10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from___________ to __________

Commission file number 1-37648

OncoCyte Corporation

(Exact name of registrant as specified in its charter)

California	27-1041563
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1010 Atlantic Avenue, Suite 102

Alameda, California 94501

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code

(510) 775-0515

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☐
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of November 1, 2018, there were outstanding 40,664,496 shares of common stock, no par value.

PART 1—FINANCIAL INFORMATION

Statements made in this Report that are not historical facts may constitute forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed. Such risks and uncertainties include but are not limited to those discussed in this Report under Item 1 of the Notes to Condensed Financial Statements, and under Risk Factors in this Report. Words such as “expects,” “may,” “will,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify forward-looking statements.

References to “OncoCyte,” “our” or “we” means OncoCyte Corporation.

The description or discussion, in this Form 10-Q, of any contract or agreement is a summary only and is qualified in all respects by reference to the full text of the applicable contract or agreement.

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Item 1. Financial Statements

ONCOCYTE CORPORATION

CONDENSED BALANCE SHEETS

(IN THOUSANDS)

	September 30, 2018			December 31, 2017
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	10,821		$	7,600
Marketable equity securities		830			760
Prepaid expenses and other current assets		245			168
Total current assets		11,896			8,528
NONCURRENT ASSETS
Intangible assets, net (Note 3)		-			746
Machinery and equipment, net		722			822
Deposits and other noncurrent assets		287			120
TOTAL ASSETS	$	12,905		$	10,216
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Amount due to BioTime and affiliates	$	2,110		$	2,099
Accounts payable		194			175
Accrued expenses and other current liabilities		1,044			1,042
Loan payable, current		800			800
Capital lease liability, current		471			338
Total current liabilities		4,619			4,454
NONCURRENT LIABILITIES
Loan payable, net of deferred financing costs, noncurrent		531			1,070
Capital lease liability, noncurrent		232			289
TOTAL LIABILITIES		5,382			5,813
Commitments and contingencies (see Note 9)
STOCKHOLDERS’ EQUITY
Preferred stock, no par value, 5,000 shares authorized; none issued and outstanding		-			-
Common stock, no par value, 85,000 shares authorized; 40,664 and 31,452 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		74,343			59,968
Accumulated other comprehensive loss		-			(888	)
Accumulated deficit		(66,820	)		(54,677	)
Total stockholders’ equity		7,523			4,403
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	12,905		$	10,216

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

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ONCOCYTE CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
EXPENSES:
Research and development	$	1,527		$	1,836		$	5,310		$	5,667
General and administrative		1,312			4,289			4,434			7,447
Sales and marketing		184			710			1,411			1,843
Total operating expenses		3,023			6,835			11,155			14,957
Loss from operations		(3,023	)		(6,835	)		(11,155	)		(14,957	)
OTHER INCOME (EXPENSES), NET
Interest expense, net		(50	)		(71	)		(167	)		(149	)
Unrealized gain on BioTime marketable equity securities		102			-			71			-
Loss on sale of available-for-sale securities and other expenses, net		-			-			(3	)		(309	)
Total other income (expenses), net		52			(71	)		(99	)		(458	)
NET LOSS	$	(2,971	)	$	(6,906	)	$	(11,254	)	$	(15,415	)
Net loss per share: basic and diluted	$	(0.07	)	$	(0.22	)	$	(0.30	)	$	(0.52	)
Weighted average common shares outstanding: basic and diluted		40,227			30,941			36,901			29,775

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

4

ONCOCYTE CORPORATION

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
NET LOSS	$	(2,971	)	$	(6,906	)	$	(11,254	)	$	(15,415	)
Other comprehensive loss, net of tax:
Realized loss on sale of available-for-sale securities		-			-			-			293
Unrealized loss on available-for-sale securities		-			(110	)		-			(284	)
COMPREHENSIVE LOSS	$	(2,971	)	$	(7,016	)	$	(11,254	)	$	(15,406	)

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

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ONCOCYTE CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	Nine Months Ended September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(11,254	)	$	(15,415	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		317			237
Amortization of intangible assets		121			181
Amortization of prepaid maintenance		9			-
Impairment charge for intangible assets		625			-
Stock-based compensation		1,079			1,158
Loss on sale of BioTime shares		-			309
Unrealized gain on BioTime shares		(71	)		-
Warrants issued to certain shareholders as inducement of exercise of warrants		-			4,074
Amortization of debt issuance costs		62			57
Other		23			-
Changes in operating assets and liabilities:
Amount due to BioTime and affiliates		12			(750	)
Prepaid expenses and other current assets		(77	)		(119	)
Accounts payable and accrued liabilities		(39	)		227
Net cash used in operating activities		(9,193	)		(10,041	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of BioTime shares		-			934
Purchase of equipment		(31	)		(85	)
Net cash provided by (used in) investing activities		(31	)		849
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options		58			465
Proceeds from exercise of warrants		-			7,774
Proceeds from sale of common shares		10,000			-
Financing costs to issue common shares		(65	)		-
Proceeds from sale of common shares and warrants		3,592			-
Financing costs to issue common shares and warrants		(290	)		-
Proceeds from issuance of loan payable, net of financing costs		-			1,982
Repayment of loan payable		(600	)		-
Repayment of capital lease obligations		(250	)		(179	)
Net cash provided by financing activities		12,445			10,042
NET INCREASE IN CASH AND CASH EQUIVALENTS		3,221			850
CASH AND CASH EQUIVALENTS:
At beginning of the period		7,600			10,174
At end of the period	$	10,821		$	11,024

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

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ONCOCYTE CORPORATION

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization, Description of the Business and Liquidity

OncoCyte Corporation (“OncoCyte”) is a developer of novel, non-invasive blood-based tests for the early detection of cancer. It is focused on developing molecular cancer diagnostics utilizing a discovery platform that focuses on identifying genetic markers that are differentially expressed in certain types of cancers. OncoCyte is currently devoting substantially all of its efforts on developing its lung cancer diagnostic test DetermaVu^TM.

OncoCyte was incorporated in 2009 in the state of California and was formerly a majority-owned subsidiary of BioTime, Inc. (“BioTime”), a publicly traded, clinical-stage, biotechnology company targeting degenerative diseases, primarily in the fields of ophthalmology, aesthetics and cell/drug delivery. Beginning on February 17, 2017, OncoCyte ceased to be a subsidiary of BioTime for financial reporting purposes when BioTime’s percentage ownership of outstanding OncoCyte common stock declined below 50% as a result of the issuance of additional OncoCyte common stock to certain investors who exercised OncoCyte stock purchase warrants (see Notes 4 and 6).

Basis of presentation

The unaudited condensed interim financial statements presented herein, and discussed below, have been prepared on a stand-alone basis in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission (the “SEC”). In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive financial statements have been condensed or omitted. The condensed balance sheet as of December 31, 2017 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in OncoCyte’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

The accompanying condensed interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of OncoCyte’s financial condition and results of operations. The condensed results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Prior to February 17, 2017, BioTime consolidated the results of OncoCyte into BioTime’s consolidated results based on BioTime’s ability to control OncoCyte’s operating and financial decisions and policies through its majority ownership of OncoCyte common stock. Beginning on February 17, 2017, BioTime’s percentage ownership of the outstanding OncoCyte common stock declined below 50%, resulting in a loss of “control” of OncoCyte under GAAP and, as a result, BioTime deconsolidated OncoCyte’s financial statements from BioTime’s consolidated financial statements. As a result of this deconsolidation, OncoCyte is no longer considered a subsidiary of BioTime under GAAP with effect from February 17, 2017. OncoCyte remains an affiliate of BioTime based on BioTime’s retained share ownership in OncoCyte, which is sufficient to allow BioTime to exert significant influence over the operations and management of OncoCyte.

To the extent OncoCyte does not have its own office and laboratory facilities, employees, or human resources for its operations, BioTime provides OncoCyte with use of its facilities and employees for administrative or operational services, as necessary, for the benefit of OncoCyte under the terms of a Shared Facilities and Services Agreement (the “Shared Facilities Agreement”). See Note 4. Accordingly, BioTime allocates expenses such as salaries and payroll related expenses incurred and paid on behalf of OncoCyte based on the amount of time that particular employees devote to OncoCyte affairs. Other expenses, such as legal, accounting, human resources, marketing, travel, and entertainment expenses are allocated to OncoCyte to the extent that those expenses are incurred by or on behalf of OncoCyte. BioTime also allocates certain overhead expenses such as facilities rent and utilities, property taxes, insurance, internet and telephone expenses based on a percentage determined by management. Overhead allocations are made based upon allocation drivers such as percentage of square feet of office or laboratory space used, and percentage of personnel devoted to OncoCyte’s operations or management. See Note 2. Management evaluates the appropriateness of the percentage allocations on a periodic basis and believes that this basis for allocation is reasonable.

OncoCyte previously granted stock options to employees of BioTime, or employees of other BioTime subsidiaries who performed services for OncoCyte, and OncoCyte recorded stock-based compensation expense in the accompanying condensed statements of operations for the services performed in the periods presented.

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Liquidity

Since inception, OncoCyte has financed its operations through the sale of common stock and warrants, warrant exercises, a bank loan, and sales of BioTime common shares that it holds as marketable equity securities. BioTime also provided OncoCyte with the use of BioTime facilities and services under a Shared Facilities Agreement as described in Note 4. OncoCyte has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $66.8 million as September 30, 2018. OncoCyte expects to continue to incur operating losses and negative cash flows for the near future.

At September 30, 2018, OncoCyte had $10.8 million of cash and cash equivalents and held BioTime common shares as marketable equity securities valued at $830,000. OncoCyte believes that its current cash, cash equivalents and marketable equity securities is sufficient to carry out current operations through at least twelve months from the issuance date of the condensed interim financial statements included in this Report.

OncoCyte will need to raise additional capital to finance its operations, including the development of its cancer diagnostic tests, until such time as it is able to complete development and commercialize one or more diagnostic tests and generate sufficient revenues to cover its operating expenses. OncoCyte continues to devote substantially all of its research and development resources to the completion of the development of DetermaVu™. If OncoCyte determines to build its own integrated marketing and sales force to commercialize DetermaVu™ after development is complete, OncoCyte will need to raise additional capital for that purpose. OncoCyte may also explore a range of other commercialization options in order to reduce capital needs and the risks associated with the timelines and uncertainty for attaining the Medicare and commercial reimbursement approvals that will be essential for the successful commercialization of DetermaVu™ and any other diagnostic tests that OncoCyte may develop. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which OncoCyte might receive a royalty on sales, or through which it might form a joint venture to market DetermaVu™ and share in net revenues.

Delays in the development of DetermaVu™ could prevent OncoCyte from raising sufficient additional capital to finance the completion of development and commercial launch of DetermaVu™ or other cancer diagnostic tests. Even if OncoCyte is successful in completing the development of DetermaVu™, investors may be reluctant to provide OncoCyte with capital until DetermaVu™ is approved for reimbursement by Medicare or private payers. The unavailability or inadequacy of financing or revenues to meet future capital needs could force OncoCyte to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in the dilution of the interests of its shareholders. OncoCyte cannot assure that adequate financing will be available on favorable terms, if at all.

2. Summary of Significant Accounting Policies

Research and development expenses

Research and development expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s research and development functions. Direct research and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, outside consultants and suppliers. Indirect research and development expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4), are primarily based on headcount or space occupied, as applicable, and include laboratory supplies, laboratory expenses, rent and utilities, common area maintenance, telecommunications, property taxes and insurance. Research and development costs are expensed as incurred.

General and administrative expenses

General and administrative expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s general and administrative functions. Direct general and administrative expenses consist primarily of compensation and related benefits, including stock-based compensation, for executive and corporate personnel, and professional and consulting fees. Indirect general and administrative expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4) are primarily based on headcount or space occupied, as applicable, and include costs for financial reporting and compliance, rent and utilities, common area maintenance, telecommunications, property taxes and insurance.

Sales and marketing expenses

Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade shows and booths, branding and positioning, and outside consultants. Indirect sales and marketing expenses allocated by BioTime, primarily based on OncoCyte’s headcount or space occupied, as applicable, include costs for rent and utilities, common area maintenance, telecommunications, property taxes and insurance, incurred by BioTime and allocated to us under the Shared Facilities Agreement.

8

Accounting for BioTime shares

OncoCyte accounts for the BioTime shares it holds as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value and reported as current assets on the condensed balance sheet based on the closing trading price of the security as of the date being presented.

Beginning on January 1, 2018, with the adoption of ASU 2016-01 discussed below, these securities are now called “marketable equity securities” and unrealized holding gains and losses on these securities are reported in the condensed statements of operations in other income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, these securities were called “available-for-sale securities” and unrealized holding gains and losses were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the condensed balance sheet. Realized gains and losses are included in other income and expenses, net, in the condensed statements of operations.

On January 1, 2018, in accordance with the adoption of ASU 2016-01, OncoCyte recorded a cumulative-effect adjustment for these available-for-sale-securities to reclassify the unrealized loss of $888,000 included in accumulated other comprehensive loss to the accumulated deficit balance. For the three and nine months ended September 30, 2018, OncoCyte recorded an unrealized gain of $102,000 and $71,000, respectively, included in other income and expenses, net, due to the increase in fair market value of the marketable equity securities from the respective balance sheet dates.

During the nine months ended September 30, 2017, OncoCyte sold 266,442 shares of BioTime stock for net proceeds of $934,000 and used those proceeds to pay down amounts owed to BioTime and affiliates (see Note 4). OncoCyte recognized a $309,000 loss from the sale of the BioTime shares for the nine months ended September 30, 2017, included in other income and expenses, net.

OncoCyte did not sell any shares of BioTime stock during the nine months ended September 30, 2018. As of September 30, 2018, OncoCyte held 353,264 BioTime common shares as marketable equity securities with a fair market value of $830,000. Any proceeds from the sale of BioTime shares may be used by OncoCyte to pay amounts owed to BioTime and its affiliates or for working capital purposes (see Note 5).

Net loss per common share

All potentially dilutive common stock equivalents are antidilutive because OncoCyte reported a net loss for all periods presented. The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)				(unaudited)
	2018		2017		2018		2017
Stock options		3,101		944		3,101		945
Warrants		4,035		2,779		4,035		2,779

Recently Issued Accounting Pronouncements

Certain recently issued accounting pronouncements applicable to OncoCyte that are not yet effective are disclosed in OncoCyte’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

3. Selected Balance Sheet Components

Accrued expenses and other current liabilities

As of September 30, 2018 and December 31, 2017, accrued expenses and other current liabilities were comprised of the following (in thousands):

	September 30, 2018 (unaudited)		December 31, 2017
Accrued compensation	$	604	$	636
Accrued vendors and other expenses		440		406
Accrued expenses and other current liabilities	$	1,044	$	1,042

9

Intangible assets, net

As of September 30, 2018 and December 31, 2017, intangible assets, consisting primarily of acquired patents, patent applications, and licenses to use certain patents, were as follows (in thousands):

	September 30, 2018			December 31, 2017
	(unaudited)(1)
Intangible assets	$	625		$	2,419
Accumulated amortization		(625	)		(1,673	)
Intangible assets, net	$	-		$	746

⁽¹⁾ As part of OncoCyte’s impairment assessment of its intangible assets, OncoCyte determined that these assets were impaired as of June 30, 2018 and, accordingly, OncoCyte recorded a noncash charge of $625,000 representing the net book value of those assets as of that date, and included that charge in research and development expenses for the nine months ended September 30, 2018. The impairment was primarily due to OncoCyte’s decision to discontinue any further utilization of the underlying patents, patent applications and licenses since those assets are for therapeutic use and not for diagnostic use, as OncoCyte continues to devote all of its research and development resources and commercialization efforts to cancer diagnostic tests. Research and development expenses for the nine months ended September 30, 2018 include $121,000 in amortization expenses related to these intangible assets recorded prior to the impairment charge. For the three and nine months ended September 30, 2017, research and development expenses include $60,000 and $181,000 of amortization of intangible assets, respectively.

Machinery and equipment, net

As of September 30, 2018 and December 31, 2017, machinery and equipment, primarily comprised of assets purchased under capital leases discussed in Note 9, were as follows (in thousands):

	September 30, 2018			December 31, 2017
	(unaudited)
Machinery and equipment	$	1,549		$	1,479
Accumulated depreciation		(827	)		(657	)
Machinery and equipment, net	$	722		$	822

Depreciation expense amounted to $110,000 and $93,000 for the three months ended September 30, 2018 and 2017, and $317,000 and $237,000 for the nine months ended September 30, 2018 and 2017, respectively. During the nine months ended September 30, 2018, OncoCyte wrote off $150,000 in fully depreciated machinery and equipment with a corresponding adjustment to accumulated depreciation.

4. Related Party Transactions

Shared Facilities Agreement

On October 8, 2009, OncoCyte and BioTime executed the Shared Facilities Agreement. Under the terms of the Shared Facilities Agreement, BioTime will allow OncoCyte to use its premises and equipment located at Alameda, California for the purpose of conducting business. BioTime will also provide accounting, billing, bookkeeping, payroll, treasury, payment of accounts payable, and other similar administrative services to OncoCyte. BioTime may also provide the services of attorneys, accountants, and other professionals who may also provide professional services to BioTime and its other subsidiaries. BioTime may also provide OncoCyte with the services of its laboratory and research personnel, including BioTime employees and contractors, for the performance of research and development work for OncoCyte at the premises.

BioTime charges OncoCyte a Use Fee for services received and usage of facilities, equipment, and supplies. For each billing period, BioTime prorates and allocates costs incurred, as applicable, to OncoCyte, such costs include services of Bio Time employees, equipment, insurance, lease, professional, software, supplies and utilities. Allocation depends on key cost drivers including actual documented use, square footage of facilities used, time spent, costs incurred by or for OncoCyte, or upon proportionate usage by BioTime and OncoCyte, as reasonably estimated by BioTime (collectively “Use Fees”). BioTime, at its discretion, has the right to charge OncoCyte a 5% markup on such allocated costs.

10

The Use Fee is determined and invoiced to OncoCyte on a quarterly basis for each calendar quarter of each calendar year. If the Shared Facilities Agreement terminates prior to the last day of a billing period, the Use Fee will be determined for the number of days in the billing period elapsed prior to the termination of the Shared Facilities Agreement. Each invoice will be payable in full by OncoCyte within 30 days after receipt. Any invoice, or portion thereof, not paid in full when due will bear interest at the rate of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime employees from OncoCyte funds available for such purpose, rather than from the unavailability of sufficient funds legally available for payment or from an act, omission, or delay by any employee or agent of OncoCyte. Through September 30, 2018, BioTime has not charged OncoCyte any interest.

In addition to the Use Fees, OncoCyte will reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase of office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte, provided that invoices documenting such costs are delivered to OncoCyte with each invoice for the Use Fee. BioTime has no obligation to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte, and if any such supplies, goods, materials or services are obtained for OncoCyte, BioTime may arrange for the suppliers thereof to invoice OncoCyte directly.

The Shared Facilities Agreement will remain in effect, unless either party gives the other party written notice stating that the Shared Facilities Agreement will terminate on December 31 of that year, or unless the agreement otherwise is terminated under another provision of the agreement.

In the aggregate, Use Fees charged to OncoCyte by BioTime are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)				(unaudited)
	2018		2017		2018		2017
Research and development	$	230	$	229	$	667	$	859
General and administrative		105		57		257		214
Sales and marketing		57		104		251		104
Total use fees	$	392	$	390	$	1,175	$	1,177

As of September 30, 2018 and December 31, 2017, OncoCyte had $2.1 million outstanding and payable to BioTime and affiliates included in current liabilities on account of Use Fees under the Shared Facilities Agreement. Since those amounts are due and payable within 30 days of being invoiced, the payables are classified as current liabilities for all periods presented.

The minimum fixed payments due under the Shared Facilities Agreement are approximately $131,000 per month.

5. Loan Payable to Silicon Valley Bank

On February 21, 2017, OncoCyte entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”) pursuant to which OncoCyte borrowed $2 million on March 23, 2017. Payments of interest only on the principal balance were due monthly from the draw date through October 31, 2017, and, beginning on November 1, 2017, monthly payments of principal of approximately $67,000 plus interest are due and payable. The outstanding principal balance of the loan bears interest at a stated floating annual interest rate equal to the greater of (i) three-quarters of one percent (0.75%) above the prime rate or (ii) four and one-quarter percent (4.25%). As of September 30, 2018, the latest published prime rate plus 0.75% was 6.0% per annum.

The outstanding principal amount plus accrued interest will be due and payable to the Bank at maturity on April 1, 2020. At maturity, OncoCyte will also pay the Bank an additional final payment fee of 5.8% of the original principal borrowed. OncoCyte accrued the $116,000 final payment fee included in the loan payable as a deferred financing cost on the March 23, 2017 draw date.

OncoCyte may prepay in full the outstanding principal balance at any time, subject to a prepayment fee equal to 2.0% of the outstanding principal balance if prepaid on or before February 21, 2019, or 1.0% of the outstanding principal balance if prepaid after February 21, 2019. Any amounts borrowed and repaid may not be reborrowed. There are no amounts available to be borrowed on the Loan Agreement.

The outstanding principal amount of the loan, with interest accrued, the final payment fee, and the prepayment fee may become due and payable prior to the applicable maturity date if an “Event of Default” as defined in the Loan Agreement occurs and is not cured within any applicable cure period. Upon the occurrence and during the continuance of an Event of Default, all obligations due to the Bank will bear interest at a rate per annum which is 5% above the then applicable interest rate. An Event of Default includes, among other events, failure to pay interest and principal when due, material adverse changes, which include a material adverse change in OncoCyte’s business, operations, or condition (financial or otherwise), failure to provide the bank with timely financial statements and copies of filings with the Securities and Exchange Commission, as required, legal judgments or pending or threatened legal actions of $50,000 or more, insolvency, and delisting from the NYSE American. OncoCyte’s obligations under the Loan Agreement are collateralized by substantially all of its assets other than intellectual property such as patents and trade secrets that OncoCyte owns. Accordingly, if an Event of Default were to occur and not be cured, the Bank could foreclose on its security interest in the collateral. OncoCyte was in compliance with the Loan Agreement as of the filing date of this Report.

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Under the provisions of the Loan Agreement, as consented by the Bank on October 26, 2017, any proceeds received by OncoCyte from sales of BioTime shares may be used by OncoCyte to fund its operations.

Bank Warrants

On February 21, 2017, and in conjunction with the $2.0 million becoming available under the Loan Agreement, OncoCyte issued common stock purchase warrants to the Bank (the “Bank Warrants”) entitling the Bank to purchase shares of OncoCyte common stock in tranches related to the availability and borrowing of loan funds under the Loan Agreement. In conjunction with the availability of the loan, the Bank was issued warrants to purchase 8,247 shares of OncoCyte common stock at an exercise price of $4.85 per share, through February 21, 2027. On March 23, 2017, in conjunction with borrowing $2 million, the Bank was issued warrants to purchase an additional 7,321 shares at an exercise price of $5.46 per share, through March 23, 2027. The Bank may elect to exercise the Bank Warrants on a “cashless exercise” basis and receive a number of shares determined by multiplying the number of shares for which the applicable tranche is being exercised by (A) the excess of the fair market value of the common stock over the applicable exercise price, divided by (B) the fair market value of the common stock. The fair market value of the common stock will be the last closing or sale price on a national securities exchange, interdealer quotation system, or over-the-counter market.

The Bank Warrants are classified as equity since, among other factors, they are not mandatorily redeemable, cannot be settled in cash or other assets and require settlement by issuing a fixed number of shares of common stock of OncoCyte. OncoCyte determined the fair value of the Bank Warrants using the Black-Scholes option pricing model to be approximately $62,000, which was recorded as a deferred financing cost against the loan payable balance. Aggregate deferred financing costs of $196,000, recorded against the loan payable balance, are amortized to interest expense over the term of the loan using the effective interest method. As of September 30, 2018, unamortized deferred financing costs were $51,000.

6. Shareholders’ Equity

Preferred Stock

OncoCyte is authorized to issue 5,000,000 shares of no par value preferred stock. As of September 30, 2018, no preferred shares were issued or outstanding.

Common Stock

OncoCyte has up to 85,000,000 shares of no par value common stock authorized.

On March 28, 2018, OncoCyte entered into a securities purchase agreement with two accredited investors. The agreement provides for the private placement of 7,936,508 shares of OncoCyte’s common stock for $1.26 per share, for total gross proceeds of $10.0 million before deducting offering expenses, $8.0 million of which was received in March 2018 and $2.0 million in May 2018. The agreement contains certain registration rights. The investors are Broadwood Partners, L.P. and George Karfunkel, who beneficially own more than 5% of OncoCyte’s outstanding common stock.

On July 31, 2018, OncoCyte raised approximately $3.3 million in net proceeds from the sale of 1,256,118 shares of its common stock and warrants, after offering expenses (the “July 2018 Offering”). The shares of common stock and warrants were sold in “Units” at a purchase price of $2.86 per Unit, with each Unit consisting of one share of common stock and one warrant to purchase one share of its common stock (“July 2018 Offering Warrants”). The Units of common stock and warrants were sold in a registered direct offering. OncoCyte’s Chief Executive Officer, the Chief Financial Officer, the Senior Vice President of Research and Development, and certain members of OncoCyte’s Board of Directors purchased Units in the July 2018 Offering on the same terms as other investors.

As of September 30, 2018, and December 31, 2017, OncoCyte had 40,664,496 and 31,451,558 issued and outstanding common shares, respectively.

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July 2018 Offering Warrants

Each July 2018 Offering Warrant has an initial exercise price of $3.00 per share, will become exercisable six months after the date of issuance and will expire five years from the date it becomes exercisable. Subject to limited exceptions, a holder of the warrants will not have the right to exercise any portion of such securities if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of OncoCyte’s common stock outstanding immediately after the exercise.

The July 2018 Offering Warrants are not mandatorily redeemable, cannot be settled in cash or other assets and require settlement by issuing a fixed number of shares of common stock of OncoCyte. The July 2018 Offering Warrants may be exercised on a net “cashless exercise” basis, meaning that the value of a portion of warrant shares may be used to pay the exercise price (rather than payment in cash), if a registration statement for the July 2018 Offering Warrants and underlying shares of common stock is not effective under the Securities Act of 1933, as amended (the “Securities Act”) or a prospectus in the registration statement is not available for the issuance of shares upon the exercise of the July 2018 Offering Warrants. The exercise price and the number of warrant shares will be adjusted to account for certain transactions, including stock splits, dividends paid in common stock, combinations or reverse splits of common stock, or reclassifications of common stock.

Under certain provisions of the July 2018 Offering Warrants, in the event of a Fundamental Transaction, as defined in the July 2018 Offering Warrants, OncoCyte will use reasonable best efforts for the acquirer, or any successor entity other than OncoCyte, to assume the July 2018 Offering Warrants. If the acquirer does not assume the OncoCyte July 2018 Offering Warrants, and provided that the Fundamental Transaction is not within OncoCyte’s control, including not approved by OncoCyte’s Board of Directors, then the holders of the July 2018 Offering Warrants shall solely be entitled to receive, at a defined Black Scholes value, the same type or form of consideration, and in the same proportion, that is being offered and paid to all the holders of OncoCyte common stock in connection with the Fundamental Transaction.

OncoCyte considered the guidance in ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. This liability classification guidance also applies to financial instruments that may require cash or other form of settlement for transactions outside of the company’s control and, in which the form of consideration to the warrant holder may not be the same as to all other shareholders in connection with the transaction. However, if a transaction is not within the company’s control but the holder of the financial instrument can solely receive the same type or form of consideration as is being offered to all the shareholders in the transaction, then equity classification of the financial instrument is not precluded, if all other applicable equity classification criteria are met.

Based on the above guidance, OncoCyte has met all the equity classification criteria for the July 2018 Offering Warrants and has classified those warrants as equity.

Issuance of common stock and warrants

On August 29, 2016, OncoCyte sold an aggregate of 3,246,153 immediately separable units, with each unit consisting of one share of OncoCyte common stock and one warrant to purchase one share of OncoCyte common stock (the “2016 Warrants”), at a price of $3.25 per unit (the “Offering”). The sales were made pursuant to the terms and conditions of certain Purchase Agreements between OncoCyte and the purchasers in the Offering. OncoCyte received $9.8 million in net proceeds after discounts, commissions and expenses from the Offering.

2016 Warrants and New Warrants

The 2016 Warrants have an exercise price of $3.25 per Warrant Share, and may be exercised for five years from October 17, 2016, the date the 2016 Warrants became exercisable. The 2016 Warrants may be exercised on a net “cashless exercise” basis, meaning that the value of a portion of Warrant Shares may be used to pay the exercise price (rather than payment in cash), in certain circumstances, including if the Resale Registration Statement is not effective when and as required by the Purchase Agreements. The exercise price and the number of Warrant Shares will be adjusted to account for certain transactions, including stock splits, dividends paid in common stock, combinations or reverse splits of common stock, or reclassifications of common stock.

Under certain provisions of the 2016 Warrants, in the event of a Fundamental Transaction, as defined in the 2016 Warrants, OncoCyte will use reasonable best efforts for the acquirer, or any successor entity other than OncoCyte, to assume the 2016 Warrants. If the acquirer does not assume the OncoCyte Offering Warrant obligations, then the acquirer shall pay the holders of 2016 Warrants an amount equal to the aggregate value equal to the Black Scholes Value, as defined in the 2016 Warrants. The payment of the Black Scholes Value shall be made in cash or such other consideration as the acquirer paid to the other OncoCyte shareholders in the Fundamental Transaction.

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OncoCyte is not required to net cash settle the 2016 Warrants under any circumstance. OncoCyte considered the guidance in ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. Since solely an acquirer, and not OncoCyte itself, may be required to net cash settle the 2016 Warrants in the event of a Fundamental Transaction, the 2016 Warrants are classified as equity.

On February 17, 2017, certain OncoCyte investors exercised 2016 Warrants to acquire 625,000 shares of common stock at an exercise price of $3.25 per warrant for total exercise cash proceeds of $2.0 million (the “Warrant exercise”). In order to induce the investors to complete the Warrant exercise and, in conjunction with the Warrant exercise, OncoCyte issued new warrants to those investors (the “New Warrants”). Certain investors received New Warrants to purchase 200,000 shares of common stock at an exercise price of $5.50 per share and one investor received New Warrants to purchase 212,500 shares of common stock at an exercise of $3.25 per share. The New Warrants are exercisable at any time for five years from February 17, 2017.

The New Warrants are classified as equity as their terms are consistent with the 2016 Warrants. For financial reporting purposes, the issuance of the New Warrants was treated as an inducement offer to certain shareholders to exercise their 2016 Warrants. Accordingly, the fair value of the New Warrants, determined using the Black-Scholes option pricing model, approximating $1.1 million was recognized by OncoCyte as a noncash charge to shareholder expense included in general and administrative expenses and a corresponding increase to equity on February 17, 2017, the issuance date.

On July 21, 2017, OncoCyte entered into three forms of Warrant Exercise Agreements (each, an “Exercise Agreement”) with certain holders of the 2016 Warrants providing for the cash exercise of their 2016 Warrants and the issuance of new warrants (the “July 2017 Warrants”) to them.

Pursuant to one form of Exercise Agreement, two investors exercised 2016 Warrants to purchase 226,923 shares of OncoCyte’s common stock at the exercise price of $3.25 per share, and OncoCyte issued to them July 2017 Warrants expiring five years from the date of issue, to purchase 226,923 shares of common stock at an exercise price of $5.50 per share.

Pursuant to a second form of Exercise Agreement, one investor exercised 2016 Warrants to purchase 540,000 shares of common stock at the exercise price of $3.25 per share, and OncoCyte issued to the investor a July 2017 Warrant, expiring five years from the date of issue, to purchase 270,000 shares of common stock at an exercise price of $3.25 per share. In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon exercise of the July 2017 Warrant and to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise Agreement.

Pursuant to a third form of Exercise Agreement, one investor exercised 2016 Warrants to purchase 1,000,000 shares of common stock at the exercise price of $3.25 per share, and OncoCyte issued to the investor (i) a July 2017 Warrant, expiring two years from the date of issue, to purchase 500,000 shares of common stock at an exercise price of $5.50 per share, and (ii) a July 2017 Warrant, expiring two years from the date of issue, to purchase 500,000 shares of common stock at an exercise price of $3.25 per share. In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon exercise of the July 2017 Warrant and to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise Agreement.

In the aggregate, upon the exercise of 2016 Warrants under the Exercise Agreements, OncoCyte received gross proceeds of approximately $5.74 million and issued July 2017 Warrants to purchase 1,496,923 shares of common stock at a weighted average price of $4.34 per share.

The July 2017 Warrants are classified as equity as their terms are consistent with the 2016 Warrants. For financial reporting purposes, the issuance of the July 2017 Warrants is treated as an inducement offer to certain investors to exercise their 2016 Warrants. Accordingly, the fair value of the July 2017 Warrants, determined to be approximately $3.0 million using the Black-Scholes option pricing model, was recorded as a noncash charge to shareholder expense included in general and administrative expenses, and a corresponding increase was recorded to equity on July 21, 2017, the issuance date.

As of September 30, 2018, OncoCyte has an aggregate of 4,035,339 warrants issued and outstanding, including the Bank Warrants disclosed in Note 5, at exercise prices ranging from $3.00 to $5.50 per warrant.

Stock option exercises

During the nine months ended September 30, 2018, 20,312 shares of common stock were issued upon the exercise of stock options, from which OncoCyte received approximately $58,000 in cash proceeds.

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7. Stock-based Compensation

Options Granted

OncoCyte had a 2010 Stock Option Plan (the “2010 Plan”) under which 5,200,000 shares of common stock were authorized for the grant of stock options or the sale of restricted stock.

On August 27, 2018, OncoCyte shareholders approved a new Equity Incentive Plan (the “2018 Incentive Plan”) to replace the 2010 Plan. In adopting the 2018 Incentive Plan, OncoCyte terminated the 2010 Plan and will not grant any additional stock options or sell any stock under restricted stock purchase agreements under the 2010 Plan; however, stock options issued under the 2010 Plan will continue in effect in accordance with their terms and the terms of the 2010 Plan until the exercise or expiration of the individual options.

The 2018 Incentive Plan reserved 5,000,000 shares of common stock for the grant of stock options or the sale of restricted stock (“Restricted Stock”) or for the settlement of hypothetical units issued with reference to common stock (“Restricted Stock Units”). OncoCyte may also grant stock appreciation rights (“SARs”) under the 2018 Incentive Plan.

A summary of OncoCyte’ 2010 Plan activity and related information follows (in thousands except weighted average exercise price):

Options	Shares Available for Grant (unaudited)			Number of Options Outstanding (unaudited)			Weighted Average Exercise Price (unaudited)
Balance at December 31, 2017		1,384			3,390		$	3.25
Options granted		(1,446	)		1,446			2.39
Options exercised		-			(20	)		2.84
Options forfeited, canceled and expired		138			(276	)		4.29
Termination of the 2010 Plan		(76	)		-			-
Balance at September 30, 2018		-			4,540		$	2.94
Exercisable at September 30, 2018					2,334		$	2.74

Of the stock options granted under the 2010 Plan during the nine months ended September 30, 2018, OncoCyte granted 1,318,948 stock options to employees and consultants, with exercise prices ranging from $2.35 per share to $3.15 per share, that will vest in increments upon the attainment of specified performance conditions related to the development of DetermaVu™ and obtaining Medicare reimbursement coverage for that test. As of September 30, 2018, none of those vesting conditions were met and, accordingly, no stock-based compensation expense was recorded during the three and nine months ended September 30, 2018 with regard to those stock options.

A summary of OncoCyte’ 2018 Incentive Plan activity and related information follows (in thousands except weighted average exercise price):

Options	Shares Available for Grant (unaudited)			Number of Options Outstanding (unaudited)		Weighted Average Exercise Price (unaudited)
Balance at December 31, 2017		-			-	$	-
Approval of 2018 Incentive Plan		5,000			-		-
Options granted		(230	)		230		2.40
Balance at September 30, 2018		4,770			230	$	2.40
Exercisable at September 30, 2018					-		-

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OncoCyte recorded stock-based compensation expense in the following categories on the accompanying condensed statements of operations for the three and nine months ended September 30, 2018 and 2017 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018			2017
Research and development	$	17	$	162	$	(5	)(1)	$	530
General and administrative		277		245		851			572
Sales and marketing		51		55		233			56
Total stock-based compensation expense	$	345	$	462	$	1,079		$	1,158

⁽¹⁾The negative stock-based compensation expense is primarily attributable to the decrease in the OncoCyte stock price from $4.65 per share at December 31, 2017 to $2.50 per share at September 30, 2018 for consultant stock options which require mark-to-market adjustment each quarter for unvested shares.

The assumptions that were used to calculate the grant date fair value of OncoCyte’s employee and non-employee stock option grants for the three and nine months ended September 30, 2018 and 2017 were as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Expected life (in years)		7.71			6.08			9.07			6.17
Risk-free interest rates		2.84	%		1.83	%		2.93	%		2.00	%
Volatility		78.94	%		75.63	%		81.13	%		63.49	%
Dividend yield		-	%		-	%		-	%		-	%

With the adoption of ASU 2016-09, effectively January 1, 2017, forfeitures are accounted for as they occur instead of based on the number of awards that were expected to vest.

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If OncoCyte had made different assumptions, its stock-based compensation expense and net loss for the three and nine months ended September 30, 2018 and 2017 may have been significantly different.

OncoCyte does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.

8. Income Taxes

The provision for income taxes is determined using an estimated annual effective tax rate. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where OncoCyte conducts business. Due to losses incurred for all periods presented, OncoCyte did not record any provision or benefit for income taxes.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. OncoCyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

9. Commitments and Contingencies

OncoCyte has certain commitments other than those under the Shared Facilities agreement discussed in Note 4.

Master Lease Line Agreement

On April 7, 2016, OncoCyte entered into a Master Lease Line Agreement (“Lease Agreement”) with an unrelated financing company for the purchase and financing of certain equipment. OncoCyte may use up to $881,000, as amended, for purchases of equipment financed under the Lease Agreement through April 2017. Each lease schedule OncoCyte enters into under Lease Agreement must be in minimum increments of $50,000 each with a 36-month lease term, collateralized by the equipment financed under the lease schedule. Each lease schedule requires a deposit for the first and last payment under that schedule. Monthly payments will be determined using a lease factor approximating an interest rate of 10% per annum. At the end of each lease schedule under Lease Agreement, assuming no default has occurred, OncoCyte may either return the equipment financed under the schedule for a restocking fee of 7.5% of the original cost of the equipment or purchase the equipment from the financing company at a fair value not less than 12.5% of the original cost of the equipment.

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On April 7, 2016, OncoCyte entered into a lease schedule under the Lease Agreement (“Lease Schedule No. 1”) for certain equipment costing approximately $435,000 applied against the lease line, requiring payments of $14,442 per month over 36 months. In December 2016, OncoCyte entered into another lease schedule (“Lease Schedule No. 2”) for certain equipment costing approximately $161,000, requiring payments of $5,342 per month over 36 months. In April 2017, OncoCyte entered into a third and final lease schedule (“Lease Schedule No. 3”) for certain equipment costing approximately $285,000, requiring payments of $9,462 per month over 36 months. After this last tranche, the Lease Agreement was closed and has no remaining financing available.

OncoCyte has accounted for these leases as a capital lease in accordance with ASC 840, Leases, due to the net present value of the payments under the lease approximating the fair value of the equipment at inception of the lease. The payments under the lease schedules will be amortized to capital lease obligations and interest expense using the interest method at an imputed rate of approximately 10% per annum.

On May 11, 2017, OncoCyte entered into another Master Lease Line Agreement (“Lease Agreement No. 2”) with the same finance company above and similar terms. OncoCyte may use up to $900,000 for purchases of equipment financed under Lease Agreement No. 2 through October 28, 2018.

On July 2, 2018, OncoCyte entered into a lease schedule under the Lease Agreement No. 2 for certain equipment costing approximately $209,000, requiring payments of $6,709 per month over 36 months, and a $116,000 prepaid maintenance contract for the duration of the lease of the equipment requiring 12 monthly payments of $10,238, including imputed interest. After the financing of this equipment and the prepaid maintenance contract, there was approximately $502,000 of remaining financing available under Lease Agreement No. 2 as of September 30, 2018.

Litigation – General

OncoCyte will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and other matters. When OncoCyte is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, OncoCyte will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, OncoCyte discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. OncoCyte is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.

Employment Contracts

OncoCyte has entered into employment contracts with certain executive officers. Under the provisions of the contracts, OncoCyte may be required to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.

Indemnification

In the normal course of business, OncoCyte may provide indemnification of varying scope under OncoCyte’s agreements with other companies or consultants, typically OncoCyte’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, OncoCyte will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of OncoCyte’s diagnostic tests. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to OncoCyte’s diagnostic tests. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments OncoCyte could be required to make under these indemnification agreements will generally not be subject to any specified maximum amounts. Historically, OncoCyte has not been subject to any claims or demands for indemnification. OncoCyte also maintains various liability insurance policies that limit OncoCyte’s financial exposure. As a result, OncoCyte management believes that the fair value of these indemnification agreements is minimal. Accordingly, OncoCyte has not recorded any liabilities for these agreements as of September 30, 2018 and December 31, 2017.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, including statements about any of the following: any projections of earnings, revenue, cash, effective tax rate, use of net operating losses, or any other financial items; the plans, strategies and objectives of management for future operations or prospects for achieving such plans, and any statements of assumptions underlying any of the foregoing. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. While OncoCyte may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the OncoCyte estimates change and readers should not rely on those forward-looking statements as representing OncoCyte views as of any date subsequent to the date of the filing of this Quarterly Report. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and OncoCyte can give no assurances that its expectations will prove to be correct. Actual results could differ materially from those described in this report because of numerous factors, many of which are beyond the control of OncoCyte. A number of important factors could cause the results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in this Form 10-Q, our Form 10-K, as amended, for the year ended December 31, 2017, and our other reports filled with the SEC from time to time.

The following discussion should be read in conjunction with OncoCyte’s condensed interim financial statements and the related notes provided under “Item 1- Financial Statements” above.

Critical Accounting Policies

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited condensed interim financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.

An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur, that could materially impact the financial statements. Management believes that there have been no significant changes during the nine months ended September 30, 2018 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017, except as follows:

Accounting for BioTime shares

We account for the BioTime shares we hold as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value and reported as current assets on the condensed balance sheet based on the closing trading price of the security as of the date being presented.

Beginning on January 1, 2018, with the adoption of ASU 2016-01, these securities are now called “marketable equity securities” and unrealized holding gains and losses on these securities are reported in the condensed statements of operations in other income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, these securities were called “available-for-sale securities” and unrealized holding gains and losses were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the balance sheet. Realized gains and losses are included in other income and expenses, net, in the condensed statements of operations.

On January 1, 2018, in accordance with the adoption of ASU 2016-01, we recorded a cumulative-effect adjustment for these available-for-sale-securities to reclassify the unrealized loss of $888,000 included in accumulated other comprehensive loss to the accumulated deficit balance. For the three and nine months ended September 30, 2018, OncoCyte recorded an unrealized gain of $102,000 and $71,000, respectively, included in other income and expenses, net, due to the increase in fair market value of the marketable equity securities from the respective balance sheet dates.

See Note 2 of our condensed interim financial statements included elsewhere in this Report.

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Results of Operations

Comparison of three and nine months ended September 30, 2018 and 2017

The following tables show our operating expenses for the three and nine months ended September 30, 2018 and 2017 (in thousands).

	Three Months Ended September 30,
	(unaudited)
	2018		2017		$ Decrease			% Decrease
Research and development expenses	$	1,527	$	1,836	$	(309	)		(16.8	)%
General and administrative expenses		1,312		4,289		(2,977	)		(69.4	)%
Sales and marketing expenses		184		710		(526	)		(74.1	)%

	Nine Months Ended September 30,
	(unaudited)
	2018		2017		$ Decrease			% Decrease
Research and development expenses	$	5,310	$	5,667	$	(357	)		(6.3	)%
General and administrative expenses		4,434		7,447		(3,013	)		(40.5	)%
Sales and marketing expenses		1,411		1,843		(432	)		(23.4	)%

Research and development expenses

The decrease in research and development expenses of $309,000 for the three months ended September 30, 2018, as compared to the three months ended September 30, 2017, is primarily attributable to a reduction of $150,000 in licenses and related fees and $145,000 in noncash stock-based compensation expense. The reduction in stock-based compensation expense was attributable to the decrease in the cost attributable to outstanding consultant stock options during current year three month period, which require mark-to-market adjustment each quarter for unvested shares, reflecting a lower market price of OncoCyte common stock during the period.

The decrease in research and development expenses of $357,000 for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, is primarily attributable to the following decreases: $535,000 in stock-based compensation expense; $233,000 in laboratory expenses; and $191,000 in amounts charged to us by BioTime for facilities and services. The reduction in stock-based compensation expense was attributable to the decrease in the cost attributable to outstanding consultant stock options during the current year nine month period, which require mark-to-market adjustment each quarter for unvested shares, reflecting a lower market price of OncoCyte common stock during the period. These decreases were offset by a $565,000 noncash impairment charge recorded during the nine months ended September 30, 2018 related to intangible assets mainly comprised of patents and patent rights for therapeutic uses that that we no longer plan to develop or commercialize.

We expect to continue to incur a significant amount of research and development expenses during the foreseeable future.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2018 decreased by $3.0 million in comparison to the three months ended September 30, 2017. During the three months ended September 30, 2017, we incurred a noncash expense of $3.0 million for the issuance of new warrants to certain investors who exercised outstanding warrants. We did not incur a similar expense during the same period in 2018. This decrease was offset by increases of $181,000 in personnel and related expenses, primarily related to the hiring of our Chief Financial Officer and our Chief Operating Officer.

General and administrative expenses for the nine months ended September 30, 2018 decreased by $3.0 million from the comparative period in 2017. During the nine months ended September 30, 2017, we incurred a noncash expense of $4.1 million for the issuance of new warrants to certain investors who exercised outstanding warrants. We did not incur a similar expense during the same period in 2018. However, during the nine months ended September 30, 2018, general and administrative expenses increased by $564,000 in legal, financing and patent related expenses, $335,000 in personnel and related expenses, primarily related to hiring of our Chief Financial Officer and our Chief Operating Officer, and $279,000 in noncash stock-based compensation expense due to increased stock option grants, including stock options granted in connection with the hiring of the two executives noted above.

Sales and marketing expenses

Sales and marketing expenses decreased by $526,000 for the three months ended September 30, 2018 in comparison to the three months ended September 30, 2017. The decrease was primarily attributable to the following cost reductions: $220,000 in consulting expenses; $160,000 in personnel and related expenses, mainly due to the sabbatical arrangements we implemented with certain employees; and approximately $146,000 in costs incurred for meetings, conferences, seminars, and other related expenses.

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Sales and marketing expenses decreased by $432,000 for the nine months ended September 30, 2018 as compared to the same period in 2017. The decreases were primarily attributable to a reduction of $619,000 in consulting and related expenses, offset by an increase of $178,000 in noncash stock-based compensation expense.

Other income and expenses, net

Other income and expenses, net, is primarily comprised of interest expense, net, incurred from our capital lease obligations and a loan payable to the Silicon Valley Bank, and unrealized and realized gains and losses on BioTime marketable equity securities we hold.

During the nine months ended September 30, 2017, we sold 266,442 shares of BioTime stock for net proceeds of $934,000 and used those proceeds to pay down amounts owed to BioTime and affiliates. We recognized a $309,000 loss from the sale of the BioTime shares for the nine months ended September 30, 2017, included in other income and expenses, net.

We did not sell any shares of BioTime common stock during the nine months ended September 30, 2018. For the three and nine months ended September 30, 2018, we recorded an unrealized gain of $102,000 and $71,000, respectively, included in other income and expenses, net, due to the increase in fair market value of the BioTime marketable equity securities from the respective balance sheet dates. As of September 30, 2018 and December 31, 2017, we held 353,264 BioTime common shares as marketable equity securities with a fair market value of $830,000 and $760,000, respectively.

Income taxes

Due to the losses incurred for all periods presented, we did not record any provision or benefit for income taxes for any period presented.

A valuation allowance will be provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.

Liquidity and Capital Resources

Since inception, we have financed our operations through the sale of our common stock and warrants, warrant exercises, a bank loan, and sales of BioTime common shares that we hold as marketable equity securities. BioTime also provided OncoCyte with the use of BioTime facilities and services under a Shared Facilities and Services Agreement as described in Note 4 to the condensed interim financial statements. We have incurred operating losses and negative cash flows since inception, and had an accumulated deficit of $66.8 million at September 30, 2018. We expect to continue to incur operating losses and negative cash flows for the near future.

At September 30, 2018, we had $10.8 million of cash and cash equivalents and held BioTime common shares as marketable equity securities valued at $830,000. We believe that our current cash, cash equivalents and marketable equity securities is sufficient to carry out our current operations through at least twelve months from the issuance date of the condensed interim financial statements included in this Report.

We will need to continue to raise additional capital to finance our operations, including the development of our cancer diagnostic tests, until such time as we are able to complete development and commercialize one or more diagnostic tests and generate sufficient revenues to cover our operating expenses. We are devoting substantially all of our research and development resources to the completion of the development of DetermaVu™. If we determine to build our own integrated marketing and sales force to commercialize DetermaVu™ after development is completed, we will need to raise additional capital for that purpose. We may also explore a range of other commercialization options in order to reduce our capital needs and the risks associated with the timelines and uncertainty for attaining the Medicare and commercial reimbursement approvals that will be essential for the successful commercialization of DetermaVu™ and any other diagnostic tests that we may develop. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which we might receive a royalty on sales, or through which we might form a joint venture to market DetermaVu™ and share in net revenues.

Delays in the development of DetermaVu™ could prevent us from raising sufficient additional capital to finance the completion of development and commercial launch of DetermaVu™ or any other cancer diagnostic tests. Even if we are successful in completing the development of DetermaVu™, investors may be reluctant to provide us with capital until DetermaVu™ is approved for reimbursement by Medicare or private payers. The unavailability or inadequacy of financing or revenues to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our planned operations. Sales of additional equity securities could result in the dilution of the interests of our shareholders. We cannot assure that adequate financing will be available on favorable terms, if at all.

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Cash used in operations

During the nine months ended September 30, 2018 and 2017, our total research and development expenses were $5.3 million and $5.7 million respectively, our general and administrative expenses were $4.4 million and $7.4 million, and our sales and marketing expenses were $1.4 million and $1.8 million, respectively. Net loss for the nine months ended September 30, 2018 amounted to $11.3 million and net cash used in operating activities amounted to $9.2 million. The amount by which our net loss exceeded net cash used in our operating activities during the nine months ended September 30, 2018 is primarily due to the following noncash items: $1,079,000 in stock-based compensation; a $625,000 impairment charge recorded for our intangible assets; $447,000 in depreciation and amortization expenses; a $71,000 unrealized gain on BioTime shares held as marketable equity securities; and $62,000 in amortization of debt issuance costs. Changes in working capital were approximately $104,000 as a use of cash.

Cash used in investing activities

During the nine months ended September 30, 2018, cash used for investing activities was insignificant.

Cash provided by financing activities

During the nine months ended September 30, 2018, net cash provided by financing operations was $12.4 million. We received $9.9 million in net cash proceeds from the sale of 7,936,508 shares of our common stock in a private offering. We also received an additional $3.3 million in net proceeds from the sale of 1,256,118 shares of common stock and warrants in an offering registered under the Securities Act as disclosed in Note 6 to Condensed Interim Financial Statements, and we received $58,000 from exercise of stock options. These cash inflows were offset by $850,000 used to repay the loan payable and capital lease obligations.

Off-Balance Sheet Arrangements

As of September 30, 2018 and December 31, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our qualitative and quantitative market risk since the disclosure in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

Marketable equity securities at fair value

As of September 30, 2018, we held 353,264 BioTime common shares at fair value as marketable equity securities. Those shares are subject to changes in market value. BioTime common shares trade on the NYSE American under the ticker “BTX”. As of September 30, 2018, the 52-week high/low stock price per share range for BioTime common shares was $3.10 to $2.03.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”). Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Following this review and evaluation, the principal executive officer and principal financial officer determined that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including our principal executive officer, and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in routine litigation incidental to the conduct of our business. We are not presently involved in any material litigation or proceedings, and to our knowledge no such litigation or proceedings are contemplated.

Item 1A. Risk Factors

Our business is subject to various risks, including those described below. You should consider the following risk factors, together with all of the other information included in this Report and the risks described in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017, as amended, and in our other filings with the Securities and Exchange Commission (the “SEC”), which could materially adversely affect our proposed operations, business prospects, and financial condition, and the value of an investment in our business. There may be other factors that are not mentioned here or of which we are not presently aware that could also affect our business operations and prospects.

Risks Related to Our Business Operations

We have incurred operating losses since inception and we do not know if we will attain profitability.

Since our inception in September 2009, we have incurred operating losses and negative cash flows and we expect to continue to incur losses and negative cash flows in the future. Our net losses for the nine months ended September 30, 2018 and for the years ended December 31, 2017 and 2016 were $11.3 million, $19.4 million and $11.2 million, respectively, and we had an accumulated deficit of $66.8 million and $54.7 million as of September 30, 2018 and December 31, 2017, respectively. Since inception, we have financed our operations through sales of our common stock and warrants, loans from BioTime and BioTime affiliates, warrant exercises, a bank loan and sale of BioTime common shares that we hold as marketable equity securities. Although BioTime may continue to provide administrative support to us on a reimbursable basis, we do not expect BioTime to provide future financing. There is no assurance that we will be able to obtain any additional financing that we may need, or that any such financing that may become available will be on terms that are favorable to us and our shareholders. Ultimately, our ability to generate sufficient operating revenue to earn a profit depends upon our success in developing and marketing or licensing our diagnostic tests and technology.

We have experienced a delay in conducting our clinical validation study of DetermaVu™.

During the process of running initial samples for the clinical validation study of DetermaVu™ in 2017, inconsistent analytic results were observed by our technical team. We determined that the inconsistent results were caused by a variance in the lots of consumables used in the diagnostic testing platform that we were using to analyzes blood samples for the genetic biomarkers that may indicate whether lung nodules found in patients are benign or suspicious. Due to the issues with that diagnostic testing platform, we have evaluated selected an alternative diagnostic testing platform for DetermaVu™. We plan to complete our DetermaVu™ development work on the selected platform by carrying out an R&D validation study followed by an analytical validation study, and if those studies are successfully completed, we plan to conduct a clinical validation study. Clinical validation is the final step prior to commercial launch of a diagnostic test, and we are targeting completion of a clinical validation during the first half of 2019. If these studies are completed successfully, we plan to commercialize or to arrange for the commercialization of the test. Until we perform these studies, we will not know whether we can successfully complete the development of DetermaVu™.

The need to address the issues we encountered with the original diagnostic testing platform caused a delay in the development of DetermaVu™ and has caused us to incur additional costs. In addition to a loss of productivity during the period of the delay, we incurred additional quality control costs, the cost of acquiring new diagnostic testing platform equipment and reagents, and the time and cost of training our staff in the use of the new platform, and we will be incurring the costs of conducting additional development work and studies. Any further delays in the successful completion of the clinical validation study and commercialization of DetermaVu™ could prevent us from raising, when needed, sufficient additional capital to finance the completion of development and commercial launch of DetermaVu™.

We may record an impairment of assets and take a charge to earnings for financial reporting purposes in the future if we discontinue the use of our original diagnostic testing platform in our CLIA lab.

Although we have changed diagnostic testing platforms for research and development purposes, we are continuing to use our original platform for clinical testing in our CLIA laboratory for certification purposes. If we discontinue that use of the original diagnostic testing platform, that equipment could be considered an impaired asset for financial reporting purposes and we would write down the value of that equipment on our condensed balance sheet and take a charge to earnings for the impaired value. We acquired the equipment through a lease and we would remain obligated to continue to make payments under the lease even if we discontinue use of the equipment.

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We will spend a substantial amount of our capital on research and development, but we might not succeed in developing diagnostic tests and technologies that are useful in clinical practice.

● We are attempting to develop new medical diagnostic tests and technologies. The focus of our business is on a DetermaVu™, a diagnostic test for lung cancer. DetermaVu™ is being developed through the use of blood samples obtained in prospective and retrospective clinical trials involving humans, but DetermaVu™ has not been used in clinical practice to diagnose cancer. Our technologies many not prove to be sufficiently efficacious to use in the diagnosis of cancer.

● The experimentation we are doing is costly, time consuming, and uncertain as to its results. We incurred research and development expenses amounting to approximately $5.3 million, $7.2 million and $5.7 million during the nine months ended September 30, 2018 and years ended December 31, 2017 and 2016, respectively. Since 2011, most of our research has been devoted to the development of tests to detect lung cancer, breast cancer, and bladder cancer. We are now devoting substantially all of our efforts to the development of DetrmaVu™ for the detection of lung cancer.

● If we are successful in developing a new technology or diagnostic test, refinement of the new technology or diagnostic test and definition of the practical applications and limitations of the technology or diagnostic test may take years and require the expenditure of large sums of money.

We will need to issue additional equity or debt securities in order to raise additional capital needed to pay our operating expenses.

● We plan to continue to incur substantial research and development expenses and we anticipate that we will be incurring significant sales and marketing costs as we develop and commercialize DetermaVu™. We will need to raise additional capital to pay operating expenses until we are able to generate sufficient revenues from diagnostic test sales, royalties, and license fees, and we will need to sell additional equity or debt securities to meet those capital needs.

● Our ability to raise additional equity or debt capital will depend not only on progress made in developing DetermaVu™ and receiving reimbursement approval from Medicare and other third-party payors, but also will depend on access to capital and conditions in the capital markets. Obtaining Medicare reimbursement approval for a diagnostic test generally takes two to three years, and investors may be reluctant to provide us with capital until we obtain Medicare reimbursement approval for DetermaVu™. There is no assurance that we will be able to raise capital at times and in amounts needed to finance the development and commercialization of DetermaVu™ and general operations. Even if capital is available, it may not be available on terms that we or our shareholders would consider favorable.

● Sales or other issuances of additional equity securities by us could result in the dilution of the interests of our shareholders.

We have limited capital, marketing, and sales resources and no distribution resources for the commercialization of DetermaVu™.

If we are successful in developing DetermaVu™, we will need to build our own marketing and sales capability, which will require the investment of significant financial and management resources to recruit, train, and manage a sales force. In the alternative, due to our limited capital resources, we may need to enter into marketing arrangements with other diagnostic companies for DetermaVu™ .. Under such marketing arrangements we may license marketing rights to one or more other companies or to one or more joint venture companies formed to market DetermaVu™ , and we might receive only a royalty on sales of DetermaVu™ or an equity interest in a joint venture company. As a result, our revenues from the sale of DetermaVu™ may be substantially less than the amount of revenues and gross profits that we might receive if we were to market DetermaVu™ ourselves.

The reduction of our sales and marketing staff as part of a cost savings plan could delay our ability to commercialize our DetermaVu™, and we may explore a range of alternative options for commercialization.

We have reduced our sales and marketing staff to reduce our operating costs while we are developing DetermaVu™. This staff reduction could delay commercial availability or a full commercial launch of DetermaVu™ or could result in an acceleration of expenses to build a commercialization staff.

While we may elect to build our own integrated commercial organization if we successfully complete the development of DetermaVu™, we may also explore a range of other commercialization options in order to reduce our capital needs and the risks associated with the timelines and uncertainty for attaining Medicare and commercial reimbursement approval. These other options may include entering into arrangements with other companies for the commercialization of DetermaVu™ or other diagnostic tests that we may develop, or pursuing other business development opportunities. There is no assurance that we will be able to make alternative arrangements for the commercialization of DetermaVu™ or any other diagnostic tests that we may develop.

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You may experience dilution of your ownership interests if we issue additional shares of common stock or preferred stock.

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present shareholders. We are currently authorized to issue an aggregate of 90,000,000 shares of capital stock consisting of 85,000,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. At September 30, 2018, there were 40,664,496 shares of common stock outstanding, 4,035,339 shares of common stock reserved for exercise of warrants and 4,770,000 shares of common stock reserved for issuance upon the exercise of options under our employee stock option plans. No shares of preferred stock are presently outstanding.

We may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise additional capital, or in connection with hiring or retaining employees, directors, or consultants, or in connection with future acquisitions of licenses to technology or diagnostic tests in connection with future business acquisitions, or for other business purposes. The future issuance of any such additional common stock or other securities may create downward pressure on the trading price of our common stock.

We may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred stock may also be convertible into common stock on terms that would be dilutive to holders of common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5 Other Information

None.

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Item 6

Exhibit Numbers	Exhibit Description
3.1	Articles of Incorporation with all amendments (1)
3.2	By-Laws, as amended (2)
4.1	Form of August 2016 Warrant (3)
4.2	Form of 2017 Warrant, Exercise Price $3.25 (4)
4.3	Form of 2017 Warrant, Exercise Price $5.50 (4)
4.4	Silicon Valley Bank Warrant (4)
4.5	Form of July 2018 Warrant (5)
10.1	Employment Agreement, dated August 6, 2018, between OncoCyte Corporation and Albert P. Parker*
31	Rule 13a-14(a)/15d-14(a) Certification*
32	Section 1350 Certification*
101	Interactive Data Files
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*

(1)	Incorporated by reference to OncoCyte Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2018.
(2)	Incorporated by reference to OncoCyte Corporation’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2018.
(3)	Incorporated by reference to OncoCyte Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2016.
(4)	Incorporated by reference to OncoCyte Corporation’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2017.
(5)	Incorporated by reference to OncoCyte Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2018.
*	Filed herewith

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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.

	ONCOCYTE CORPORATION
Date: November 13, 2018	/s/ William Annett
	William Annett
	President and Chief Executive Officer
Date: November 13, 2018	/s/ Mitchell Levine
	Mitchell Levine
	Chief Financial Officer

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EX-10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of August 6, 2018 by and between OncoCyte Corporation (“OncoCyte”), a California corporation, and Albert Parker (“Executive”).

1. Engagement; Position and Duties.

(a) OncoCyte agrees to employ Executive in the position described on Exhibit A (which Exhibit A is a part of this Agreement) effective as of the date of this Agreement. Executive shall perform the duties and functions described on Exhibit A and such other duties as the executive(s) to whom Executive reports or the Board of Directors of OncoCyte may from time to time determine. Executive shall devote Executive’s best efforts, skills, and abilities to the business of OncoCyte and any Subsidiaries pursuant to, and in accordance with, business policies and procedures, as fixed from time to time by the Board of Directors (the “Policies”). Executive covenants and agrees that Executive will faithfully adhere to and fulfill the Policies, including any changes to the Policies that may be made in the future. Executive may be provided with a copy of OncoCyte’s employee manual (the “Manual”) which contains the Policies. OncoCyte may change its Policies from time to time, in which case Executive will be notified of the changes in writing by a memorandum, a letter, or an update or revision of OncoCyte’s employee manual.

(b) Performance of Services for Subsidiaries. Executive acknowledges and agrees that although OncoCyte does not have any subsidiaries as of the Effective Date, it is possible that OncoCyte will organize or acquire one or more subsidiary companies in the future, which may be wholly-owned or partially owned by OncoCyte (each a “Subsidiary”). In addition to the performance of services for OncoCyte, Executive shall, to the extent so required by OncoCyte, also perform services for one or more Subsidiaries, provided that such services are consistent with the kind of services Executive performs or may be required to perform for OncoCyte under this Agreement. If Executive performs any services for any Subsidiary, Executive’s compensation shall not be increased or reduced on account of his performance of such services. The Policies will govern Executive’s employment by OncoCyte and any Subsidiaries for which Executive is asked to provide Services. In addition, Executive covenants and agrees that Executive will faithfully adhere to and fulfill such additional policies governing executive officers or employees generally as may be established from time to time by the board of directors of any Subsidiary for which Executive performs services, to the extent that such policies and procedures differ from or are in addition to the Policies adopted by OncoCyte.

(c) No Conflicting Obligations. Executive represents and warrants to OncoCyte that Executive is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with Executive’s obligations under this Agreement or that would prohibit Executive, contractually or otherwise, from performing Executive’s duties as under this Agreement and the Policies. Executive may serve on a paid board, subject to no conflict of interest and approval from the Chairman of the Board.

(d) No Unauthorized Use of Third Party Intellectual Property. Executive represents and warrants to OncoCyte that Executive will not use or disclose, in connection with Executive’s employment by OncoCyte or any Subsidiary, any patents, trade secrets, confidential information, or other proprietary information or intellectual property as to which any other person has any right, title or interest, except to the extent that OncoCyte or a Subsidiary holds a valid license or other written permission for such use from the owner(s) thereof. Executive represents and warrants to OncoCyte that Executive has returned all property and confidential information belonging to any prior employer, other than his current consulting clients.

2. Compensation

(a) Salary. During the term of this Agreement, OncoCyte shall pay to the Executive the salary shown on Exhibit A. Executive’s salary shall be paid in equal biweekly installments, consistent with OncoCyte’s regular salary payment practices. Executive’s salary may be increased from time-to-time by OncoCyte, in OncoCyte’s sole and absolute discretion, without affecting this Agreement.

(b) Bonus. Executive may be eligible for an annual bonus, as may be approved by the Board of Directors in its discretion, based on Executive’s performance and achievement of goals or, milestones set by the Board of Directors from time to time. Executive agrees that the Board of Directors of OncoCyte may follow the recommendations of the Compensation Committee of the Board of Directors of OncoCyte in determining whether to award a bonus or to establish performance goals or milestones. Executive also agrees that the Board of Directors and OncoCyte are not obligated to adopt any bonus plan, to maintain in effect any bonus plan that may now be in effect or that may be adopted during the term of Executive’s employment, or to pay Executive a bonus unless a bonus is earned under the terms and conditions of any bonus plan adopted by OncoCyte or Executive attaining the bonus performance goals for Executive established by the Board of Directors or its Compensation Committee; provided, that unless otherwise provided in a bonus plan or award, a bonus shall not be earned until paid and shall not be paid unless Executive remains an employee of OncoCyte on the date of payment.

(c) Expense Reimbursements. OncoCyte or a Subsidiary shall reimburse Executive for reasonable travel and other business expenses (but not expenses of commuting to his primary workplace) incurred by Executive in the performance of Executive’s duties under this Agreement, subject to the Policies and procedures in effect from time to time, and provided that Executive submits supporting vouchers.

(d) Benefit Plans. Executive may be eligible (to the extent Executive qualifies) to participate in certain retirement, pension, life, health, accident and disability insurance, stock option plan or other similar employee benefit plans which may be adopted by OncoCyte (or a Subsidiary) for its executive officers or other employees. OncoCyte and the Subsidiaries have the right, at any time and without any amendment of this Agreement, and without prior notice to or consent from Executive, to adopt, amend, change, or terminate any such benefit plans that may now be in effect or that may be adopted in the future, in each case without any further financial obligation to Executive; provided that such unilateral change does apply to Executive in a manner different than other OncoCyte executives or employees of a comparable executive level, except for changes required by applicable federal, state, or local law, or implemented in response to any change of federal, state or local law or regulation Any benefits to which Executive may be entitled under any benefit plan shall be governed by the terms and conditions of the applicable benefit plan, and any related plan documents, as in effect from time to time. If Executive receives any grant of stock options or stock or stock related equity awards (“Awards”) under any stock option plan, stock purchase plan, or other equity incentive plan of OncoCyte or any Subsidiary (an “Equity Plan”), the terms and conditions of the Award, and Executive’s rights with respect to the Award, shall be governed by (i) the terms of the Equity Plan, as the same may be amended from time to time, and (ii) the terms and conditions of any stock option agreement, stock purchase agreement, or other agreement that Executive may sign or be required to sign with respect to any Award.

(e) Vacation; Sick Leave. Executive shall be entitled to the number of days of vacation and sick leave (without reduction in compensation) during each calendar year shown on Exhibit A or as may be provided by the Policies. Executive’s vacation shall be taken at such time as is consistent with the needs and Policies of OncoCyte and its Subsidiaries. All vacation days and sick leave days shall accrue annually based upon days of service. Executive’s right to leave from work due to illness is subject to the Policies and the provisions of this Agreement governing termination due to disability, sickness or illness. The Policies governing the disposition of unused vacation days and sick leave days remaining at the end of OncoCyte’s fiscal year shall govern whether unused vacation days or sick leave days will be paid, lost, or carried over into subsequent fiscal years.

3. Competitive Activities. During the term of Executive’s employment, and for one year thereafter, Executive shall not, for Executive or any third party, directly or indirectly employ, solicit for employment or recommend for employment any person employed by OncoCyte or any Subsidiary. During the term of Executive’s employment, Executive shall not, directly or indirectly as an employee, contractor, officer, director, member, partner, agent, or equity owner, engage in any activity or business that to the best of Executive’s knowledge competes with the business of OncoCyte or any Subsidiary. Executive acknowledges that there is a substantial likelihood that the activities described in this Section would (a) involve the unauthorized use or disclosure of OncoCyte’s or a Subsidiary’s Confidential Information and that use or disclosure would be extremely difficult to detect, and (b) result in substantial competitive harm to the business of OncoCyte or a Subsidiary. Executive has accepted the limitations of this Section as a reasonably practicable means of preventing such use or disclosure of Confidential Information and preventing such competitive harm.

4. Inventions/Intellectual Property/Confidential Information

(a) As used in this Agreement, “Intellectual Property” means any and all inventions, discoveries, formulas, improvements, writings, designs, or other intellectual property. Any and all Intellectual Property relating to or in any way pertaining to or connected with the systems, products, apparatus, or methods employed, manufactured, constructed, or researched by OncoCyte, or any Subsidiary, which Executive may conceive or make while performing services for OncoCyte or a Subsidiary shall be the sole and exclusive property of OncoCyte or the applicable Subsidiary and is referred to in this Agreement as OncoCyte Intellectual Property. Executive hereby irrevocably assigns and transfers to OncoCyte, or a Subsidiary, all rights, title and interest in and to all OncoCyte Intellectual Property that Executive may now or in the future have under patent, copyright, trade secret, trademark or other law, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration. OncoCyte and the Subsidiaries will be entitled to obtain and hold in their own name all copyrights, patents, trade secrets, trademarks and other similar registrations with respect to such OncoCyte Intellectual Property.

(b) Moral Rights. To the extent allowed by law, the rights to OncoCyte Intellectual Property assigned by Executive to OncoCyte or any Subsidiary includes all rights of paternity, integrity, disclosure and withdrawal, and any other rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like (collectively “Moral Rights”). To the extent Executive retains any such Moral Rights under applicable law, Executive hereby ratifies and consents to any action that may be taken with respect to such Moral Rights by or authorized by OncoCyte or a Subsidiary and agrees not to assert any Moral Rights with respect thereto. Executive shall confirm in writing any such ratifications, consents, and agreements from time to time as requested by OncoCyte or Subsidiary.

(c) Execution of Documents; Power of Attorney. Executive agrees to execute and sign any and all applications, assignments, or other instruments which OncoCyte or a Subsidiary may deem necessary in order to enable OncoCyte or a Subsidiary, at its expense, to apply for, prosecute, and obtain patents of the United States or foreign countries for the OncoCyte Intellectual Property, or in order to assign or convey to, perfect, maintain or vest in OncoCyte or a Subsidiary the sole and exclusive right, title, and interest in and to the OncoCyte Intellectual Property. If OncoCyte or a Subsidiary is unable after reasonable efforts to secure Executive’s signature, cooperation or assistance in accordance with the preceding sentence, whether because of Executive’s incapacity or any other reason whatsoever, Executive hereby designates and appoints OncoCyte or any Subsidiary or its designee as Executive’s agent and attorney-in-fact, to act on Executive’s behalf, to execute and file documents and to do all other lawfully permitted acts necessary or desirable to perfect, maintain or otherwise protect OncoCyte’s or a Subsidiary’s rights in the OncoCyte Intellectual Property”: Executive acknowledges and agrees that such appointment is coupled with an interest and is irrevocable.

(d) Disclosure of Intellectual Property. Executive agrees to disclose promptly to OncoCyte or a Subsidiary all OncoCyte Intellectual Property that Executive may create or conceive solely, jointly, or commonly with others.

(e) Limitations. The obligations provided for by this Section 4 do not apply to any rights Executive may have acquired in connection with Intellectual Property for which no equipment, supplies, facility, or trade secret information of OncoCyte or a Subsidiary was used and which was developed entirely on the Executive’s own time and (i) which at the time of conception or reduction to practice does not relate directly or indirectly to the business of OncoCyte or a Subsidiary, or to the actual or demonstrable anticipated research or development activities or plans of OncoCyte or a Subsidiary, or (ii) which does not result from any work performed by Executive for OncoCyte or a Subsidiary. All Intellectual Property that (l) results from the use of equipment, supplies, facilities, or trade secret information of OncoCyte or a Subsidiary; (2) relates, at the time of conception or reduction to practice of the invention, to the business of OncoCyte or a Subsidiary, or actual or demonstrably anticipated research or development of OncoCyte or a Subsidiary; or (3) results from any work performed by Executive for OncoCyte or a Subsidiary shall be deemed OncoCyte Intellectual Property and shall be assigned and is hereby assigned to OncoCyte or the applicable Subsidiary. The parties understand and agree that this limitation is intended to be consistent with California Labor Code, Section 2870, a copy of which is attached as Exhibit B. If Executive wishes to clarify that something created by Executive prior to Executive’s employment by OncoCyte that relates to the actual or proposed business of OncoCyte is not within the scope of this Agreement, Executive has listed it on Exhibit C in a manner that does not violate any third-party rights.

(f) Confidential and Proprietary Information. During Executive’s employment, Executive will have access to trade secrets and confidential information of OncoCyte and one or more Subsidiaries. Confidential Information means all information and ideas, in any form, relating in any manner to matters such as: products; formulas; technology and know-how; inventions; clinical trial plans and data; business plans; marketing plans; the identity, expertise, and compensation of employees and contractors; systems, procedures, and manuals; customers; suppliers; joint venture partners; research collaborators; licensees; and financial information. Confidential Information also shall include any information of any kind, whether belonging to OncoCyte, a Subsidiary, or any third party, that OncoCyte or a Subsidiary has agreed to keep secret or confidential under the terms of any agreement with any third party. Confidential Information does not include: (i) information that is or becomes publicly known through lawful means other than unauthorized disclosure by Executive; (ii) information that was rightfully in Executive’s possession prior to Executive’s employment with OncoCyte and was not assigned to OncoCyte or a Subsidiary or was not disclosed to Executive in Executive’s capacity as a director or other fiduciary of OncoCyte or a Subsidiary; or (iii) information disclosed to Executive, after the termination of Executive’s employment by OncoCyte, without a confidential restriction by a third party who rightfully possesses the information and did not obtain it, either directly or indirectly, from OncoCyte or a Subsidiary, and who is not subject to an obligation to keep such information confidential for the benefit of OncoCyte, a Subsidiary, or any third party with whom OncoCyte or a Subsidiary has a contractual relationship. Executive understands and agrees that all Confidential Information shall be kept confidential by Executive both during and after Executive’s employment by OncoCyte any Subsidiary. Executive further agrees that Executive will not, without the prior written approval by OncoCyte or a Subsidiary, disclose any Confidential Information, or use any Confidential Information in any way, either during the term of Executive’s employment or at any time thereafter, except as required by OncoCyte or a Subsidiary in the course of Executive’s employment.

5. Termination of Employment. Executive understands and agrees that Executive’s employment has no specific term. This Agreement, and the employment relationship, are “at will” and may be terminated by Executive or by OncoCyte (and the employment of Executive by any Subsidiary by be terminated by the Subsidiary) with or without cause at any time by notice given orally or in writing. Except as otherwise agreed in writing or as otherwise provided in this Agreement, upon te1mination of Executive’s employment, OncoCyte and the Subsidiaries shall have no further obligation to Executive by way of compensation or otherwise as expressly provided in this Agreement or in any separate employment agreement that might then exist between Executive and a Subsidiary.

(a) Payments Due Upon Termination of Employment. Upon termination of Executive’s employment with OncoCyte and all Subsidiaries at any time and for any reason, In the event of the termination of Executive’s employment by OncoCyte for Cause, or termination of Executive’s employment as a result of death, Disability, or resignation, Executive will be entitled to receive only the severance benefits set forth below, but Executive will not be entitled to any other compensation, award, or damages with respect to Executive’s employment or te1mination of employment.

(i) Termination/or Cause, Death, Disability, or Resignation. In the event of the termination of Executive’s employment by OncoCyte for Cause, or termination of Executive’s employment as a result of death, disability, or resignation, Executive will be entitled to receive payment for all accrued but unpaid salary actually earned prior to or as of the date of termination of Executive’s employment, and vacation or paid time off accrued as of the date of termination of Executive’s employment. Executive will not be entitled to any cash severance benefits or additional vesting of any stock options or other equity or cash awards.

(ii) Termination Without Cause. In the event of termination of Executive’s employment by OncoCyte without Cause on or after August 6, 2018, Executive will be entitled to (A) the benefits set forth in paragraph (a)(i) of this Section, and (B) payment in an amount equal to six months’ base salary, which may be paid in a lump sum or, at the election of OncoCyte, in installments consistent with the payment of Executive’s salary while employed by OncoCyte, subject to such payroll deductions and withholdings as are required by law. This paragraph shall not apply to (x) termination of Executive’s employment by a Subsidiary if Executive remains employed by OncoCyte, or (y) termination of Executive’s employment by OncoCyte if Executive remains employed by a Subsidiary.

(iii) Change of Control. If, on or after November 6, 2018, OncoCyte (or any successor in interest to OncoCyte that has assumed OncoCyte’s obligation under this Agreement) terminates Executive’s employment without Cause or Executive resigns for “Good Reason” within twelve (12) months following a Change in Control, Executive will be entitled to (A) the benefits set forth in paragraph (a)(i) and (a)(ii) of this Section, and (B)) payment in an amount equal to twelve months’ base salary. This paragraph shall not apply to (x) termination of Executive’s employment by a Subsidiary if Executive remains employed by OncoCyte or a successor in interest, or (y) termination of Executive’s employment by OncoCyte or a successor in interest if Executive remains employed by a Subsidiary.

(iv) If an event occurs that entitles Executive to severance payments, Executive’s base salary then in effect shall be used for determination of severance payments.

(b) Release. Any other provision of this Agreement notwithstanding, paragraphs (a)(ii) and (a)(iii) of this Section shall not apply unless the Executive (i) has executed a general release of all claims against OncoCyte or its successor in interest and the Subsidiaries (in a form prescribed by OncoCyte or its successor in interest), (ii) has returned all property in the Executive’s possession belonging OncoCyte or its successor in interest and any Subsidiaries, and (iii) if serving as a director of OncoCyte or any Subsidiary, has tendered his written resignation as a director as provided in Section 7.

(c) Definitions. For purposes of this Section, the following definitions shall apply:

(i) “Affiliated Group” means (A) a Person and one or more other Persons in control of, controlled by, or under common control with such Person; and (B) two or more Persons who, by written agreement among them, act in concert to acquire Voting securities entitling them to elect a majority of the directors of OncoCyte.

(ii) “Cause” means: (A) the failure to properly perform Executive’s job responsibilities, as determined reasonably and in good faith by the Board of Directors; (B) commission of any act of fraud, gross misconduct or dishonesty with respect to OncoCyte or any Subsidiary; (C) conviction of, or plea of guilty or “no contest” to, any felony, or a crime involving moral turpitude; (D) breach of any provision of this Agreement or any provision of any proprietary information and inventions agreement with OncoCyte or any Subsidiary; (E) failure to follow the lawful directions of the Board of Directors of OncoCyte or any Subsidiary; (F) chronic alcohol or drug abuse; (G) obtaining, in connection with any transaction in which OncoCyte, any Subsidiary, or any of OncoCyte’s affiliates is a party, a material undisclosed financial benefit for Executive or for any member of Executive’s immediate family or for any corporation, partnership, limited liability company, or trust in which Executive or any member of Executive’s immediate family owns a material financial interest; or (H) harassing or discriminating against, or participating or assisting in the harassment of or discrimination against, any employee of OncoCyte (or a Subsidiary or an affiliate of OncoCyte) based upon gender, race, religion, ethnicity, or nationality.

(iii) “Change of Control” means (A) the acquisition of Voting Securities of OncoCyte by a Person or an Affiliated Group entitling the holder thereof to elect a majority of the directors of OncoCyte; provided, that an increase in the amount of Voting Securities held by a Person or Affiliated Group who on the date of this Agreement beneficially owned (as defined in Section l3(d) of the Securities Exchange Act of 1934, as amended, and the regulations thereunder) more than 10% of the Voting Securities shall not constitute a Change of Control; and provided, further, that an acquisition of Voting Securities by one or more Persons acting as an underwriter in connection with a sale or distribution of such Voting Securities shall not constitute a Change of Control under this clause (A); (B) the sale of all or substantially all of the assets of OncoCyte; or (C) a merger or consolidation of OncoCyte with or into another corporation or entity in which the stockholders of OncoCyte immediately before such merger or consolidation do not own, in the aggregate, Voting Securities of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity) entitling them, in the aggregate (and without regard to whether they constitute an Affiliated Group) to elect a majority of the directors or persons holding similar powers of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity); provided, however, that in no event shall any transaction described in clauses (A), (B) or (C) be a Change of Control if all of the Persons acquiring Voting Securities or assets of OncoCyte or merging or consolidating with OncoCyte are one or more Subsidiaries.

(iv) “Disability” shall mean Executive’s inability to perform the essential functions of Executive’s job responsibilities for a period of one hundred eighty (180) days in the aggregate in any twelve (12) month period.

(v) “Good Reason” means (A) a diminution in Executive’s base salary; (B) a material change in geographic location at which Executive must perform services (a change in location of the OncoCyte office at which Executive will primarily work will be considered material only if it increases Executive’s current one-way commute by more than fifty (50) miles); (C) any material failure of the successors to OncoCyte after a Change of Control to perform, or causing OncoCyte not to perform, OncoCyte’ obligations under this Agreement; (D) any action or inaction of OncoCyte that constitutes a material breach of the terms of this Agreement; or (E) any other material adverse change in Executive’s duties, authorities, responsibilities, or reporting structure (for example, if Executive is required to report to anyone other than a Chief Executive Officer or the Board of Directors of OncoCyte or its successor).

(vi) “Person” means any natural person or any corporation, partnership, limited liability company, trust, unincorporated business association, or other entity.

(vii) “Voting Securities” means shares of capital stock or other equity securities entitling the holder thereof to regularly vote for the election of directors (or for person performing a similar function if the issuer is not a corporation), but does not include the power to vote upon the happening of some condition or event which has not yet occurred.

6. Turnover of Property and Documents on Termination. Executive agrees that on or before termination of Executive’s employment, Executive will return to OncoCyte and all Subsidiaries all equipment and other property belonging to OncoCyte and the Subsidiaries, and all originals and copies of Confidential Information (in any and all media and formats, and including any document or other item containing Confidential Information) in Executive’s possession or control, and all of the following (in any and all media and formats, and whether or not constituting or containing Confidential Information) in Executive’s possession or control: (a) lists and sources of customers; (b) proposals or drafts of proposals for any research grant, research or development project or program, marketing plan, licensing arrangement, or other arrangement with any third party; (c) reports, job or laboratory notes, specifications, and drawings pertaining to the research, development, products, patents, and technology of OncoCyte and any Subsidiaries; (d) any and all Intellectual Property developed by Executive during the course of employment; and (e) the Manual and memoranda related to the Policies.

7. Resignation as a Director on Termination of Employment. If Executive’s employment by OncoCyte is terminated for any reason or for no reason, whether by way of resignation, Disability, or termination by OncoCyte with or without Cause, and if Executive is then a member of the Board of Directors of OncoCyte or any Subsidiary, Executive shall within two business days after such termination of employment resign from the Board of Directors of OncoCyte and from the board of directors of each and every Subsidiary, by delivering to OncoCyte (and each Subsidiary, as applicable) a letter or other written communication addressed to the Board of Directors of OncoCyte (and each Subsidiary, as applicable) stating that Executive is resigning from the Board of Directors of OncoCyte (and each Subsidiary, as applicable) effective immediately. A business day shall be any day other than a Saturday, Sunday, or federal holiday on which federal offices are closed.

8. Arbitration. It is the intention of Executive and OncoCyte that the Federal Arbitration Act and the California Arbitration Act shall apply with respect to the arbitration of disputes, claims, and controversies pursuant to, arising under, or in connection with this Agreement. Except for injunctive proceedings against unauthorized disclosure of Confidential Information, any and all claims or controversies between OncoCyte or any Subsidiary and Executive, including but not limited to (a) those involving the construction or application of any of the terms, provisions, or conditions of this Agreement (including but not limited to the applicability and enforceability of provisions of this Section 8 with respect to any dispute, claim, or controversy) or the Policies; (b) all contract or tort claims of any kind; and (c) any .claim based on any federal, state, or local law, statute, regulation, or ordinance, including claims for unlawful discrimination or harassment, shall be settled by arbitration in accordance with the then current Employment Dispute Resolution Rules of the American Arbitration Association or the Employment Arbitration Rules & Procedures of the Judicial Arbitration and Mediation Service (“JAMS”), as selected by OncoCyte or a Subsidiary. Judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction over OncoCyte and Executive. The location of the arbitration shall be San Francisco, California. Unless OncoCyte or a Subsidiary and Executive mutually agree otherwise, the arbitrator shall be a retired judge selected from a panel provided by the American Arbitration Association, or JAMS. OncoCyte, or a Subsidiary if the Subsidiary is a party to the arbitration proceeding, shall pay the arbitrator’s fees and costs. Executive shall pay for Executive’s own costs and attorneys’ fees, if any. OncoCyte and any Subsidiary that is a party to an arbitration proceeding shall pay for its own costs and attorneys’ fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys’ fees, the arbitrator may award reasonable attorneys’ fees and costs to the prevailing party.

EMPLOYEE UNDERSTANDS AND AGREES THAT THIS AGREEMENT TO ARBITRATE CONSTITUTES A WAIVER OF EXECUTIVE’S RIGHT TO A TRIAL BY JURY OF ANY MATTERS COVERED BY THIS AGREEMENT TO ARBITRATE.

9. Severability. In the event that any of the provisions of this Agreement or the Policies shall be held to be invalid or unenforceable in whole or in part, those provisions to the extent enforceable and all other provisions shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provision had not been included in this Agreement or the Policies. In the event that any provision relating to a time period of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period such court deems reasonable and enforceable, then the time period of restriction deemed reasonable and enforceable by the court shall become and shall thereafter be the maximum time period.

10. Agreement Read and Understood. Executive acknowledges that Executive has carefully read the terms of this Agreement, that Executive has had an opportunity to consult with an attorney or other representative of Executive’s own choosing regarding this Agreement, that Executive understands the terms of this Agreement, and that Executive is entering this agreement of Executive’s own free will.

11. Complete Agreement, Modification. This Agreement is the complete agreement between Executive and OncoCyte on the subjects contained in this Agreement. This Agreement supersedes and replaces all previous correspondence, promises, representations, and agreements, if any, either written or oral with respect to Executive’s employment by OncoCyte or any Subsidiary and any matter covered by this Agreement. No provision of this Agreement may be modified, amended, or waived except by a written document signed both by OncoCyte and Executive.

12. Governing Law. This Agreement shall be construed and enforced according to the laws of the State of California.

13. Assignability. This Agreement, and the rights and obligations of Executive and OncoCyte under this Agreement, may not be assigned by Executive. OncoCyte may assign any of its rights and obligations under this Agreement to any successor or surviving corporation, limited liability company, or other entity resulting from a merger, consolidation, sale of assets, sale of stock, sale of membership interests, or other reorganization, upon condition that the assignee shall assume, either expressly or by operation of law, all of OncoCyte’s obligations under this Agreement.

14. Survival. This Section 14 and the covenants and agreements contained in Sections 4 and 6 of this Agreement shall survive termination of this Agreement and Executive’s employment.

15. Notices. Any notices or other communication required or permitted to be given under this Agreement shall be in writing and shall be mailed by certified mail, return receipt requested, or sent by next business day air courier service, or personally delivered to the party to whom it is to be given at the address of such party set forth on the signature page of this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 15).

[Signatures To This Employment Agreement Found On The Following Page]

IN WITNESS WHEREOF, Executive and OncoCyte have executed this Agreement on the day and year first above written.

EXECUTIVE:		ONCOCYTE CORPORATION:
By:	/s/ Albert P. Parker	By:	/s/ William Annett
	Albert P. Parker		William Annett
Title:	Chief Operating Officer	Title:	Chief Executive Officer
Address:		Address:
1010 Atlantic Avenue, Suite 102		1010 Atlantic Avenue, Suite 102
Alameda, CA 94501		Alameda, California 94501

[Signatures To The Employment Agreement]

EXHIBIT A

Job Title: Chief Operating Officer (“COO”)

Description of Job and Duties: OncoCyte agrees to employ Executive in the position of Chief Operating Officer. Executive shall perform the duties and functions as are normally carried out by a Chief Operating Officer of a developer of cancer diagnostic tests and products of a size comparable to OncoCyte that has a class equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, and as the Board of Directors of OncoCyte (the “Board of Directors”) shall from time to time reasonably determine. Without limiting the generality of the immediately preceding sentence, Executive shall:

○	Lead and develop the daily operations of OncoCyte to include CLIA Lab and QA/Regulatory to ensure projects and key milestones are met.
○	Responsible for strategy and business development in partnership with CEO, CFO, and Board of Directors (“Board”). Will define and execute strategic initiatives focused on refining product/service offerings portfolio, market scope and reach of OncoCyte products and technology; accelerating commercialization of diagnostic testing products/services. Will be responsible for a productive and focused business development.
○	Is responsible for working with the Finance and Strategy Committee of the Board to collaboratively develop company strategy and business development opportunities
○	Will work closely with CLIA Operations, QA/Regulatory, Research and Process Development to ensure smooth transition from R&D to production in the lab.
○	Will lead and develop Quality and Regulatory systems to support effective and efficient operations in partnership with internal resources and functional leaders.
○	Will work closely with the CEO on setting agenda for the Sr. Leadership Team meeting and helping to establish the policies, procedures and culture of the company.
○	Will present each quarter to the Board on the quality systems of the company in relationship to the CLIA Lab and R&D activities.
○	Other duties as assigned.

Reports to: Chief Executive Officer (“CEO”)

Annual Salary: $340,000, which may not be reduced in the first four months of employment. After initial four month period of employment, reduction of hours and subsequent reduction in salary may occur if OncoCyte and Executive mutually agree to reduce Executive’s hours and/or the scope of duties. If an event occurs entitling Executive to severance payments pursuant to Section 5 of this Agreement, after a salary reduction, the severance payments will be calculated on the reduced salary.

Expenses: Executive may be reimbursed up to $10,000 by OncoCyte for expenses related to legal and tax accounting associated with accepting this COO position. For a reasonable interim period, all expenses for hotel and meals will be reimbursed through OncoCyte’s expense report system, and reasonable airfare between CA and PA will also be reimbursed in accordance with OncoCyte’s travel policy and expense report system.

Target Bonus: Subject to the discretion of the Board of Directors, and as provided in Section 2(b) of this Agreement, Executive will be considered for a yearly discretionary performance bonus in the range of 0 – 100% with an annual target of 40% of your base salary.

Stock Options: Options to purchase 250,000 shares of OncoCyte common stock under OncoCyte’s Employee Stock Option Plan (the “Plan”). The exercise price of the options shall be the fair market value of OncoCyte’s common shares on the date of grant determined in accordance with the Plan. The date of grant of the options shall be the date on which Executive’s employment by OncoCyte commended. Executive shall execute a stock option agreement consistent with the terms of the option grant and the Plan. Options to purchase 200,000 shares shall vest and thereby become exercisable upon the attainment of DetermaVu development milestones as follows, provided, that Executive is an employee of OncoCyte or a Subsidiary on the applicable vesting date:

1.	35,000 options will vest after successful completion of a R&D Validation Study*
2.	50,000 options will vest when a Clinical Validation study begins*
3.	65,000 options will vest upon successful completion of a Clinical Validation study*
4.	50,000 options will vest upon filing of a Medicare dossier

* For the purpose of determining whether the stock option vesting milestone has been attained, the date on which the R&D Validation Study shall have been successfully completed, or a Clinical Validation Study shall be deemed to have commenced or to have been successfully completed, shall be the date on which the Senior Vice President-Research & Development, or in his absence the Chief Executive Officer, reports to the Science & Technology Committee that the particular study has been commenced or successfully completed, as applicable.

Options to purchase 50,000 shares shall vest upon the completion of six months of service as an executive officer or employee of OncoCyte or a Subsidiary.

Except to the extent that provisions of the Plan relating to termination of service as an employee apply, to the extent not exercised, the options shall expire ten years from the effective date of grant. The options shall be incentive stock options to the extent permitted by Section 422 of the Internal Revenue Code.

Paid Time Off: Executive shall be entitled to a total of twenty business days per year as “paid time off,” accrued on a biweekly pay period basis for vacation, extended sick leave, personal use; plus, an additional 24 hours of sick time per calendar year.

EXHIBIT B

California Labor Code Section 2870.

Application of provision providing that employee shall assign or offer to assign rights in invention to employer.

(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(i) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

(ii) Result from any work performed by the employee for his employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

EXHIBIT C

PRIOR MATTERS

None

EX-31

Exhibit 31

CERTIFICATIONS

I, William Annett, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of OncoCyte Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this periodic report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2018

/s/ William Annett

William Annett

Chief Executive Officer

Exhibit 31

CERTIFICATIONS

I, Mitchell Levine, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of OncoCyte Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this periodic report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2018

/s/ Mitchell Levine

Mitchell Levine

Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of OncoCyte Corporation (the “Company”) for the quarter ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William Annett, Chief Executive Officer, and Mitchell Levine, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2018

/s/ William Annett

William Annett

Chief Executive Officer

/s/ Mitchell Levine

Mitchell Levine

Chief Financial Officer

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 01, 2018
Document And Entity Information
Entity Registrant Name	OncoCyte Corp
Entity Central Index Key	0001642380
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		40,664,496
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018

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Condensed Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2018		Dec. 31, 2017
CURRENT ASSETS
Cash and cash equivalents	$ 10,821		$ 7,600
Marketable equity securities	830		760
Prepaid expenses and other current assets	245		168
Total current assets	11,896		8,528
NONCURRENT ASSETS
Intangible assets, net (Note 3)		[1]	746
Machinery and equipment, net	722		822
Deposits and other noncurrent assets	287		120
TOTAL ASSETS	12,905		10,216
CURRENT LIABILITIES
Amount due to BioTime and affiliates	2,110		2,099
Accounts payable	194		175
Accrued expenses and other current liabilities	1,044		1,042
Loan payable, current	800		800
Capital lease liability, current	471		338
Total current liabilities	4,619		4,454
NONCURRENT LIABILITIES
Loan payable, net of deferred financing costs, noncurrent	531		1,070
Capital lease liability, noncurrent	232		289
TOTAL LIABILITIES	5,382		5,813
Commitments and contingencies (see Note 9)
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000 shares authorized; none issued and outstanding
Common stock, no par value, 85,000 shares authorized; 40,664 and 31,452 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	74,343		59,968
Accumulated other comprehensive loss			(888)
Accumulated deficit	(66,820)		(54,677)
Total stockholders' equity	7,523		4,403
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 12,905		$ 10,216

[1] As part of OncoCyte's impairment assessment of its intangible assets, OncoCyte determined that these assets were impaired as of June 30, 2018 and, accordingly, OncoCyte recorded a noncash charge of $625,000 representing the net book value of those assets as of that date, and included that charge in research and development expenses for the nine months ended September 30, 2018. The impairment was primarily due to OncoCyte's decision to discontinue any further utilization of the underlying patents, patent applications and licenses since those assets are for therapeutic use and not for diagnostic use, as OncoCyte continues to devote all of its research and development resources and commercialization efforts to cancer diagnostic tests. Research and development expenses for the nine months ended September 30, 2018 include $121,000 in amortization expenses related to these intangible assets recorded prior to the impairment charge. For the three and nine months ended September 30, 2017, research and development expenses include $60,000 and $181,000 of amortization of intangible assets, respectively.

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Condensed Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock, no par value
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, no par value
Common stock, shares authorized	85,000,000	85,000,000
Common stock, shares issued	40,664,000	31,452,000
Common stock, shares outstanding	40,664,000	31,452,000

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Condensed Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
EXPENSES:
Research and development	$ 1,527	$ 1,836	$ 5,310	$ 5,667
General and administrative	1,312	4,289	4,434	7,447
Sales and marketing	184	710	1,411	1,843
Total operating expenses	3,023	6,835	11,155	14,957
Loss from operations	(3,023)	(6,835)	(11,155)	(14,957)
OTHER INCOME (EXPENSES), NET
Interest expense, net	(50)	(71)	(167)	(149)
Unrealized gain on BioTime marketable equity securities	102		71
Loss on sale of available-for-sale securities and other expenses, net			(3)	(309)
Total other income (expenses), net	52	(71)	(99)	(458)
NET LOSS	$ (2,971)	$ (6,906)	$ (11,254)	$ (15,415)
Net loss per share: basic and diluted	$ (0.07)	$ (0.22)	$ (0.30)	$ (0.52)
Weighted average common shares outstanding: basic and diluted	40,227	30,941	36,901	29,775

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Condensed Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement of Comprehensive Income [Abstract]
NET LOSS	$ (2,971)	$ (6,906)	$ (11,254)	$ (15,415)
Other comprehensive loss, net of tax:
Realized loss on sale of available-for-sale securities				293
Unrealized loss on available-for-sale securities		(110)		(284)
COMPREHENSIVE LOSS	$ (2,971)	$ (7,016)	$ (11,254)	$ (15,406)

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Condensed Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (11,254)	$ (15,415)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	317	237
Amortization of intangible assets	121	181
Amortization of prepaid maintenance	9
Impairment charge for intangible assets	625
Stock-based compensation	1,079	1,158
Loss on sale of BioTime shares	3	309
Unrealized gain on BioTime shares	(71)
Warrants issued to certain shareholders as inducement of exercise of warrants		4,074
Amortization of debt issuance costs	62	57
Other	23
Changes in operating assets and liabilities:
Amount due to BioTime and affiliates	12	(750)
Prepaid expenses and other current assets	(77)	(119)
Accounts payable and accrued liabilities	(39)	227
Net cash used in operating activities	(9,193)	(10,041)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of BioTime shares		934
Purchase of equipment	(31)	(85)
Net cash provided by (used in) investing activities	(31)	849
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options	58	465
Proceeds from exercise of warrants		7,774
Proceeds from sale of common shares	10,000
Financing costs to issue common shares	(65)
Proceeds from sale of common shares and warrants	3,592
Financing costs to issue common shares and warrants	(290)
Proceeds from issuance of loan payable, net of financing costs		1,982
Repayment of loan payable	(600)
Repayment of capital lease obligations	(250)	(179)
Net cash provided by financing activities	12,445	10,042
NET INCREASE IN CASH AND CASH EQUIVALENTS	3,221	850
CASH AND CASH EQUIVALENTS:
At beginning of the period	7,600	10,174
At end of the period	$ 10,821	$ 11,024

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Organization, Description of the Business and Liquidity

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Description of the Business and Liquidity

1. Organization, Description of the Business and Liquidity

OncoCyte Corporation (“OncoCyte”) is a developer of novel, non-invasive blood-based tests for the early detection of cancer. It is focused on developing molecular cancer diagnostics utilizing a discovery platform that focuses on identifying genetic markers that are differentially expressed in certain types of cancers. OncoCyte is currently devoting substantially all of its efforts on developing its lung cancer diagnostic test DetermaVu^TM.

OncoCyte was incorporated in 2009 in the state of California and was formerly a majority-owned subsidiary of BioTime, Inc. (“BioTime”), a publicly traded, clinical-stage, biotechnology company targeting degenerative diseases, primarily in the fields of ophthalmology, aesthetics and cell/drug delivery. Beginning on February 17, 2017, OncoCyte ceased to be a subsidiary of BioTime for financial reporting purposes when BioTime’s percentage ownership of outstanding OncoCyte common stock declined below 50% as a result of the issuance of additional OncoCyte common stock to certain investors who exercised OncoCyte stock purchase warrants (see Notes 4 and 6).

Basis of presentation

The unaudited condensed interim financial statements presented herein, and discussed below, have been prepared on a stand-alone basis in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission (the “SEC”). In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive financial statements have been condensed or omitted. The condensed balance sheet as of December 31, 2017 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in OncoCyte’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

The accompanying condensed interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of OncoCyte’s financial condition and results of operations. The condensed results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Prior to February 17, 2017, BioTime consolidated the results of OncoCyte into BioTime’s consolidated results based on BioTime’s ability to control OncoCyte’s operating and financial decisions and policies through its majority ownership of OncoCyte common stock. Beginning on February 17, 2017, BioTime’s percentage ownership of the outstanding OncoCyte common stock declined below 50%, resulting in a loss of “control” of OncoCyte under GAAP and, as a result, BioTime deconsolidated OncoCyte’s financial statements from BioTime’s consolidated financial statements. As a result of this deconsolidation, OncoCyte is no longer considered a subsidiary of BioTime under GAAP with effect from February 17, 2017. OncoCyte remains an affiliate of BioTime based on BioTime’s retained share ownership in OncoCyte, which is sufficient to allow BioTime to exert significant influence over the operations and management of OncoCyte.

To the extent OncoCyte does not have its own office and laboratory facilities, employees, or human resources for its operations, BioTime provides OncoCyte with use of its facilities and employees for administrative or operational services, as necessary, for the benefit of OncoCyte under the terms of a Shared Facilities and Services Agreement (the “Shared Facilities Agreement”). See Note 4. Accordingly, BioTime allocates expenses such as salaries and payroll related expenses incurred and paid on behalf of OncoCyte based on the amount of time that particular employees devote to OncoCyte affairs. Other expenses, such as legal, accounting, human resources, marketing, travel, and entertainment expenses are allocated to OncoCyte to the extent that those expenses are incurred by or on behalf of OncoCyte. BioTime also allocates certain overhead expenses such as facilities rent and utilities, property taxes, insurance, internet and telephone expenses based on a percentage determined by management. Overhead allocations are made based upon allocation drivers such as percentage of square feet of office or laboratory space used, and percentage of personnel devoted to OncoCyte’s operations or management. See Note 2. Management evaluates the appropriateness of the percentage allocations on a periodic basis and believes that this basis for allocation is reasonable.

OncoCyte previously granted stock options to employees of BioTime, or employees of other BioTime subsidiaries who performed services for OncoCyte, and OncoCyte recorded stock-based compensation expense in the accompanying condensed statements of operations for the services performed in the periods presented.

Liquidity

Since inception, OncoCyte has financed its operations through the sale of common stock and warrants, warrant exercises, a bank loan, and sales of BioTime common shares that it holds as marketable equity securities. BioTime also provided OncoCyte with the use of BioTime facilities and services under a Shared Facilities Agreement as described in Note 4. OncoCyte has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $66.8 million as September 30, 2018. OncoCyte expects to continue to incur operating losses and negative cash flows for the near future.

At September 30, 2018, OncoCyte had $10.8 million of cash and cash equivalents and held BioTime common shares as marketable equity securities valued at $830,000. OncoCyte believes that its current cash, cash equivalents and marketable equity securities is sufficient to carry out current operations through at least twelve months from the issuance date of the condensed interim financial statements included in this Report.

OncoCyte will need to raise additional capital to finance its operations, including the development of its cancer diagnostic tests, until such time as it is able to complete development and commercialize one or more diagnostic tests and generate sufficient revenues to cover its operating expenses. OncoCyte continues to devote substantially all of its research and development resources to the completion of the development of DetermaVu™. If OncoCyte determines to build its own integrated marketing and sales force to commercialize DetermaVu™ after development is complete, OncoCyte will need to raise additional capital for that purpose. OncoCyte may also explore a range of other commercialization options in order to reduce capital needs and the risks associated with the timelines and uncertainty for attaining the Medicare and commercial reimbursement approvals that will be essential for the successful commercialization of DetermaVu™ and any other diagnostic tests that OncoCyte may develop. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which OncoCyte might receive a royalty on sales, or through which it might form a joint venture to market DetermaVu™ and share in net revenues.

Delays in the development of DetermaVu™ could prevent OncoCyte from raising sufficient additional capital to finance the completion of development and commercial launch of DetermaVu™ or other cancer diagnostic tests. Even if OncoCyte is successful in completing the development of DetermaVu™, investors may be reluctant to provide OncoCyte with capital until DetermaVu™ is approved for reimbursement by Medicare or private payers. The unavailability or inadequacy of financing or revenues to meet future capital needs could force OncoCyte to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in the dilution of the interests of its shareholders. OncoCyte cannot assure that adequate financing will be available on favorable terms, if at all.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Research and development expenses

Research and development expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s research and development functions. Direct research and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, outside consultants and suppliers. Indirect research and development expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4), are primarily based on headcount or space occupied, as applicable, and include laboratory supplies, laboratory expenses, rent and utilities, common area maintenance, telecommunications, property taxes and insurance. Research and development costs are expensed as incurred.

General and administrative expenses

General and administrative expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s general and administrative functions. Direct general and administrative expenses consist primarily of compensation and related benefits, including stock-based compensation, for executive and corporate personnel, and professional and consulting fees. Indirect general and administrative expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4) are primarily based on headcount or space occupied, as applicable, and include costs for financial reporting and compliance, rent and utilities, common area maintenance, telecommunications, property taxes and insurance.

Sales and marketing expenses

Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade shows and booths, branding and positioning, and outside consultants. Indirect sales and marketing expenses allocated by BioTime, primarily based on OncoCyte’s headcount or space occupied, as applicable, include costs for rent and utilities, common area maintenance, telecommunications, property taxes and insurance, incurred by BioTime and allocated to us under the Shared Facilities Agreement.

Accounting for BioTime shares

OncoCyte accounts for the BioTime shares it holds as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value and reported as current assets on the condensed balance sheet based on the closing trading price of the security as of the date being presented.

Beginning on January 1, 2018, with the adoption of ASU 2016-01 discussed below, these securities are now called “marketable equity securities” and unrealized holding gains and losses on these securities are reported in the condensed statements of operations in other income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, these securities were called “available-for-sale securities” and unrealized holding gains and losses were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the condensed balance sheet. Realized gains and losses are included in other income and expenses, net, in the condensed statements of operations.

On January 1, 2018, in accordance with the adoption of ASU 2016-01, OncoCyte recorded a cumulative-effect adjustment for these available-for-sale-securities to reclassify the unrealized loss of $888,000 included in accumulated other comprehensive loss to the accumulated deficit balance. For the three and nine months ended September 30, 2018, OncoCyte recorded an unrealized gain of $102,000 and $71,000, respectively, included in other income and expenses, net, due to the increase in fair market value of the marketable equity securities from the respective balance sheet dates.

During the nine months ended September 30, 2017, OncoCyte sold 266,442 shares of BioTime stock for net proceeds of $934,000 and used those proceeds to pay down amounts owed to BioTime and affiliates (see Note 4). OncoCyte recognized a $309,000 loss from the sale of the BioTime shares for the nine months ended September 30, 2017, included in other income and expenses, net.

OncoCyte did not sell any shares of BioTime stock during the nine months ended September 30, 2018. As of September 30, 2018, OncoCyte held 353,264 BioTime common shares as marketable equity securities with a fair market value of $830,000. Any proceeds from the sale of BioTime shares may be used by OncoCyte to pay amounts owed to BioTime and its affiliates or for working capital purposes (see Note 5).

Net loss per common share

All potentially dilutive common stock equivalents are antidilutive because OncoCyte reported a net loss for all periods presented. The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)				(unaudited)
	2018		2017		2018		2017
Stock options		3,101		944		3,101		945
Warrants		4,035		2,779		4,035		2,779

Recently Issued Accounting Pronouncements

Certain recently issued accounting pronouncements applicable to OncoCyte that are not yet effective are disclosed in OncoCyte’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

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Selected Balance Sheet Components

9 Months Ended

Sep. 30, 2018

Balance Sheet Related Disclosures [Abstract]

Selected Balance Sheet Components

3. Selected Balance Sheet Components

Accrued expenses and other current liabilities

As of September 30, 2018 and December 31, 2017, accrued expenses and other current liabilities were comprised of the following (in thousands):

	September 30, 2018 (unaudited)		December 31, 2017
Accrued compensation	$	604	$	636
Accrued vendors and other expenses		440		406
Accrued expenses and other current liabilities	$	1,044	$	1,042

Intangible assets, net

As of September 30, 2018 and December 31, 2017, intangible assets, consisting primarily of acquired patents, patent applications, and licenses to use certain patents, were as follows (in thousands):

	September 30, 2018			December 31, 2017
	(unaudited)(1)
Intangible assets	$	625		$	2,419
Accumulated amortization		(625	)		(1,673	)
Intangible assets, net	$	-		$	746

⁽¹⁾ As part of OncoCyte’s impairment assessment of its intangible assets, OncoCyte determined that these assets were impaired as of June 30, 2018 and, accordingly, OncoCyte recorded a noncash charge of $625,000 representing the net book value of those assets as of that date, and included that charge in research and development expenses for the nine months ended September 30, 2018. The impairment was primarily due to OncoCyte’s decision to discontinue any further utilization of the underlying patents, patent applications and licenses since those assets are for therapeutic use and not for diagnostic use, as OncoCyte continues to devote all of its research and development resources and commercialization efforts to cancer diagnostic tests. Research and development expenses for the nine months ended September 30, 2018 include $121,000 in amortization expenses related to these intangible assets recorded prior to the impairment charge. For the three and nine months ended September 30, 2017, research and development expenses include $60,000 and $181,000 of amortization of intangible assets, respectively.

Machinery and equipment, net

As of September 30, 2018 and December 31, 2017, machinery and equipment, primarily comprised of assets purchased under capital leases discussed in Note 9, were as follows (in thousands):

	September 30, 2018			December 31, 2017
	(unaudited)
Machinery and equipment	$	1,549		$	1,479
Accumulated depreciation		(827	)		(657	)
Machinery and equipment, net	$	722		$	822

Depreciation expense amounted to $110,000 and $93,000 for the three months ended September 30, 2018 and 2017, and $317,000 and $237,000 for the nine months ended September 30, 2018 and 2017, respectively. During the nine months ended September 30, 2018, OncoCyte wrote off $150,000 in fully depreciated machinery and equipment with a corresponding adjustment to accumulated depreciation.

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Related Party Transactions

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Related Party Transactions

4. Related Party Transactions

Shared Facilities Agreement

On October 8, 2009, OncoCyte and BioTime executed the Shared Facilities Agreement. Under the terms of the Shared Facilities Agreement, BioTime will allow OncoCyte to use its premises and equipment located at Alameda, California for the purpose of conducting business. BioTime will also provide accounting, billing, bookkeeping, payroll, treasury, payment of accounts payable, and other similar administrative services to OncoCyte. BioTime may also provide the services of attorneys, accountants, and other professionals who may also provide professional services to BioTime and its other subsidiaries. BioTime may also provide OncoCyte with the services of its laboratory and research personnel, including BioTime employees and contractors, for the performance of research and development work for OncoCyte at the premises.

BioTime charges OncoCyte a Use Fee for services received and usage of facilities, equipment, and supplies. For each billing period, BioTime prorates and allocates costs incurred, as applicable, to OncoCyte, such costs include services of Bio Time employees, equipment, insurance, lease, professional, software, supplies and utilities. Allocation depends on key cost drivers including actual documented use, square footage of facilities used, time spent, costs incurred by or for OncoCyte, or upon proportionate usage by BioTime and OncoCyte, as reasonably estimated by BioTime (collectively “Use Fees”). BioTime, at its discretion, has the right to charge OncoCyte a 5% markup on such allocated costs.

10

The Use Fee is determined and invoiced to OncoCyte on a quarterly basis for each calendar quarter of each calendar year. If the Shared Facilities Agreement terminates prior to the last day of a billing period, the Use Fee will be determined for the number of days in the billing period elapsed prior to the termination of the Shared Facilities Agreement. Each invoice will be payable in full by OncoCyte within 30 days after receipt. Any invoice, or portion thereof, not paid in full when due will bear interest at the rate of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime employees from OncoCyte funds available for such purpose, rather than from the unavailability of sufficient funds legally available for payment or from an act, omission, or delay by any employee or agent of OncoCyte. Through September 30, 2018, BioTime has not charged OncoCyte any interest.

In addition to the Use Fees, OncoCyte will reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase of office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte, provided that invoices documenting such costs are delivered to OncoCyte with each invoice for the Use Fee. BioTime has no obligation to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte, and if any such supplies, goods, materials or services are obtained for OncoCyte, BioTime may arrange for the suppliers thereof to invoice OncoCyte directly.

The Shared Facilities Agreement will remain in effect, unless either party gives the other party written notice stating that the Shared Facilities Agreement will terminate on December 31 of that year, or unless the agreement otherwise is terminated under another provision of the agreement.

In the aggregate, Use Fees charged to OncoCyte by BioTime are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)				(unaudited)
	2018		2017		2018		2017
Research and development	$	230	$	229	$	667	$	859
General and administrative		105		57		257		214
Sales and marketing		57		104		251		104
Total use fees	$	392	$	390	$	1,175	$	1,177

As of September 30, 2018 and December 31, 2017, OncoCyte had $2.1 million outstanding and payable to BioTime and affiliates included in current liabilities on account of Use Fees under the Shared Facilities Agreement. Since those amounts are due and payable within 30 days of being invoiced, the payables are classified as current liabilities for all periods presented.

The minimum fixed payments due under the Shared Facilities Agreement are approximately $131,000 per month.

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Loan Payable to Silicon Valley Bank

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Loan Payable to Silicon Valley Bank

5. Loan Payable to Silicon Valley Bank

On February 21, 2017, OncoCyte entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”) pursuant to which OncoCyte borrowed $2 million on March 23, 2017. Payments of interest only on the principal balance were due monthly from the draw date through October 31, 2017, and, beginning on November 1, 2017, monthly payments of principal of approximately $67,000 plus interest are due and payable. The outstanding principal balance of the loan bears interest at a stated floating annual interest rate equal to the greater of (i) three-quarters of one percent (0.75%) above the prime rate or (ii) four and one-quarter percent (4.25%). As of September 30, 2018, the latest published prime rate plus 0.75% was 6.0% per annum.

The outstanding principal amount plus accrued interest will be due and payable to the Bank at maturity on April 1, 2020. At maturity, OncoCyte will also pay the Bank an additional final payment fee of 5.8% of the original principal borrowed. OncoCyte accrued the $116,000 final payment fee included in the loan payable as a deferred financing cost on the March 23, 2017 draw date.

OncoCyte may prepay in full the outstanding principal balance at any time, subject to a prepayment fee equal to 2.0% of the outstanding principal balance if prepaid on or before February 21, 2019, or 1.0% of the outstanding principal balance if prepaid after February 21, 2019. Any amounts borrowed and repaid may not be reborrowed. There are no amounts available to be borrowed on the Loan Agreement.

The outstanding principal amount of the loan, with interest accrued, the final payment fee, and the prepayment fee may become due and payable prior to the applicable maturity date if an “Event of Default” as defined in the Loan Agreement occurs and is not cured within any applicable cure period. Upon the occurrence and during the continuance of an Event of Default, all obligations due to the Bank will bear interest at a rate per annum which is 5% above the then applicable interest rate. An Event of Default includes, among other events, failure to pay interest and principal when due, material adverse changes, which include a material adverse change in OncoCyte’s business, operations, or condition (financial or otherwise), failure to provide the bank with timely financial statements and copies of filings with the Securities and Exchange Commission, as required, legal judgments or pending or threatened legal actions of $50,000 or more, insolvency, and delisting from the NYSE American. OncoCyte’s obligations under the Loan Agreement are collateralized by substantially all of its assets other than intellectual property such as patents and trade secrets that OncoCyte owns. Accordingly, if an Event of Default were to occur and not be cured, the Bank could foreclose on its security interest in the collateral. OncoCyte was in compliance with the Loan Agreement as of the filing date of this Report.

Under the provisions of the Loan Agreement, as consented by the Bank on October 26, 2017, any proceeds received by OncoCyte from sales of BioTime shares may be used by OncoCyte to fund its operations.

Bank Warrants

On February 21, 2017, and in conjunction with the $2.0 million becoming available under the Loan Agreement, OncoCyte issued common stock purchase warrants to the Bank (the “Bank Warrants”) entitling the Bank to purchase shares of OncoCyte common stock in tranches related to the availability and borrowing of loan funds under the Loan Agreement. In conjunction with the availability of the loan, the Bank was issued warrants to purchase 8,247 shares of OncoCyte common stock at an exercise price of $4.85 per share, through February 21, 2027. On March 23, 2017, in conjunction with borrowing $2 million, the Bank was issued warrants to purchase an additional 7,321 shares at an exercise price of $5.46 per share, through March 23, 2027. The Bank may elect to exercise the Bank Warrants on a “cashless exercise” basis and receive a number of shares determined by multiplying the number of shares for which the applicable tranche is being exercised by (A) the excess of the fair market value of the common stock over the applicable exercise price, divided by (B) the fair market value of the common stock. The fair market value of the common stock will be the last closing or sale price on a national securities exchange, interdealer quotation system, or over-the-counter market.

The Bank Warrants are classified as equity since, among other factors, they are not mandatorily redeemable, cannot be settled in cash or other assets and require settlement by issuing a fixed number of shares of common stock of OncoCyte. OncoCyte determined the fair value of the Bank Warrants using the Black-Scholes option pricing model to be approximately $62,000, which was recorded as a deferred financing cost against the loan payable balance. Aggregate deferred financing costs of $196,000, recorded against the loan payable balance, are amortized to interest expense over the term of the loan using the effective interest method. As of September 30, 2018, unamortized deferred financing costs were $51,000.

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Shareholders' Equity

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Shareholders' Equity

6. Shareholders’ Equity

Preferred Stock

OncoCyte is authorized to issue 5,000,000 shares of no par value preferred stock. As of September 30, 2018, no preferred shares were issued or outstanding.

Common Stock

OncoCyte has up to 85,000,000 shares of no par value common stock authorized.

On March 28, 2018, OncoCyte entered into a securities purchase agreement with two accredited investors. The agreement provides for the private placement of 7,936,508 shares of OncoCyte’s common stock for $1.26 per share, for total gross proceeds of $10.0 million before deducting offering expenses, $8.0 million of which was received in March 2018 and $2.0 million in May 2018. The agreement contains certain registration rights. The investors are Broadwood Partners, L.P. and George Karfunkel, who beneficially own more than 5% of OncoCyte’s outstanding common stock.

On July 31, 2018, OncoCyte raised approximately $3.3 million in net proceeds from the sale of 1,256,118 shares of its common stock and warrants, after offering expenses (the “July 2018 Offering”). The shares of common stock and warrants were sold in “Units” at a purchase price of $2.86 per Unit, with each Unit consisting of one share of common stock and one warrant to purchase one share of its common stock (“July 2018 Offering Warrants”). The Units of common stock and warrants were sold in a registered direct offering. OncoCyte’s Chief Executive Officer, the Chief Financial Officer, the Senior Vice President of Research and Development, and certain members of OncoCyte’s Board of Directors purchased Units in the July 2018 Offering on the same terms as other investors.

As of September 30, 2018, and December 31, 2017, OncoCyte had 40,664,496 and 31,451,558 issued and outstanding common shares, respectively.

July 2018 Offering Warrants

Each July 2018 Offering Warrant has an initial exercise price of $3.00 per share, will become exercisable six months after the date of issuance and will expire five years from the date it becomes exercisable. Subject to limited exceptions, a holder of the warrants will not have the right to exercise any portion of such securities if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of OncoCyte’s common stock outstanding immediately after the exercise.

The July 2018 Offering Warrants are not mandatorily redeemable, cannot be settled in cash or other assets and require settlement by issuing a fixed number of shares of common stock of OncoCyte. The July 2018 Offering Warrants may be exercised on a net “cashless exercise” basis, meaning that the value of a portion of warrant shares may be used to pay the exercise price (rather than payment in cash), if a registration statement for the July 2018 Offering Warrants and underlying shares of common stock is not effective under the Securities Act of 1933, as amended (the “Securities Act”) or a prospectus in the registration statement is not available for the issuance of shares upon the exercise of the July 2018 Offering Warrants. The exercise price and the number of warrant shares will be adjusted to account for certain transactions, including stock splits, dividends paid in common stock, combinations or reverse splits of common stock, or reclassifications of common stock.

Under certain provisions of the July 2018 Offering Warrants, in the event of a Fundamental Transaction, as defined in the July 2018 Offering Warrants, OncoCyte will use reasonable best efforts for the acquirer, or any successor entity other than OncoCyte, to assume the July 2018 Offering Warrants. If the acquirer does not assume the OncoCyte July 2018 Offering Warrants, and provided that the Fundamental Transaction is not within OncoCyte’s control, including not approved by OncoCyte’s Board of Directors, then the holders of the July 2018 Offering Warrants shall solely be entitled to receive, at a defined Black Scholes value, the same type or form of consideration, and in the same proportion, that is being offered and paid to all the holders of OncoCyte common stock in connection with the Fundamental Transaction.

OncoCyte considered the guidance in ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. This liability classification guidance also applies to financial instruments that may require cash or other form of settlement for transactions outside of the company’s control and, in which the form of consideration to the warrant holder may not be the same as to all other shareholders in connection with the transaction. However, if a transaction is not within the company’s control but the holder of the financial instrument can solely receive the same type or form of consideration as is being offered to all the shareholders in the transaction, then equity classification of the financial instrument is not precluded, if all other applicable equity classification criteria are met.

Based on the above guidance, OncoCyte has met all the equity classification criteria for the July 2018 Offering Warrants and has classified those warrants as equity.

Issuance of common stock and warrants

On August 29, 2016, OncoCyte sold an aggregate of 3,246,153 immediately separable units, with each unit consisting of one share of OncoCyte common stock and one warrant to purchase one share of OncoCyte common stock (the “2016 Warrants”), at a price of $3.25 per unit (the “Offering”). The sales were made pursuant to the terms and conditions of certain Purchase Agreements between OncoCyte and the purchasers in the Offering. OncoCyte received $9.8 million in net proceeds after discounts, commissions and expenses from the Offering.

2016 Warrants and New Warrants

The 2016 Warrants have an exercise price of $3.25 per Warrant Share, and may be exercised for five years from October 17, 2016, the date the 2016 Warrants became exercisable. The 2016 Warrants may be exercised on a net “cashless exercise” basis, meaning that the value of a portion of Warrant Shares may be used to pay the exercise price (rather than payment in cash), in certain circumstances, including if the Resale Registration Statement is not effective when and as required by the Purchase Agreements. The exercise price and the number of Warrant Shares will be adjusted to account for certain transactions, including stock splits, dividends paid in common stock, combinations or reverse splits of common stock, or reclassifications of common stock.

Under certain provisions of the 2016 Warrants, in the event of a Fundamental Transaction, as defined in the 2016 Warrants, OncoCyte will use reasonable best efforts for the acquirer, or any successor entity other than OncoCyte, to assume the 2016 Warrants. If the acquirer does not assume the OncoCyte Offering Warrant obligations, then the acquirer shall pay the holders of 2016 Warrants an amount equal to the aggregate value equal to the Black Scholes Value, as defined in the 2016 Warrants. The payment of the Black Scholes Value shall be made in cash or such other consideration as the acquirer paid to the other OncoCyte shareholders in the Fundamental Transaction.

OncoCyte is not required to net cash settle the 2016 Warrants under any circumstance. OncoCyte considered the guidance in ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. Since solely an acquirer, and not OncoCyte itself, may be required to net cash settle the 2016 Warrants in the event of a Fundamental Transaction, the 2016 Warrants are classified as equity.

On February 17, 2017, certain OncoCyte investors exercised 2016 Warrants to acquire 625,000 shares of common stock at an exercise price of $3.25 per warrant for total exercise cash proceeds of $2.0 million (the “Warrant exercise”). In order to induce the investors to complete the Warrant exercise and, in conjunction with the Warrant exercise, OncoCyte issued new warrants to those investors (the “New Warrants”). Certain investors received New Warrants to purchase 200,000 shares of common stock at an exercise price of $5.50 per share and one investor received New Warrants to purchase 212,500 shares of common stock at an exercise of $3.25 per share. The New Warrants are exercisable at any time for five years from February 17, 2017.

The New Warrants are classified as equity as their terms are consistent with the 2016 Warrants. For financial reporting purposes, the issuance of the New Warrants was treated as an inducement offer to certain shareholders to exercise their 2016 Warrants. Accordingly, the fair value of the New Warrants, determined using the Black-Scholes option pricing model, approximating $1.1 million was recognized by OncoCyte as a noncash charge to shareholder expense included in general and administrative expenses and a corresponding increase to equity on February 17, 2017, the issuance date.

On July 21, 2017, OncoCyte entered into three forms of Warrant Exercise Agreements (each, an “Exercise Agreement”) with certain holders of the 2016 Warrants providing for the cash exercise of their 2016 Warrants and the issuance of new warrants (the “July 2017 Warrants”) to them.

Pursuant to one form of Exercise Agreement, two investors exercised 2016 Warrants to purchase 226,923 shares of OncoCyte’s common stock at the exercise price of $3.25 per share, and OncoCyte issued to them July 2017 Warrants expiring five years from the date of issue, to purchase 226,923 shares of common stock at an exercise price of $5.50 per share.

Pursuant to a second form of Exercise Agreement, one investor exercised 2016 Warrants to purchase 540,000 shares of common stock at the exercise price of $3.25 per share, and OncoCyte issued to the investor a July 2017 Warrant, expiring five years from the date of issue, to purchase 270,000 shares of common stock at an exercise price of $3.25 per share. In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon exercise of the July 2017 Warrant and to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise Agreement.

Pursuant to a third form of Exercise Agreement, one investor exercised 2016 Warrants to purchase 1,000,000 shares of common stock at the exercise price of $3.25 per share, and OncoCyte issued to the investor (i) a July 2017 Warrant, expiring two years from the date of issue, to purchase 500,000 shares of common stock at an exercise price of $5.50 per share, and (ii) a July 2017 Warrant, expiring two years from the date of issue, to purchase 500,000 shares of common stock at an exercise price of $3.25 per share. In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon exercise of the July 2017 Warrant and to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise Agreement.

In the aggregate, upon the exercise of 2016 Warrants under the Exercise Agreements, OncoCyte received gross proceeds of approximately $5.74 million and issued July 2017 Warrants to purchase 1,496,923 shares of common stock at a weighted average price of $4.34 per share.

The July 2017 Warrants are classified as equity as their terms are consistent with the 2016 Warrants. For financial reporting purposes, the issuance of the July 2017 Warrants is treated as an inducement offer to certain investors to exercise their 2016 Warrants. Accordingly, the fair value of the July 2017 Warrants, determined to be approximately $3.0 million using the Black-Scholes option pricing model, was recorded as a noncash charge to shareholder expense included in general and administrative expenses, and a corresponding increase was recorded to equity on July 21, 2017, the issuance date.

As of September 30, 2018, OncoCyte has an aggregate of 4,035,339 warrants issued and outstanding, including the Bank Warrants disclosed in Note 5, at exercise prices ranging from $3.00 to $5.50 per warrant.

Stock option exercises

During the nine months ended September 30, 2018, 20,312 shares of common stock were issued upon the exercise of stock options, from which OncoCyte received approximately $58,000 in cash proceeds.

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Stock-based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

7. Stock-based Compensation

Options Granted

OncoCyte had a 2010 Stock Option Plan (the “2010 Plan”) under which 5,200,000 shares of common stock were authorized for the grant of stock options or the sale of restricted stock.

On August 27, 2018, OncoCyte shareholders approved a new Equity Incentive Plan (the “2018 Incentive Plan”) to replace the 2010 Plan. In adopting the 2018 Incentive Plan, OncoCyte terminated the 2010 Plan and will not grant any additional stock options or sell any stock under restricted stock purchase agreements under the 2010 Plan; however, stock options issued under the 2010 Plan will continue in effect in accordance with their terms and the terms of the 2010 Plan until the exercise or expiration of the individual options.

The 2018 Incentive Plan reserved 5,000,000 shares of common stock for the grant of stock options or the sale of restricted stock (“Restricted Stock”) or for the settlement of hypothetical units issued with reference to common stock (“Restricted Stock Units”). OncoCyte may also grant stock appreciation rights (“SARs”) under the 2018 Incentive Plan.

A summary of OncoCyte’ 2010 Plan activity and related information follows (in thousands except weighted average exercise price):

Options	Shares Available for Grant (unaudited)			Number of Options Outstanding (unaudited)			Weighted Average Exercise Price (unaudited)
Balance at December 31, 2017		1,384			3,390		$	3.25
Options granted		(1,446	)		1,446			2.39
Options exercised		-			(20	)		2.84
Options forfeited, canceled and expired		138			(276	)		4.29
Termination of the 2010 Plan		(76	)		-			-
Balance at September 30, 2018		-			4,540		$	2.94
Exercisable at September 30, 2018					2,334		$	2.74

Of the stock options granted under the 2010 Plan during the nine months ended September 30, 2018, OncoCyte granted 1,318,948 stock options to employees and consultants, with exercise prices ranging from $2.35 per share to $3.15 per share, that will vest in increments upon the attainment of specified performance conditions related to the development of DetermaVu™ and obtaining Medicare reimbursement coverage for that test. As of September 30, 2018, none of those vesting conditions were met and, accordingly, no stock-based compensation expense was recorded during the three and nine months ended September 30, 2018 with regard to those stock options.

A summary of OncoCyte’ 2018 Incentive Plan activity and related information follows (in thousands except weighted average exercise price):

Options	Shares Available for Grant (unaudited)			Number of Options Outstanding (unaudited)		Weighted Average Exercise Price (unaudited)
Balance at December 31, 2017		-			-	$	-
Approval of 2018 Incentive Plan		5,000			-		-
Options granted		(230	)		230		2.40
Balance at September 30, 2018		4,770			230	$	2.40
Exercisable at September 30, 2018					-		-

OncoCyte recorded stock-based compensation expense in the following categories on the accompanying condensed statements of operations for the three and nine months ended September 30, 2018 and 2017 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018			2017
Research and development	$	17	$	162	$	(5	)(1)	$	530
General and administrative		277		245		851			572
Sales and marketing		51		55		233			56
Total stock-based compensation expense	$	345	$	462	$	1,079		$	1,158

⁽¹⁾The negative stock-based compensation expense is primarily attributable to the decrease in the OncoCyte stock price from $4.65 per share at December 31, 2017 to $2.50 per share at September 30, 2018 for consultant stock options which require mark-to-market adjustment each quarter for unvested shares.

The assumptions that were used to calculate the grant date fair value of OncoCyte’s employee and non-employee stock option grants for the three and nine months ended September 30, 2018 and 2017 were as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Expected life (in years)		7.71			6.08			9.07			6.17
Risk-free interest rates		2.84	%		1.83	%		2.93	%		2.00	%
Volatility		78.94	%		75.63	%		81.13	%		63.49	%
Dividend yield		-	%		-	%		-	%		-	%

With the adoption of ASU 2016-09, effectively January 1, 2017, forfeitures are accounted for as they occur instead of based on the number of awards that were expected to vest.

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If OncoCyte had made different assumptions, its stock-based compensation expense and net loss for the three and nine months ended September 30, 2018 and 2017 may have been significantly different.

OncoCyte does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

The provision for income taxes is determined using an estimated annual effective tax rate. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where OncoCyte conducts business. Due to losses incurred for all periods presented, OncoCyte did not record any provision or benefit for income taxes.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. OncoCyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies

OncoCyte has certain commitments other than those under the Shared Facilities agreement discussed in Note 4.

Master Lease Line Agreement

On April 7, 2016, OncoCyte entered into a Master Lease Line Agreement (“Lease Agreement”) with an unrelated financing company for the purchase and financing of certain equipment. OncoCyte may use up to $881,000, as amended, for purchases of equipment financed under the Lease Agreement through April 2017. Each lease schedule OncoCyte enters into under Lease Agreement must be in minimum increments of $50,000 each with a 36-month lease term, collateralized by the equipment financed under the lease schedule. Each lease schedule requires a deposit for the first and last payment under that schedule. Monthly payments will be determined using a lease factor approximating an interest rate of 10% per annum. At the end of each lease schedule under Lease Agreement, assuming no default has occurred, OncoCyte may either return the equipment financed under the schedule for a restocking fee of 7.5% of the original cost of the equipment or purchase the equipment from the financing company at a fair value not less than 12.5% of the original cost of the equipment.

On April 7, 2016, OncoCyte entered into a lease schedule under the Lease Agreement (“Lease Schedule No. 1”) for certain equipment costing approximately $435,000 applied against the lease line, requiring payments of $14,442 per month over 36 months. In December 2016, OncoCyte entered into another lease schedule (“Lease Schedule No. 2”) for certain equipment costing approximately $161,000, requiring payments of $5,342 per month over 36 months. In April 2017, OncoCyte entered into a third and final lease schedule (“Lease Schedule No. 3”) for certain equipment costing approximately $285,000, requiring payments of $9,462 per month over 36 months. After this last tranche, the Lease Agreement was closed and has no remaining financing available.

OncoCyte has accounted for these leases as a capital lease in accordance with ASC 840, Leases, due to the net present value of the payments under the lease approximating the fair value of the equipment at inception of the lease. The payments under the lease schedules will be amortized to capital lease obligations and interest expense using the interest method at an imputed rate of approximately 10% per annum.

On May 11, 2017, OncoCyte entered into another Master Lease Line Agreement (“Lease Agreement No. 2”) with the same finance company above and similar terms. OncoCyte may use up to $900,000 for purchases of equipment financed under Lease Agreement No. 2 through October 28, 2018.

On July 2, 2018, OncoCyte entered into a lease schedule under the Lease Agreement No. 2 for certain equipment costing approximately $209,000, requiring payments of $6,709 per month over 36 months, and a $116,000 prepaid maintenance contract for the duration of the lease of the equipment requiring 12 monthly payments of $10,238, including imputed interest. After the financing of this equipment and the prepaid maintenance contract, there was approximately $502,000 of remaining financing available under Lease Agreement No. 2 as of September 30, 2018.

Litigation – General

OncoCyte will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and other matters. When OncoCyte is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, OncoCyte will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, OncoCyte discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. OncoCyte is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.

Employment Contracts

OncoCyte has entered into employment contracts with certain executive officers. Under the provisions of the contracts, OncoCyte may be required to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.

Indemnification

In the normal course of business, OncoCyte may provide indemnification of varying scope under OncoCyte’s agreements with other companies or consultants, typically OncoCyte’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, OncoCyte will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of OncoCyte’s diagnostic tests. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to OncoCyte’s diagnostic tests. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments OncoCyte could be required to make under these indemnification agreements will generally not be subject to any specified maximum amounts. Historically, OncoCyte has not been subject to any claims or demands for indemnification. OncoCyte also maintains various liability insurance policies that limit OncoCyte’s financial exposure. As a result, OncoCyte management believes that the fair value of these indemnification agreements is minimal. Accordingly, OncoCyte has not recorded any liabilities for these agreements as of September 30, 2018 and December 31, 2017.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Research and Development Expenses

Research and development expenses

Research and development expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s research and development functions. Direct research and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, outside consultants and suppliers. Indirect research and development expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4), are primarily based on headcount or space occupied, as applicable, and include laboratory supplies, laboratory expenses, rent and utilities, common area maintenance, telecommunications, property taxes and insurance. Research and development costs are expensed as incurred.

General and Administrative Expenses

General and administrative expenses

General and administrative expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s general and administrative functions. Direct general and administrative expenses consist primarily of compensation and related benefits, including stock-based compensation, for executive and corporate personnel, and professional and consulting fees. Indirect general and administrative expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4) are primarily based on headcount or space occupied, as applicable, and include costs for financial reporting and compliance, rent and utilities, common area maintenance, telecommunications, property taxes and insurance.

Sales and Marketing Expenses

Sales and marketing expenses

Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade shows and booths, branding and positioning, and outside consultants. Indirect sales and marketing expenses allocated by BioTime, primarily based on OncoCyte’s headcount or space occupied, as applicable, include costs for rent and utilities, common area maintenance, telecommunications, property taxes and insurance, incurred by BioTime and allocated to us under the Shared Facilities Agreement.

Accounting for BioTime Shares

Accounting for BioTime shares

OncoCyte accounts for the BioTime shares it holds as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value and reported as current assets on the condensed balance sheet based on the closing trading price of the security as of the date being presented.

Beginning on January 1, 2018, with the adoption of ASU 2016-01 discussed below, these securities are now called “marketable equity securities” and unrealized holding gains and losses on these securities are reported in the condensed statements of operations in other income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, these securities were called “available-for-sale securities” and unrealized holding gains and losses were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the condensed balance sheet. Realized gains and losses are included in other income and expenses, net, in the condensed statements of operations.

On January 1, 2018, in accordance with the adoption of ASU 2016-01, OncoCyte recorded a cumulative-effect adjustment for these available-for-sale-securities to reclassify the unrealized loss of $888,000 included in accumulated other comprehensive loss to the accumulated deficit balance. For the three and nine months ended September 30, 2018, OncoCyte recorded an unrealized gain of $102,000 and $71,000, respectively, included in other income and expenses, net, due to the increase in fair market value of the marketable equity securities from the respective balance sheet dates.

During the nine months ended September 30, 2017, OncoCyte sold 266,442 shares of BioTime stock for net proceeds of $934,000 and used those proceeds to pay down amounts owed to BioTime and affiliates (see Note 4). OncoCyte recognized a $309,000 loss from the sale of the BioTime shares for the nine months ended September 30, 2017, included in other income and expenses, net.

OncoCyte did not sell any shares of BioTime stock during the nine months ended September 30, 2018. As of September 30, 2018, OncoCyte held 353,264 BioTime common shares as marketable equity securities with a fair market value of $830,000. Any proceeds from the sale of BioTime shares may be used by OncoCyte to pay amounts owed to BioTime and its affiliates or for working capital purposes (see Note 5).

Net Loss Per Common Share

Net loss per common share

All potentially dilutive common stock equivalents are antidilutive because OncoCyte reported a net loss for all periods presented. The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)				(unaudited)
	2018		2017		2018		2017
Stock options		3,101		944		3,101		945
Warrants		4,035		2,779		4,035		2,779

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Certain recently issued accounting pronouncements applicable to OncoCyte that are not yet effective are disclosed in OncoCyte’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Common Stock Equivalents Excluded from Computation of Diluted Net Loss Per Share of Common Stock

The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)				(unaudited)
	2018		2017		2018		2017
Stock options		3,101		944		3,101		945
Warrants		4,035		2,779		4,035		2,779

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Selected Balance Sheet Components (Tables)

9 Months Ended

Sep. 30, 2018

Balance Sheet Related Disclosures [Abstract]

Schedule of Accrued Expenses and Other Current Liabilities

As of September 30, 2018 and December 31, 2017, accrued expenses and other current liabilities were comprised of the following (in thousands):

	September 30, 2018 (unaudited)		December 31, 2017
Accrued compensation	$	604	$	636
Accrued vendors and other expenses		440		406
Accrued expenses and other current liabilities	$	1,044	$	1,042

Schedule of Intangible Assets, Net

As of September 30, 2018 and December 31, 2017, intangible assets, consisting primarily of acquired patents, patent applications, and licenses to use certain patents, were as follows (in thousands):

	September 30, 2018			December 31, 2017
	(unaudited)(1)
Intangible assets	$	625		$	2,419
Accumulated amortization		(625	)		(1,673	)
Intangible assets, net	$	-		$	746

⁽¹⁾ As part of OncoCyte’s impairment assessment of its intangible assets, OncoCyte determined that these assets were impaired as of June 30, 2018 and, accordingly, OncoCyte recorded a noncash charge of $625,000 representing the net book value of those assets as of that date, and included that charge in research and development expenses for the nine months ended September 30, 2018. The impairment was primarily due to OncoCyte’s decision to discontinue any further utilization of the underlying patents, patent applications and licenses since those assets are for therapeutic use and not for diagnostic use, as OncoCyte continues to devote all of its research and development resources and commercialization efforts to cancer diagnostic tests. Research and development expenses for the nine months ended September 30, 2018 include $121,000 in amortization expenses related to these intangible assets recorded prior to the impairment charge. For the three and nine months ended September 30, 2017, research and development expenses include $60,000 and $181,000 of amortization of intangible assets, respectively.

Schedule of Machinery and Equipment, Net

As of September 30, 2018 and December 31, 2017, machinery and equipment, primarily comprised of assets purchased under capital leases discussed in Note 9, were as follows (in thousands):

	September 30, 2018			December 31, 2017
	(unaudited)
Machinery and equipment	$	1,549		$	1,479
Accumulated depreciation		(827	)		(657	)
Machinery and equipment, net	$	722		$	822

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Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Schedule of Aggregate Use of Fees Charged

In the aggregate, Use Fees charged to OncoCyte by BioTime are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)				(unaudited)
	2018		2017		2018		2017
Research and development	$	230	$	229	$	667	$	859
General and administrative		105		57		257		214
Sales and marketing		57		104		251		104
Total use fees	$	392	$	390	$	1,175	$	1,177

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Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Categories of Stock-based Compensation Expense

OncoCyte recorded stock-based compensation expense in the following categories on the accompanying condensed statements of operations for the three and nine months ended September 30, 2018 and 2017 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018			2017
Research and development	$	17	$	162	$	(5	)(1)	$	530
General and administrative		277		245		851			572
Sales and marketing		51		55		233			56
Total stock-based compensation expense	$	345	$	462	$	1,079		$	1,158

⁽¹⁾The negative stock-based compensation expense is primarily attributable to the decrease in the OncoCyte stock price from $4.65 per share at December 31, 2017 to $2.50 per share at September 30, 2018 for consultant stock options which require mark-to-market adjustment each quarter for unvested shares.

Schedule of Assumptions Used to Calculate Fair Value of Stock Options

The assumptions that were used to calculate the grant date fair value of OncoCyte’s employee and non-employee stock option grants for the three and nine months ended September 30, 2018 and 2017 were as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Expected life (in years)		7.71			6.08			9.07			6.17
Risk-free interest rates		2.84	%		1.83	%		2.93	%		2.00	%
Volatility		78.94	%		75.63	%		81.13	%		63.49	%
Dividend yield		-	%		-	%		-	%		-	%

2010 Plan Activity [Member]

Summary of Stock Option Activity

A summary of OncoCyte’ 2010 Plan activity and related information follows (in thousands except weighted average exercise price):

Options	Shares Available for Grant (unaudited)			Number of Options Outstanding (unaudited)			Weighted Average Exercise Price (unaudited)
Balance at December 31, 2017		1,384			3,390		$	3.25
Options granted		(1,446	)		1,446			2.39
Options exercised		-			(20	)		2.84
Options forfeited, canceled and expired		138			(276	)		4.29
Termination of the 2010 Plan		(76	)		-			-
Balance at September 30, 2018		-			4,540		$	2.94
Exercisable at September 30, 2018					2,334		$	2.74

2018 Incentive Plan Activity [Member]

Summary of Stock Option Activity

A summary of OncoCyte’ 2018 Incentive Plan activity and related information follows (in thousands except weighted average exercise price):

Options	Shares Available for Grant (unaudited)			Number of Options Outstanding (unaudited)		Weighted Average Exercise Price (unaudited)
Balance at December 31, 2017		-			-	$	-
Approval of 2018 Incentive Plan		5,000			-		-
Options granted		(230	)		230		2.40
Balance at September 30, 2018		4,770			230	$	2.40
Exercisable at September 30, 2018					-		-

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Organization, Description of the Business and Liquidity (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Feb. 17, 2017	Dec. 31, 2016
Schedule of Equity Method Investments [Line Items]
Equity ownership percentage	4.99%
Accumulated deficit	$ 66,820	$ 54,677
Cash and cash equivalents	10,821	$ 7,600	$ 11,024		$ 10,174
BioTime shares held as available-for-sale securities, at fair value	830
BioTime, Inc. [Member]
Schedule of Equity Method Investments [Line Items]
Equity ownership percentage				50.00%
BioTime shares held as available-for-sale securities, at fair value	$ 830

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Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands		3 Months Ended	9 Months Ended
	Jan. 02, 2018	Sep. 30, 2018	Sep. 30, 2018	Sep. 30, 2017
Subsidiary, Sale of Stock [Line Items]
Available-for-sale securities, gross unrealized loss		$ 102	$ 71
Proceeds from sale of common stock			10,000
Shares held as available-for-sale securities, at fair value		$ 830	$ 830
BioTime, Inc. [Member]
Subsidiary, Sale of Stock [Line Items]
Number of shares sold during period				266,442
Proceeds from sale of common stock				$ 934
Realized loss on sale of BioTime shares				$ 309
Shares held as available-for-sale securities, shares		353,264	353,264
Shares held as available-for-sale securities, at fair value		$ 830	$ 830
Accounting Standards Update 2016-01 [Member]
Subsidiary, Sale of Stock [Line Items]
Available-for-sale securities, gross unrealized loss	$ 888

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Summary of Significant Accounting Policies - Common Stock Equivalents Excluded from Computation of Diluted Net Loss Per Share of Common Stock (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Stock Options [Member]
Antidilutive securities excluded from computation of earnings per share	3,101,000	944,000	3,101,000	945,000
Warrant [Member]
Antidilutive securities excluded from computation of earnings per share	4,035,000	2,779,000	4,035,000	2,779,000

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Selected Balance Sheet Components (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Balance Sheet Related Disclosures [Abstract]
Depreciation expense	$ 110	$ 93	$ 317	$ 237
Machinery and equipment write off amount			$ 150,000

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Selected Balance Sheet Components - Schedule of Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Balance Sheet Related Disclosures [Abstract]
Accrued compensation	$ 604	$ 636
Accrued vendors and other expenses	440	406
Accrued expenses and other current liabilities	$ 1,044	$ 1,042

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Selected Balance Sheet Components - Schedule of Intangible Assets, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2018	[1]	Dec. 31, 2017
Balance Sheet Related Disclosures [Abstract]
Intangible assets	$ 625		$ 2,419
Accumulated amortization	(625)		(1,673)
Intangible assets, net			$ 746

[1] As part of OncoCyte's impairment assessment of its intangible assets, OncoCyte determined that these assets were impaired as of June 30, 2018 and, accordingly, OncoCyte recorded a noncash charge of $625,000 representing the net book value of those assets as of that date, and included that charge in research and development expenses for the nine months ended September 30, 2018. The impairment was primarily due to OncoCyte's decision to discontinue any further utilization of the underlying patents, patent applications and licenses since those assets are for therapeutic use and not for diagnostic use, as OncoCyte continues to devote all of its research and development resources and commercialization efforts to cancer diagnostic tests. Research and development expenses for the nine months ended September 30, 2018 include $121,000 in amortization expenses related to these intangible assets recorded prior to the impairment charge. For the three and nine months ended September 30, 2017, research and development expenses include $60,000 and $181,000 of amortization of intangible assets, respectively.

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Selected Balance Sheet Components - Schedule of Intangible Assets, Net (Details) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Balance Sheet Related Disclosures [Abstract]
Intangible assets noncash charge		$ 625
Research and development expense including amortization of intangible asset	$ 60	$ 121	$ 181

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Selected Balance Sheet Components - Schedule of Machinery and Equipment, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Balance Sheet Related Disclosures [Abstract]
Machinery and equipment	$ 1,549	$ 1,479
Accumulated depreciation	(827)	(657)
Machinery and equipment, net	$ 722	$ 822

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Related Party Transactions (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Related Party Transaction [Line Items]
Minimum fixed payments due under the shared facilities agreement	$ 131
BioTime, Inc. [Member]
Related Party Transaction [Line Items]
Markup rate on allocated costs	5.00%
Term of payment	30 days
Interest rate charged on unpaid and overdue invoices	15.00%
Current Liabilities [Member]
Related Party Transaction [Line Items]
Allocated use fees payable	$ 2,100	$ 2,100

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Related Party Transactions - Schedule of Aggregate Use of Fees Charged (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Research and development	$ 1,527	$ 1,836	$ 5,310	$ 5,667
General and administrative	1,312	4,289	4,434	7,447
Sales and marketing	184	710	1,411	1,843
BioTime, Inc. [Member]
Research and development	230	229	667	859
General and administrative	105	57	257	214
Sales and marketing	57	104	251	104
Total use fees	$ 392	$ 390	$ 1,175	$ 1,177

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Loan Payable to Silicon Valley Bank (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands		9 Months Ended
	Feb. 21, 2017	Sep. 30, 2018	Sep. 30, 2017	Mar. 23, 2017
Debt Instrument [Line Items]
Amortization of deferred financing costs		$ 62	$ 57
Warrant exercise price, per share		$ 3.00
Warrant [Member]
Debt Instrument [Line Items]
Warrants to purchase, shares	8,247			7,321
Warrant exercise price, per share	$ 4.85			$ 5.46
Deferred financing costs		$ 62
Aggregate deferred financing costs		196
Unamortized deferred financing costs		$ 51
Bank Warrant [Member]
Debt Instrument [Line Items]
Amount borrowed				$ 2,000
Minimum [Member]
Debt Instrument [Line Items]
Warrant exercise price, per share		$ 3.00
Loan and Security Agreement [Member]
Debt Instrument [Line Items]
Amount borrowed	$ 2,000			$ 2,000
Periodic payment term	Payments of interest only on the principal balance were due monthly from the draw date through October 31, 2017, and, beginning on November 1, 2017
Periodic payments of principal and interest	$ 67
Base rate	4.25%
Prime rate plus variable spread per annum		6.00%
Debt instrument, maturity date		Apr. 01, 2020
Additional final payment fee percentage	5.80%
Amortization of deferred financing costs		$ 116
Prepayment fee if prepaid more than one year but less than two years	2.00%
Prepayment fee if prepaid two years or more	1.00%
Interest rate on obligations due to bank	5.00%
Loan and Security Agreement [Member] | Minimum [Member]
Debt Instrument [Line Items]
Minimum legal judgments or legal actions amount triggering loan default	$ 50
Loan and Security Agreement [Member] | Prime Rate [Member]
Debt Instrument [Line Items]
Basis spread variable rate	0.75%	0.75%

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Shareholders' Equity (Details Narrative) $ / shares in Units, $ in Thousands						1 Months Ended		9 Months Ended
	Jul. 31, 2018 USD ($) $ / shares shares	Mar. 28, 2018 USD ($) $ / shares shares	Jul. 21, 2017 USD ($) Integer $ / shares shares	Feb. 17, 2017 USD ($) Integer $ / shares shares	Aug. 29, 2016 USD ($) $ / shares shares	May 31, 2018 USD ($)	Mar. 31, 2018 USD ($)	Sep. 30, 2018 USD ($) $ / shares shares	Sep. 30, 2017 USD ($)	Dec. 31, 2017 $ / shares shares
Preferred stock, shares authorized								5,000,000		5,000,000
Preferred stock par value | $ / shares
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, shares authorized								85,000,000		85,000,000
Common stock par value | $ / shares
Beneficially ownership percentage								4.99%
Number of common shares available in each separable unit					1
Number of warrants to purchase stock in each separable unit					1
Number of common shares callable by each warrant					1
Common stock, shares issued								40,664,000		31,452,000
Common stock, shares outstanding								40,664,000		31,452,000
Warrants exercise price | $ / shares								$ 3.00
Issuance of separable units					3,246,153
Separable units, exercise price | $ / shares					$ 3.25
Proceeds from sale of stock | $					$ 9,800
Proceeds from exercise of warrants | $									$ 4,074
Warrant exercise agreement, number of forms | Integer			3
Warrants issued								4,035,339
Warrants outstanding								4,035,339
Proceeds from exercise of options | $								$ 58	$ 465
Common Stock [Member]
Exercise of stock options								20,312
Proceeds from exercise of options | $								$ 58
Minimum [Member]
Warrants exercise price | $ / shares								$ 3.00
Maximum [Member]
Warrants exercise price | $ / shares								5.50
July 2018 Offering Warrants [Member]
Beneficially ownership percentage	4.99%
Warrants exercise price | $ / shares	$ 3.00
Warrant exercise period	5 years
Warrants 2016 [Member]
Number of common stock shares called by warrants				625,000
Warrants exercise price | $ / shares				$ 3.25				$ 3.25
Warrant exercise period								5 years
Proceeds from exercise of warrants | $				$ 2,000
New Warrants [Member]
Warrant exercise period								5 years
Noncash charge to shareholder expense included in general and administrative expenses | $				$ 1,100
First Form, Warrant Exercise Agreement, 2016 Warrants [Member]
Number of common stock shares called by warrants			226,923
Warrants exercise price | $ / shares			$ 3.25
Number of warrant holders | Integer			2
First Form, Warrant Exercise Agreement, July 2017 Warrants [Member]
Warrant exercise period								5 years
July 2017 Warrants [Member]
Number of common stock shares called by warrants			1,496,923
Warrants exercise price | $ / shares								$ 5.50
Warrant exercise period								5 years
Proceeds from exercise of warrants | $			$ 5,740
Noncash charge to shareholder expense included in general and administrative expenses | $			$ 3,000
Weighted average price | $ / shares			$ 4.34
Second Form, Warrant Exercise Agreement, 2016 Warrants [Member]
Number of common stock shares called by warrants			540,000
Warrants exercise price | $ / shares			$ 3.25
Number of warrant holders | Integer			1
Second Form, Warrant Exercise Agreement, July 2017 [Member]
Number of common stock shares called by warrants			270,000
Warrants exercise price | $ / shares			$ 3.25
Warrant exercise period								5 years
Third Form, Warrant Exercise Agreement, 2016 Warrants [Member]
Number of common stock shares called by warrants			1,000,000
Warrants exercise price | $ / shares			$ 3.25
Number of warrant holders | Integer			1
Third Form Part1 Warrant Exercise Agreement July21 2017 [Member]
Number of common stock shares called by warrants								500,000
Warrants exercise price | $ / shares								$ 5.50
Warrant exercise period								2 years
Third Form Part2 Warrant Exercise Agreement July21 2017 [Member]
Number of common stock shares called by warrants								500,000
Warrants exercise price | $ / shares								$ 3.25
Warrant exercise period								2 years
July 2018 Offering [Member]
Shares Issued, Price Per Share | $ / shares	$ 2.86
Proceeds from the sale of common stock and warrants | $	$ 3,300
Number of common stock shares called by warrants	1,256,118
Number of common shares available in each separable unit	1
Number of warrants to purchase stock in each separable unit	1
Number of common shares callable by each warrant	1
Investors Group One [Member] | New Warrants [Member]
Number of common stock shares called by warrants				200,000
Warrants exercise price | $ / shares				$ 5.50
Investor One [Member] | New Warrants [Member]
Number of common stock shares called by warrants				212,500
Warrants exercise price | $ / shares				$ 3.25
Number of warrant holders | Integer				1
Securities Purchase Agreement [Member] | Two Accredited Investors [Member]
Proceeds from issuance of common stock | $						$ 2,000	$ 8,000
Beneficially ownership percentage		5.00%
Securities Purchase Agreement [Member] | Two Accredited Investors [Member] | Private Placement [Member]
Number of shares issued during period		7,936,508
Shares Issued, Price Per Share | $ / shares		$ 1.26
Proceeds from issuance of common stock | $		$ 10,000

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Stock-based Compensation (Details Narrative)	3 Months Ended	9 Months Ended
	Sep. 30, 2018 USD ($) shares	Sep. 30, 2018 USD ($) $ / shares shares
Number of option granted during the period		1,318,948
Exercise prices ranging, lower limit | $ / shares		$ 2.35
Exercise prices ranging, upper limit | $ / shares		$ 3.15
Stock-based compensation expense | $
2010 Stock Option Plan [Member]
Common stock, shares authorized	5,200,000	5,200,000
2018 Incentive Plan Activity [Member]
Number of option granted during the period		5,000,000

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Stock-based Compensation - Summary of Stock Option Activity (Details)	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Number Of Options Outstanding, Option Granted	1,318,948
2010 Plan Activity [Member]
Shares Available For Grant Outstanding, Beginning of The Period	1,384,000
Shares Available For Grant Options Granted	(1,446,000)
Shares Available For Grant Options Exercised
Shares Available For Grant Options Forfeited, Canceled And Expired	138,000
Shares Available for Grant Options, Termination of the 2010 Plan	(76,000)
Shares Available for Grant Outstanding, End of the Period
Number of Options Outstanding, Beginning of the Period	3,390,000
Number Of Options Outstanding, Option Granted	1,446,000
Number Of Options Outstanding, Options Exercised	(20,000)
Number Of Options Outstanding, Options Forfeited, Canceled And Expired	(276,000)
Number Of Options Outstanding, Termination Of The 2010 Plan
Number of Options Outstanding, End of the Period	4,540,000
Number of Options Outstanding, Exercisable, End of the Period	2,334,000
Weighted Average Exercise Price, Options Outstanding, Beginning of the Period | $ / shares	$ 3.25
Weighted Average Exercise Price, Option Granted | $ / shares	2.39
Weighted Average Exercise Price, Options Exercised | $ / shares	2.84
Weighted Average Exercise Price, Options Forfeited, Canceled And Expired | $ / shares	$ 4.29
Weighted Average Exercise Price, Options Termination of the 2010 Plan
Weighted Average Exercise Price, Outstanding End of the Period | $ / shares	$ 2.94
Weighted Average Exercise Price, Exercisable, End of the Period | $ / shares	$ 2.74
2018 Incentive Plan Activity [Member]
Shares Available For Grant Outstanding, Beginning of The Period
Shares Available For Grant Outstanding, Approval of 2018 Incentive Plan	5,000,000
Shares Available For Grant Options Granted	(230,000)
Shares Available for Grant Outstanding, End of the Period	4,770,000
Number of Options Outstanding, Beginning of the Period
Number Of Options Outstanding, Approval of 2018 Incentive Plan
Number Of Options Outstanding, Option Granted	5,000,000
Number of Options Outstanding, End of the Period	230,000
Number of Options Outstanding, Exercisable, End of the Period
Weighted Average Exercise Price, Options Outstanding, Beginning of the Period | $ / shares
Weighted Average Exercise Price, Approval of 2018 Incentive Plan
Weighted Average Exercise Price, Option Granted | $ / shares	$ 2.40
Weighted Average Exercise Price, Outstanding End of the Period | $ / shares	2.40
Weighted Average Exercise Price, Exercisable, End of the Period | $ / shares

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Stock-based Compensation - Categories of Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018		Sep. 30, 2017
Total stock-based compensation expense	$ 345	$ 462	$ 1,079		$ 1,158
Stock Option Plan [Member] | Research and Development Expense [Member]
Total stock-based compensation expense	17	162	(5)	[1]	530
Stock Option Plan [Member] | General and Administrative [Member]
Total stock-based compensation expense	277	245	851		572
Stock Option Plan [Member] | Selling and Marketing [Member]
Total stock-based compensation expense	$ 51	$ 55	$ 233		$ 56

[1] The negative stock-based compensation expense is primarily attributable to the decrease in the OncoCyte stock price from $4.65 per share at December 31, 2017 to $2.50 per share at September 30, 2018 for consultant stock options which require mark-to-market adjustment each quarter for unvested shares.

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Stock-based Compensation - Categories of Stock-based Compensation Expense (Details) (Parenthetical) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock price	$ 2.50	$ 4.65

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Stock-based Compensation - Schedule of Assumptions Used to Calculate Fair Value of Stock Options (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Expected life (in years)	7 years 8 months 16 days	6 years 29 days	9 years 26 days	6 years 2 months 1 day
Risk-free interest rates	2.84%	1.83%	2.93%	2.00%
Volatility	78.94%	75.63%	81.13%	63.49%
Dividend yield	0.00%	0.00%	0.00%	0.00%

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Commitments and Contingencies (Details) - USD ($)			1 Months Ended	9 Months Ended
	Jul. 02, 2018	Apr. 07, 2016	Apr. 30, 2017	Sep. 30, 2018	May 11, 2017	Dec. 31, 2016
Master Lease Line Agreement [Member]
Other Commitments [Line Items]
Lease agreement value		$ 435,000	$ 285,000		$ 900,000	$ 161,000
Capital lease term				36 months
Interest rate on lease agreement		10.00%	10.00%
Percentage of restocking fee paid on original cost of equipment		7.50%
Monthly payment under capital lease		$ 14,442	$ 9,462			$ 5,342
Lease Agreement [Member]
Other Commitments [Line Items]
Lease agreement value	$ 6,709
Capital lease term	36 months
Available amount under lease agreement	$ 209,000
Prepaid maintenance under capital lease	116,000
Imputed interest under capital lease	10,238
Remaining financing under capital lease	$ 502,000
Maximum [Member] | Master Lease Line Agreement [Member]
Other Commitments [Line Items]
Lease agreement value		881,000
Minimum [Member] | Master Lease Line Agreement [Member]
Other Commitments [Line Items]
Increment value of lease agreement		$ 50,000
Percentage of fair value on original cost to purchase an equipment		12.50%