Thank you, Ilan for the introduction. Good afternoon.
Let me extend a welcome to everyone on this shareholder call. I'm Carl Iberger, Precipio's Chief Financial Officer. On today's call, I will be bringing you up to date on significant transactions completed in 2019.
Our operating performance and our balance sheet and what we need to accomplish to obtain breakeven operations.
Let me start my discussion with addressing several material and significant items the company has concluded during Q2. When considering these items taken either individually or collectively, they have been a negative financial and resource drain on the company to-date. Getting these behind us will benefit our future.
All of these items have been reported on in our 10-Q.
First, as Precipio entered 2019 the company had two significant legal claims facing it. Both were holdovers from the 2017 merger. By the end of this past quarter, the company settled both investor related Transgenomic pre-merger matters.
The first matter is Crede Capital claim on Transgenomic.
As of May 2019, this matter has been settled and fully paid with its origin dating back to July 2015 settling and concluding the inherited liability obligations of Transgenomic to Crede Capital is a material financial weight lifted off the company.
The second matter is a legal action stemming from Transgenomic activities pre-merger. Campbell et al. Transgenomic is a lawsuit. In June, negotiations were completed. All parties have agreed on a settlement. Final documents will be completed during Q3. All impact of the settlement have been accounted for in our second quarter financials.
A third item non-legal but more contractual dealing with post-merger agreement was also settled, signed and completed in May of this year. This item has to do with Leviston Resources LLC. At the conclusion of Q2, Precipio has satisfied all outstanding obligations and claims with Leviston and counterclaims by Precipio and has a fully executed release settlement. The fourth item, also during June, was completed settlements with three remaining major merger related legacy accounts payable vendors.
With these settlements, the company can finally turn the page on the legacy payables.
During the last two years, we worked off an excess of 15 million and legacy debt through negotiations, settlement claims and minimizing cash outlays of approximately $8 million. Also in Q2 the company executed a reverse stock split in order to remain on the NASDAQ stock exchange. In previous press releases, and the shareholder call in May, Ilan addressed this action. The financial information provided in the Q has been adjusted to incorporate the 15 for 1 reverse split on April 26. The company has 5.9 million shares, possibly outstanding as of June 30, 2019.
Moving to our operating performance, I'd like to address our business activities. The company filed it's 10Q on August 9, reporting our financials, footnotes disclosure, legal exhibits and management discussion analysis.
During this reporting period covering the three and six month period, ending June 30th. Total reported revenues grew 32% quarter over quarter and 8% for the six month period of year over year.
Based on our projections for additional growth in the second half, we believe our annualized growth rate will continue to increase, exceeding the current annualized rate of 15%. Stepping back and taking a look at our services as of this reporting period, diagnostic testing account for almost all of the reported revenue. Of this amount pathology services represent approximately 75% of all revenues. Pharma services from pharma contracts provides the remaining 25%.
Our New Haven, Connecticut [indiscernible] license pathology lab recently received its cap approval in August.
In recent conversations with our sales team led by Steve Miller, we believe that securing the cap certificate will translate into additional diagnostic sales from key oncology practices. Growth in pathology is directly related to expanding our sales force.
During the first half 2019, we have steadily increased our sales force and with this expansion, we now cover 18 states. Breaking down the account profiles, a majority of revenues generated from pathology diagnostic testing comes from office based oncologists and multi-oncologist physician groups. Medical centers and hospitals comprise the balance. Paramount for success is physician relationships built through the direct to the doc sales force and our in house quality team assigned to customer patient cases. The remaining revenue is comprised of pharma projects. These projects make up approximately 25% of reported revenue. These services generate revenues from contract clinical research companies, pharmaceutical contracts and/or testing developers.
Our pharma services are provided by the company's Omaha, Nebraska research facility.
As Ilan touched upon, we have developed two new laboratory processes HemeScreen launching late 2018 and IV-cell launched in Q1, 2019. When orders are placed, these products and their volume requirements will not only expand revenues, but will help leverage overall lab expenses, affording us economies of scale. Currently, lab technical staff has the capacity to take on increased volume. Both HemeScreen and IV-cell are currently being marketed to cytogenetic molecular reference laboratories and hospitals throughout the U.S., Asia and most recently, as noted previously, Brazil. The management team is extremely confident about the technology and its application. Internally for our own testing needs, we have demonstrated the ability for the media to supplant existing lab processes, providing improved clinical results, saving significant time and reducing costs.
These new lab processes have allowed our New Haven, Connecticut pathology lab to expand it's services and to offer markedly improved clinical outcomes as well as improved turnaround time.
However, with all that said, we are disappointed in the length of time it has taken external labs to complete validation testing. We remain very encouraged but we're not satisfied.
We are confident we're doing all we can edge closer to completion and external valuation.
Gross margins, we've seen the proven and a gross margins but significant improvement can only be generated by continuing to build or sales volume. We project gross margin to markedly improved as volume increases.
Moving to operating expenses and SG&A.
Our expenses required to operate sales and G&A are essentially level year over year while the size of our business has grown by 8% to 10%. What is not obvious is the progress we have made in reducing certain material G&A expense. These savings have been reinvested in our sales force. Key expenses in G&A that we are focused on are public reporting expenses, auditing expenses and legal. Legal expenses have been significantly curtailed, as have the cost for IT support. Legal reductions are a direct result of finalizing the previously discussed settlements. We shall see material changes in the second half.
Going forward, we need to continue to reduce expenses.
As noted, specifically public reporting expenses related to our business. Stepping back from that for the size of Precipio today, public reporting expenses comprised of single largest expense item and they're driven by our audit expenses, valuation analysis on our financial instruments, technical accounting services for accounting guidance and incorporating accounting for our financial instruments. Multiple public reporting fees and associated franchise taxes as well from NASDAQ, from Delaware and through corporate reporting to the states that we provide business in.
Taken as a whole, public reporting costs are excessive for our company.
While we are making progress on G&A expenses throughout the remainder 2019, we will invest or repurpose all expense reductions into expanding the sales force and building customer reporting tools to grow the business.
Looking forward, I believe the proof of these efforts will find their way to second half financials as sales force expansion, funded by the G&A reductions drives volume.
Moving along to other income and expenses during the quarter it was material activity related to our financial instruments and price modifications that resulted in warrant and derivative evaluation expenses and the last and initial sub-convertible notes.
As identified in the 10-Q other expenses net was 3.4 million and 0.6 million for the three months ended June 30, 2019 and 2018 and included expense from warrant and derivative of revaluations of 2.4 million and income from warrant and derivative revaluation of 0.3 billion for the same period -- six months ended as well as a loss of issuance of convertible notes of 1.9 million and 0.9 million, especially.
During three months ended June 30, 2019 the other expense items will partially offset by gains and settlement of liabilities of 1.1 million
Moving to our balance sheet and cash flow activities, looking at our assets, cash reserves at June 30, 2019 were 1.2 million, as compared 0.4 million at year-end 12/31/18. Accounts receivable reflected proportionate increase in revenues, and DSO as of June 30, 2019, was 84 favorable to year in 12/31 DSO of 92. No liabilities for the company to fund the operations and clear the previously discussed settlements.
During the quarter ending June 30th the company issued 2.1 million in new debt, and also received proceeds of 1.6 million from the exercise of warrants.
As of June 30, 2019, cumulative accounts payable and accrued liabilities for 4.3 million as compared to a year ending 12/31 amounts of 7.7 million or a decrease of 3.4 million. Changes in liability reflected recently concluded statements making a gain of approximately 1.1 million in negotiated AP [ph] and the use of proceeds for payment of expenses related to our operations.
Recently, the company filed an F1 on August 9th, estimated proceeds are 4.9 million. The company believes existing cash reserves, combined with the equity line proceeds should provide sufficient runway for the company to successfully market IV-cell and HemeScreen and reach cash flow breakeven and profitability.
Now, let me turn it back to Ilan for some final comments.