As of June 30, 2012, the remaining derivative liabilities were revalued to $3,226,858, resulting in a net increase in value of $2,180,891 from March 31, 2012, based primarily upon changes in the fair value as a result of the underwritten public offering.

 

Six Months Ended June 30, 2012 and 2011

 

Revenues

 

Our total revenues were $75,653 and $168,946 for the six months ended June 30, 2012 and 2011, respectively, and consisted of the following:

 

 

 

Six months ended June 30,

 

 

 

2012

 

2011

 

Decrease

 

 

 

 

 

 

 

 

 

Royalty income

 

$

75,653

 

$

148,946

 

$

(73,293

)

License fees

 

 

20,000

 

(20,000

)

Total revenues

 

$

75,653

 

$

168,946

 

$

(93,293

)

 

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Royalty income decreased by $73,293 in the six months ended June 30, 2012 due the termination of the agreement with Sequenom, Inc.   License fees decreased by $20,000 in the six month period ended June 30, 2012 as there were no new license agreements entered into during the six month period ended June 30, 2012.

 

Research and Development Expenses

 

Research and development expenses consisted of the following:

 

 

 

For the six months ended June 30,

 

 

 

2012

 

2011

 

Increase

 

Salaries and staff costs

 

$

425,662

 

289,045

 

$

136,617

 

Outside services, consultants and lab supplies

 

197,164

 

44,953

 

152,211

 

Facilities

 

177,304

 

53,585

 

123,719

 

Other

 

14,428

 

13,721

 

707

 

Total research and development

 

$

814,558

 

$

401,304

 

$

413,254

 

 

Research and development expenses increased by $413,254 to $814,558 for the six months ended June 30, 2012 from $401,304 for the same period in 2011.  The $136,617 increase in salaries and staff costs was comprised of an approximately $36,000 increase related to the addition of personnel for our CLIA lab operations, $75,000 increase from new personnel added in 2012 as well as bonuses paid to existing personnel, and an increase of approximately $25,000 in stock based compensation related to options granted to research and development personnel during 2012.  Of the $152,211 increase in outside services, consultants and lab supplies, approximately $109,000 resulted from the start-up of our CLIA lab in February 2012, and the remaining increase is due to an increase in lab supplies purchased to support new projects.  The increase in facilities expense is comprised of approximately $42,000 related to the addition of the CLIA lab and the remainder of approximately $46,000 relates to the expansion of our lab space in the at the end of 2011.

 

General and Administrative Expenses

 

General and administrative expenses consisted of the following:

 

 

 

For the six months ended June 30,

 

 

 

2012

 

2011

 

Increase/(Decrease)

 

Salaries and staff costs

 

$

406,943

 

375,671

 

31,272

 

Outside services and Board of Director fees

 

720,108

 

189,469

 

530,639

 

Legal and accounting fees

 

355,889

 

494,237

 

(138,348

)

Facilities

 

56,984

 

36,657

 

20,327

 

Insurance

 

35,719

 

44,449

 

(8,730

)

Other

 

61,187

 

(5,415

)

66,602

 

 

 

$

1,636,830

 

$

1,135,068

 

$

501,762

 

 

General and administrative expenses increased by $501,762 to $1,636,830 for the six months ended June 30, 2012 from $1,135,068 for the same period in 2011. The increase in salaries and staff costs consisted of an increase in bonuses of approximately $188,000 and an increase of approximately $75,000 in stock based compensation related to options granted to personnel in late 2011 and early 2012, partially offset by a decrease of approximately a $147,000 in severance and employment settlement claims and a decrease of approximately $71,000 decrease in salaries related to personnel who ceased employment with us.   The increase in outside services resulted primarily from approximately $148,000 of stock based compensation related to warrant and stock issuances for advisory and public relations services, approximately $280,000 from the addition of a Chief Executive Officer and Chief Financial Officer, as well as services provided by outside financial personnel related to the preparation of the Form 10, Form 10-K, and the Form S-1 in the first six months of the year.  Legal and accounting fees decreased in the six month period ended June 30, 2012 compared to the prior year, as services related to assisting us with SEC compliance decreased as a result of completing our Form 10 early in 2012.

 

Interest Expense

 

There was no interest expense in the six months ended June 30, 2012 compared to $56,637 in the six months ended June 30, 2011.  The interest expense in the six months ended June 30, 2011 related to convertible debentures which were extinguished in July 2011.

 

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Change in Fair Value of Derivative Instruments

 

We issued securities that were accounted for as derivative liabilities at issuance during the six months ended June 30, 2012.  On May 30, 2012 we closed an underwritten public offering which removed the condition that required the securities issued during the six months ended June 30, 2012, as well as certain securities issued in prior periods, to be treated as derivative liabilities.   Accordingly, the fair value of these securities of $3,317,463 was reclassified from a liability to additional paid in capital.  As of June 30, 2012, the remaining derivative liabilities were revalued to $3,226,858, resulting in a net increase in value of $2,213,315 from December 31, 2011, based primarily upon changes in the fair value as a result of the underwritten public offering.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2012, we had $9,304,410 in cash and cash equivalents.    As of June 30, 2012 we had working capital of $8,204,578, compared to a working capital deficit of $587,709 as of December 31, 2011.   As of August 10, 2012, our working capital was approximately $7.9 million.

 

Net cash used in operating activities for the six months ended June 30, 2012 was $2,201,600, compared to $1,016,892 for the six months ended June 30, 2011. Our use of cash was primarily a result of the net loss of $4,589,050 for the six months ended June 30, 2012, adjusted for non-cash items related to stock-based compensation of $367,533, depreciation and amortization of $13,975 and the change in fair value of derivatives of $2,213,315.  The changes in our operating assets and liabilities consisted of higher accounts payable and accrued expenses and a decrease in accounts 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.

 

Investing activities consisted of purchases for capital equipment and intangible assets that used $140,969 in cash during the six months ended June 30, 2012, compared to $1,529 for the same period in 2011 due to purchases of laboratory equipment.

 

Net cash provided by financing activities was $10,946,605 during the six months ended June 30, 2012, compared to $975,000 in 2011. Cash received from financing activities during the six months ended June 30, 2012 and 2011 were from proceeds related to the sale of common stock.

 

ITEM 4.  CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

At the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Based on that evaluation, as of June 30, 2012, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not effective, due to weaknesses in our financial closing process. We intend to implement remedial measures designed to address the ineffectiveness of our disclosure controls and procedures.

 

Changes in Internal Control  Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

 

ITEM 1. LEGAL PROCEEDINGS.

 

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

ITEM 6. EXHIBITS.

 

Exhibit
Number

 

Description of Exhibit

 

 

 

31.1

 

Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.

 

 

 

31.2

 

Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101

 

Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended June 30, 2012, filed on August 14, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows (iv) the Condensed Consolidated Statement of Stockholders Equity (Deficit) and (v) the Notes to Consolidated Financial Statements tagged as blocks of text.

 

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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.

 

 

 

August 14, 2012

By:

/s/ Antonius Schuh

 

 

Antonius Schuh

 

 

Chief Executive Officer

 

 

 

TROVAGENE, INC.

 

 

August 14, 2012

By:

/s/ Stephen Zaniboni

 

 

Stephen Zaniboni

 

 

Chief Financial Officer

 

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