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.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

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

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

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

As of August ~~10, 2018,~~6, 2019, the number of shares of common stock outstanding was ~~23,155,872.~~6,093,369.

PRECIPIO, INC.

INDEX

~~INDEX~~

			Page No.

PART I.	Financial Information		3

Item 1.	Condensed Consolidated Financial Statements		3

	Condensed Consolidated Balance Sheets at June 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018		3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 ~~and 2017~~ (unaudited)		4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)		5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 ~~and 2017~~ (unaudited)	5	7

	Notes to the Condensed Consolidated Financial Statements (unaudited)	6	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30	42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35	47

Item 4.	Controls and Procedures	36	47
~~PART II.~~	~~Other Information~~	36
PART II.	Other Information		49

Item 1.	Legal Proceedings	36	49

Item 1A.	Risk Factors	36	50
~~Item 6.~~	~~Exhibits~~	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		51
~~Signatures~~
38Item 5.	Other Information		51

Item 6.	Exhibits		51

Signatures			53

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


		June 30, 2019
		(unaudited)		December 31, 2018
ASSETS
CURRENT ASSETS:
Cash		$	1,169	$	381
Accounts receivable, net			883		690
Inventories			189		197
Other current assets			90		525
Total current assets			2,331		1,793

PROPERTY AND EQUIPMENT, NET			458		496

OTHER ASSETS:
Operating lease right-of-use assets			627		—
Intangibles, net			18,764		19,291
Other assets			25		25
Total assets		$	22,205	$	21,605
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, less debt issuance costs		$	103	$	263
Current maturities of convertible notes, less debt discounts and debt issuance costs			39		4,377
Current maturities of finance lease liabilities			51		57
Current maturities of operating lease liabilities			212		—
Accounts payable			2,671		5,169
Accrued expenses			1,655		1,940
Deferred revenue			19		49
Other current liabilities			—		1,910
Total current liabilities			4,750		13,765
LONG TERM LIABILITIES:
Long-term debt, less current maturities and debt issuance costs			223		253
Finance lease liabilities, less current maturities			133		155
Operating lease liabilities, less current maturities			421		—
Common stock warrant liabilities			2,336		1,132
Derivative liabilities			—		62
Deferred tax liability			70		70
Other long-term liabilities			45		45
Total liabilities			7,978		15,482
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 15,000,000 shares authorized at June 30, 2019 and December 31, 2018, 47 shares issued and outstanding at June 30, 2019 and December 31, 2018, liquidation preference at par value at June 30, 2019 and December 31, 2018			—		—
Common stock, $0.01 par value, 150,000,000 shares authorized at June 30, 2019 and December 31, 2018, 5,993,369 and 2,298,738 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	(1)		60		23
Additional paid-in capital	(1)		69,428		53,796
Accumulated deficit			(55,261)		(47,696)
Total stockholders’ equity			14,227		6,123
		$	22,205	$	21,605

(1) The common stock shares and additional paid-in capital for all periods presented reflect the one-for fifteen reverse stock split, which took effect on April 26, 2019.

June 30, 2018
(unaudited) December 31, 2017
ASSETS
CURRENT ASSETS:
Cash $ 71 $ 421
Accounts receivable, net 752 730
Inventories, net 171 161
Other current assets 164 430
Total current assets 1,158 1,742

PROPERTY AND EQUIPMENT, NET 498 353

OTHER ASSETS:
Goodwill 4,391 4,685
Intangibles, net 19,817 20,458
Other assets 25 22
Total assets $ 25,889 $ 27,260
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 831 $ 587
Convertible bridge notes, less debt discounts and debt issuance costs 9 -
Accounts payable 5,020 5,103
Current maturities of capital leases 55 50
Accrued expenses 1,141 1,248
Deferred revenue 116 66
Other current liabilities 2,110 2,982
Total current liabilities 9,282 10,036
LONG TERM LIABILITIES:
Long-term debt, less current maturities and discounts 2,659 2,829
Common stock warrant liabilities 1,006 841
Derivative liability 143 -
Capital leases, less current maturities 184 113
Deferred tax liability 349 349
Other long-term liabilities 67 67
Total liabilities 13,690 14,235
STOCKHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 15,000,000 shares authorized at June 30, 2018 and December 31, 2017, respectively, 47 and 4,935 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively - -
Common stock, $0.01 par value, 150,000,000 shares authorized at June 30, 2018 and December 31, 2017, 22,559,572 and 10,196,620 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively 226 102
Additional paid-in capital 49,245 44,465
Accumulated deficit (37,272 ) (31,542 )
Total stockholders’ equity 12,199 13,025
$ 25,889 $ 27,260

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
SALES:
Service revenue, net	$	1,195	$	899	$	2,105	$	1,690
Clinical research grants		–		62		–		62
Other		4		(2)		11		3
Revenue, net of contractual allowances and adjustments		1,199		959		2,116		1,755
less allowance for doubtful accounts		(257)		(142)		(461)		(226)
Net sales		942		817		1,655		1,529
COST OF SALES:
Service revenue		770		585		1,445		1,273
Clinical research grants		–		57		–		57
Total cost of sales		770		642		1,445		1,330
Gross profit		172		175		210		199
OPERATING EXPENSES:
Operating expenses		2,467		2,358		4,564		4,536
Impairment of goodwill		–		–		–		294
TOTAL OPERATING EXPENSES		2,467		2,358		4,564		4,830
OPERATING LOSS		(2,295)		(2,183)		(4,354)		(4,631)
OTHER INCOME (EXPENSE):
Interest expense, net		(178)		(48)		(201)		(56)
Warrant revaluation		(822)		323		(582)		584
Loss on modification of warrants		(1,128)		–		(1,128)		–
Derivative revaluation		(438)		(1)		(415)		(1)
Gain on settlement of liability, net		1,084		6		1,251		147
Loss on litigation		(266)		–		(266)		–
Loss on issuance of convertible notes		(1,870)		(928)		(1,870)		(928)
Loss on settlement of equity instruments		–		–		–		(385)
		(3,618)		(648)		(3,211)		(639)
LOSS BEFORE INCOME TAXES		(5,913)		(2,831)		(7,565)		(5,270)
INCOME TAXES		–		–		–		–
NET LOSS		(5,913)		(2,831)		(7,565)		(5,270)

Deemed dividends related to beneficial conversion feature of preferred stock and fair value of consideration issued to induce conversion of preferred stock		–		(334)		–		(3,848)
TOTAL DIVIDENDS		–		(334)		–		(3,848)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS	$	(5,913)	$	(3,165)	$	(7,565)	$	(9,118)

BASIC AND DILUTED LOSS PER COMMON SHARE (1)	$	(1.05)	$	(2.29)	$	(1.66)	$	(8.20)
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING (1)		5,655,022		1,382,519		4,554,571		1,111,964

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
SALES
Service revenue, net $ 899 $ 316 $ 1,690 $ 619
Clinical research grants 62 - 62 -
Other (2 ) - 3 -
Revenue, net of contractual allowances and adjustments 959 316 1,755 619
less allowance for doubtful accounts (142 ) (56 ) (226 ) (111 )
Net sales 817 260 1,529 508
COST OF SALES
Service revenue 585 284 1,273 466
Clinical research grants 57 - 57 -
Total cost of sales 642 284 1,330 466
Gross profit 175 (24 ) 199 42
OPERATING EXPENSES:
Operating expenses 2,358 777 4,536 1,440
Impairment of goodwill - - 294 -
TOTAL OPERATING EXPENSES 2,358 777 4,830 1,440
OPERATING LOSS (2,183 ) (801 ) (4,631 ) (1,398 )
OTHER INCOME (EXPENSE):
Interest expense, net (48 ) (220 ) (56 ) (382 )
Warrant revaluation 323 (3 ) 584 (3 )
Derivative revaluation (1 ) - (1 ) -
Gain on settlement of liability, net 6 - 147 -
Loss on extinguishment of debt - (53 ) - (53 )
Loss on issuance of convertible notes (928 ) - (928 ) -
Merger advisory fees - (2,603 ) - (2,603 )
Loss on settlement of equity instruments - - (385 ) -
(648 ) (2,879 ) (639 ) (3,041 )
LOSS BEFORE INCOME TAXES (2,831 ) (3,680 ) (5,270 ) (4,439 )
INCOME TAX EXPENSE - - - -
NET LOSS (2,831 ) (3,680 ) (5,270 ) (4,439 )

Deemed dividends related to beneficial conversion feature of preferred stock and fair value of consideration issued to induce conversion of preferred stock (334 ) (5,248 ) (3,848 ) (5,248 )
TOTAL DIVIDENDS (334 ) (5,248 ) (3,848 ) (5,248 )
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (3,165 ) $ (8,928 ) $ (9,118 ) $ (9,687 )

BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.15 ) $ (15.35 ) $ (0.55 ) $ (18.77 )
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING 20,737,789 581,481 16,679,459 515,968

(1)

Net loss per share and the number of shares used in the per share calculations for all periods presented reflect the one-for fifteen reverse stock split, which took effect on April 26, 2019.

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)


	For the Six Months Ended June 30, 2019
	Preferred Stock			Common Stock			Additional
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated
	Shares	Value		Shares (1)	Value (1)		Capital (1)		Deficit		Total
Balance, January 1, 2019	47	$	—	2,298,738	$	23	$	53,796	$	(47,696)	$	6,123
Net loss	—		—	—		—		—		(1,652)		(1,652)
Conversion of convertible notes into common stock	—		—	1,248,115		12		3,114		—		3,126
Issuance of common stock in connection with purchase agreements	—		—	758,076		8		1,718		—		1,726
Write-off debt premiums (net of debt discounts) in conjunction with convertible note conversions	—		—	—		—		315		—		315
Write-off debt derivative liability in conjunction with convertible note conversions	—		—	—		—		39		—		39
Stock-based compensation	—		—	—		—		156		—		156
Balance, March 31, 2019	47	$	—	4,304,929	$	43	$	59,138	$	(49,348)	$	9,833
Net loss	—		—	—		—		—		(5,913)		(5,913)
Conversion of convertible notes into common stock	—		—	1,138,310		12		4,134		—		4,146
Issuance of common stock in connection with purchase agreements	—		—	240,000		2		682		—		684
Write-off debt discounts (net of debt premiums) in conjunction with convertible note conversions	—		—	—		—		(842)		—		(842)
Write-off debt derivative liability in conjunction with convertible note conversions	—		—	—		—		438		—		438
Proceeds upon issuance of common stock from exercise of warrants	—		—	310,200		3		1,572		—		1,575
Write-off warrant liability in conjunction with warrant exercises	—		—	—		—		2,364		—		2,364
Beneficial conversion feature on issuance of convertible notes	—		—	—		—		1,792		—		1,792
Stock-based compensation	—		—	—		—		151		—		151
Payment of fractional common shares in conjunction with reverse stock split	—		—	(71)		—		(1)		—		(1)
Balance, June 30, 2019	47	$	—	5,993,368	$	60	$	69,428	$	(55,261)	$	14,227

Six Months Ended June 30,
2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,270 ) $ (4,439 )

Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization 680 48
Amortization of deferred financing costs and debt discount 10 57
Loss on extinguishment of debt - 53
Gain on settlement of liability, net (147 ) -
Loss on settlement of equity instrument 385 -
Loss on issuance of convertible notes 928 -
Stock-based compensation 220 23
Impairment of goodwill 294 -
Merger advisory fees - 2,603
Provision for losses on doubtful accounts 224 111
Warrant revaluation (584 ) 3
Derivative revaluation 1 -
Changes in operating assets and liabilities:
Accounts receivable, net (246 ) (136 )
Inventories, net (10 ) 7
Other assets 263 (1 )
Accounts payable (27 ) 290
Accrued expenses and other liabilities (332 ) 484
Net cash used in operating activities (3,611 ) (897 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in business combination - 101
Purchase of property and equipment (44 ) -
Net cash (used in) provided by investing activities (44 ) 101
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (31 ) (23 )
Issuance of preferred stock - 400
Payment of deferred financing costs (138 ) (25 )
Issuance of common stock, net of issuance costs 618 -
Proceeds from exercise of warrants 1,092 25
Proceeds from long-term debt 300 315
Proceeds from convertible bridge notes 1,660 1,365
Principal payments on long-term debt (196 ) (345 )
Net cash flows provided by financing activities 3,305 1,712
NET CHANGE IN CASH (350 ) 916
CASH AT BEGINNING OF PERIOD 421 51
CASH AT END OF PERIOD $ 71 $ 967

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 26 $ 30
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Purchases of equipment financed through accounts payable 34 -
Equipment financed through capital leases 107 -
Deferred debt issuance cost financed through accounts payable 57 64
Discount of 9% on issuance of convertible bridge notes 164 -
Other current liabilities canceled in exchange for common shares 1,897 -
Conversion of bridge loans plus interest into common stock - 877
Conversion of senior and junior notes plus interest into preferred stock and common stock - 4,771
Beneficial conversion feature on issuance of convertible notes 1,076 1,856
Accrued merger cost - 10
Issuance of warrants in conjunction with issuance of side agreement - 414
Initial valuation of derivative liability recorded in conjunction with issuance of convertible notes 142 -
Initial valuation of warrant liability recorded in conjunction with issuance of convertible notes 1,205 -
Liability recorded related to equity purchase agreement repricing 460 -
Warrant liability canceled due to settlement of equity instruments 456 -

Table of Contents


	For the Six Months Ended June 30, 2018
	Preferred Stock			Common Stock			Additional
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated
	Shares	Value		Shares (1)	Value (1)		Capital (1)		Deficit		Total
Balance, January 1, 2018	4,935	$	—	679,774	$	7	$	44,560	$	(31,542)	$	13,025
Net loss	—		—	—		—		—		(2,439)		(2,439)
Conversion of preferred stock into common stock	(4,888)		—	431,022		4		(4)		—		—
Issuance of common stock in connection with purchase agreements	—		—	59,457		1		617		—		618
Issuance of common stock in exchange for cancelation of other current liabilities	—		—	120,983		1		1,896		—		1,897
Issuance of common stock upon exercise of warrants	—		—	20,000		—		225		—		225
Stock-based compensation	—		—	—		—		82		—		82
Balance, March 31, 2018	47	$	—	1,311,236	$	13	$	47,376	$	(33,981)	$	13,408
Net loss	—		—	—		—		—		(2,831)		(2,831)
Issuance of common stock upon exercise of warrants	—		—	192,733		2		865		—		867
Beneficial conversion feature on issuance of convertible notes	—		—	—		—		1,076		—		1,076
Liability recorded related to equity purchase agreement repricing	—		—	—		—		—		(460)		(460)
Stock-based compensation	—		—	—		—		138		—		138
Balance, June 30, 2018	47	$	—	1,503,969	$	15	$	49,455	$	(37,272)	$	12,198

(1) The common stock shares and additional paid-in capital for all periods presented reflect the one-for fifteen reverse stock split, which took effect on April 26, 2019.

See notes to unaudited condensed consolidated financial ~~statements.~~statements

Table of Contents

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)


	Six Months Ended June 30,
	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,565)	$	(5,270)

Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		560		680
Amortization of operating lease right-of-use asset		123		—
Amortization of finance lease right-of-use asset		30		—
(Accretion) amortization of deferred financing costs, debt discounts and debt premiums		(50)		10
Gain on settlement of liability, net		(1,251)		(147)
Loss on settlement of equity instrument		—		385
Loss on litigation		266		—
Loss on issuance of convertible notes		1,870		928
Stock-based compensation		307		220
Impairment of goodwill		—		294
Provision for losses on doubtful accounts		463		224
Warrant revaluation		582		(584)
Loss on modification of warrants		1,128		—
Derivative revaluation		415		1
Changes in operating assets and liabilities:
Accounts receivable, net		(656)		(246)
Inventories, net		8		(10)
Other assets		177		263
Accounts payable		(1,316)		(27)
Operating lease liabilities		(117)		—
Accrued expenses and other liabilities		139		(332)
Net cash used in operating activities		(4,887)		(3,611)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(30)		(44)
Net cash used in investing activities		(30)		(44)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease obligations		(28)		(31)
Payment of deferred financing costs		(120)		(138)
Payment of fractional common shares in conjunction with reverse stock split		(1)		—
Issuance of common stock, net of issuance costs		2,410		618
Proceeds from exercise of warrants		1,575		1,092
Proceeds from long-term debt		—		300
Proceeds from convertible notes		2,150		1,660
Principal payments on convertible notes		(50)		—
Principal payments on long-term debt		(231)		(196)
Net cash flows provided by financing activities		5,705		3,305
NET CHANGE IN CASH		788		(350)
CASH AT BEGINNING OF PERIOD		381		421
CASH AT END OF PERIOD	$	1,169	$	71

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest	$	18	$	26
SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY
Purchases of equipment financed through accounts payable		—		34
Equipment financed through finance lease obligations		—		107
Deferred debt issuance cost financed through accounts payable		—		57
Discount of 9% on issuance of convertible bridge notes		188		164
Other current liabilities canceled in exchange for common shares		—		1,897
Conversion of convertible debt plus interest into common stock		7,272		—
Beneficial conversion feature on issuance of convertible notes		1,792		1,076
Initial valuation of derivative liability recorded in conjunction with issuance of convertible notes		1,858		142
Initial valuation of warrant liability recorded in conjunction with issuance of convertible notes		—		1,205
Liabilities exchanged for convertible notes		2,150		—
Liability recorded related to equity purchase agreement repricing		—		460
Warrant liability canceled due to settlement of equity instruments		—		456
Right-of-use assets obtained in exchange for lease obligations		750		—
Amounts included in measurement of lease liabilities		144		—
Write-off warrant liability in conjunction with warrant exercises		2,364		—
Write-off of debt discounts (net of debt premiums) in conjunction with convertible note conversions		527		—
Write-off of derivative liability in conjunction with convertible note conversions		477		—

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~

2018

1. BUSINESS DESCRIPTION

Business Description.

Precipio, Inc., and ~~Subsidiary,~~its subsidiary, (“we”, “us”, “our”, the “Company” or “Precipio”) is a cancer diagnostics company providing diagnostic products and services to the oncology market. We have built and continue to develop a platform designed to eradicate the problem of misdiagnosis by harnessing the intellect, expertise and technology developed within academic institutions and delivering quality diagnostic information to physicians and their patients worldwide. We operate a cancer diagnostic laboratory located in New Haven, Connecticut and have partnered with the Yale School of Medicine to capture the expertise, experience and technologies developed within academia so that we can provide a better standard of cancer diagnostics and solve the growing problem of cancer misdiagnosis. We also operate a research and development facility in Omaha, Nebraska which will focus on further development of ICE-COLD-PCR (“ICP”), the patented technology which was exclusively licensed by us from Dana-Farber Cancer Institute, Inc. (“Dana-Farber”) at Harvard University (“Harvard”). The research and development center will focus on the development of this technology, which we believe will enable us to commercialize other technologies developed by our current and future academic partners. Our platform connects patients, physicians and diagnostic experts residing within academic institutions. Launched in ~~2017,~~2018, the platform facilitates the following relationships:

Patients: patients may search for physicians in their area and consult directly with academic experts that are on the platform. Patients may also have access to new academic discoveries as they become commercially available.

Physicians: physicians can connect with academic experts to seek consultations on behalf of their patients and may also provide consultations for patients in their area seeking medical expertise in that physician’s relevant specialty. Physicians will also have access to new diagnostic solutions to help improve diagnostic accuracy.

Academic Experts: academic experts on the platform can make themselves available for patients or physicians seeking access to their expertise. Additionally, these experts have a platform available to commercialize their research discoveries.

We intend to continue updating our platform to allow for patient-to-patient communications and allow individuals to share stories and provide support for one another, to allow physicians to consult with their peers to discuss and share challenges and solutions, and to allow academic experts to interact with others in academia on the platform to discuss their research and cross-collaborate.

ICP was developed at Harvard and is licensed exclusively by us from Dana-Farber. The technology enables the detection of genetic mutations in liquid biopsies, such as blood samples. The field of liquid biopsies is a rapidly growing market, aimed at solving the challenge of obtaining genetic information on disease progression and changes from sources other than a tumor biopsy.

Gene sequencing is performed on tissue biopsies taken surgically from the tumor site in order to identify potential therapies that will be more effective in treating the patient. There are several limitations to this process. First, surgical procedures have several limitations, including:

Cost: surgical procedures are usually performed in a costly hospital environment. For example, according to a recent study the mean cost of lung biopsies is greater than $14,000; surgery also involves hospitalization and recovery time.

~~Surgical access: various tumor sites are not always accessible (e.g. brain tumors),~~

Physicians: physicians can connect with academic experts to seek consultations on behalf of their patients and may also provide consultations for patients in ~~which cases no biopsy is available for diagnosis.~~

~~Risk: patient health may not permit undergoing an invasive surgery; therefore a biopsy cannot be obtained at all.~~

~~Time: the process of scheduling and coordinating a surgical procedure often takes time, delaying the start of patient treatment.~~

~~Second, there are several tumor-related limitations that provide a challenge to obtaining such genetic information from a tumor:~~

~~Tumors are heterogeneous by nature: a tissue sample from one~~their area ~~of the tumor may not properly represent the tumor’s entire genetic composition; thus, the~~seeking medical expertise in that physician’s relevant specialty. Physicians will also have access to new diagnostic ~~results from a tumor may be incomplete and non-representative.~~

~~Metastases: in order~~solutions to accurately test a patient with metastatic disease, ideally an individual biopsy sample should be taken from each site (if those sites are even known). These biopsies are very difficult to obtain; therefore physicians often rely on biopsies taken from the primary tumor site.

help improve diagnostic accuracy.

The advent of technologies enabling liquid biopsies as an alternative to tumor biopsy and analysis is based on the fact that tumors (both primary and metastatic) shed cells and fragments of DNA into the blood stream. These blood samples are called “liquid biopsies” that contain circulating tumor DNA, or ctDNA, which hold the same genetic information found in the tumor(s). That tumor DNA is the target of genetic analysis. However, since the quantity of tumor DNA is very small in proportion to the “normal” (or “healthy”) DNA within the blood stream, there is a need to identify and separate the tumor DNA from the normal DNA.

ICP is an enrichment technology that enables the laboratory to focus its analysis on the tumor DNA by enriching, and thereby “multiplying” the presence of, tumor DNA, while maintaining the normal DNA at its same level. Once the enrichment process has been completed, the laboratory genetic testing equipment is able to identify genetic abnormalities presented in the ctDNA, and an analysis can be conducted at a higher level of sensitivity, to enable the detection of such genetic abnormalities. The technology is encapsulated into a chemical that is provided in the form of a kit and sold to other laboratories who wish to conduct these tests in-house. The chemical within the kit is added to the specimen preparation process, enriching the sample for the tumor DNA so that the analysis will detect those genetic abnormalities.

~~Merger Transaction~~

On June 29, 2017, the Company (then known as “Transgenomic, Inc.”, or “Transgenomic”), completed a reverse merger (the “Merger”) with Precipio Diagnostics, LLC, a privately held Delaware limited liability company (“Precipio Diagnostics”) in accordance with the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated October 12, 2016, as amended on February 2, 2017 and June 29, 2017, by and among Transgenomic, Precipio Diagnostics and New Haven Labs Inc. (“Merger Sub”) a wholly-owned subsidiary of Transgenomic. Pursuant to the Merger Agreement, Merger Sub merged with and into Precipio Diagnostics, with Precipio Diagnostics surviving the Merger as a wholly-owned subsidiary of the combined company. Upon the consummation of the Merger, the historical financial statements of Precipio Diagnostics become the Company's historical financial statements. Accordingly, the historical financial statements of Precipio Diagnostics are included in the comparative prior periods. As a result of the Merger, historical preferred stock, common stock, restricted units, warrants and additional paid-in capital, including share and per share amounts, have been retroactively adjusted to reflect the equity structure of the combined company, including the effect of the Merger exchange ratio. Pursuant to the Merger Agreement, each outstanding unit of Precipio Diagnostics was exchanged for 10.2502 pre-reverse stock split shares of Company Common Stock.

Going Concern.

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable for a going concern, which assume that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past ~~few~~several years. As of June 30, ~~2018,~~2019, the Company had a net loss of ~~$5.3~~$7.6 million, negative working capital of ~~$8.1~~$2.4 million and net cash used in operating activities of ~~$3.6~~$4.9 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of ~~this~~these condensed consolidated financial statements in the Quarterly Report on Form ~~10-Q~~10‑Q is dependent upon a combination of achieving its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

To meet its current and future obligations the Company has taken the following steps to capitalize the business and successfully achieve its business plan:

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and the extent to which we are able to secure working capital from other sources. As of the date of issuance of this Form 10-Q, we have already received $4.1 million in aggregate, including approximately $1.4 million from the sale of 328,590 shares of common stock to Lincoln Park during 2018, $2.4 million from the sale of 998,076 shares of common stock to Lincoln Park during the six months ended June 30, 2019 and $0.3 million from the sale of 100,000 shares of common stock to Lincoln Park from July 1, 2019 through the date of issuance of this Form 10-Q, leaving the Company an additional $5.9 million to draw upon in the coming year.

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern over the next twelve months from the ~~date of~~ issuance of these condensed consolidated financial statements in the Quarterly Report on Form ~~10-Q.~~10‑Q. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern over the next twelve months from the date of issuance of the Form ~~10-Q.~~10‑Q. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.

Nasdaq Compliance

~~Nasdaq Delisting Notice~~

On March 26, ~~2018, Precipio, Inc. received written notice (the “Notice”) from~~2019, we were notified by the Listing Qualifications Staff of The Nasdaq Stock Market LLC ~~(“Nasdaq”) indicating~~ that ~~based on~~we did not meet the minimum closing bid price requirement of $1 for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). On April 25, 2019 we filed a Certificate of Amendment to our Third Amended and Restated Certificate of Incorporation with the ~~Company’s~~Secretary of State of Delaware, pursuant to which we effected a 1-for-15 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding common stock. The Reverse Stock Split became effective as of 5:00 p.m. (Eastern Time) on April 26, 2019, and our common stock ~~for the preceding 30 consecutive business days, the Company is not in compliance with the $1.00 minimum bid price requirement for continued listing~~began trading on a split-adjusted basis on the Nasdaq Capital Market ~~(the “Minimum Bid Price Requirement”)~~at the market open on April 29, 2019. ~~The Notice has no immediate effect on~~On May 15, 2019, we received notification from Nasdaq that the ~~listing of Precipio’s common~~Company’s stock and its common stock will continue to trade on the Nasdaq Capital Market under the symbol “PRPO” at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Precipio has a period of 180 calendar days, or until September 24, 2018 to regainprice was in compliance with the ~~Minimum~~ Bid Price ~~Requirement. The Company intends to monitor~~Requirement, and that the ~~closing bid price of its common stock and consider its available options to resolve its noncompliance with the Minimum Bid Price Requirement.~~

matter is now closed.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.

The accompanying condensed consolidated financial statements are presented in conformity with GAAP. ~~We have evaluated events occurring subsequent~~As required under GAAP, pursuant to ~~June 30, 2018 for potential recognition or disclosure~~the Reverse Stock Split, unless otherwise indicated, the Company has adjusted all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying condensed consolidated financial statements and concluded that, other than what is disclosed within the notes to unaudited condensed consolidated financial statements and in Note 12 - Subsequent Events, there were no other subsequent events that required recognition or disclosure.

statements.

The condensed consolidated balance sheet as of December 31, ~~2017~~2018 was derived from our audited balance sheet as of that date. There has been no change in the balance sheet from December 31, ~~2017.~~2018, except for the retroactive adjustment to reflect the Reverse Stock Split. The accompanying condensed consolidated financial statements as of and for the ~~three and~~ six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, ~~2017~~2018 contained in our Annual Report Form ~~10-K,~~10‑K, filed with the Securities and Exchange Commission (the “SEC”) on April ~~13, 2018.~~16, 2019. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year ~~2018.~~2019.

~~Recent~~Recently Adopted Accounting Pronouncements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers and has subsequently issued supplemental and/or clarifying ASUs (collectively “ASC 606”). ASC 606 outlines a five-step framework that intends to clarify the principles for recognizing revenue and eliminate industry-specific guidance. In addition, ASC 606 revises current disclosure requirements in an effort to help financial statement users better understand the nature, amount, timing, and uncertainty of revenue that is recognized. ASC 606 may be applied either retrospectively to each prior reporting period presented or use the modified retrospective transition method with the cumulative effect of initial adoption recognized at the date of initial application. We adopted this new standard as of January 1, 2018, by using the modified-retrospective method. An adjustment was not required and a change to the prior revenue recognition process and policy to adopt the new standard was not necessary. See Note 11 – Sales Service Revenue, Net and Accounts Receivable for further details.

In February 2016, the FASB issued ASU No. ~~2016-02,~~~~Leases~~2016‑02, Leases-Topic 842. The new standard amends the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new standard iswas adopted effective ~~for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted~~January 1, 2019, using a modified retrospective transition, and thus did not adjust comparative periods. The new standard provides ~~for certain~~a

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number of optional practical ~~expedients. Transition will require application~~expedients in transition. The Company has elected the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight practical expedient. As a result of the ~~new~~adoption of Topic 842 the Company recognized approximately $0.7 million of lease liabilities and corresponding right-of-use (“ROU”) assets in its condensed consolidated balance sheet on the date of initial application. See Note 7 – Leases for additional information.

In June 2018, the FASB issued ASU 2018-07 “Compensation—Stock Compensation (Topic 718)”, which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from non-employees. The Company adopted this guidance aton January 1, 2019. The adoption of this guidance was not material to our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the ~~beginning~~FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820)”, which modifies certain disclosure requirements in Topic 820, such as the removal of the ~~earliest comparative period presented.~~need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. This ASU is effective for reporting periods beginning after December 15, 2019. We are currently assessing the potential impact that the adoption of this ASU will have on our condensed consolidated financial statements.

In ~~January 2017, FASB issued ASU No. 2017-01,~~~~Business Combinations~~ (Topic 805): Clarifying the Definition of a Business. ASU No. 2017-01 adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of ASU No. 2017-01 did not have a material effect on the Company’s financial position and results of operations.

~~In May 2017,~~August 2018, the FASB issued ASU ~~2017-09~~2018-15 “~~Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”~~Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40)”,which ~~provides clarity and reduces both diversity~~aligns the requirements for capitalizing implementation costs incurred in ~~practice and cost and complexity when applying guidance in Topic 718.~~a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ~~amendment provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments are~~ASU is effective for ~~all entities for annual periods, and interim periods within those~~reporting periods beginning after December 15, ~~2017. The~~2019. We are currently assessing the potential impact that the adoption of this ASU ~~No. 2017-09 did~~will have on our condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments”, which replaces current methods for evaluating impairment of financial instruments not measured at fair value, including trade accounts receivable and certain debt securities, with a current expected credit loss model. This ASU is effective for reporting periods beginning after December 15, 2019. We are currently assessing the potential impact that the adoption of this ASU will have ~~a material effect~~ on ~~the Company’s~~our condensed consolidated financial ~~position and results of operations.~~statements.

~~Property and Equipment, net.~~

Depreciation expense was $0.1 million for the three and six months ended June 30, 2018 and 2017. Depreciation expense during each year includes depreciation related to equipment acquired under capital leases.

~~Goodwill and Intangible Assets.~~

~~As a result of the Merger, the Company recorded goodwill and intangible assets as part of its allocation of the purchase consideration.~~

~~Goodwill~~

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of the business acquired. Goodwill is tested for impairment annually. We perform this impairment analysis during the fourth quarter of each year or when a significant event occurs that may indicate that the assets might be impaired. During the six months ended June 30, 2018, the Company experienced a decline in its share price and a reduction in its market capitalization, as such the Company determined that an assessment of goodwill should be performed using the qualitative approach. Based on the qualitative assessment, the Company concluded that it was more likely than not that the fair value of the Company was less than its carry value. As part of its analysis, the Company considered triggering events and compared its fair value with its carrying value. The analysis of the fair value of the Company involved using the discounted cash flow model. Based on the analysis, the Company concluded that its carrying value exceeded its fair value and goodwill impairment in the amount of $0.3 million was recorded for the six months ended June 30, 2018. There was no impairment for the three months ended June 30, 2018.

~~Intangibles~~

Amortization expense for intangible assets was $0.3 million and zero for the three months ended June 30, 2018 and 2017, respectively, and $0.6 million and zero during the six months ended June 30, 2018 and 2017, respectively. Amortization expense for intangible assets is expected to be $1.2 million, $1.0 million, $1.0 million, $0.9 million and $0.9 million for each of the years ending December 31, 2018, 2019, 2020, 2021 and 2022, respectively.

~~Debt Issuance Costs and Debt Discounts.~~

Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Both are presented as a reduction of the related debt in the accompanying condensed consolidated balance sheets. See Note 4 – Long-Term Debt and Convertible Bridge Notes for further information.

~~Revenue Recognition.~~

Revenue recognition occurs when a customer obtains control of the promised goods and service. Revenue assigned to the goods and services reflects the consideration which the Company expects to receive in exchange for those goods and services.

The Company derives its revenues from Diagnostic Testing - histology, flow cytometry, cytology and molecular testing; Clinical Research from bio-pharma customers, state and federal grant programs; and from Biomarker Testing from bio-pharma customers. All sources of revenue are recorded net of accruals for estimated chargebacks, rebates, cash discounts, other allowances, and returns. Due to differences in the substance of these revenue types, the transactions require, and the Company utilizes, different revenue recognition policies for each. See more detailed information on revenue in Note 11 – Sales Service Revenue, Net And Accounts Receivable.

The Company recognizes revenue utilizing the five-step framework of ASC 606. Control of the laboratory testing services is transferred to the customer at a point in time. As such, the Company recognizes revenue for diagnostic testing at a point in time based on the delivery method (web-portal access or fax) for a patient’s laboratory report. Diagnostic testing service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including retroactive adjustment under reimbursement agreements with third-party payors. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for third-party payor settlements are provided in the period in which the related services are rendered and adjusted in the future periods, as final settlements are determined. For clinical research and biomarker services, the Company utilizes an “effort based” method of assessing performance and measures progress towards satisfaction of the performance obligation based upon the delivery of results per the contract.

When we receive payment in advance, we initially defer the revenue and recognize it when we deliver the service. Deferred net sales included in the balance sheet as deferred revenue was $0.1 million as of June 30, 2018 and December 31, 2017, respectively.

~~Taxes collected from customers and remitted to government agencies for specific net sales producing transactions are recorded net with no effect on the income statement.~~

Loss Per Share.

Basic loss per share is calculated based on the weighted-average number of common shares outstanding during each period. Diluted loss per share includes shares issuable upon exercise of outstanding stock options, warrants or conversion rights that have exercise or conversion prices below the market value of our common stock. Options, warrants and conversion rights pertaining to ~~14,128,219~~1,760,336 and ~~2,545,463~~941,882 shares of our common stock have been excluded from the computation of diluted loss per share at June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, because the effect is anti-dilutive due to the net loss.

The following table summarizes the outstanding securities not included in the computation of diluted net loss per share:


	June 30,
	2019	2018
Stock options	501,242	227,337
Warrants	909,189	460,876
Preferred stock	20,888	10,445
Convertible notes	329,017	243,224
Total	1,760,336	941,882

June 30,
2018 2017
Stock options 3,410,059 24,917
Warrants 6,913,141 268,379
Preferred stock 156,667 1,712,901
Convertible notes 3,648,352 539,266
Total 14,128,219 2,545,463

~~3. REVERSE MERGER~~

~~Unaudited pro forma information~~

~~The operating results of Transgenomic have been included in the Company's consolidated financial statements for all periods after June 29, 2017.~~

~~The following unaudited pro forma information presents the Company's financial results as if the acquisition~~

Table of Transgenomic had occurred on January 1, 2017 and combines Transgenomic’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2017 with Precipio’s unaudited condensed statement of operations for the three and six months ended June 30, 2017:Contents

Dollars in thousands, except per share amounts June 30, 2017

Three Months
Ended

Six Months
Ended

Net sales $ 565 $ 1,472
Net loss available to common stockholders (11,086 ) (13,864 )
Loss per common share $ (1.73 ) $ (2.16 )

4.3. LONG-TERM DEBT ~~AND CONVERTIBLE BRIDGE NOTES~~

Long-term debt consists of the following:


	Dollars in Thousands						Dollars in Thousands
	June 30, 2018			December 31, 2017			June 30, 2019		December 31, 2018
Department of Economic and Community Development (DECD)	$	286		$	-		$	263	$	274
DECD debt issuance costs		(29	)		-			(26)		(28)
Secured debt obligations		3,233			3,233
Financed insurance loan		-			183			32		204
September 2018 Settlement								57		66
Total long-term debt		3,490			3,416			326		516
Current portion of long-term debt		(831	)		(587	)		(103)		(263)
Long-term debt, net of current maturities	$	2,659		$	2,829		$	223	$	253

Department of Economic and Community Development.

On January 8, 2018, the Company received gross proceeds of $400,000 when it entered into an agreement with the Department of Economic and Community Development (“DECD”) by which the Company received a grant of $100,000 and a loan of $300,000 secured by substantially all of the Company’s assets (the “DECD 2018 Loan”.) The ~~grant~~DECD 2018 Loan is ~~included in deferred revenue in the accompanying condensed consolidated balance sheet.~~

a ten-year loan due on December 31, 2027 and includes interest paid monthly at 3.25%.

Debt issuance costs associated with the DECD 2018 Loan were approximately $31,000. Amortization of the debt issuance cost was approximately ~~$1,000~~$2,000 for the six months ended June 30, ~~2018.~~2019 and 2018, respectively. Net debt issuance costs were ~~$29,000~~$26,000 and $28,000 at June 30, 2019 and December 31, 2018, respectively and are presented as a reduction of the related debt in the accompanying condensed consolidated balance ~~sheet.~~

~~Secured Debt Obligations~~

In 2017, the Company entered into Debt Settlement Agreements (the “Settlement Agreements”) with certain of its accounts payable and accrued liability vendors (the “Creditors”) pursuant to which the Creditors, who were owed $6.3 million (the “Debt Obligations”) by the Company, agreed to reduce and exchange the Debt Obligationssheets. Amortization for ~~a secured obligation in the amount of $3.2 million, $1.9 million in shares~~each of the ~~Company’s common stock and 108,112 warrants~~next five years is expected to ~~purchase shares of the Company’s common stock.~~be approximately $3,000.

~~The Debt Obligations were restructured as follows:~~

The Company entered into a scheduled long-term debt repayment agreement of approximately $3.2 million, which includes interest of approximately $0.6 million, to be paid in forty-eight equal monthly installments beginning in July 2018 (the “Secured Debt Obligations”).

Debt Obligations of $1.9 million were canceled in exchange for 1,814,754 shares of the Company’s common stock with a weighted average price per share of $1.04 (the “Settlement Common Shares”). The stock was issued in February 2018.

Warrants to purchase 108,112 shares of the Company’s common stock at an exercise price of $7.50 per share (the “Creditor Warrants”) were issued to certain Creditors. The Creditor Warrants were issued in February 2018.

Financed Insurance Loan.

~~During 2017, the~~The Company ~~financed~~finances certain of its insurance premiums (the “Financed Insurance ~~Loan”~~Loans”). ~~The original amount financed in~~In July 2017 ~~was~~the Company financed $0.4 million with a 4.99 % interest ~~rate. The~~rate and fully paid off such loan as of May 2018. In July 2018, the Company financed $0.4 million with a 4.89% interest rate and will make monthly ~~payments through May 2018.~~payments. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Financed Insurance ~~Loan~~Loans outstanding balance of ~~zero~~$0.1 million and $0.2 million, respectively, was included in current maturities of long-term debt in the Company’s condensed consolidated balance sheet. A corresponding prepaid asset was included in other current assets.

Settlement Agreement.

On September 21, 2018, the Company entered into a settlement and forbearance agreement with a creditor (the “September 2018 Settlement”) pursuant to which, the Company agreed to make monthly principal and interest payments to the creditor over a two year period, from November 1, 2018 to November 1, 2020, in full and final settlement of $0.1 million of indebtedness that was owed to the creditor on the date of the September 2018 Settlement. The settlement amount will accrue interest at the rate of 10% per annum until paid in full. The September 2018 Settlement outstanding balance of $0.1 million was included in long-term debt and accounts payable in the Company’s condensed consolidated balance sheet as of June 30, 2019 and December 31, 2018, respectively.

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4. CONVERTIBLE NOTES

Convertible ~~bridge~~ notes consist of the following:

Dollars in Thousands
June 30, 2018 December 31, 2017
Convertible bridge notes $ 1,824 $ -
Convertible bridge notes discount and debt issuance costs (1,815 ) -
Total convertible bridge notes 9 -
Current portion of convertible bridge notes (9 ) -
Convertible bridge notes, net of current maturities $ - $ -


	Dollars in Thousands
	June 30, 2019		December 31, 2018
Convertible bridge notes	$	2,197	$	4,294
Convertible bridge notes discount and debt issuance costs		(2,158)		(1,111)
Convertible bridge notes premiums		—		647
Convertible promissory notes - Exchange Notes		—		630
Convertible promissory notes - Exchange notes debt issuance costs		—		(83)
Total convertible notes		39		4,377
Current portion of convertible notes		(39)		(4,377)
Convertible notes, net of current maturities	$	—	$	—

Convertible Bridge Notes.

On April 20, 2018, the Company entered into a securities purchase agreement (the “2018 Note Agreement”) with certain investors (the “April 2018 Investors”), pursuant to which the Company ~~will~~would issue up to approximately ~~$3,296,702~~$3,296,703 in Senior Secured Convertible Promissory Notes along with ~~warrants.~~warrants (the “Transaction”). The number of warrants ~~will be~~is equal to the number of shares of common stock issuable upon conversion of the notes based on the conversion price at the time of issuance. ~~Half~~Some of the warrants ~~will have~~were issued with a one-year term and ~~half will have~~some with a five-year ~~term (the “Transaction”).~~term. The 2018 Note Agreement includes customary representations, warranties and covenants by the Company and customary closing conditions.

The Transaction consists of a series of unregistered Senior Secured Convertible Notes (the “Bridge Notes”), bearing interest at a rate of 8% annually and an original issue discount of 9%. The ~~initial Senior Secured Convertible~~Bridge Notes ~~shall be~~are convertible at a price of ~~$0.50~~$7.50 per share, provided that if the notes are not repaid within 180 days of the note’s issuance date, the conversion price shall be adjusted to 80% of the lowest volume weighted average price during the prior 10 days, subject to a minimum conversion price of ~~$0.30~~$4.50 per share.

The Transaction ~~consists~~consisted of a number of drawdowns. The initial closing on April 20, 2018 provided the Company with proceeds of $1,660,000, net of an original issue discount of 9% and before debt issuance costs, for the issuance of notes with an aggregate principal of $1,824,176 (the “April 2018 Bridge Notes”). Subject to prior stockholder approval, which was obtained in July 2018, the April 2018 Investors funded an additional $348,099 in July 2018 for Bridge Notes with an aggregate principal of $382,526 and the Company shall have the option to draw down two additional tranches of $495,950 each ($545,000 principal amount of Bridge Notes), 120 days following the initial closing and 150 days following the initial closing.

The Bridge Notes are payable by the Company on the earlier of (i) the one year anniversary after ~~the initial~~each closing date or (ii) upon the closing of a qualified offering, namely the Company raising gross proceeds of at least $7,000,000 (the “Maturity Date”). At any time, provided that the Company gives 5 business days written notice, the Company has the right to redeem the outstanding principal amount of the Bridge Notes, including accrued but unpaid interest, all liquidated damages and all other amounts due under the Bridge Notes, for cash as follows: (i) an amount which is equal to the sum of 105% if the Company exercises its right to redeem the Bridge Notes within 90 days of the initial closing, (ii) 110% if the Company exercises its right to redeem the Bridge Notes within 180 days of the initial closing, or (iii) 115% if the Company exercises its right to redeem 180 days from the initial closing.

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The terms of the 2018 Note Agreement also ~~stipulates~~stipulate that upon written demand by one of the April 2018 Investors, for any of their draws throughout the year associated with the 2018 Note Agreement after ~~August 22,~~a period of time as defined within the 2018 Note Agreement, the Company shall file a registration statement within thirty (30) days after written demand covering the resale of all or such portion of the conversion shares for an offering to be made on a continuous basis pursuant to Rule 415. The registration statement filed shall be on Form ~~S-3~~S‑3 or Form ~~S-1,~~S‑1, at the option of the Company. If the Company does not file a registration statement in accordance with the terms of the 2018 Note Agreement, then on the business day following the applicable filing date and on each monthly anniversary of the business day following the applicable filing date (if no registration statement shall have been filed by the Company in accordance herewith by such date), the Company shall pay to the April 2018 Investors an amount in cash, as partial liquidated damages, equal to 1% per month (pro-rata for partial months) based upon the gross purchase price of the Bridge Notes (calculated on a daily basis) under the 2018 Note Agreement.

As requested by certain April 2018 investors, conversion shares related to the April 2018 Note Agreement were included in a registration statement on Form S-3 that the Company filed with the SEC on February 6, 2019 and which became effective with the SEC on February 13, 2019.

The obligations under the Bridge Notes are secured, subject to certain exceptions and other permitted payments by a perfected security interest on the assets of the Company.

The 9% discount associated with the April 2018 Bridge Notes was approximately $164,000 and was recorded as a debt discount. The Company also incurred legal and advisory fees associated with the April 2018 Bridge Notes of approximately $164,000 and these were recorded as debt issuance costs.

As part of the initial closing, the April 2018 Investors received ~~3,648,352~~243,224 warrants to purchase shares of common stock of the Company (the “April 2018 Warrants”) exercisable at a 150% premium to the April 2018 Bridge Notes conversion price or $0.75. Half of such April 2018 Warrants have a five-year term and half have a one-year term. The Company reviewed the provisions of the April 2018 Warrants to determine the balance sheet classification of the April 2018 Warrants. The Company concluded that there is an obligation to repurchase the April 2018 Warrants by transferring assets and accordingly the warrants will be classified as a liability.. The April 2018 Warrants ~~were valued using a Black-Scholes option pricing model with~~had an initial value of approximately $1.1 million at the date of issuance and were recorded as a liability with an offset to debt discount. ~~See Note 9 –Fair Value for further discussion.~~

Pursuant to a letter agreement, dated as of April 20, 2018 (the “Letter Agreement”), the Company engaged a registered broker dealer as a financial advisor (the “Financial Advisor”). Pursuant to the Letter Agreement, the Company paid the Financial Advisor a fee of $116,000, approximately 7% of the proceeds from the sale of the April 2018 Bridge Notes. This is included in the debt issuance costs discussed above. Per the Letter Agreement, the Company also issued to the Financial Advisor ~~232,000~~15,466 warrants to purchase shares of common stock of the Company with an exercise price of ~~$0.75~~$11.25 (the “Advisor Warrants”). The Advisor Warrants are exercisable at any time and from time to time, in whole or in part, during the four-year period commencing six months from the date of the Letter Agreement. Like the April 2018 Warrants, the Advisor Warrants met the criteria to be which were classified as a liability. The Advisor Warrants were valued using a Black-Scholes option pricing model with an initial value of approximately $0.1 million at the date of issuance and were recorded as a liability with an offset to debt discount. See Note 9 –Fair Value for further discussion.

The ~~Company reviewed the conversion option of the~~ April 2018 Bridge Notes ~~and determined that there was~~contained a beneficial conversion feature ~~in connection with the issuance of the April 2018 Bridge Notes since the calculated effective conversion price was~~valued at a discount to the fair market value of the Company's common stock at issuance date. For purposes of calculating the beneficial conversion feature, the proceeds of $1.7 million from the April 2018 Bridge Notes were allocated to the notes and warrants based on their relative fair values at the date of issuance. The portion allocated to the April 2018 Bridge Notes was $0.6 million with the remaining $1.1 million allocated to the April 2018 Warrants. As a result of the allocation of the proceeds, the Company calculated a beneficial conversion feature of approximately $1.1 million which was recorded as a debt discount with an offset to additional paid in ~~capital.~~

capital at the note issuance date.

The Company reviewed the redemption features of the ~~April 2018~~ Bridge Notes and determined that there is a redemption feature (the “Bridge Notes Redemption Feature”) that qualifies as an embedded ~~derivative instrument which is required to be separated from~~derivative. For the ~~debt host contract and accounted for separately as a derivative. The~~April 2018 Bridge Notes, the Company determined the initial fair value of the derivative at the time of issuance to be approximately $0.1 million which was recorded as a debt discount with an offset to derivative liability. The valuation was performed using the “with and without” approach, whereby the April 2018 Bridge Notes were valued both with the embedded derivative and without, and the difference in values was recorded as the derivative liability. See Note 9 –Fair Value for further ~~discussion~~

discussion.

As detailed above, ~~the~~ debt discounts and debt issuance costs related to the April 2018 Bridge Notes ~~total~~totaled $2.7 million. ~~Since~~During the six months ended June 30, 2018, since the costs exceeded the $1.8 million face amount of the debt, the Company recorded $1.8 million of debt discount and debt issuance costs as a reduction of the related debt ~~in the accompanying condensed consolidated balance sheet~~ with the excess $0.9 million expensed as a loss on issuance of convertible notes in the ~~condensed~~ consolidated statements of operations. The debt discount and debt issuance costs will be amortized to interest expense over the life of the April 2018 Bridge Notes on a basis that approximates the effective interest method. Amortization of the discount was ~~approximately~~zero for the three and six months ended June 30, 2019. Amortization of the discount was $9,000 for the three and six months ended June 30, 2018 and is included in interest expense in the unaudited condensed consolidated statements of operations.

On April 16, 2019, the Company entered into an amendment and restatement agreement (“Amendment No.2 Agreement”) amending and restating the terms of the 2018 Note Agreement (as first amended pursuant to the amendment agreement in November 2018 (the Amendment Agreement”)). The Amendment No. 2 Agreement provided the Company with approximately $900,000 of gross proceeds for the issuance of notes with an aggregate principal of $989,011 (the

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“April 2019 Bridge Notes”) together with applicable warrants, with substantially the same terms and conditions as the previously issued Bridge Notes and related warrants. The 9% discount associated with the April 2019 Bridge Notes was approximately $89,000 and was recorded as a debt discount. In connection with the April 2019 Bridge Note issuances, the Company issued to the investors 147,472 warrants to purchase shares of common stock of the Company with a five year term and exercise price of $5.40 (the “April 2019 Warrants”). The April 2019 Warrants had an initial value of approximately $1.0 million at the date of issuance and were recorded as a liability with an offset to debt discount. See Note 9 – Fair Value for further discussion. The April 2019 Bridge Notes were issued to investors that previously participated in the 2018 Note Agreement.

The conversion price of the April 2019 Bridge Notes shall be equal to the greater of $3.75 or $0.75 above the closing bid price of our common stock on the date prior to the original issue date. In the event the notes are not paid in full prior to 180 days after the original issue date, the conversion price shall be equal to 80% of the lowest volume weighted average price (“VWAP”) in the 10 trading days prior to the date of the notice of conversion, but in no event below the floor price of $2.25.

The Company reviewed the conversion option of the April 2019 Bridge Notes and determined that there was a beneficial conversion feature with a value of approximately $0.9 million which was recorded as a debt discount with an offset to additional paid in capital. The April 2019 Bridge Notes also contain the Bridge Notes Redemption Feature and the Company performed a valuation at the time of issuance which resulted in zero value, at that time, due to the high value of the conversion feature and a limited upside from the redemption premium.

Debt discounts and debt issuance costs related to the April 2019 Bridge Notes totaled $2.0 million. Since the costs exceeded the $1.0 million face amount of the debt at issuance, the Company recorded $1.0 million of debt discount and debt issuance costs as a reduction of the related debt in the accompanying consolidated balance sheet with the excess $1.0 million expensed as a loss on issuance of convertible notes in the consolidated statements of operations during the three and six months ended June 30, 2019.

Pursuant to the Amendment No.2 Agreement, previously issued warrants were amended such that the exercise price of such warrants was amended from $7.50 to $5.40 and any warrant that had a one-year term was amended to have a five-year term. The Company reviewed the amendments to the warrants and determined that they will be treated as a modification of an outstanding equity instrument at the time of the Amendment No.2 Agreement. Management calculated the change in fair value due to the modifications to be an expense of approximately $1.1 million which is included in loss on modification of warrants in the condensed consolidated statements of operations.

On May 14, 2019, the Company entered into a securities purchase agreement pursuant to which, the Company was provided with $1,000,000 of gross proceeds for the issuance of notes with an aggregate principal of $1,098,901 (the “May 2019 Bridge Notes”) together with applicable warrants, with substantially the same terms and conditions as the previously issued Bridge Notes and related warrants. The 9% discount associated with the May 2019 Bridge Notes was approximately $99,000 and was recorded as a debt discount. In connection with the May 2019 Bridge Note issuances, the Company issued to the investors 154,343 warrants to purchase shares of common stock of the Company with a five year term and exercise price of $9.56 (the “May 2019 Warrants”). The May 2019 Warrants had an initial value of approximately $0.9 million at the date of issuance and were recorded as a liability with an offset to debt discount. See Note 9 – Fair Value for further discussion. The May 2019 Bridge Notes were issued to investors that previously participated in the 2018 Note Agreement.

The conversion price of the May 2019 Bridge Notes is $7.12, provided that a) in the event the notes are not paid in full prior to 180 days after the original issue date or b) upon a registration statement (as defined in the purchase agreement) being declared effective, whichever occurs earlier, the conversion price shall be equal to 80% of the lowest VWAP in the 10 trading days prior to the date of the notice of conversion, but in no event below the floor price of $2.25.

The Company reviewed the conversion option of the May 2019 Bridge Notes and determined that there was a beneficial conversion feature with a value of approximately $0.9 million which was recorded as a debt discount with an offset to additional paid in capital. The May 2019 Bridge Notes also contain the Bridge Notes Redemption Feature and

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the Company performed a valuation at the time of issuance which resulted in zero value, at that time, due to the high value of the conversion feature and a limited upside from the redemption premium.

Debt discounts and debt issuance costs related to the May 2019 Bridge Notes totaled $2.0 million. Since the costs exceeded the $1.1 million face amount of the debt, the Company recorded $1.1 million of debt discount and debt issuance costs as a reduction of the related debt in the accompanying consolidated balance sheet with the excess $0.9 million expensed as a loss on issuance of convertible notes in the consolidated statements of operations during the three and six months ended June 30, 2019.

Since the issuance of all the 2018 and 2019 Bridge Notes, $4.4 million of the total $6.6 million of convertible bridge notes, plus interest, have been converted into a total of 1,869,352 shares of common stock of the Company. This included the conversion of approximately $2.1 million and $4.2 million of Bridge Notes, plus interest, converted into 756,588 and 1,776,018 shares of common stock of the Company during the three and six months ended June 30, 2019, respectively.

As a result of the bridge note conversions, the Company wrote off approximately $0.4 million of derivative liability, with an offset to additional paid-in capital, during the three and six months ended June 30, 2019.

During the three and six months ended June 30, 2019 and 2018, the change in Bridge Note debt discounts and debt premiums was as follows:


(Dollars in thousands)	For the Three Months Ended June 30,
	2019				2018
		Debt Discounts		Debt Premiums		Debt Discounts		Debt Premiums
Beginning balance at April 1	$	(1,053)	$	91	$	—	$	—
Additions:		(2,086)		—		(1,824)		—
Deductions:
Amortization (accretion) (1)		55		(7)		9		—
Write-off related to note conversions (2)		926		(84)		—		—
Balance at June 30	$	(2,158)	$	—	$	(1,815)	$	—


	For the Six Months Ended June 30,
	2019				2018
		Debt Discounts		Debt Premiums		Debt Discounts		Debt Premiums
Beginning balance at January 1	$	(1,111)	$	647	$	—	$	—
Additions:		(2,086)		—		(1,824)		—
Deductions:
Amortization (accretion) (1)		113		(167)		9		—
Write-off related to note conversions (2)		926		(480)		—		—
Balance at June 30	$	(2,158)	$	—	$	(1,815)	$	—

(1)

Amortization/accretion is recognized as interest expense/income within the condensed consolidated statements of operations based on the effective interest method.

(2)

Write-offs associated with note conversions are recognized as an offset to additional paid-in capital at the time of the conversion.

The remaining debt discounts of $2.2 million, as of June 30, 2019, are expected to be fully amortized by the end of the second quarter of 2020.

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Convertible Promissory Notes – Exchange Notes.

In 2017, the Company entered into Debt Settlement Agreements (the “Settlement Agreements”) with certain of its accounts payable and accrued liability vendors (the “Creditors”) pursuant to which the Creditors, who were owed $6.3 million (the “Debt Obligations”) by the Company, agreed to reduce and exchange the Debt Obligations for a secured obligation in the amount of $3.2 million, $1.9 million in shares of the Company’s common stock and 7,207 warrants to purchase shares of the Company’s common stock (“Creditor Warrants”).

During 2018, the Company entered into Exchange Agreements (the “Exchange Agreements”) with three institutional investors (the “Holders”)pursuant to which the Company issued or shall issue convertible promissory notes, due January 1, 2021 (the “Exchange Notes”) in exchange (the “Exchange”) for amounts owed to the Holders pursuant to certain debt settlement agreements, dated October 31, 2017. At the time of the Exchange Agreements, $3.2 million of Secured Debt Obligations were exchanged for $2.8 million of Exchange Notes (the “Exchange Notes”). Pursuant to the terms of the Exchange Notes, the Company shall pay to the Holders the aggregate principal amount of the Exchange Notes in eighteen equal installments beginning on August 1, 2019 and ending on January 1, 2021.

The Company reviewed the Conversion Option and concluded that it meets the criteria for derivative accounting and requires bifurcation and separate accounting as a derivative. The Company determined the initial fair value of the derivative at the time of issuance to be approximately $0.4 million which was recorded as a debt discount with an offset to derivative liability. See Note 9 –Fair Value for further discussion.

The Company reviewed the Company Put Option and concluded that it meets the criteria for derivative accounting and requires bifurcation and separate accounting as a derivative. The Company determined the initial fair value of the derivative at the time of issuance to be immaterial.

Since the issuance of the Exchange Notes, the Holders have converted all $2.8 million into a total of 446,913 shares of common stock of the Company. This included the conversion of approximately zero and $0.6 million of Exchange Notes converted into zero and 155,351 shares of common stock of the Company during the three and six months ended June 30, 2019, respectively.

As of June 30, 2019 and December 31, 2018, the outstanding balance of the Exchange Notes, net of discounts, was zero and $0.6 million, respectively, and was presented within convertible notes in the Company’s condensed consolidated balance sheets.

There was no Exchange Note activity during the three months ended June 30, 2019. During the six months ended June 30, 2019, the change in Exchange Note debt discounts was as follows:


(Dollars in thousands)		2019
Beginning balance at January 1	$	(83)
Deductions:
Amortization (1)		2
Write-off related to note conversions (2)		81
Balance at June 30	$	—

(1)

Amortization is recognized as interest expense within the condensed consolidated statements of operations based on the effective interest method.

(2)

Write-offs associated with note conversions are recognized as an offset to additional paid-in capital at the time of the conversion.

As a result of the conversions, the Company has also written off approximately $0.4 million of derivative liability with an offset to additional paid-in capital, of which less than $0.1 million was during the six months ended June 30, 2019.

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Convertible Promissory Notes – Crede Note.

On January 15, 2019, the Company and Crede Capital Group LLC (“Crede”) entered into an amendment and restatement agreement (the “Crede Amendment Agreement”) in order to enable the Company to provide Crede with an alternative means of payment of a previous settlement amount, See Note 5 – Accrued Expenses and Other Current Liabilities, by issuing to Crede a convertible note in the amount of $1.45 million (the “Crede Note”). The conversion price of the Crede Note shall equal 90% of the closing bid price of the Company’s common stock on the date prior to each conversion date. The Crede Note is payable by the Company on the earlier of (i) January 15, 2021 or (ii) upon the closing of a qualified offering in which the Company receives gross proceeds of at least $4.0 million. The Crede Note may not be converted if, after giving effect to the conversion, Crede together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of the Company’s common stock. The Company, at its option, may redeem some or all of the then outstanding principal amount of the Crede Note for cash.

In accordance with the terms of the Crede Amendment Agreement, during the period commencing on the date of issuance of the Crede Note and ending on the date Crede no longer beneficially owns any portion of the Crede Note, Crede shall not sell, on any given trading day, more than the greater of (i) $10,000 of common stock (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) and (ii) 10% of the daily average composite trading volume of the Company’s common stock as reported by Bloomberg, LP (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) for such trading day.

During the three and six months ended June 30, 2019, the Company made no payments on the Crede Note. On April 16, 2019, the entire outstanding amount of $1.45 million was converted into 270,699 shares of common stock of the Company and as of June 30, 2019 the remaining amount due on the Crede Note was zero.

Convertible Promissory Notes – Leviston Note

On February 8, 2018, the Company entered into an equity purchase agreement (the “2018 Purchase Agreement”) with Leviston Resources LLC (“Leviston”), see Note 8 – Stockholders Equity for details of the 2018 Purchase Agreement. On January 29, 2019, the Company entered into a settlement agreement (the “Leviston Settlement”) with Leviston pursuant to which the Company issued to Leviston a convertible note in the amount of $0.7 million (the “Leviston Note”) in full satisfaction of certain obligations to Leviston. The Leviston Note is payable by the Company (i) in fourteen equal monthly installments commencing on the earlier to occur of (x) the last day of the month upon which a registration statement to be filed by the Company covering the resale of the shares of common stock underlying the Leviston Note is declared effective by the Securities and Exchange Commission and (y) the six month anniversary of the date of issuance, (ii) upon the closing of a qualified offering, namely the Company raising gross proceeds of at least $4.0 million or (iii) such earlier date as the Leviston Note is required or permitted to be repaid pursuant to its terms. The Company, at its option, may redeem some or the entire then outstanding principal amount of the Leviston Note for cash.

The conversion price in effect on any conversion date shall equal the VWAP of the common stock on such Conversion Date. The Leviston Note may not be converted if, after giving effect to the conversion, Leviston together with its affiliates, would beneficially own in excess of 4.99% of the outstanding shares of the Company’s common stock.

In accordance with the terms of the Leviston Settlement, during the period commencing on the issuance date of the Leviston Note and ending on the date Leviston no longer beneficially owns any shares of common stock issuable upon conversion of the Leviston Note, Leviston shall not sell, on any given trading day, more than the greater of (i) $10,000 of common stock (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) and (ii) 10% of the daily average composite trading volume of the Company’s common stock as reported by Bloomberg, LP (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) for such trading day.

In addition to the Leviston Settlement and the Leviston Note, the Company and Leviston have each executed a release pursuant to which each of the Company and Leviston agreed to release the other party from their respective obligations arising from or concerning the Obligations.

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During the three and six months ended June 30, 2019, the Company made cash payments of zero and less than $0.1 million, respectively, on the Leviston Note. During the three and six months ended June 30, 2019, $0.5 million and $0.7 million of the Leviston note was converted into 111,023 and 184,357 shares of common stock of the Company, respectively. As of June 30, 2019, the remaining amount due on the Leviston Note was zero. As of December 31, 2018, the Company had recorded liabilities related to Leviston of $0.5 million and $0.2 million which were included in other current liabilities and accrued expenses, respectively, in the condensed consolidated balance sheet.

5. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.

Accrued expenses at June 30, 2019 and December 31, 2018 are as follows:


(dollars in thousands)	June 30, 2019		December 31, 2018
Accrued expenses	$	1,325	$	1,583
Accrued compensation		277		118
Accrued interest		53		239
	$	1,655	$	1,940

The Company was able to reduce certain accrued expense and accounts payable amounts through negotiations with certain vendors to settle outstanding liabilities and the Company recorded these amounts as gains which are included in gain on settlement of liability, net. During the three and six months ended June 30, 2019, approximately $1.1 million and $1.3 million, respectively, was recorded as a gain. Similarly, the Company recorded a net gain of less than $0.1 million and $0.1 million during the three and six months ended June 30, 2018, respectively.

Other current liabilities are as follows:

(dollars in thousands) June 30, 2018 December 31, 2017
Obligation to issue common shares $ - $ 1,897
Liability related to equity purchase agreement 460 -
Liability for settlement of equity instrument 1,650 1,085
$ 2,110 $ 2,982

As of December 31, 2017, the Company had recorded a liability related to its obligation to issue shares of its common stock in the future. On February 12, 2018, the Company issued 1,814,754 Settlement Common Shares with a fair value of approximately $1.9 million.


(dollars in thousands)	June 30, 2019		December 31, 2018
Liability related to equity purchase agreement		—		460
Liability for settlement of equity instrument		—		1,450
	$	—	$	1,910

On February 20, 2018, Crede ~~Capital Group LLC (“Crede”)~~ filed a lawsuit against the Company in the Supreme Court of the State of New York for Summary Judgment in Lieu of Complaint requiring the Company to pay cash owed to Crede. Crede claimed that Precipio had breached a Securities Purchase Agreement and Warrant that Crede entered into in connection with an investment in Transgenomic and that pursuant to those agreements, Precipio owed Crede approximately $2.2 million. On March 12, 2018, Precipio entered into a settlement agreement (the “Crede Agreement”) with Crede pursuant to which Precipio agreed to pay Crede a total sum of $1.925 million over a period of 16 months payable in cash, or at the Company’s discretion, in stock, in accordance with terms contained in the Crede Agreement. In accordance with the terms of the agreement and in addition to the agreement to pay, we have also executed and delivered to Crede an affidavit of confession of judgment. As of December 31, 2017, the Company had recorded liabilities relating to Crede of $1.1 million included in other current liabilities on the accompanying condensed consolidated balance sheets and $0.6 million included in common stock warrant liability on the accompanying condensed consolidated balance sheets related to warrants classified as liabilities that Crede is the holder of.

As of the date of the Crede Agreement, the fair value of the common stock warrant liability related to Crede was revalued to approximately $0.4 million, resulting in a gain of $0.2 million included in warrant revaluation in the unaudited condensed consolidated statement of operations during the ~~six~~three months ended ~~June 30,~~March 31, 2018. ~~See Note 9 – Fair Value for further discussion.~~ At the time of the Crede Agreement, the Company recorded $1.3 million in other current liabilities and $0.4 million in other long-term liabilities, thus replacing its $1.1 million liability for settlement of equity instrument and $0.4 million common stock warrant liability. This resulted in the Company recording an additional loss of $0.4 million, which is included in loss on settlement of equity instruments in the unaudited condensed consolidated statement of ~~operations. During~~operations for the six months ended June 30, 2018. During 2018, the Company paid approximately ~~$0.3~~$0.5 million to ~~Crede. The~~Crede, with a remaining ~~amount due to Crede will be paid per~~balance of $1.45 million as of December 31, 2018. On January 15, 2019 the $1.45 million liability was replaced with the Crede ~~Agreement payment schedule with the final installment due in May 2019.~~Note.

As of ~~June 30,~~December 31, 2018, the Company had recorded a liability of approximately $0.5 million related to an equity purchase ~~agreement. The~~agreement with Leviston, which is included in other current liabilities on our condensed consolidated balance sheet. On January 29, 2019, the Company ~~is currently~~entered into the Leviston Settlement pursuant to which the Company issued the Leviston Note in ~~negotiations~~full satisfaction of the $0.5 million discussed above along with ~~the investor with regards~~approximately $0.2 million of other obligations owed to ~~this liability.~~Leviston which are included in accrued expenses in our condensed consolidated balance sheet at December 31, 2018. See Note ~~8 Stockholders’ Equity for further discussion.~~4 – Convertible Notes.

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6. COMMITMENTS AND CONTINGENCIES

The Company is involved in legal proceedings related to matters, which are incidental to its business. ~~The~~Also, the Company ~~has also assumed a number~~is delinquent on the payment of ~~claims as a result of the Merger.~~outstanding accounts payable for certain vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts. See below for a discussion on these matters.

LITIGATIONS

On February 21, 2017, XIFIN, Inc. (“XIFIN”) filed a lawsuit against us in the District Court for the Southern District of California alleging breach of written contract and seeking recovery of approximately $0.27 million owed by us to XIFIN for damages arising from a breach of our obligations pursuant to a Systems Services Agreement between us and XIFIN, dated as of February 22, 2013, as amended and restated on September 1, 2014. A liability of $0.1 million was reflected in accounts payable within the accompanying condensed consolidated balance sheet at December 31, 2018. On April 19, 2019, the Company executed a settlement agreement with XIFIN pursuant to which the Company paid to XIFIN an agreed amount of $40,000 as settlement in consideration for total release from all outstanding amounts due and payable by the Company to XIFIN. The settlement amount was paid in full by the Company on April 19, 2019.

CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owe approximately $0.2 million for certain patent maintenance services rendered. CPA Global has not filed claims against us in connection with this allegation. A liability of approximately less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at June 30, 2019 and December 31, 2018.

On February 17, 2017, Jesse Campbell (“Campbell”) filed a lawsuit individually and on behalf of others similarly situated against us in the District Court for the District of Nebraska alleging we had a materially incomplete and misleading proxy relating to a potential merger and that the merger agreement’s deal protection provisions deter superior offers. As a result, Campbell alleges that we have violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a‑9 promulgated thereafter. The Company filed a motion to dismiss all claims, which motion was fully briefed on November 27, 2017. The Court granted the Company’s motion in full on May 3, 2018 and dismissed the lawsuit. The Eighth Circuit reversed the decision of the District Court and remanded the case back to the District Court. The parties filed a notice with the Court on May 22, 2019, announcing that they had reached a settlement in principle. On June 21, 2019, the parties filed a stipulation of settlement, in which defendants are released from all claims and expressly deny that that they have committed any act or omission giving rise to any liability. The stipulation includes a settlement payment of $1.95 million, which will be primarily funded by our insurance. On July 10, 2019, the Court entered an order preliminarily approving the settlement. The settlement remains subject to final approval by the Court. The Company’s insurance policy includes a deductible of approximately $0.8 million and the Company has previously paid approximately $0.5 million in legal fees in connection with the litigation which have been applied to the deductible leaving approximately $0.3 million to be paid by the Company and approximately $1.7 million to be paid by the insurance company. A liability of approximately $0.3 million has been recorded and is reflected in accrued expenses within the accompanying condensed consolidated balance sheets at June 30, 2019.

On March 21, 2018, Bio-Rad Laboratories filed a lawsuit against us in the Superior Court Judicial Branch of the State of Connecticut for Summary Judgment in Lieu of Complaint requiring us to pay cash owed to Bio-Rad in the amount of $39,000 that was recorded in accounts payable within the accompanying condensed consolidated balance sheet at December 31, 2018. Subsequently, the obligation was paid in full during the second quarter 2019 resulting in no remaining amount due to Bio-Rad as of the filing of this Quarterly Report on Form 10-Q.

OTHER COMMITMENTS

On January 2, 2019, the Company entered into a settlement agreement with a third party service provider pursuant to which we agreed to pay the service provider an aggregate amount of approximately $0.6 million, plus accrued interest at a rate of 8%, pursuant to an agreed upon payment schedule, ending in September 2019, in consideration for the cancellation of an outstanding debt owed by the Company to the service provider in the aggregate amount of approximately $1.5 million (the “Owed Amount”) which was recorded in accounts payable at December 31, 2018. During the three and

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six months ended June 30, 2019, the Company made payments of $0.4 million and $0.6 million, respectively, to the service provider as payment in full of the agreed upon payment schedule. The service provider waived the difference between the settlement amount and the Owed Amount and, as such, the Company recorded a gain on settlement of approximately $0.9 million which is included in gain on settlement of liability, net in the condensed consolidated statements of operations for the three and six months ended June 30, 2019. There was no remaining balance due on the Owed Amount at June 30, 2019.

LEGAL AND REGULATORY ENVIRONMENT

The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not ~~necessarily~~ limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.

Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

7. LEASES

On January 1, 2019, the Company recorded initial ROU assets and corresponding operating lease liabilities of approximately $750,000 and a reversal of deferred rent and prepaid expenses of approximately $6,000 resulting in no cumulative effect adjustment upon adoption of Topic 842. The ~~outcome of legal proceedings~~Company leases administrative facilities and ~~claims brought against us are subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if~~laboratory equipment through operating lease agreements. In addition we rent various equipment used in our diagnostic lab and in our administrative offices through finance lease arrangements. Our operating leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common area or other maintenance costs). The facility leases include one or more options to renew, from 1 to 5 years or more. The exercise of ~~these legal matters were resolved against us~~lease renewal options is typically at our sole discretion, therefore, the renewals to extend the lease terms are not included in our ROU assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and, when they are reasonably certain of exercise, we include the renewal period in our lease term. As our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

Operating leases result in the ~~same reporting period~~recognition of ROU assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for ~~amounts in excess~~the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of ~~management’s expectations,~~lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The primary leases we enter into with initial terms of 12 months or less are for equipment.

Upon the adoption of Topic 842, our ~~financial statements~~accounting for ~~such reporting period could be materially adversely affected. In general,~~finance leases, previously referred to as capital leases, remains substantially unchanged from prior guidance.

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The balance sheet presentation of our operating and finance leases is as follows:


(dollars in thousands)	Classification on the Condensed Consolidated Balance Sheet	June 30, 2019

Assets:
Operating lease assets	Operating lease right-of-use assets	$	627
Finance lease assets	Property and equipment, net		193
Total lease assets		$	820

Liabilities:
Current:
Operating lease obligations	Current maturities of operating lease liabilities	$	212
Finance lease obligations	Current maturities of finance lease liabilities		51
Noncurrent:
Operating lease obligations	Operating lease liabilities, less current maturities		421
Finance lease obligations	Finance lease liabilities, less current maturities		133
Total lease liabilities		$	817

As of June 30, 2019, the ~~resolution~~estimated future minimum lease payments, excluding non-lease components, are as follows:


(dollars in thousands)	Operating Leases		Finance Leases		Total
Remainder of 2019	$	129	$	35	$	164
2020		242		46		288
2021		241		38		279
2022		48		32		80
2023		35		27		62
Thereafter		17		41		58
Total lease obligations		712		219		931
Less: Amount representing interest		(79)		(35)		(114)
Present value of net minimum lease obligations		633		184		817
Less, current portion		(212)		(51)		(263)
Long term portion	$	421	$	133	$	554

Other information as of ~~a legal matter could prevent us from offering our services or products to others, could be material to our financial condition or~~June 30, 2019:


Weighted-average remaining lease term (years):
Operating leases	3.0
Finance leases	4.8
Weighted-average discount rate:
Operating leases	8.00%
Finance leases	7.25%

During the six months ended June 30, 2019, operating cash flows ~~or both, or could otherwise adversely affect our~~from operating ~~results.~~leases was $144,000 and ROU assets obtained in exchange for operating lease liabilities was $750,000.

Operating Lease Costs

~~LITIGATIONS~~

~~The Company is delinquent on the payment of outstanding accounts payable for certain vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts.~~

On June 23, 2016, the Icahn School of Medicine at Mount Sinai (“Mount Sinai”) filed a lawsuit against Transgenomic in the Supreme Court of the State of New York, County of New York, alleging, among other things, breach of contract and, alternatively, unjust enrichment and quantum merit, and seeking recovery of $0.7 million owed by us to Mount Sinai for services rendered. We and Mount Sinai entered into a settlement agreement dated October 27, 2016, which included, among other things, a mutual general release of claims, and our agreement to pay approximately $0.7 million to Mount Sinai in installments over a period of time. Effective as of October 31, 2017, we and Mount Sinai agreed to enter into a new settlement agreement to restructure these liabilities into a secured, long-term debt obligation of $0.5 million which includes accrued interest at 10% with monthly principal and interest payments of $9,472 beginning in July 2018 and continuing over 48 months and we issued warrants in the amount of 24,900 shares, that are exercisable for shares of our common stock, on a 1-for-1 basis, with an exercise price of $7.50 per share, exercisable on the date of issuance with a term of 5 years. We do not plan to apply to list the warrants on the NASDAQ Capital Market, any other national securities exchange or any other nationally recognized trading system. A $0.5 million liability has been recorded and is reflected in long-term debt within the accompanying condensed consolidated balance sheet at June 30, 2018 and December 31, 2017.

On February 21, 2017, XIFIN, Inc. (“XIFIN”) filed a lawsuit against us in the District Court for the Southern District of California alleging breach of written contract and seeking recovery of approximately $0.27 million owed by us to XIFIN for damages arising from a breach of our obligations pursuant to a Systems Services Agreement between us and XIFIN, dated as of February 22, 2013, as amended and restated on September 1, 2014. On April 5, 2017, the court clerk entered default against the Company. On May 5, 2017, XIFIN filed an application for entry of default judgment against us. A liability ofOperating lease costs were $0.1 million and $0.2 million ~~is reflected in accounts payable within~~during the ~~accompanying condensed consolidated balance sheet at~~three and six months ended June 30, ~~2018~~2019, respectively, and ~~December 31, 2017, respectively.~~

~~CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owe approximately $0.2~~$0.1 million for certain patent maintenance services rendered. CPA Global has not filed claims against us in connection with this allegation. A liability of approximately less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheet at June 30, 2018 and December 31, 2017.

On March 21, 2018, Bio-Rad Laboratories filed a lawsuit against us in the Superior Court Judicial Branch of the State of Connecticut for Summary Judgment in Lieu of Complaint requiring us to pay cash owed to Bio-Rad in the amount of $39,000. We are currently in discussions with Bio-Rad to reach payment conditions. A liability of less than $0.1 million has been recorded in accounts payable within the accompanying condensed consolidated balance sheet at June 30, 2018 and December 31, 2017.

~~7. INCOME TAXES~~

~~Income tax expense for~~both the three and six months ended June 30, 2018, ~~and 2017 was zero as a result of recording a full valuation allowance against the deferred tax asset generated during the periods, which~~respectively. These costs are ~~predominantly net operating losses.~~

We had no material interest or penalties during fiscal 2018 or fiscal 2017, and we do not anticipate any such items during the next twelve months. Our policy is to record interest and penalties directlyprimarily related to ~~uncertain tax positions as income tax~~long-term operating leases for the Company’s facilities and laboratory equipment.

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Finance Lease Costs

Finance leases are included in property and equipment, net and finance lease liabilities, less current maturities on the condensed consolidated balance sheets. The associated amortization expense and interest included in the condensed consolidated statements of ~~operations.~~operations for both the three and six months ended June 30, 2019 is less than $0.1 million, respectively.

8. STOCKHOLDERS’ EQUITY

Common Stock.

Pursuant to our Third Amended and Restated Certificate of Incorporation, as amended, we currently have 150,000,000 shares of common stock authorized for issuance.

On ~~February 8,~~December 20, 2018, the ~~Company entered into an equity purchase agreement (the “2018 Purchase Agreement”) with Leviston Resources LLC (“Leviston” or~~Company’s shareholders approved the ~~“Investor”) for the purchase of up~~proposal to ~~$8,000,000 (the “Aggregate Amount”) of shares (the “Shares”) of~~authorize the Company’s ~~common stock from time~~Board of Directors to, ~~time, at~~in its discretion, amend the Company’s ~~option. Shares offered~~Third Amended and ~~sold prior~~Restated Certificate of Incorporation to February 13, 2018 were issued pursuant to the Company’s shelf registration statement on Form S-3 (and the related prospectus) that the Company filed with the Securities and Exchange Commission (the “SEC”) and which was declared effective by the SEC on February 13, 2015 (the “Shelf Registration Statement”).

Sales of the Company’s common stock, if any, may be made in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), at a purchase price equal to 97.25% of the volume weighted average sales price of the common stock reported on the date that Leviston receives a capital call from the Company.

Leviston purchased 721,153 shares (the “Investor Shares”) of the Company’s common stock following the close of business on February 9, 2018, subject to customary closing conditions, at a price per share of $1.04. The shares were sold pursuant to the Shelf Registration Statement. The net proceeds to the Company from this sale were approximately $744,000. In addition to the $6,000 fee (0.75% fee discussed below), the Company incurred approximately $136,000 of additional costs, both of which have been treated as issuance costs within additional paid-in capital in the accompanying unaudited condensed consolidated balance sheet.

In consideration of Leviston’s agreement to enter into the 2018 Purchase Agreement, the Company agreed to pay to Leviston a commitment fee in shares of the Company’s common stock equal in value to 5.25% of the total Aggregate Amount (the “Commitment Shares”), payable as follows: 1.75% on or before February 12, 2018. This amount, of $140,000, was paid to Leviston through the issuance of 170,711 shares of the Company’s common stock on February 12, 2018; 1.75% on the third calendar day after the date on which the registration statement on Form S-1 filed on April 16, 2018 is declared effective by the SEC; and 1.75% on the thirtieth calendar day after the date on which such registration statement on Form S-1 is declared effective by the SEC.

In accordance with the terms of the 2018 Purchase Agreement, the Company provided the Investor with a price protection against their initial investment of Investor Shares at the $1.04 price and the commitment fee at a price of $0.82. The provision states that until the effective date of a registration statement, on the occasion the Company sells, or agrees in writing to issue any common stock or common stock equivalents and any of the terms and conditions appurtenant to such issuance or sale are more favorable to the new investors than are the terms and conditions granted the Investor for less than the purchase price at any time, the Company shall amend the terms of the 2018 Purchase Agreement so as to give the Investor the benefit of such more favorable terms or conditions. Due to the Company entering into the 2018 Note Agreement and accepting the exercise of warrants outstanding at a conversion price of $0.30, the Company is required to reprice the initial investment and the commitment fee at $0.30. As such, at the triggering date of April 20, 2018,increase the total number of ~~shares that the Company is required to issue to the Investor in relation to the repricing of their initial investment and commitment fee is approximately 3.0 million~~authorized shares of ~~which 0.9 million were issued at the time of the 2018 Purchase Agreement. As of June 30,~~common stock from 150,000,000 shares to 250,000,000 shares. The Company has not yet effected this increase.

On February 12, 2018, the Company ~~has not~~ issued ~~the additional 2.1 million~~120,983 shares ~~to the Investor and at the time~~ of ~~issuance would record the additional issuance of stock against additional paid in capital.~~

~~In addition, within the price protection provision, if the Company issues any warrants in connection with issuances, sales or an agreement in writing to issue~~its common stock ~~or common stock equivalents by the Company, the Investor will have the right to receive a proportionate amount~~in exchange for approximately $1.9 million of ~~such warrants, cash or shares, at Investor’s sole election, valued using the Black Scholes formula. As a result of 2018~~debt obligations. See Note Agreement and the April 2018 Warrants issued, the Company is required to provide the Investor with a proportionate and equivalent coverage in the form of warrants, stock or cash in the amount of approximately $460,000. As the Investor has the ability to elect the form of compensation, the Company has recorded the $460,000 as a liability within the other current liabilities line of the accompanying condensed consolidated balance sheet and has recorded a corresponding dividend. The Company is collectively negotiating the two amounts resulting from the price protection provision, with the Investor, to agree on a mutually acceptable settlement.

The Company agreed to pay to Leviston, on each day that Leviston receives a capital call from the Company, all expenses associated with depositing, clearing, selling and mailing of the stock certificates, a fee of 0.75% of any amount purchased by Leviston. Also, the Company paid $35,000 to Leviston for a documentation fee for preparing the 2018 Purchase Agreement. This was recorded in additional paid-in-capital as an off-set to the proceeds received. Leviston will refund the Company $15,000 if certain future conditions are met. Such conditions have not been met as of the date of issuance of this Form 10-Q.

Because the Company’s existing registration statement on Form S-3 expired on February 13, 2018 and, due to the timing of the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, the Company will not be eligible to file a new Form S-3 registration statement until September 1, 2018, the Company agreed to prepare and file with the SEC a registration statement on Form S-1 the (“S-1 Registration Statement”), by April 15, 2018 and to use reasonable best efforts to cause the S-1 Registration Statement to be declared effective by the SEC within ninety days thereafter. The Company filed the S-1 Registration Statement with the SEC on April 16, 2018, which was in a timely manner since the SEC was not open for filings on April 15, 2018. On August 10, 2018, the Company filed with the SEC, on Form RW, to withdraw the S-1 Registration Statement because the Company is seeking to re-negotiate the terms of the 2018 Purchase Agreement in order to comply with the requirements of the SEC pursuant to a letter from the SEC dated August 7, 2018. Accordingly, as of the date of issuance of this form 10-Q, the Company is awaiting an order from the SEC granting withdrawal of the S-1 Registration Statement. The Company is also required to pay liquidated damages of $100,000 on each event of default under the 2018 Purchase Agreement, of which there were none as of June 30, 2018. The Company has provided Leviston with customary indemnification rights under the 2018 Purchase Agreement.

4 – Convertible Notes.

During the six months ended June 30, 2018, the Company issued ~~3,120,000~~208,000 shares of its common stock in connection with conversions of its Series B Preferred Stock and ~~3,345,334~~223,022 shares of its common stock in connection with conversions of its Series C Preferred Stock. Aside from ~~60,000~~4,000 shares of common stock issued in connection with conversions of its Series C Preferred Stock, all of the shares of common stock issued infor the six months ended June 30, 2018 in connection with conversions of its Series B Preferred Stock and Series C Preferred Stock (together the “Preferred Stock”) were issued after the Company induced the holders of its Preferred Stock to convert their shares of Preferred Stock to shares of the company’s common stock (see below - Preferred Stock induced conversions).

During the three and six months ended June 30, 2018, the Company issued ~~3,191,000~~192,733 and 212,733 shares of its common stock, respectively, in connection with the exercise of 192,733 and 212,733 warrants, respectively. The warrant exercises resulted in net cash proceeds to the Company of approximately $0.9 million and $1.1 million during the three and six months ended June 30, 2018.

During the three and six months ended June 30, 2019, the Company issued 310,200 shares of its common stock in connection with the exercise of ~~3,191,000~~310,200 warrants. The warrant exercises resulted in net cash proceeds to the Company of approximately ~~$1.1~~$1.6 million during the six months ended June 30, 2019.

Also, during the three and six months ended June 30, 2019, the Company issued 1,138,310 and 2,386,425 shares, respectively, of its common stock in connection with the conversion of convertible notes, plus interest, totaling $4.1 million and $7.3 million, respectively. See Note 4 – Convertible Notes.

2018 Purchase Agreement

On February 8, 2018 the Company entered into an equity purchase agreement (the “2018 Purchase Agreement”) with Leviston for the purchase of up to $8,000,000 (the “Aggregate Amount”) of shares (the “Shares”) of the Company’s common stock from time to time, at the Company’s option. Shares offered and sold prior to February 13, 2018 were issued pursuant to the Company’s shelf registration statement on Form S‑3 (and the related prospectus) that the Company filed with the Securities and Exchange Commission (the “SEC”) and which was declared effective by the SEC on February 13, 2015 (the “Shelf Registration Statement”).

Leviston purchased 48,076 shares (the “Investor Shares”) of the Company’s common stock following the close of business on February 9, 2018, subject to customary closing conditions, at a price per share of $15.60 for approximately $750,000. The shares were sold pursuant to the Shelf Registration Statement. The Company incurred approximately

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$132,000 in costs which have been treated as issuance costs within additional paid-in capital in the accompanying unaudited condensed consolidated balance sheet.

As required by the terms of the 2018 Purchase Agreement, the Company timely filed an S-1 on April 16, 2018. The S-1 Registration Statement was not declared effective by the SEC and on August 10, 2018 the Company filed a withdrawal request with the SEC. No securities had been issued or sold under this Registration Statement. The Company determined not to proceed with the offering as the Company sought to re-negotiate the terms of the equity purchase agreement in order to comply with the requirements of the SEC pursuant to a letter from the SEC dated August 7, 2018.

In consideration of Leviston’s agreement to enter into the 2018 Purchase Agreement, the Company agreed to pay to Leviston a commitment fee in shares of the Company’s common stock equal in value to 5.25% of the total Aggregate Amount (the “Leviston Commitment Shares”), payable in three installments upon achieving certain milestones. The first installment of 1.75% was due on or before February 12, 2018 and this amount, of $140,000, was paid to Leviston through the issuance of 11,381 shares of the Company’s common stock on February 12, 2018.

In accordance with the terms of the 2018 Purchase Agreement, the Company provided Leviston with a price protection provision, if the Company issues any warrants in connection with issuances, sales or an agreement in writing to issue common stock or common stock equivalents by the Company, Leviston will have the right to receive a proportionate amount of such warrants, cash or shares, at Leviston’s sole election, valued using the Black Scholes formula. As a result of 2018 Note Agreement and the April 2018 Warrants issued, the Company was required to provide Leviston with a proportionate and equivalent coverage in the form of warrants, stock or cash in the amount of approximately $460,000. As Leviston has the ability to elect the form of compensation, the Company has recorded the $460,000 as a liability as of December 31, 2018, within the other current liabilities line of the accompanying condensed consolidated balance sheet.

As of December 31, 2018, the Company had a total of $0.7 million in accruals (see Note 5 – Accrued Expenses and Other Current Liabilities) for potential obligations to Leviston, but had not issued any additional shares or made any payments to Leviston. On January 29, 2019, the Company entered into the Leviston Settlement pursuant to which the Company issued to Leviston the Leviston Note in full satisfaction of all obligations owed to Leviston. See Note 4 – Convertible Notes for further details of the Leviston Note.

LP Purchase Agreement

On September 7, 2018, the Company entered into the LP Purchase Agreement, pursuant to which Lincoln Park has agreed to purchase from the Company up to an aggregate of $10,000,000 of common stock of the Company (subject to certain limitations) from time to time over the term of the LP Purchase Agreement. Pursuant to the terms of the LP Purchase Agreement, on the agreement date, the Company issued 40,000 shares of its common stock to Lincoln Park as consideration for its commitment to purchase shares of common stock of the Company under the LP Purchase Agreement (the “LP Commitment Shares”). Also on September 7, 2018, the Company entered into a registration rights agreement with Lincoln Park (the “LP Registration Rights Agreement”), pursuant to which on September 14, 2018, the Company filed with the SEC a registration statement on Form S-1 to register for resale under the Securities Act of 1933, as amended, or the Securities Act, 466,666 shares of common stock, which includes the LP Commitment Shares, that have been or may be issued to Lincoln Park under the LP Purchase Agreement. The Form S-1 was declared effective by the SEC on September 28, 2018. As of January 16, 2019, all shares registered under this S-1 had been sold and/or issued to Lincoln Park. On February 1, 2019, the Company filed with the SEC a registration statement on Form S-1 to register for resale under the Securities Act of 1933, as amended, or the Securities Act, an additional 1,000,000 shares of common stock that have been or may be issued to Lincoln Park under the LP Purchase Agreement. The Form S-1 was declared effective by the SEC on February 12, 2019.

Under the LP Purchase Agreement, the Company may, from time to time and at its sole discretion, on any single business day on which the closing price of its common stock is not less than $1.50 per share (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the LP Purchase Agreement), direct Lincoln Park to purchase shares of its common stock in amounts up to 30,000 shares, which amounts may be increased to up to 36,666 shares depending on the market price of its common stock at the time of sale and subject to a maximum commitment by Lincoln Park of $1,000,000 per single purchase, which the

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Company refers to as “regular purchases”, plus other “accelerated amounts” and/or “additional accelerated amounts” under certain circumstances. The Company will control the timing and amount of any sales of its common stock to Lincoln Park. The purchase price of the shares that may be sold to Lincoln Park in regular purchases under the LP Purchase Agreement will be based on the market price of the common stock of the Company preceding the time of sale as computed under the LP Purchase Agreement. The purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute such price. The Company may at any time in its sole discretion terminate the LP Purchase Agreement without fee, penalty or cost upon one business day notice. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the LP Purchase Agreement or LP Registration Rights Agreement, other than a prohibition on the Company entering into certain types of transactions that are defined in the LP Purchase Agreement as “Variable Rate Transactions”. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.

Under applicable rules of The Nasdaq Capital Market, in no event may the Company issue or sell to Lincoln Park under the LP Purchase Agreement more than 19.99% of the shares of its common stock outstanding immediately prior to the execution of the LP Purchase Agreement (which is 308,590 shares based on 1,543,724 shares outstanding immediately prior to the execution of the LP Purchase Agreement), which limitation the Company refers to as the Exchange Cap, unless (i) the Company obtains stockholder approval to issue shares of common stock in excess of the Exchange Cap or (ii) the average price of all applicable sales of the Company’s common stock to Lincoln Park under the LP Purchase Agreement equals or exceeds $7.05 (which represents the closing consolidated bid price of the Company’s common stock on September 7, 2018, plus an incremental amount to account for the issuance of the LP Commitment Shares to Lincoln Park), such that issuances and sales of the Company’s common stock to Lincoln Park under the LP Purchase Agreement would be exempt from the Exchange Cap limitation under applicable Nasdaq rules. In any event, the LP Purchase Agreement specifically provides that the Company may not issue or sell any shares of its common stock under the LP Purchase Agreement if such issuance or sale would breach any applicable Nasdaq rules. The Company received shareholder approval on December 20, 2018.

The LP Purchase Agreement also prohibits the Company from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of the Company’s common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of the Company’s common stock, as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule 13d-3 thereunder, which limitation the Company refers to as the Beneficial Ownership Cap as defined in the LP Agreement.

As of the date of issuance of this Form 10-Q, we have already received $4.1 million in aggregate, including approximately $1.4 million from the sale of 328,590 shares of common stock to Lincoln Park during 2018, $0.7 million and $2.4 million from the sale of 240,000 and 998,076 shares of common stock to Lincoln Park during the three and six months ended June 30, 2019, respectively, and $0.3 million from the sale of 100,000 shares of common stock to Lincoln Park from July 1, 2019 through the date of issuance of this Form 10-Q.

Preferred Stock.

The Company’s Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors.

Series B Preferred Stock.

On August 25, 2017, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with the State of Delaware which designates 6,900 shares of our preferred stock as Series B Preferred Stock. The Series B Preferred Stock has a stated value of $1,000 per share and a par value of $0.01 per share. The Series B Preferred Stock includes a beneficial ownership blocker but has no dividend rights (except to the extent dividends are also paid on the common stock).

~~On August 28, 2017, the Company completed the August 2017 Offering~~

Table of 6,000 units consisting of one share of the Company’s Series B Preferred Stock, which was initially convertible into 400 shares of common stock, par value $0.01 per share, at a conversion price of $2.50 per share, and one warrant to purchase up to 400 shares of common stock (the “August 2017 Offering Warrants”) at a combined public offering price of $1,000 per unit. The August 2017 Offering included the sale of 280,000 August 2017 Offering Warrants pursuant to the over-allotment option exercised by Aegis Capital Corp. (“Aegis”) for $0.01 per share or $2,800.Contents

In November 2017, the down round feature of the Series B Preferred Stock was triggered at the time of the Company’s issuance of its Series C Preferred Stock and, as a result, the conversion price of the Series B Preferred Stock was reduced from $2.50 per share to $1.40 per share.

The 2018 Purchase Agreement triggered the down round feature of the Series B Preferred Stock and, as a result, the conversion price of the Company’s Series B Convertible Preferred Stock was automatically adjusted from the reduced ~~$1.40~~$21.00 per share price, related to the 2017 Series C issuance, to ~~$1.04~~$15.60 per share. In connection with the down round adjustment, the Company calculated an incremental beneficial conversion feature of approximately $1.4 million which was recognized as a deemed dividend ~~at time of~~during the ~~down round adjustment.~~

six months ended June 30, 2018 (“Deemed Dividend A”).

The 2018 Inducement Agreement, discussed below, triggered the down round feature of the Series B Preferred Stock and, as a result, the conversion price of the Company’s Series B Convertible Preferred Stock was automatically adjusted from ~~$1.04~~$15.60 per share to ~~$0.75~~$11.25 per share. In connection with the down round adjustment, the Company calculated an incremental beneficial conversion feature of approximately $40,000 which was recognized as a deemed dividend ~~at time of~~during the ~~down round adjustment.~~

six months ended June 30, 2018 (“Deemed Dividend B”).

The 2018 Note Agreement, see Note 4 – ~~Long-Term Debt And~~ Convertible ~~Bridge~~ Notes, triggered the down round feature of the Series B Preferred Stock and, as a result, the conversion price of the Company’s Series B Convertible Preferred Stock was automatically adjusted from ~~$0.75~~$11.25 per share to ~~$0.30~~$4.50 per share. In connection with the down round adjustment, the Company calculated an incremental beneficial conversion feature of approximately ~~$216,000~~$0.2 million which was recognized as a deemed dividend at time of the down round ~~adjustment.~~

adjustment (“Deemed Dividend K”).

During the six months ended June 30, 2018, 2,340 shares of Series B Preferred Stock ~~that were outstanding at December 31, 2017~~ were converted into ~~3,120,000~~208,000 shares of our common stock.

At June 30, 2019 and December 31, 2018, the Company had 6,900 shares of Series B designated and issued and 47 shares of Series B ~~issued and~~ outstanding.

Series C Preferred Stock

On November 6, 2017, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (“Series C Preferred Stock”) with the State of Delaware which designates 2,748 shares of our preferred stock as Series C Preferred Stock. The Series C Preferred Stock has a stated value of $1,000 per share and a par value of $0.01 per share.

On November 2, 2017, the Company entered into a Placement Agency Agreement (the “Placement Agreement”) with Aegis Capital Corp. for the sale on a reasonable best efforts basis of 2,748 units, each consisting of one share of the Company’s Series C Preferred Stock, convertible into a number of shares of the Company’s common stock equal to $1,000 divided by $1.40 and warrants to purchase up to 1,962,857 shares of common stock with an exercise price of $1.63 per share (the “Series C Warrants”) at a combined offering price of $1,000 per unit, in a registered direct offering (the “Series C Preferred Offering”). The Series C Preferred Stock includes a beneficial ownership blocker but has no dividend rights (except to the extent dividends are also paid on the common stock). The securities comprising the units are immediately separable and were issued separately.

The conversion price of the Series C Preferred Stock contains a down round feature. The 2018 Purchase Agreement triggered the down round feature of the Series C Preferred Stock and, as a result, the conversion price of the Company’s Series C Convertible Preferred Stock was automatically adjusted from ~~$1.40~~$21.00 per share to ~~$1.04~~$15.60 per share. In connection with the down round adjustment, the Company calculated an incremental beneficial conversion feature of approximately $0.8 million which was recognized as a deemed dividend ~~at time of~~during the down round adjustment. The 2018 Note Agreement did not trigger any down round adjustment to the conversion price of the Series C Preferred stock because all of the Series C Preferred Stock had been converted bythree months ended March 31, ~~2018.~~

2018 (“Deemed Dividend C”).

During the six months ended June 30, 2018, 2,548 shares of Series C Preferred Stock ~~that were outstanding at December 31, 2017~~ were converted into ~~3,345,334~~223,022 shares of our common stock.

At June 30, 2019 and December 31, 2018, the Company had 2,748 shares of Series C designated and issued and zero shares of Series C ~~issued and~~ outstanding.

Preferred Stock induced conversions

On March 21, 2018, the Company entered into a letter agreement (the “2018 Inducement Agreement”) with certain holders ~~(the “Investors”)~~ of shares of the Company’s Series B Preferred Stock and Series C Preferred Stock (together the “Preferred Stock”), and warrants (the “Warrants”) to purchase shares of the Company’s common stock ~~par value $0.01 per share (“Common Stock”),~~ issued in the Company’s public offering in August 2017 and registered direct offering in November 2017. Pursuant to the 2018 Inducement Agreement, the Company and the ~~Investors~~investors agreed that, as a result of the issuance of shares of ~~Common Stock~~common stock pursuant to that Purchase Agreement, dated February 8, 2018, by and between the Company and the investor named therein, and effective as of the time of execution of the 2018 Inducement Agreement, the exercise price of the Warrants was reduced to ~~$0.75~~$11.25 per share (the “Exercise Price Reduction”) and the conversion price of the Preferred Stock was reduced to ~~$0.75 (the~~$11.25

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(the “Conversion Price Reduction”). As consideration for the Company’s agreement to the Exercise Price Reduction and the Conversion Price Reduction, (i) each ~~Investor~~investor agreed to convert the shares of Preferred Stock held by such ~~Investor~~investor into shares of Common Stock ~~in increments of up~~and (ii) one investor agreed to ~~4.99% of the shares of Common Stock outstanding~~exercise 44,444 Warrants and another investor agreed to exercise 33,333 Warrants all as of the date of the 2018 Inducement Agreement and (ii) one Investor agreed to exercise 666,666 Warrants and another Investor agreed to exercise 500,000 Warrants in increments of up to 4.99% of the shares of Common Stock outstanding as of the date of the 2018 Inducement Agreement, in each case in accordance with the beneficial ownership limitations set forth in the Company’s Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock, the Company’s Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock and the Warrants.Agreement. As discussed above, as of June 30, ~~2018,~~2019, all shares of Preferred Stock, except 47 shares of Series B Preferred Stock, were converted to shares of our common stock pursuant to the terms of the 2018 Inducement Agreement and ~~300,000~~20,000 Warrants were exercised at the ~~$0.75~~$11.25 exercise price.

The 2018 Inducement Agreement represented an inducement by the Company to convert shares of the Preferred Stock. The conversion price of the Preferred Stock ~~was reduced from $1.04 per share to $0.75 per share~~ and the exercise price of the Warrants ~~was~~were reduced from ~~$1.04~~$15.60 per share to ~~$0.75~~$11.25 per ~~share.~~share, respectively. The Company calculated the fair value of the additional securities and consideration to be approximately $1.2 ~~million. This~~million (“Deemed Dividend D”). During the six months ended June 30, 2018, this amount was recorded as a charge to additional paid-in-capital and as a deemed dividend resulting in a reduction of income available to common shareholders in our basic earnings per share calculation. The $1.2 million is comprised of two components: 1) $1.1 million related to the fair value of the additional common shares issued upon conversion of the Preferred Stock due to the reduced conversion price and 2) $0.1 million in incremental fair value of the Warrants resulting from the reduction of the exercise price.

Common Stock Warrants.

The following represents a summary of the warrants outstanding as of June 30, ~~2018:~~2019:


			Underlying	Exercise
	Issue Year	Expiration	Shares	Price
Warrants Assumed in Merger
(1)	2014	April 2020	832	$	1,800.00
(2)	2015	February 2020	1,588	$	1,008.00
(3)	2015	December 2020	272	$	747.00
(4)	2016	January 2021	596	$	544.50

Warrants
(5)	2017	June 2022	2,540	$	41.25
(5)	2017	June 2022	500	$	7.50
(6)	2017	June 2022	6,095	$	105.00
(7)	2017	August 2022	25,201	$	2.25
(8)	2017	August 2022	4,000	$	46.88
(9)	2017	August 2022	47,995	$	150.00
(9)	2017	August 2022	9,101	$	7.50
(10)	2017	August 2022	16,664	$	2.25
(10)	2017	August 2022	7,335	$	2.25
(11)	2017	October 2022	666	$	2.25
(12)	2017	May 2023	—	$	2.25
(13)	2018	October 2022	7,207	$	112.50
(14)	2018	April 2023	69,964	$	5.40
(14)	2018	April 2023	121,552	$	5.40
(15)	2018	October 2022	15,466	$	11.25
(16)	2018	July 2023	14,671	$	5.40
(16)	2018	July 2023	14,672	$	5.40
(16)	2018	August 2023	36,334	$	5.40
(16)	2018	August 2023	36,334	$	5.40
(16)	2018	September 2023	19,816	$	5.40
(16)	2018	September 2023	20,903	$	5.40
(17)	2018	November 2023	75,788	$	5.40
(17)	2018	December 2023	51,282	$	5.40
(18)	2019	April 2024	147,472	$	5.40
(19)	2019	May 2024	154,343	$	9.56
			909,189

Underlying Exercise
Issue Year Expiration Shares Price
Warrants Assumed in Merger
(1) 2014 April 2020 12,487 $ 120.00
(2) 2015 February 2020 23,826 $ 67.20
(3) 2015 December 2020 4,081 $ 49.80
(4) 2016 January 2021 8,952 $ 36.30

Warrants
(5) 2017 June 2022 45,600 $ 2.75
(6) 2017 June 2022 91,429 $ 7.00
(7) 2017 August 2022 559,000 $ 0.30
(8) 2017 August 2022 60,000 $ 3.125
(9) 2017 August 2022 856,446 $ 10.00
(10) 2017 August 2022 359,999 $ 0.30
(11) 2017 October 2022 10,000 $ 0.30
(12) 2017 May 2023 892,857 $ 0.30
(13) 2018 October 2022 108,112 $ 7.50
(14) 2018 April 2019 1,824,176 $ 0.75
(14) 2018 April 2023 1,824,176 $ 0.75
(15) 2018 October 2022 232,000 $ 0.75
6,913,141

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(1)

These warrants were issued in connection with a private placement which was completed in October 2014.

(2)

These warrants were issued in connection with an offering which was completed in February 2015.

(3)

These warrants were issued in connection with an offering which was completed in July 2015.

(4)

These warrants were issued in connection with an offering which was completed in January 2016. Of the remaining outstanding warrants as of ~~March 31, 2018, 5,368~~June 30, 2019, 357 warrants are recorded as a liability, See Note 9 – Fair Value for further discussion, and ~~3,584~~239 are treated as equity.

(5)

These warrants were issued in connection with a June 2017 merger transaction (the “Merger”).

(6)

These warrants were issued in connection with the ~~Merger and are the 2017 New Bridge Warrants.~~Merger.

~~(6)~~

(7)

These warrants were issued in connection with ~~the Merger~~an underwritten public offering completed on August 28, 2017 (the “August 2017 Offering”) and are ~~considered Side Warrants.~~the August 2017 Offering Warrants discussed below.

~~(7)~~

(8)

These warrants were issued in connection with the August 2017 ~~Offering and are the August 2017 Offering Warrants discussed below.~~Offering.

~~(8)~~

(9)

~~These warrants were issued in connection with the August 2017 Offering and are considered Representative Warrants.~~

~~(9)~~

These warrants were issued in connection with the conversion of our Series A Senior stock, at the time of the closing of the August 2017 ~~Offering, and are the Series A Conversion Warrants discussed below.~~Offering.

(10)

These warrants were issued in connection with the conversion of convertible bridge notes, at the time of the closing of the August 2017 Offering, and are the Note Conversion Warrants discussed below.

(11)

These warrants were issued in connection with the waiver of default the Company received in the fourth quarter of 2017 in connection with the Convertible Promissory Notes and are the Convertible Promissory Note Warrants discussed below.

(12)

These warrants were issued in connection with the Series C Preferred Offering and are the Series C Warrants discussed below.

(13)

These warrants were issued in connection with the Debt Obligation settlement agreements and are the Creditor Warrants discussed below.

(14)

These warrants were issued in connection with the ~~April~~ 2018 ~~Bridge Notes~~Note Agreement and are the April 2018 Warrants discussed below.

(15)

These warrants were issued in connection with the 2018 Note Agreement and are the Advisor Warrants discussed below.

(16)

These warrants were issued in connection with the 2018 Note Agreement and are the Q3 2018 Warrants discussed below.

(17)

These warrants were issued in connection with the 2018 Note Agreement and subsequent Amendment Agreement and are the Q4 2018 Warrants discussed below.

(18)

These warrants were issued in connection with the 2018 Note Agreement and subsequent Amendment No. 2 Agreement and are the April 2019 Warrants discussed below.

(19)

These warrants were issued in connection with the May 2019 Bridge Notes and are the May 2019 Warrants discussed below.

~~Warrants Assumed in Merger~~

At the time of the Merger, Transgenomic had a number of outstanding warrants related to various financing transactions that occurred between 2013-2016. Details related to year issued, expiration date, amount of underlying common shares and exercise price are included in the table above.

~~During the six months ended June 30, 2018, 23,055 of the warrants assumed in the Merger expired and are no longer outstanding.~~

August 2017 Offering Warrants

In connection with the August 2017 Offering, the Company issued ~~2,680,000~~178,666 warrants at an exercise price of ~~$3.00,~~$45.00, which contain a down round ~~provision.~~ provision (the “August 2017 Offering Warrants”). The August 2017 Offering Warrants were exercisable immediately and expire 5 years from date of issuance.

As a result of the Series C Preferred Offering, the exercise priceof the August 2017 Offering Warrants was adjusted to ~~$1.40~~$21.00 per share.

In February 2018, as a result of 2018 Purchase Agreement, the exercise price of the August 2017 Offering Warrants was adjusted to ~~$1.04.~~$15.60. At the time the exercise price was adjusted, the Company calculated the fair value of the down round ~~provision~~provisions on the warrants to be approximately $62,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend E”). In addition, as a result of the 2018 Inducement Agreement, the exercise price of the August 2017 Offering Warrants was further adjusted to ~~$0.75~~$11.25 as a result of the Exercise Price Reduction discussed above.

In April 2018, as a result of the 2018 Note Agreement, the exercise priceof the August 2017 Offering Warrants was adjusted to ~~$0.30.~~$4.50. At the time the exercise price was adjusted, the Company calculated the fair value of the down

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round provision on the warrants to be approximately $63,000 and recorded this as a deemed ~~dividend.~~dividend

(“Deemed Dividend L”).

There were ~~1,821,000~~6,800 and ~~2,121,000~~141,400 August 2017 Offering Warrants exercised during the ~~three and~~ six months ended June 30, 2019 and 2018, respectively, for proceeds to the Company of approximately $15,000 and $771,000, respectively. During the six months ended June 30, 2019 and 2018, the intrinsic value of the August 2017 Offering Warrants exercised was $36,000 and $406,000, respectively.

~~Series A Conversion Warrants~~

~~The Company issued Series A Conversion Warrants to purchase an aggregate of 856,446 shares of the Company's common stock at an exercise price of $10.00 per share, which have a term of 5 years.~~

Note Conversion Warrants

Upon the closing of the August 2017 Offering, the Company issued ~~359,999~~23,999 warrants to purchase the Company’s common stock (the “Note Conversion Warrants”). The Note Conversion Warrants have an exercise price of ~~$3.00~~$45.00 per share and contain a down round provision. As a result of the Series C Preferred Offering, the exercise priceof the Note Conversion Warrants was adjusted to ~~$1.40~~$21.00 per share.

In February 2018, as a result of 2018 Purchase Agreement, the exercise price of the Note Conversion Warrants was adjusted to ~~$1.04.~~$15.60. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be approximately $8,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend F”). In addition, as a result of the 2018 Inducement Agreement, the exercise price of the Note Conversion Warrants was further adjusted to ~~$0.75.~~$11.25. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be approximately $5,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend G”).

In April 2018, as a result of the 2018 Note Agreement, the exercise priceof the Note Conversion Warrants was adjusted to ~~$0.30.~~$4.50. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be approximately $10,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend M”).

Convertible Promissory Note Warrants

The Convertible Promissory Note Warrants had an original exercise price of ~~$3.00~~$45.00 per share and contain a down round provision. As a result of the Series C Preferred Offering, the exercise priceof the Convertible Promissory Note Warrants was adjusted to ~~$1.40~~$21.00 per share.

In February 2018, as a result of 2018 Purchase Agreement, the exercise price of the Convertible Promissory Note Warrants was adjusted to ~~$1.04.~~$15.60. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be less than $1,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend H”). In addition, as a result of the 2018 Inducement Agreement, the exercise price of the Convertible Promissory Note Warrants was further adjusted to ~~$0.75.~~$11.25. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be less than $1,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend I”).

In April 2018, as a result of the 2018 Note Agreement, the exercise priceof the Convertible Promissory Note Warrants was adjusted to ~~$0.30.~~$4.50. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be less than $1,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend N”).

Series C Warrants

In connection with the Series C Preferred Offering, the Company issued ~~1,962,857~~130,857 warrants at an exercise price of ~~$1.63,~~$24.45, which contain a down round provision. Series C Warrants are exercisable on the six-month anniversary of the date of issuance and expire 5 years from date they are initially exercisable. The terms of the Series C Warrants prohibit a holder from exercising its Series C Warrants if doing so would result in such holder (together with its affiliates) beneficially owning more than 4.99% of the Company’s outstanding shares of common stock after giving effect to such exercise,

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provided that, at the election of a holder and notice to the Company, such beneficial ownership limitation may be increased to 9.99% of the Company’s outstanding shares of common stock after giving effect to such exercise.

In February 2018, as a result of the 2018 Purchase Agreement, the exercise price of the Series C Warrants was adjusted to ~~$1.04.~~$15.60. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be approximately $58,000 and recorded this as a deemed ~~dividend.~~dividend (“Deemed Dividend J”). In addition, as a result of the 2018 Inducement Agreement, the exercise price of the Series C Warrants was further adjusted to ~~$0.75~~$11.25 as a result of the Exercise Price Reduction discussed above.

In April 2018, as a result of the 2018 Note Agreement, the exercise priceof the Series C Warrants was adjusted to ~~$0.30.~~$4.50. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be approximately $45,000 and recorded this as a deemed ~~dividend.~~dividend

(“Deemed Dividend O”).

There were ~~1,070,000~~25,037 Series C Warrants exercised during both the three and six months ended June 30, ~~2018.~~2019 for proceeds to the Company of approximately $56,000. During the six months ended June 30, 2019, the intrinsic value of the Series C Warrants exercised was approximately $43,000. There were 71,333 Series C Warrants exercised during both the three and six months ended June 30, 2018 for proceeds to the Company of approximately $321,000. During the six months ended June 30, 2018, the intrinsic value of the Series C Warrants exercised was approximately $202,000.

Creditor Warrants

In the fourth quarter of 2017, the Company entered into Settlement Agreements with ~~certain of its accounts payable and accrued liability vendors (the “Creditors”)~~the Creditors pursuant to which the Company agreed to issue, to certain of its Creditors, ~~108,112 warrants~~7,207 Creditor Warrants to purchase ~~108,112~~7,207 shares of the Company’s common stock at an exercise price of ~~$7.50~~$112.50 per share. The ~~warrants~~Creditor Warrants were issued in February 2018. See Note 4 – ~~Long-Term Debt.~~Convertible Notes.

April 2018 Warrants

In connection with the issuance of the April 2018 Bridge ~~notes,~~Notes, the Company issued ~~3,648,352~~243,224 warrants at an exercise price of ~~$0.75. Half~~$11.25 at time of issuance. At issuance, half of these April 2018 Warrants ~~have~~had a five-year term and half ~~have~~had a one-year term. In September 2018, the exercise price was amended to $7.50. At the time of issuance, as discussed in Note 4 ~~Long-Term Debt And~~- Convertible ~~Bridge~~ Notes, the April 2018 Warrants had a fair value of approximately $1.1 million and were recorded as a liability with an offset to debt discount.

In April 2019, as a result of the Amendment No.2 Agreement, the exercise price of the April 2018 Warrants was adjusted to $5.40 and all April 2018 Warrants that had a one-year term were amended to have a five-year term. Due to these modifications, the change in fair value of the April 2018 Warrants was calculated to be an expense of approximately $0.7 million which is included in warrant revaluation and modification in the consolidated statements of operations for the three and six months ended June 30, 2019.

There were 51,708 April 2018 Warrants exercised during the three and six months ended June 30, 2019 for proceeds to the Company of approximately $279,000. During the six months ended June 30, 2019, the intrinsic value of the April 2018 Warrants exercised was approximately $128,000.

Advisor Warrants

At the time of the 2018 Note Agreement, the Company issued ~~232,000~~15,466 warrants with an exercise price of ~~$0.75~~$11.25 to a financial advisor. At the time of issuance, as discussed in Note 4 ~~Long-Term Debt And~~- Convertible ~~Bridge~~ Notes, the Advisor Warrants had a fair value of approximately $0.1 million and were recorded as a liability with an offset to debt ~~discount~~discount.

Q3 2018 Warrants

In connection with the issuance of bridge notes during the third quarter of 2018, the Company issued 196,340 warrants with an exercise price of $11.25 at time of issuance (the “Q3 2018 Warrants”). At the time of issuance, half of

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these Q3 2018 Warrants had a five-year term and half had a one-year term. The Q3 2018 Warrants had a fair value of approximately $0.7 million and were recorded as a liability with an offset to debt discount.

In April 2019, as a result of the Amendment No.2 Agreement, the exercise price of the Q3 2018 Warrants was adjusted to $5.40 and all Q3 2018 Warrants that had a one-year term were amended to have a five-year term. Due to these modifications, the change in fair value of the Q3 2018 Warrants was calculated to be an expense of approximately $0.4 million which is included in warrant revaluation and modification in the consolidated statements of operations for the three and six months ended June 30, 2019.

There were 53,610 Q3 2018 Warrants exercised during the three and six months ended June 30, 2019 for proceeds to the Company of approximately $289,000. During the six months ended June 30, 2019, the intrinsic value of the Q3 2018 Warrants exercised was approximately $133,382.

Q4 2018 Warrants

In connection with the issuance bridge notes during the fourth quarter of 2018, the Company issued 300,115 warrants with an exercise price of $5.40 at time of issuance and a five-year term (the “Q4 208 Warrants”). At the time of issuance, the Q4 2018 Warrants had a fair value of approximately $0.7 million and were recorded as a liability with an offset to debt discount.

There were 173,045 Q4 2018 Warrants exercised during the three and six months ended June 30, 2019 for proceeds to the Company of approximately $934,000. During the six months ended June 30, 2019, the intrinsic value of the Q4 2018 Warrants exercised was approximately $489,000.

April 2019 Warrants

In connection with the issuance of the April 2019 Bridge Notes, the Company issued 147,472 warrants with an exercise price of $5.40 and a five-year term. At the time of issuance, as discussed in Note 4 - Convertible Notes, the April 2019 Warrants had a fair value of approximately $1.0 million and were recorded as a liability with an offset to debt discount.

May 2019 Warrants

In connection with the issuance of the May 2019 Bridge Notes, the Company issued 154,343 warrants with an exercise price of $5.40 and a five-year term. At the time of issuance, as discussed in Note 4 - Convertible Notes, the May 2019 Warrants had a fair value of approximately $0.9 million and were recorded as a liability with an offset to debt discount.

Deemed Dividends

As discussed above, certain of our preferred stock and warrant issuances contain down round provisions which require us to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.

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There were no deemed dividends during the six months ended June 30, 2019. The following represents a summary of the dividends recorded for the six months ended June 30, 2018:


	Amount Recorded
Deemed Dividends	(in thousands)

Dividends resulting from the 2018 Purchase Agreement
Deemed Dividend A	$	1,358
Deemed Dividend C		829
Deemed Dividend E		62
Deemed Dividend F		8
Deemed Dividend H		*
Deemed Dividend J		58

Dividends resulting from the 2018 Inducement Agreement
Deemed Dividend B		40
Deemed Dividend D		1,154
Deemed Dividend G		5
Deemed Dividend I		*

Dividends resulting from the 2018 Note Agreement
Deemed Dividend K		216
Deemed Dividend L		63
Deemed Dividend O		45
Deemed Dividend M		10
Deemed Dividend N		*

For the six months ended June 30, 2018	$	3,848

* Represents less than one thousand dollars

9. FAIR VALUE

FASB guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements for our financial assets and liabilities, as well as for other assets and liabilities that are carried at fair value on a recurring basis in our condensed consolidated financial statements.

FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2—Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets; and

Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.

Common Stock Warrant Liabilities.

Certain of our issued and outstanding warrants to purchase shares of common stock do not qualify to be treated as equity and, accordingly, are recorded as a liability. We are required to record these instruments at fair value at each

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reporting date and changes are recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our condensed consolidated statement of operations.

2016 Warrant Liability

~~The~~In the Merger, the Company assumed ~~the~~a warrant liability related to warrants issued in January 2016 (the “2016 Warrant ~~Liability in the Merger~~Liability”) and it represents the fair value of ~~Transgenomic~~such warrants, ~~issued in January 2016,~~ of which, ~~5,368~~357 warrants remain outstanding as of June 30, ~~2018.~~

2019.

In March 2018, a portion of the 2016 Warrant Liability was part of a settlement agreement pursuant to a lawsuit that was filed against the Company by one of the warrant holders. As such, approximately $0.4 million of the warrant liability, representing ~~20,216~~1,347 warrants, was canceled on the date of the settlement agreement and replaced by and amounts now recorded as other current liabilities or other long-term liabilities. For further detail, see discussion of the Crede Agreement in Note 5 – Accrued Expenses And Other Current Liabilities.

The 2016 Warrant Liability is considered a Level 3 financial instrument and was valued using the Monte Carlo methodology. As of June 30, 2019, assumptions and inputs used in the valuation of the 2016 Warrant Liability include: remaining life to maturity of 1.5 years; annual volatility of 141%; and a risk-free interest rate of 1.84%. As of December 31, 2018, assumptions and inputs used in the valuation of the 2016 Warrant Liability include: remaining life to maturity of ~~2.50~~two years; annual volatility of ~~173%~~176%; and a risk-free interest rate of ~~2.57%~~2.48%.

~~2018 Warrant Liabilities~~

~~At the time of the April 2018~~ Bridge Note ~~issuance,~~Warrant Liabilities

During 2018 and 2019, the Company issued ~~3,648,352~~243,224 of ~~the~~ April 2018 Warrants, ~~and 232,000~~15,466 of ~~the~~ Advisor Warrants, 196,340 of Q3 2018 Warrants, 300,115 of Q4 2018 Warrants, 147,472 of April 2019 Warrants and ~~both warrant~~154,343 of May 2019 Warrants. All of these warrants issuances were classified as a warrant ~~liability~~liabilities (the ~~“2018~~“Bridge Note Warrant Liabilities”). See Note 4 ~~Long-Term Debt And~~- Convertible ~~Bridge~~ Notes for further discussion of each warrant.

The ~~2018~~Bridge Note Warrant Liabilities are considered Level 3 financial instruments and were valued using the Black Scholes model. As of June 30, ~~2018,~~2019, assumptions used in the valuation of the ~~2018~~Bridge Note Warrant Liabilities include: remaining life to maturity of ~~0.8~~2.81 to ~~4.8~~4.88 years; annual volatility of ~~140%~~147% to ~~163%~~173%; and risk free rate of ~~2.33%~~1.71% to ~~2.73%~~

1.76%.

During the three and six months ended June 30, 2019 and 2018, the change in the fair value of the warrant liabilities measured using significant unobservable inputs (Level 3) were comprised of the following:


Dollars in Thousands
	Three Months Ended June 30, 2019
	2016 Warrant		Bridge Note		Total Warrant
	Liability		Warrant Liabilities		Liabilities
Beginning balance at April 1	$	93	$	799	$	892
Additions:		–		1,858		1,858
Total (gains) losses:
Revaluation recognized in earnings		(7)		829		822
Modification recognized in earnings		–		1,128		1,128
Deductions – warrant exercises		–		(2,364)		(2,364)
Balance at June 30	$	86	$	2,250	$	2,336

	Three Months Ended June 30, 2018
	2016 Warrant		Bridge Note		Total Warrant
	Liability		Warrant Liabilities		Liabilities
Beginning balance at April 1	$	124	$	–	$	124
Additions:		–		1,205		1,205
Total gains:
Revaluation recognized in earnings		–		(323)		(323)
Balance at June 30	$	124	$	882	$	1,006

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~~Dollars in Thousands~~


Dollars in Thousands
	Six Months Ended June 30, 2019
	2016 Warrant		Bridge Note		Total Warrant
	Liability		Warrant Liabilities		Liabilities
Beginning balance at January 1	$	116	$	1,016	$	1,132
Additions:		–		1,858		1,858
Total (gains) losses:
Revaluation recognized in earnings		(30)		612		582
Modification recognized in earnings		–		1,128		1,128
Deductions – warrant exercises		–		(2,364)		(2,364)
Balance at June 30	$	86	$	2,250	$	2,336

	Six Months Ended June 30, 2018
	2016 Warrant		Bridge Note		Total Warrant
	Liability		Warrant Liabilities		Liabilities
Beginning balance at January 1	$	841	$	–	$	841
Additions:		–		1,205		1,205
Total gains:
Revaluation recognized in earnings		(261)		(323)		(584)
Deductions – warrant liability settlement		(456)		–		(456)
Balance at June 30	$	124	$	882	$	1,006

Three Months Ended June 30, 2018

2016 Warrant
Liability

2018 Warrant
Liabilities

Total Warrant
Liabilities

Beginning balance at April 1 $ 124 $ - $ 124
Additions: - 1,205 1,205
Total gains:
Recognized in earnings - (323 ) (323 )
Deductions – warrant liability settlement - - -
Balance at June 30 $ 124 $ 882 $ 1,006

~~Dollars~~Derivative Liabilities.

Certain of our issued and outstanding convertible notes contain features that are considered derivative instruments and are required to bifurcated from the debt host and accounted for separately as derivative liabilities. The estimated fair value of the derivatives will be remeasured at each reporting date and any change in ~~Thousands~~estimated fair value of the derivatives will be recorded as non-cash adjustments to earnings. The gains or losses included in earnings are reported in other income (expense) in our condensed consolidated statement of operations.

Six Months Ended June 30, 2018

2016 Warrant
Liability

2018 Warrant
Liabilities

Total Warrant
Liabilities

Beginning balance at January 1 $ 841 $ - $ 841
Additions: - 1,205 1,205
Total gains:
Recognized in earnings (261 ) (323 ) (584 )
Deductions – warrant liability settlement (456 ) - (456 )
Balance at June 30 $ 124 $ 882 $ 1,006

~~Derivative Liability.~~

Bridge Notes Redemption Feature

At the time of the ~~April 2018~~ Bridge Note ~~issuance,~~issuances, the Company recorded a derivative ~~instrument~~instruments as ~~a liability~~liabilities with an initial fair value of approximately ~~$0.1~~$0.3 million. The ~~valuation was~~valuations were performed using the “with and without” approach, whereby the ~~April 2018~~ Bridge Notes were valued both with the embedded derivative and without, and the difference in values was recorded as the derivative liability. See Note 4 ~~Long-Term Debt And~~- Convertible ~~Bridge~~ Notes for further discussion.

Conversion Option

The ~~estimated~~Company recorded derivative liabilities related to the Conversion Option of the Exchange Notes issued during 2018 with an initial fair value of approximately $0.4 million. The valuations were performed using the derivative will be remeasured at each reporting date and any change in estimated fair value of the derivative will be recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our condensed consolidated statement of operations.

Monte Carlo methodology. See Note 4 - Convertible Notes for further discussion.

Table of ~~June 30, 2018 the calculated fair value of the derivative liability was approximately $0.1 million and for~~Contents

During the three and six months ended June 30, 2019 and 2018, the ~~Company recorded a loss of approximately $1,000 which is included in derivative revaluation~~change in the ~~condensed consolidated statement~~fair value of ~~operations.~~the derivative liabilities measured using significant unobservable inputs (Level 3) was comprised of the following:


(Dollars in thousands)	Three Months Ended June 30, 2019
	Bridge Notes
	Redemption		Conversion		Total Derivative
	Feature		Option		Liabilities
Beginning balance at April 1	$	—	$	—	$	—
Deductions:		(438)		—		(438)
Total loss:
Revaluation recognized in earnings		438		—		438
Balance at June 30	$	—	$	—	$	—

		Three Months Ended June 30, 2018
	Bridge Notes
	Redemption		Conversion		Total Derivative
	Feature		Option		Liabilities
Beginning balance at April 1	$	—	$	—	$	—
Additions:		142		—		142
Total loss:
Revaluation recognized in earnings		1		—		1
Balance at June 30	$	143	$	—	$	143


	Six Months Ended June 30, 2019
	Bridge Notes
	Redemption		Conversion		Total Derivative
	Feature		Option		Liabilities
Beginning balance at January 1	$	30	$	32	$	62
Deductions:		(438)		(39)		(477)
Total loss:
Revaluation recognized in earnings		408		7		415
Balance at June 30	$	—	$	—	$	—

	Six Months Ended June 30, 2018
	Bridge Notes
	Redemption		Conversion		Total Derivative
	Feature		Option		Liabilities
Beginning balance at January 1	$	—	$	—	$	—
Additions:		142		—		142
Total loss:
Revaluation recognized in earnings		1		—		1
Balance at June 30	$	143	$	—	$	143

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10. EQUITY INCENTIVE PLAN

The Company's 2006 Equity Incentive Plan (the "2006 Plan") was terminated as to future awards on July 12, 2016. The Company's 2017 Stock Option and Incentive Plan (the "2017 Plan") was adopted by the Company's stockholders on June 5, 2017 and there were ~~666,666~~44,444 shares of common stock reserved for issuance under the 2017 Plan. The 2017 Plan will expire on June 5, 2027.

Amendment of the 2017 Stock Option and Incentive Plan

On January 31, 2018, at a special meeting of the stockholders of the Company, the stockholders approved an amendment and restatement of the ~~Company’s~~ 2017 ~~Stock Option and Incentive~~ Plan ~~(the “2017 Plan”)~~ to:

increase the aggregate number of shares authorized for issuance under the 2017 Plan by ~~5,389,500~~359,300 shares to ~~6,056,166 shares and cumulatively increased on January 1, 2019 and on each January 1 thereafter by the lesser of the annual increase for such year or 500,000~~403,744 shares;

increase the maximum number of shares that may be granted in the form of stock options or stock appreciation rights to any one individual in any one calendar year and the maximum number of shares underlying any award intended to qualify as performance-based compensation to any one individual in any performance cycle, in each case to ~~1,000,000~~66,666 shares of ~~Common Stock;~~common stock; and

add an “evergreen” provision, pursuant to which the aggregate number of shares authorized for issuance under the 2017 Plan will be automatically increased each year beginning on January 1, 2019 by 5% of the number of shares of ~~Common Stock~~common stock issued and outstanding on the immediately preceding December 31, or such lesser number of shares determined by the Company’s Board of Directors or Compensation Committee.

Stock Options.

The Company accounts for all stock-based compensation payments to employees and directors, including grants of employee stock options, at fair value and expenses the benefit in operating expense in the condensed consolidated statements of operations over the service period of the awards. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions as of the reporting date. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model, which requires various assumptions including estimating stock price volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.

During the six months ended June 30, ~~2018,~~2019, the Company granted stock options to ~~employees and directors to~~ purchase up to ~~3,286,528~~285,364 shares of common stock at a weighted average exercise price of ~~$0.71. These awards have vesting periods~~$2.37. 100,000 of ~~one to four years and had a weighted average grant date fair value of $0.65. The fair value calculation of~~the stock options granted during the six months ended June 30, ~~2018 used the follow assumptions: risk free interest rate of 2.63% based on the U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of 135%.~~

2019 were awards subject to performance-based milestone vesting.

The following table summarizes stock option activity under our plans during the six months ended June 30, ~~2018:~~2019:

Number of Weighted-Average
Options Exercise Price
Outstanding at January 1, 2018 236,484 $ 7.12
Granted 3,286,528 0.71
Forfeited (112,953 ) 2.84
Outstanding at June 30, 2018 3,410,059 $ 1.07
Exercisable at June 30, 2018 131,906 $ 8.07


	Number of	Weighted-Average
	Options	Exercise Price
Outstanding at January 1, 2019	224,895	$	15.90
Granted	285,364		2.37
Forfeited	(9,017)		6.92
Outstanding at June 30, 2019	501,242	$	8.29
Exercisable at June 30, 2019	99,047	$	20.22

As of June 30, ~~2018,~~2019, there were ~~2,590,409~~400,693 options that were vested or expected to vest with an aggregate intrinsic value of ~~zero~~approximately $0.2 million and a remaining weighted average contractual life of ~~9.6~~9.2 years.

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During the six months ended June 30, 2018, there were 219,101 options granted with a weighted average exercise price of $10.65 and 7,530 options forfeited with a weighted average exercise price of $42.60.

For the three and six months ended June 30, 2019, we recorded compensation expense for all stock awards of $0.1 million and $0.3 million, respectively, within operating expense in the accompanying statements of operations. For the three and six months ended June 30, 2018, we recorded compensation expense for all stock awards of $0.1 million and $0.2 million, respectively, within operating expense in the accompanying statements of operations. For both the three and six months ended June 30, 2017, we recorded compensation expense for all stock awards of less than $0.1 million. respectively. As of June 30, ~~2018,~~2019, the unrecognized compensation expense related to unvested stock awards was ~~$2.3~~$2.2 million, which is expected to be recognized over a weighted-average period of ~~3.4~~2.5 years.

11. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE

~~Adoption of~~ ASC Topic 606, “Revenue from contracts with customers”

~~On January 1, 2018,~~The Company follows the ~~Company adopted~~guidance of ASC 606 ~~that amends the guidance~~ for the recognition of revenue from contracts with customers to transfer goods and ~~services by using the modified-retrospective method applied to any contracts that were not completed as of January 1, 2018.~~services. The Company performed a comprehensive review of its existing revenue arrangements following the five-step model:

Step 1: Identification of the contract with the customer. Sub-steps include determining the customer in a contract; Initial contract identification and determine if multiple contracts should be combined and accounted for as a single transaction.

Step 2: Identify the performance obligation in the contract. Sub-steps include identifying the promised goods and services in the contract and identifying which performance obligations within the contract are distinct.

Step 3: Determine the transaction price. Sub-steps include variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, noncash consideration and consideration payable to a customer.

Step 4: Allocate transaction price. Sub-steps include assessing the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to the customer.

Step 5: Satisfaction of performance obligations. Sub-steps include ascertaining the point in time when an asset is transferred to the customer and the customer obtains control of the asset upon which time the Company recognizes revenue.

Based on the Company's analysis, there were no changes identified that impacted the amount or timing of revenues recognized under the new guidance as compared to the previous guidance (ASC 605). Additionally, the Company's analysis indicated that there were no changes to how costs to obtain and fulfill our customer contracts would be recognized under the new guidance as compared to the previous guidance. Accordingly, the initial application of the new revenue standard did not result in the recognition of a cumulative effect adjustment to the opening balance of accumulated deficit as of January 1, 2018.

Nature of Contracts and Customers

The Company’s contracts and related performance obligations are similar for its customers and the sales process for all customers ~~start~~starts upon the receipt of requisition forms from the customers for patient diagnostic testing and the execution of contracts for biomarker testing and clinical research. Payment terms for the services provided are 30 days, unless separately negotiated.

Diagnostic testing

Control of the laboratory testing services is transferred to the customer at a point in time. As such, the Company recognizes revenue for laboratory testing services at a point in time based on the delivery method (web-portal access or fax) for the patient’s laboratory report, per the contract.

Clinical research grants

Control of the clinical research services are transferred to the customer over time. The Company will recognize revenue utilizing the “effort based” method, measuring its progress toward complete satisfaction of the performance obligation.

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Biomarker testing and clinical project services

Control of the biomarker testing and clinical project services are transferred to the customer over time. The Company utilizes an “effort based” method of assessing performance and measures progress towards satisfaction of the performance obligation based upon the delivery of results.

The Company generates revenue from the provision of diagnostic testing provided to patients, biomarker testing provided to bio-pharma customers and clinical research grants funded by both bio-pharma customers and government health programs.

Disaggregation of Revenues by Transaction Type

We operate in one business segment and, therefore, the results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. ~~Revenues,~~Service revenue, net ~~of contractual allowances and adjustments~~ for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows (prior-period amounts are not adjusted under the modified-retrospective method of adoption):


	For the Three Months Ended June 30,
(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total
	2019		2018		2019		2018		2019		2018
Medicaid	$	9	$	11	$	—	$	—	$	9	$	11
Medicare		450		281		—		—		450		281
Self-pay		11		20		—		—		11		20
Third party payers		451		219		—		—		451		219
Contract diagnostics		—		—		274		368		274		368
Service revenue, net	$	921	$	531	$	274	$	368	$	1,195	$	899

For the Three Months Ended June 30,
(dollars in thousands) Diagnostic Testing Biomarker Testing Total
2018 2017 2018 2017 2018 2017
Medicaid $ 11 $ 8 $ - $ - $ 11 $ 8
Medicare 281 131 - - 281 131
Self-pay 20 34 - - 20 34
Third party payers 219 143 - - 219 143
Contract diagnostics - - 368 - 368 -
Revenues, net of contractual allowances $ 531 $ 316 $ 368 $ - $ 899 $ 316


	For the Six Months Ended June 30,												For the Six Months Ended June 30,
(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total				Diagnostic Testing				Biomarker Testing				Total
	2018		2017		2018		2017		2018		2017		2019		2018		2019		2018		2019		2018
Medicaid	$	23	$	20	$	-	$	-	$	23	$	20	$	12	$	23	$	—	$	—	$	12	$	23
Medicare		415		289		-		-		415		289		844		415		—		—		844		415
Self-pay		46		54		-		-		46		54		15		46		—		—		15		46
Third party payers		350		256		-		-		350		256		807		350		—		—		807		350
Contract diagnostics		-		-		856		-		856		-		—		—		427		856		427		856
Revenues, net of contractual allowances	$	834	$	619	$	856	$	-	$	1,690	$	619
Service revenue, net													$	1,678	$	834	$	427	$	856	$	2,105	$	1,690

Revenue from the Medicare and Medicaid programs account for a portion of the Company’s patient diagnostic service revenue. Laws and regulations governing those programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience. The Company does not typically enter arrangements where multiple contracts can be combined as the terms regarding services are generally found within a single agreement/requisition form. The Company derives its revenues from three types of transactions: diagnostic testing (“Diagnostic”), and clinical research grants from state and federal research programs, and other revenues from the Company’s ICP technology and bio-pharma projects encompassing genetic ~~diagnostics.~~diagnostics (collectively “Biomarker”).

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Deferred revenue

Deferred revenue, or unearned revenue, refers to advance payments for products or services that are to be delivered in the future. The Company records such prepayment of unearned revenue as a liability, as revenue that has not yet been earned, but represents products or services that are owed to a customer. As the product or service is delivered over time, the Company recognizes the appropriate amount of revenue from deferred revenue. For the period ended June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the deferred revenue was ~~$116,000~~$19,000 and ~~$66,000,~~$49,000, respectively.

Contractual Allowances and Adjustments

We are reimbursed by ~~payors~~payers for services we provide. Payments for services covered by ~~payors~~payers average less than billed charges. We monitor revenue and receivables from ~~payors~~payers and record an estimated contractual allowance for certain revenue and receivable balances as of the revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts ultimately reimbursed by ~~payors.~~payers. Accordingly, the total revenue and receivables reported in our condensed consolidated financial statements are recorded at the amounts expected to be received from these ~~payors.~~payers. For service revenue, the contractual allowance is estimated based on several criteria, including unbilled claims, historical trends based on actual claims paid, current contract and reimbursement terms and changes in customer base and ~~payor/~~payer/product mix. The billing functions for the remaining portion of our revenue are contracted and fixed fees for specific services and are recorded without an allowance for contractual discounts. The following table presents our revenues initially recognized for each associated ~~payor~~payer class during the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.


	For the Three Months Ended June 30,
(dollars in thousands)					Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments
	2019		2018		2019		2018		2019		2018
Medicaid	$	12	$	26	$	(3)	$	(15)	$	9	$	11
Medicare		467		292		(17)		(11)		450		281
Self-pay		11		20		—		—		11		20
Third party payers		1,571		531		(1,120)		(312)		451		219
Contract diagnostics		274		368		—		—		274		368
		2,335		1,237		(1,140)		(338)		1,195		899
Clinical research grants and other		4		60		—		—		4		60
	$	2,339	$	1,297	$	(1,140)	$	(338)	$	1,199	$	959


(dollars in thousands)	For the Six Months Ended June 30,
					Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments
	2019		2018		2019		2018		2019		2018
Medicaid	$	15	$	41	$	(3)	$	(18)	$	12	$	23
Medicare		861		429		(17)		(14)		844		415
Self-pay		15		46		—		—		15		46
Third party payers		2,588		848		(1,781)		(498)		807		350
Contract diagnostics		427		856		—		—		427		856
		3,906		2,220		(1,801)		(530)		2,105		1,690
Clinical research grants and other		11		65		—		—		11		65
	$	3,917	$	2,285	$	(1,801)	$	(530)	$	2,116	$	1,755

For the Three Months Ended June 30,
Contractual Allowances and Revenues, net of Contractual
Gross Revenues adjustments Allowances and adjustments
2018 2017 2018 2017 2018 2017
Medicaid $ 26 $ 41 $ (15 ) $ (33 ) $ 11 $ 8
Medicare 292 128 (11 ) 3 281 131
Self-pay 20 58 - (24 ) 20 34
Third party payers 531 300 (312 ) (157 ) 219 143
Contract diagnostics 368 - - - 368 -
1,237 527 (338 ) (211 ) 899 316
Clinical research grants and other 60 - - - 60 -
$ 1,297 $ 527 $ (338 ) $ (211 ) $ 959 $ 316

For the Six Months Ended June 30,
Contractual Allowances and Revenues, net of Contractual
Gross Revenues adjustments Allowances and adjustments
2018 2017 2018 2017 2018 2017
Medicaid $ 41 $ 65 $ (18 ) $ (45 ) $ 23 $ 20
Medicare 429 294 (14 ) (5 ) 415 289
Self-pay 46 78 - (24 ) 46 54
Third party payers 848 595 (498 ) (339 ) 350 256
Contract diagnostics 856 - - - 856 -
2,220 1,032 (530 ) (413 ) 1,690 619
Clinical research grants and other 65 - - - 65 -
$ 2,285 $ 1,032 $ (530 ) $ (413 ) $ 1,755 $ 619

Allowance for Doubtful Accounts

The Company provides for a general allowance for collectability of services when recording net sales. The Company has adopted the policy of recognizing net sales to the extent it expects to collect that amount. Reference FASB ~~954-605-45-5~~954‑605‑45‑5 and ASU ~~2011-07,~~2011‑07, Health Care Entities: Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debt, and the Allowance for Doubtful Accounts. The change in the allowance for doubtful accounts is directly

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related to the increase in patient service revenues. The following table presents our reported revenues net of the collection allowance and adjustments for the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.


	For the Three Months Ended June 30,
	Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total
	2019		2018		2019		2018		2019		2018
Medicaid	$	9	$	11	$	(9)	$	(12)	$	—	$	(1)
Medicare		450		281		(68)		(42)		382		239
Self-pay		11		20		—		—		11		20
Third party payers		451		219		(180)		(88)		271		131
Contract diagnostics		274		368		—		—		274		368
		1,195		899		(257)		(142)		938		757
Clinical research grants and other		4		60		—		—		4		60
	$	1,199	$	959	$	(257)	$	(142)	$	942	$	817

For the Three Months Ended June 30,
Revenues, net of
(dollars in thousands) Contractual Allowances Allowances for doubtful
and adjustments accounts Total
2018 2017 2018 2017 2018 2017
Medicaid $ 11 $ 8 $ (12 ) $ (2 ) $ (1 ) $ 6
Medicare 281 131 (42 ) (23 ) 239 108
Self-pay 20 34 - (6 ) 20 28
Third party payers 219 143 (88 ) (25 ) 131 118
Contract diagnostics 368 - - - 368 -
899 316 (142 ) (56 ) 757 260
Clinical research grants and other 60 - - - 60 -
$ 959 $ 316 $ (142 ) $ (56 ) $ 817 $ 260


	For the Six Months Ended June 30,
	Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total
	2019		2018		2019		2018		2019		2018
Medicaid	$	12	$	23	$	(12)	$	(23)	$	—	$	—
Medicare		844		415		(127)		(62)		717		353
Self-pay		15		46		—		—		15		46
Third party payers		807		350		(322)		(141)		485		209
Contract diagnostics		427		856		—		—		427		856
		2,105		1,690		(461)		(226)		1,644		1,464
Clinical research grants and other		11		65		—		—		11		65
	$	2,116	$	1,755	$	(461)	$	(226)	$	1,655	$	1,529

For the Six Months Ended June 30,
Revenues, net of
(dollars in thousands) Contractual Allowances Allowances for doubtful
and adjustments accounts Total
2018 2017 2018 2017 2018 2017
Medicaid $ 23 $ 20 $ (23 ) $ (4 ) $ - $ 16
Medicare 415 289 (62 ) (53 ) 353 236
Self-pay 46 54 - (10 ) 46 44
Third party payers 350 256 (141 ) (44 ) 209 212
Contract diagnostics 856 - - - 856 -
1,690 619 (226 ) (111 ) 1,464 508
Clinical research grants and other 65 - - - 65 -
$ 1,755 $ 619 $ (226 ) $ (111 ) $ 1,529 $ 508

Costs to Obtain or Fulfill a Customer Contract

Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in operating expenses in the condensed consolidated statements of operations.

Shipping and handling costs are comprised of inbound and outbound freight and associated labor. The Company accounts for shipping and handling activities related to contracts with customers as fulfillment costs which are included in cost of sales in the condensed consolidated statements of operations.

Accounts Receivable

The Company has provided an allowance for potential credit losses, which has been determined based on management’s industry experience. The Company grants credit without collateral to its patients, most of who are insured under third party payer agreements.

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The following summarizes the mix of receivables:

	June 30, 2018			December 31, 2017
(dollars in thousands)							June 30, 2019		December 31, 2018
Medicaid	$	37		$	37		$	90	$	82
Medicare		774			256			770		633
Self-pay		103			53			73		108
Third party payers		797			1,066			1,852		1,382
Contract diagnostic services		392			445			269		193
Other		-			-			—		—
	$	2,103		$	1,857		$	3,054	$	2,398
Less allowance for doubtful accounts		(1,351	)		(1,127	)		(2,171)		(1,708)
Accounts receivable, net	$	752		$	730		$	883	$	690

The following table presents the roll-forward of the allowance for doubtful accounts for the six months ended June 30, ~~2018.~~2019.


			Allowance for
			Doubtful
(dollars in thousands)			Accounts
Balance, January 1, 2019			$	(1,708)
Collection Allowance:
Medicaid	$	(12)
Medicare		(127)
Third party payers		(322)
		(461)
Bad debt expense	$	(2)
Total charges				(463)
Balance, June 30, 2019			$	(2,171)

Allowance for
Doubtful

(dollars in thousands) Accounts
Balance, January 1, 2018 $ (1,127 )
Collection Allowance:
Medicaid $ (23 )
Medicare (62 )
Third party payers (141 )
Service revenue, net (226 )
Bad debt expense $ 2
Total charges (224 )
Balance, June 30, 2018 $ (1,351 )

Customer Revenue and Accounts Receivable Concentration

Customer revenue and accounts receivable concentration amounted to the following for the identified periods.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Percentage of net sales by customer:
Customer A	29	%	40	%	26	%	44	%
Customer B	11	%	*		*		*

* represents less than 10%

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	June 30,		December 31,
	2019		2018
Percentage of total accounts receivable by customer:
Customer A	28	%	23	%
Customer B	*		*

* represents less than 10%

12. SUBSEQUENT EVENTS

The Company has evaluated events and transactions subsequent to June 30, 2019 through the date the condensed consolidated financial statements were issued and there are no other events to report other than what has been disclosed in the condensed consolidated financial statements.

~~Issuance of Convertible Notes~~

On July 11, 2018, the Company closed on a second round of notes pursuant to the 2018 Note Agreement. This closing provided the Company with $348,099 of proceeds for the issuance of notes with an aggregate principal of $382,526. The notes are payable by the Company on the earlier of (i) the one year anniversary after the initial closing date or (ii) upon the closing of a qualified offering, namely the Company raising gross proceeds of at least $7,000,000. The obligations under the notes are secured, subject to certain exceptions and other permitted payments by a perfected security interest on the assets of the Company. As part of this closing, the Company issued to the investors 765,052 warrants to purchase shares of common stock of the Company with an exercise price of $0.75. Half of these warrants have a five-year term and half have a one-year term.

~~Registration Withdrawal Request~~

On August 10, 2018, the Company filed with the SEC, on Form RW, to withdraw the S-1 Registration Statement initially filed with the SEC on April 16, 2018 because the Company is seeking to re-negotiate the terms41

Table of the 2018 Purchase Agreement in order to comply with the requirements of the SEC pursuant to a letter from the SEC dated August 7, 2018. Accordingly, as of the date of issuance of this form 10-Q, the Company is awaiting an order from the SEC granting withdrawal of the S-1 Registration Statement.Contents

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

Forward-Looking Information

This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis, contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, sources of funding operations, ~~and acquisitions,~~ our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, business strategy, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, expected financial and other benefits from our organizational restructuring activities, actions of governments and regulatory factors affecting our business, retaining key employees and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or the negative versions of these terms and other similar expressions.

You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons, including those described in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q and our prior filings with the Securities and Exchange Commission.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following discussion should be read together with our condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q and with the financial statements, related notes and Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, which we filed with the Securities and Exchange Commission on April ~~13, 2018.~~16, 2019. Results for the three and six months ended June 30 ~~2018~~, 2019 are not necessarily indicative of results that may be attained in the future.

Overview

Precipio, Inc., and ~~Subsidiary,~~its subsidiary, (“we”, “us”, “our”, the “Company” or “Precipio”) is a cancer diagnostics company providing diagnostic products and services to the oncology market. We have built and continue to develop a platform designed to eradicate the problem of misdiagnosis by harnessing the intellect, expertise and technology developed within academic institutions and delivering quality diagnostic information to physicians and their patients worldwide. We operate a cancer diagnostic laboratory located in New Haven, Connecticut and have partnered with the Yale School of Medicine to capture the expertise, experience and technologies developed within academia so that we can provide a better standard of cancer diagnostics and solve the growing problem of cancer misdiagnosis. We also operate a research and development facility in Omaha, Nebraska which will focus on further development of ICE-COLD-PCR ~~or ICP,~~(“ICP”), the patented technology which was exclusively licensed by us from Dana-Farber Cancer Institute, Inc.~~, or Dana-Farber,~~ (“Dana-Farber”) at Harvard ~~University.~~University (“Harvard”). The research and development center will focus on the development of this technology, which we believe will enable us to commercialize other technologies developed by our current and future academic

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partners. Our platform connects patients, physicians and diagnostic experts residing within academic institutions. The platform facilitates the following relationships:

Recent Developments

Nasdaq Compliance

~~During~~

On March 26, 2019, we were notified by the ~~second quarter~~Listing Qualifications Staff of 2018, we continued the development of ICP. Our ICP sales growth plan remains focused on hospitals, large contract research organizations (CRO), OEM’s and national scale labs. In June 2018, we announcedThe Nasdaq Stock Market LLC that we ~~had eight ICP trials underway~~did not meet the minimum closing bid price requirement of $1 for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). On April 25, 2019 we filed a Certificate of Amendment to our Third Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with ~~three reference laboratories, one hospital laboratory, two CRO’s~~the Secretary of State of Delaware, pursuant to which we effected a 1-for-15 reverse stock split (the “Reverse Stock Split”) of our issued and ~~two diagnostic equipment companies. We also have agreements for twelve additional ICP kit trials~~outstanding common stock. The Reverse Stock Split became effective as of 5:00 p.m. (Eastern Time) on April 26, 2019, and our common stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the market open on April 29, 2019. On May 15, 2019, we received notification from Nasdaq that the Company’s stock price was in compliance with the ~~third quarter~~Bid Price Requirement, and that the matter is now closed. Unless otherwise indicated, all share and per share amounts herein are reflective of ~~2018.~~

the Reverse Stock Split.

Going Concern

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable for a going concern, which assume that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past several years. As of June 30, ~~2018,~~2019, the Company had a net loss of ~~$5.3~~$7.6 million, negative working capital of ~~$8.1~~$2.4 million and net cash used in operating activities of ~~$3.6~~$4.9 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of this form 10-Q is dependent upon a combination of achieving its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

To meet its current and future obligations the Company has taken the following steps to capitalize the business and successfully achieve its business plan:

The Company has entered into a purchase agreement with Lincoln Park (the “LP Purchase Agreement” or “Equity Line”), pursuant to which Lincoln Park has agreed to purchase from the Company up to an aggregate of $10.0 million of common stock of the Company (subject to certain limitations) from time to time over the term of the LP Purchase Agreement. The extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources. As of the date of issuance of this Form 10-Q, we have already received $4.1 million in aggregate, including approximately $1.4 million from the sale of 328,590 shares of common stock to Lincoln Park during 2018, $2.4 million from the sale of 998,076 shares of common stock to Lincoln Park during the six months ended June 30, 2019 and $0.3 million from the sale of 100,000 shares of common stock to Lincoln Park from July 1,

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2019 through the date of issuance of this Form 10-Q, leaving the Company an additional $5.9 million to draw upon in the coming year.

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern over the next twelve months from the date of issuance of this ~~form~~Quarterly Report on Form 10-Q. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going ~~concern over the next twelve months from the date of issuance of the form 10-Q.~~concern. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.

Results of Operations for the Three Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

Net Sales.Net sales were as follows:

Dollars in Thousands
Three Months Ended
June 30, Change
2018 2017 $ %
Service revenue, net $ 757 $ 260 $ 497 191 %
Clinical research grants 62 - 62 -
Other (2 ) - (2 ) -
Net Sales 817 260 557 214 %


	Dollars in Thousands
	Three Months Ended
	June 30,				Change
	2019		2018		$		%
Service revenue, net, less allowance for doubtful accounts	$	938	$	757	$	181	24	%
Clinical research grants		—		62		(62)	(100)	%
Other		4		(2)		6	300	%
Net Sales	$	942	$	817	$	125	15	%

Net sales for the three months ended June 30, ~~2018~~2019 were ~~$0.8~~approximately $0.9 million, an increase of ~~$0.6~~$0.1 million ~~or 214%,~~ as compared to the same period in 2017. This increase was a result of increases in contract diagnostic service revenue, patient diagnostic service revenue and clinical research grants. Contract diagnostic service revenue increased as a result of the Merger and was $0.4 million and zero for2018. During the three months ended June 30, ~~2018 and 2017, respectively. Patient~~2019, patient diagnostic service revenue had an increase of ~~$0.1~~$0.3 million ~~for the three months ended June 30, 2018~~ as compared to the same period in ~~2017~~2018 due to an increase in cases processed. We processed ~~383~~445 cases during the three months ended June 30, ~~2018~~2019 as compared to ~~230~~383 cases during the same period in ~~2017,~~2018, or a ~~67%~~16% increase in cases. The increase in volume is the result of increased sales ~~personnel~~personnel. This increase was offset by a decrease of $0.1 million in ~~the second quarter~~contract diagnostic service revenue and a decrease of ~~2018 as compared to 2017. Grant revenue increased by approximately~~ $0.1 ~~million. There was one grant program that had revenue recognition during~~million in clinical research grants for the three months ended June 30, ~~2018 and none during the three months ended June 30, 2017.~~2019 as compared to 2018.

Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed and other direct costs (primarily personnel costs and rent) associated with the operations of our laboratory and the costs of projects related to clinical research grants (personnel costs and operating supplies). Cost of sales ~~increased by $0.4~~was $0.8 million and $0.7 million for the three months ended June 30, 2019 and 2018, respectively. Cost of sales in the current year period, as compared to ~~the same period~~prior year, included an increase in ~~2017. The increase is due to increased biomarker subcontracted processing fees, increased professional medical fees involved~~patient diagnostic costs offset by a decrease in contract diagnostic and clinical grant costs which are in line with the ~~processing of patient tests, increased operating supplies~~changes in ~~our diagnostic laboratory and increased costs~~ related ~~to clinical research grants. These increases were mainly a result of the increased~~ revenues discussed above.

Gross ~~Profit.~~Loss. Gross ~~profit~~loss and gross margins were as follows:

Dollars in Thousands
Three Months Ended
June 30, Margin %
2018 2017 2018 2017
Gross Profit $ 175 $ (24 ) 21 % (9 )%


	Dollars in Thousands
	Three Months Ended
	June 30,				Margin %
	2019		2018		2019		2018
Gross Profit	$	172	$	175	18	%	21	%

Gross margin was ~~21%~~18% of total net sales, for the three months ended June 30, ~~2018,~~2019, compared to ~~a negative 9%~~21% of total net sales for the same period in ~~2017.~~2018. The gross profit ~~increased by~~was approximately $0.2 million during the three months ended June 30, 2019 and 2018, ~~as compared to the same period in 2017 and was due to the increased revenues during the current year.~~respectively.

Table of ~~$0.5 million associated with increased headcount, increased~~ Contents

expenses of $0.3 million related to professional fees and other costs associated with operating as a public company, increased amortization of $0.3 million related to acquired intangibles from the Merger, increased taxes and insurances of $0.2 million due to increased ~~stock compensation costs~~headcount partially offset by a decrease of $0.1 ~~and increased other costs~~million in amortization of ~~$0.2 million.~~acquired intangibles.

Other Income (Expense). Other expense, net was $3.4 million and $0.6 million for the three months ended June 30, 2019 and 2018, respectively, and ~~2017~~ included ~~interest~~ expense from warrant and derivative revaluations of ~~$0.1~~$2.4 million and ~~$0.2 million, respectively. Other expense for the three months ended June 30, 2018~~income from warrant and ~~2017, also included~~derivative revaluations $0.3 million, ~~of income~~respectively, and ~~$3,000 of expense, respectively, for the change in fair value of common stock warrant liabilities. The current year three month period also included an expense of $0.9 million related to~~ a loss on issuance of convertible notes ~~which resulted from debt discounts that were recorded in excess~~ of ~~the face value of the related debt. In the prior year, during~~$1.9 million and $0.9 million, respectively. During the three months ended June 30, ~~2017, we had $2.6 million~~2019, the other expense items were partially offset by gains on settlements of ~~advisory fees related to the Merger and we had no such charges during the three months ended June 30, 2018.~~

liabilities of $1.1 million.

Results of Operations for the Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

Net Sales.Net sales were as follows:

Dollars in Thousands
Six Months Ended
June 30, Change
2018 2017 $ %
Service revenue, net $ 1,464 $ 508 $ 956 188 %
Clinical research grants 62 - 62 -
Other 3 - 3 -
Net Sales 1,529 508 1,021 201 %


	Dollars in Thousands
	Six Months Ended
	June 30,				Change
	2019		2018		$		%
Service revenue, net	$	1,644	$	1,464	$	180	12	%
Clinical research grants		—		62		(62)	(100)	%
Other		11		3		8	267	%
Net Sales	$	1,655	$	1,529	$	126	8	%

Net sales for the six months ended June 30, ~~2018~~2019 were ~~$1.5~~approximately $1.6 million, an increase of ~~$1.0~~$0.1 million ~~or 201%,~~ as compared to the same period in 2017. This increase was a result of increases in contract diagnostic service revenue, patient diagnostic service revenue and clinical research grants. Contract diagnostic service revenue increased as a result of the Merger and was $0.9 million and zero for2018. During the six months ended June 30, ~~2018 and 2017, respectively. Patient~~2019, patient diagnostic service revenue had an increase of ~~$0.1~~$0.6 million ~~for the six months ended June 30, 2018~~ as compared to the same period in ~~2017~~2018 due to an increase in cases processed. We processed ~~523~~805 cases during the six months ended June 30, ~~2018~~2019 as compared to ~~429~~523 cases during the same period in ~~2017,~~2018, or a ~~22%~~54% increase in cases. The increase in volume is the result of increased sales ~~personnel~~personnel. This increase was offset by a decrease of $0.4 million in ~~the second quarter~~contract diagnostic service revenue and a decrease of ~~2018 as compared to 2017. Grant revenue increased by approximately~~ $0.1 ~~million. There was one grant program that had revenue recognition during~~million in clinical research grants for the six months ended June 30, ~~2018 and none during the six months ended June 30, 2017.~~2019 as compared to 2018.

Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed and other direct costs (primarily personnel costs and rent) associated with the operations of our laboratory and the costs of projects related to clinical research grants (personnel costs and operating supplies). Cost of sales ~~increased by $0.9~~was $1.4 million and $1.3 million for the six months ended June 30, 2019 and 2018, respectively. Cost of sales in the current year period, as compared to ~~the same period~~prior year, included an increase in ~~2017. The increase is due to increased biomarker subcontracted processing fees, increased professional medical fees involved~~patient diagnostic costs offset by a decrease in contract diagnostic and clinical grant costs which are in line with the ~~processing of patient tests, increased operating supplies~~changes in ~~our diagnostic laboratory and increased costs~~ related ~~to clinical research grants. These increases were mainly a result of the increased~~ revenues discussed ~~above.~~above

Gross ~~Profit.~~Loss. Gross ~~profit~~loss and gross margins were as follows:

Dollars in Thousands
Six Months Ended
June 30, Margin %
2018 2017 2018 2017
Gross Profit $ 199 $ 42 13 % 8 %


	Dollars in Thousands
	Six Months Ended
	June 30,				Margin %
	2019		2018		2019		2018
Gross Profit (Loss)	$	210	$	199	13	%	13	%

Gross margin was 13% of total net sales, for the six months ended June 30, 2019 and 2018, ~~compared to 8% of total net sales for~~respectively, and the ~~same period in 2017. The~~ gross profit ~~increased by $0.1~~was approximately $0.2 million during the six months ended June 30, 2019 and 2018, ~~as compared to the same period in 2017 and was due to the increased revenues during the current year.~~respectively.

Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs and depreciation and amortization. Our operating expenses ~~increased~~decreased by ~~$3.4~~$0.2 million to ~~$4.8~~$4.6 million for the six months ended June 30, ~~2018~~2019 as compared to the same period in ~~2017.~~2018. This ~~increase~~decrease is ~~impacted by the Merger and other costs associated with operating as~~ a ~~public company which did not exist~~result of a decrease in ~~the second quarter~~impairment of 2017. The increase in operating expenses reflects increased personnel costs of $0.8 million associated with increased headcount, increased expenses of $0.9 million related to professional fees and other costs associated with operating as a public company, increased amortization of $0.6 million related to acquired intangibles from the Merger, increased taxes and insurancesgoodwill of $0.3 million, ~~increased~~a decrease in legal and other professional fees of $0.4 million and a decrease in

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amortization of acquired intangibles of $0.1 million. The decreases were partially offset by a $0.5 million increase in selling, general and administrative personnel costs due to a higher headcount and an increase of $0.1 million in stock compensation ~~costs~~costs.

Other Income (Expense). Other expense, net was $2.9 million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively, and included expense from warrant and derivative revaluations of ~~$0.2~~$2.1 million and ~~increased other costs~~income from warrant and derivative revaluations $0.6 million, respectively, a loss on issuance of ~~$0.3 million.~~ convertible notes of $1.9 million and $0.9 million, respectively, and a loss recorded on settlement of equity instruments of zero and $0.4 million respectively.

During the six months ended June 30, 2019 and 2018, ~~we also recorded a $0.3 million charge for goodwill impairment.~~

~~Other Income (Expense).~~ ~~Other~~the other expense for the six months ended June 30, 2018 and 2017 includes interest expense of $0.1 million and $0.4 million, respectively. Other expense for the six months ended June 30, 2018 and 2017, also included $0.6 million of income and $3,000 of expense, respectively, for the change in fair value of common stock warrant liabilities. During the six months ended June 30, 2018, we also had income fromitems were partially offset by gains on settlements of ~~certain vendor~~ liabilities of $1.3 million and $0.1 million, ~~a loss on settlement of equity instruments of $0.4 million and an expense of $0.9 million related to a loss on issuance of convertible notes.~~

respectively.

Liquidity and Capital Resources

Our working capital positions were as follows:


	Dollars in Thousands
	June 30, 2019		December 31, 2018		Change
Current assets (including cash of $1,169 and $381 respectively)	$	2,331	$	1,793	$	538
Current liabilities		4,750		13,765		(9,015)
Working capital	$	(2,419)	$	(11,972)	$	9,553

Dollars in Thousands
June 30, 2018 December 31, 2017 Change
Current assets (including cash of $71 and $421 respectively) $ 1,158 $ 1,742 $ (584 )
Current liabilities 9,282 10,036 (754 )
Working capital $ (8,124 ) $ (8,294 ) $ 170

During the first ~~quarter~~half of ~~2018~~2019 we received gross proceeds of ~~$400,000 when we entered into an agreement with the Connecticut Department~~$2.4 million from sale of Economic and Community Development by which we received a grant of $100,000 and a loan of $300,000 with a payment term of ten years and we entered into an equity purchase agreement for the purchase of up to $8,000,000 of998,076 shares of our common stock, ~~from time to time, at our option. The initial sale of 721,153 shares of our common stock resulted in net proceeds to us of approximately $618,000.~~

~~In April 2018, we received gross proceeds of approximately $1.7 million through the issuance of convertible notes and during the six months ended June 30, 2018 we also received approximately $1.1~~$1.6 million from the exercise of ~~warrants.~~

310,200 warrants and $2.1 million from the issuance of convertible notes. We also converted $7.3 million of convertible notes, including interest, into 2,386,425 shares of our common stock.

Analysis of Cash Flows – Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

Net Change in Cash. Cash ~~decreased~~increased by ~~$0.4~~$0.8 million during the six months ended June 30, 2019 and 2018, ~~compared to an increase of $0.9 million during the six months ended June 30, 2017.~~respectively.

Cash Flows Used in Operating Activities. The cash flows used in operating activities of approximately ~~$3.6~~$4.9 million during the six months ended June 30, ~~2018~~2019 included a net loss of $7.6 million, an increase in accounts receivable of $0.7 million, a decrease in accounts payable of $1.3 million and a decrease in operating lease liabilities of $0.1 million. These were partially offset by an increase in accrued expenses and other liabilities of $0.1 million, a decrease in inventories of $0.2 million and non-cash adjustments of $4.5 million. The non-cash adjustments to net loss include, among other things, depreciation and amortization, changes in provision for losses on doubtful accounts, warrant and derivative revaluations, stock based compensation, gains on settlements of liabilities and losses on the issuance of convertible notes. The cash flows used in operating activities in the six months ended June 30, 2018 included the net loss of $5.3 million an increase in accounts receivable of $0.2 million and a decrease in accrued expenses and other liabilities of $0.3 million. These were partially offset by a decrease in other assets of $0.2 million and non-cash adjustments of $2.0 million. The cash flows used in operating activities in the six months ended June 30, 2017 included the net loss of $4.4 million and an increase in accounts receivable of $0.1 million. These were partially offset by an increase in accounts payable, accrued expenses and other liabilities of $0.8 million and non-cash adjustments of $2.9 million.

Cash Flows Used In Investing Activities. Cash flows used in investing activities were ~~$0.1~~$30,000 and $44,000 for the six months ended June 30, 2019 and 2018, respectively, resulting from purchases of property and equipment.

Cash Flows Provided by Financing Activities. Cash flows provided by financing activities totaled $5.7 million for the six months ended June 30, ~~2018, resulting~~2019, which included proceeds of $2.4 million from ~~purchases~~the issuance of ~~property~~common stock, $1.6 million from the exercise of warrants and ~~equipment. Cash flows provided~~$2.1 million from the issuance of convertible notes. These proceeds were partially offset by ~~investing activities were $0.1~~payments on our long-term debt of $0.2 million and payments for ~~the six months ended June 30, 2017~~our finance lease obligations and ~~was cash acquired as part~~deferred financing costs of ~~the merger transaction.~~

~~Cash Flows Provided by Financing Activities.~~$0.2 million. Cash flows provided by financing activities totaled $3.3 million for the six months ended June 30, 2018, which included proceeds of $0.6 million from the issuance of common stock, $0.3 million from the issuance of long-term debt, $1.7 million from the issuance of convertible notes and proceeds of $1.1 million from the exercise of

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warrants. These ~~proceeds~~ were partially offset by payments on our long-term debt of $0.2 million and payments for our capital lease obligations and deferred financing costs of $0.2 ~~million. Cash flows provided by financing activities during the six months ended June 30, 2017 included proceeds of $1.7~~ million from the issuance of long-term debt and convertible notes, and $0.4 million from the issuance of preferred stock. These were partially offset by $0.4 million of payments on our debt and capital lease obligations.

Off-Balance Sheet Arrangements

At each of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Commitments

No significant changes to contractual obligations and commitments occurred during the six months ended June 30, ~~2018,~~2019, as compared to those disclosed in our Annual Report on form ~~10-K~~10‑K for the fiscal year ended December 31, ~~2017,~~2018, filed with theSecurities and Exchange Commission on April ~~13, 2018.~~

16, 2019.

Critical Accounting Policies and Estimates

Accounting policies used in the preparation of our financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial statements and require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgments or estimates may vary under different assumptions or circumstances. Our critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, filed with the Securities and Exchange Commission on April 13, ~~2018.~~2019.

Recently Issued Accounting Pronouncements

See the accompanying unaudited condensed consolidated financial statements and Note 2 - “Summary of Significant Accounting Policies” in the Notes to unaudited condensed financial statements for additional information regarding recently issued accounting pronouncements.

Impact of Inflation

We do not believe that price inflation or deflation had a material adverse effect on our financial condition or results of operations during the periods presented.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to management including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. In

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designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and no evaluation of controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, ~~2018~~.2019.

Changes in Internal Control over Financial Reporting

We have evaluated the changes in our internal control over financial reporting that occurred during the ~~six~~three months ended June 30, ~~2018~~2019 and concluded that there have not been any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. On January 1, 2018, we adopted ASC 606 by using the modified-retrospective method. An adjustment was not required and a change to the prior revenue recognition process and policy to adopt the new standard was not necessary.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~See~~On February 21, 2017, XIFIN, Inc. (“XIFIN”) filed a lawsuit against us in the District Court for the Southern District of California alleging breach of written contract and seeking recovery of approximately $0.27 million owed by us to XIFIN for damages arising from a breach of our obligations pursuant to a Systems Services Agreement between us and XIFIN, dated as of February 22, 2013, as amended and restated on September 1, 2014. A liability of $0.1 million was reflected in accounts payable within the accompanying ~~unaudited~~ condensed consolidated ~~financial statements~~balance sheet at December 31, 2018. On April 19, 2019, the Company executed a settlement agreement with XIFIN pursuant to which the Company paid to XIFIN an agreed amount of $40,000 as settlement in consideration for total release from all outstanding amounts due and ~~Note~~payable by the Company to XIFIN. The settlement amount was paid in full by the Company on April 19, 2019.

CPA Global provides us with certain patent management services. On February 6, ~~- “Contingencies”~~2017, CPA Global claimed that we owe approximately $0.2 million for certain patent maintenance services rendered. CPA Global has not filed claims against us in connection with this allegation. A liability of approximately less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at June 30, 2019 and December 31, 2018.

On February 17, 2017, Jesse Campbell (“Campbell”) filed a lawsuit individually and on behalf of others similarly situated against us in the ~~Notes~~District Court for the District of Nebraska alleging we had a materially incomplete and misleading proxy relating to ~~unaudited~~a potential merger and that the merger agreement’s deal protection provisions deter superior offers. As a result, Campbell alleges that we have violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a‑9 promulgated thereafter. The Company filed a motion to dismiss all claims, which motion was fully briefed on November 27, 2017. The Court granted the Company’s motion in full on May 3, 2018 and dismissed the lawsuit. The Eighth Circuit reversed the decision of the District Court and remanded the case back to the District Court. The parties filed a notice with the Court on May 22, 2019, announcing that they had reached a settlement in principle. On June 21, 2019, the parties filed a stipulation of settlement, in which defendants are released from all claims and expressly deny that that they have committed any act or omission giving rise to any liability. The stipulation includes a settlement payment [of $1.95 million], which will be primarily funded by our insurance. On July 10, 2019, the Court entered an order preliminarily approving the settlement. The settlement remains subject to final approval by the Court. The Company’s insurance policy includes a deductible of approximately $0.8 million and the Company has previously paid approximately $0.5 million in legal fees in connection with the litigation which have been applied to the deductible, leaving approximately $0.3 million to be paid by the Companyand approximately $1.7 million to be paid by the insurance company. A liability of approximately $0.3 million has been recorded and is reflected in accrued expenses within the accompanying condensed consolidated ~~financial statements~~balance sheets at June 30, 2019.

On March 21, 2018, Bio-Rad Laboratories filed a lawsuit against us in the Superior Court Judicial Branch of the State of Connecticut for ~~additional information regarding legal proceedings.~~Summary Judgment in Lieu of Complaint requiring us to pay cash owed to Bio-Rad in the amount of $39,000 that was recorded in accounts payable within the accompanying condensed consolidated balance sheet at December 31, 2018. Subsequently, the obligation was paid in full during the second quarter 2019 resulting in no remaining amount due to Bio-Rad as of the filing of this Quarterly Report on Form 10-Q.

LEGAL AND REGULATORY ENVIRONMENT

The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.

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applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

Item 1A. Risk Factors

As disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, there are a number of risks and uncertainties that may have a material effect on the operating results of our business and our financial condition. The following information updates, and should be read in conjunction with, the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report and our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

We have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot be certain that we will achieve or sustain profitability.

We have incurred losses since our inception and expect to incur losses in the future. As of June 30, ~~2018,~~2019, we had a net loss of ~~$5.3~~$7.6 million, negative working capital of ~~$8.1~~$2.4 million and net cash used in operating activities of ~~$3.6~~$4.9 million. To date, we have experienced negative cash flow from development of our diagnostic technology, as well as from the costs associated with establishing a laboratory and building a sales force to market our products and services. We expect to incur substantial net losses for the foreseeable future to further develop and commercialize our diagnostic technology. We also expect that our selling, general and administrative expenses will continue to increase due to the additional costs associated with market development activities and expanding our staff to sell and support our products. Our ability to achieve or, if achieved, sustain profitability is based on numerous factors, many of which are beyond our control, including the market acceptance of our products, competitive product development and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or, if achieved, sustain profitability.

Because of the numerous risks and uncertainties associated with further development and commercialization of our diagnostic technology and any future tests, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor in our securities must carefully consider the substantial challenges, risks and uncertainties inherent in the development and commercialization of tests in the medical diagnostic industry. We may never successfully commercialize our diagnostic technology or any future tests, and our business may fail.

We will need to raise substantial additional capital to commercialize our diagnostic technology, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts or force us to restrict or cease operations.

As of June 30, ~~2018,~~2019, our cash balance was ~~$0.1~~$1.2 million and our working capital was approximately negative ~~$8.1~~$2.4 million. Due to our recurring losses from operations and the expectation that we will continue to incur losses in the future, we will be required to raise additional capital to complete the development and commercialization of our current product candidates and to pay off our obligations. To date, to fund our operations and develop and commercialize our products, we have relied primarily on equity and debt financings. When we seek additional capital, we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, restrict or cease our operations or obtain funds by entering into agreements on unattractive terms.

We are subject to concentrations of revenue risk and concentrations of credit risk in accounts receivable.

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We have had certain customers whose revenue individually represented 10% or more of our total revenue, or whose accounts receivable balances individually represented 10% or more of our total accounts receivable.

For the three months ended June 30, 2019, two customers represented approximately 40% of our total revenue and for the three months ended June 30, 2018 one customer accounted for 40% of our total revenue. For the six months ended June 30, 2019 and 2018, one customer accounted for 26% and 44% of our total revenue, respectively. We expect to maintain the relationship with these customers, however, the loss of, or significant decrease in demand from, any of our top customers could have a material adverse effect on our business, results of operations and financial condition.

At June 30, 2019 and December 31, 2018, one customer accounted for 28% and 23% of our total accounts receivable, respectively. The business risks associated with this concentration, including increased credit risks for this and other customers and the possibility of related bad debt write-offs, could negatively affect our margins and profits. Additionally, the loss of any of our top customers, whether through competition or consolidation, or a disruption in sales to such a customer, could result in a decrease of the Company’s future sales, earnings and cash flows. Generally, we do not require collateral or other securities to support our accounts receivable and while we are directly affected by the financial condition of our customers, management does not believe significant credit risks exist at June 30, 2019.

If we cannot continue to satisfy Nasdaq listing maintenance requirements and other rules, our common stock may be delisted, which could negatively impact the price of our securities.

Although our common stock is listed on the Nasdaq Capital Market, we may be unable to continue to satisfy the listing maintenance requirements and rules. If we are unable to satisfy the Nasdaq Stock Market, or Nasdaq, criteria for maintaining our listing, our securities could be subject to delisting.

On March 26, 2019, we were notified by the Listing Qualifications Staff of The Nasdaq Stock Market LLC that we did not meet the minimum closing bid price requirement of $1 for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). On April 25, 2019 we filed the Certificate of Amendment with the Secretary of State of Delaware, pursuant to which we effected a 1-for-15 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding common stock. The Reverse Stock Split became effective as of 5:00 p.m. (Eastern Time) on April 26, 2019, and our common stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the market open on April 29, 2019. On May 15, 2019, we received notification from Nasdaq that the Company’s stock price was in compliance with the Bid Price Requirement, and that the matter is now closed.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a)

~~(a)~~ Exhibits

~~10.1~~		~~Form of 8% Senior Secured Convertible Promissory Note, dated April 20, 2018 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on April 23, 2018).~~
~~10.2~~		~~Form of Warrant to Purchase Common Stock dated April 20, 2018 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 23, 2018).~~
~~10.3~~ 31.1		Form of Security Agreement by and among the Company and the investors named therein, dated April 20, 2018 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on April 23, 2018).
~~10.4~~		Form of Securities Purchase Agreement by and among the Company and the Purchasers named therein, dated April 20, 2018 (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed on April 23, 2018).
~~10.5~~		~~Form of Letter Agreement by and among the Company and Alliance Global Partners, dated April 20, 2018 (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K filed on April 23, 2018).~~
31.1*		Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
31.2**
31.2		Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
32.1**
32.1*		Certification of Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.
32.2**

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32.2*		Certification of Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*		~~Filed herewith~~
**		~~Furnished herewith~~

*This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference

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SIGNATURES~~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.

			PRECIPIO, INC.

Date: August 9, 2019	~~August 16, 2018~~ By:	~~By:~~	/S/S/ ILAN DANIELI
			Ilan Danieli
		Chief Executive Officer (Principal Executive Officer)


Date: August 9, 2019	~~August 16, 2018~~ By:	~~By:~~	/S/S/ CARL IBERGER
			Carl Iberger
		Chief Financial Officer (Principal Financial Officer)

Delaware	~~91-1789357~~ 91‑1789357
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	~~(I.R.S. Employer~~ Identification No.)

4 Science Park, New Haven, CT	06511
(Address of principal executive offices)	(Zip Code)

	a
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	PRPO	The Nasdaq Stock Market LLC

Large accelerated filer	¨ ☐	Accelerated filer	¨ ☐
Non-accelerated filer	¨☒ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	x ☒
Emerging growth company	¨ ☐

For the quarterly period ended June 30, 2019
	¨
	OR

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