Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

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 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 Acto◻

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ◻

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based on the last reported closing price per share of Common Stock as reported on the Nasdaq Capital Market on the last business day of the registrant’s most recently completed second quarter was approximately ~~$19.8~~$19.5 million.

As of March 25, ~~2020,~~2021, the number of shares of common stock outstanding was ~~8,870,129.~~18,132,063.

The Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders (the ~~“2020~~“2021 Proxy Statement”) is incorporated by reference in Part III of this Form 10-K to the extent stated herein. The ~~2020~~2021 Proxy Statement, or an amendment to this Form 10-K, will be filed with the SEC within 120 days after December 31, ~~2019.~~2020. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as a part hereof..

~~This Amendment No. 1 to~~ Annual Report on Form ~~10-K/A (this “Amendment”) is being filed by Precipio Inc. (the “Company”) to amend~~10-K

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third quarter of 2019, both the Company and ~~Mr. Iberger on August 7, 2018.~~the insurance company paid their respective amounts of $0.27 million and $1.68 million, respectively, to an escrow account where the funds were held until they were approved for distribution. On June 3, 2020, the Court approved the settlement and entered an order of dismissal. As of the date the consolidated financial statements were issued, the escrow funds have been released and this matter is closed.

Item 4. Mine Safety Disclosures

⁽⁵⁾Mr. Sabet was appointed our Chief Operations Officer effective June 29, 2017. Prior to that, Mr. Sabet was the Chief Operations Officer of Precipio Diagnostics, Inc. since November 2011. An employment agreement with Mr. Sabet was executed by the Company and Mr. Sabet on August 7, 2018.Not Applicable.

⁽⁶⁾~~An employment agreement with Mr. Miller was executed by the Company and Mr. Miller on August 7, 2018.~~

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

~~2019 Grants of Option Plan-Based Awards~~

Market Information. Since June 30, 2017, our common stock has traded on the NASDAQ Capital Market under the symbol “PRPO.”

The following table sets forth the high and low closing prices for our common stock during each of the quarters of 2020 and 2019 as reported on the market exchange noted above. The per share prices reflect a 1-for-15 reverse stock split effected on April 26, 2019:


	High		Low
Quarter Ended March 31, 2021
First Quarter (through March 25, 2021)	$	3.89	$	2.10
Year Ended December 31, 2020
First Quarter	$	2.30	$	0.68
Second Quarter	$	1.51	$	0.58
Third Quarter	$	7.00	$	1.16
Fourth Quarter	$	2.64	$	1.94
Year Ended December 31, 2019
First Quarter	$	3.90	$	1.83
Second Quarter	$	9.15	$	1.89
Third Quarter	$	4.08	$	2.18
Fourth Quarter	$	2.60	$	1.81

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

Holders. At March 25, 2021, there were 18,132,063 shares of our common stock outstanding and approximately 54 holders of record.

Dividends. No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates. Investors in our common stock should not rely on an investment in our company if they require dividend income.

Issuer Purchases of Equity Securities. We made no purchases of our common stock during the year ended December 31, 2020. Therefore, tabular disclosure is not presented.

Recent Sales of Unregistered Securities. Not applicable.

Item 6. Selected Financial Data

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.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This Annual Report on Form 10-K, 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: the expected or potential impact of COVID-19 which is highly uncertain and will depend on future developments, 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 I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K.

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.

Overview

We are a cancer diagnostics and reagent technology company providing diagnostic products, reagents 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 technologies developed in collaboration with 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 various academic institutions to capture the expertise, experience and technologies developed within academia to provide a better standard of cancer diagnostics and aim to solve the growing problem of cancer misdiagnosis. In support of this platform, we also operate a research and development facility in Omaha, Nebraska which focuses on the development of various technologies, among them our internally developed proprietary products IV-Cell and HemeScreen. To expand our product offering capabilities, the Omaha facility was recently CLIA and CAP certified in order to process a variety of commercial molecular tests previously referenced out and to further expand our capabilities and know-how in transitioning R&D lab generated technology into a commercial laboratory environment.

The Company also holds an exclusive license to patented ICE-COLD-PCR, or ICP technology from Dana-Farber Cancer Institute, Inc., or Dana-Farber, at Harvard University. We believe that such technology will provide additional services and products directed at improving diagnostic outcomes and providing physicians with options for targeted therapies.

In April 2020, we formed a Joint Venture with Poplar. Poplar provides specialized laboratory testing services to a nationwide client base of gastroenterologists, dermatologists, oncologists, urologists, gynecologists and their patients. The business purpose of the Joint Venture is to facilitate and capitalize on the combined capabilities, resources and healthcare industry relationships of its members by partnering, promoting and providing oncology services to office based

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physicians, hospitals and medical centers. Under the terms of the Joint Venture, Precipio SPV has a 49% ownership interest in the Joint Venture, with Poplar having a 51 % ownership. We have determined that we hold a variable interest in the Joint Venture and that we are the primary beneficiary of the Joint Venture. Due to this determination, we consolidate the Joint Venture. See Note 2 - Summary of Significant Accounting Policies for further discussion.

The following discussion should be read together with our financial statements and related notes contained in this Annual Report. Results for the year ended December 31, 2020 are not necessarily indicative of results that may be attained in the future.

Recent Developments

Business Activities - HemeScreen

During late Q3-2020, we launched the HemeScreen Reagent Rental (HSRR) program. Capitalizing on the well documented significant reductions in both time and material in running the genetic test, the Company created a turn-key test offering for office based oncologists, large oncology practices and local hospitals. The HSRR program offers our patent-pending HemeScreen technology coupled with an attractive equipment lease, training and test validation. Through this program, the oncology practice leases to own the diagnostic equipment from the Company that ordinarily they could not afford and also enters into a reagent rental contract with the Company. The HSRR program enables the practice to generate in-house testing revenue instead of sending out the same tests to large commercial reference laboratories as well as allowing the oncology practice to benefit from obtaining faster results; thus ultimately providing better patient care. During the fourth quarter of 2020 the Company signed three accounts. These practices are now in the training and validation periods and we expect recurring revenues from these customers in the first quarter 2021. Through our announced partnership with ION, the Company has accelerated its marketing efforts as ION is a US-based oncology distributor providing services to more than 5,000 oncology accounts nationwide. To date in 2021, co-marketing efforts have accelerated and four regional oncology accounts have signed onto the HSRR program.

Business Activities – COVID Testing

During Q4 2020 the Company announced it entered into an agreement with a South Korean company to market and distribute an FDA-authorized COVID-19 serology antibody test that has recently received EUA (Emergency Use Authorization). Distribution of the product will take place in the U.S. as well as in other markets worldwide. The EUA allows the Company to distribute to all Point of Care facilities and any healthcare provider that has a National Provider Identifier (“NPI”) number.

Code of Conduct

On March 1, 2021, certain stylistic, technical and administrative amendments to the Company’s Code of Business Conduct and Ethics applicable to directors, officers and employees of the Company and its subsidiaries, were approved by the Board, upon recommendation from the Governance and Nominating Committee.

The foregoing description of the amendment to the Company’s Code of Business Conduct and Ethics is qualified in its entirety by reference to the Company’s Code of Business Conduct and Ethics, as amended on March 1, 2021, which is available for review or download in the Corporate Governance section of the Company’s website, www.precipiodx.com.

We expect that any further amendments to the Code of Business Conduct and Ethics, or any waivers of its requirements, will also be disclosed on the Company’s website.

Going Concern

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Company’s ability to continue as a going concern over the next twelve months from the date the consolidated financial statements were issued 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:

●

On March 26, 2020, the Company entered into a second agreement (the “LP 2020 Purchase Agreement”) with Lincoln Park Capital Fund LLC (“Lincoln Park”), 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 2020 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 the consolidated financial statements were issued, we have already received approximately $8.8 million from the LP 2020 Purchase Agreement from the sale of 4,980,000 shares of common stock to Lincoln Park from April 1, 2020 through the date the consolidated financial statements were issued, leaving the Company an additional $1.2 million to draw subsequent to the filing of this Annual Report. See Note 11 Stockholders’ Equity for further discussion on Lincoln Park agreements;

●

During 2020, the Company received $0.8 million in funds from the PPP Loan and on February 11, 2021, the Company filed its application for loan forgiveness. There is no assurance that the Company will obtain forgiveness of the PPP Loan in whole or in part, however, the Company believes it used all of the PPP Loan amount for qualifying expenses and may be granted forgiveness during 2021; and

●

The Company filed with the SEC a registration statement on Form S-3 on March 27, 2020, as amended on April 9, 2020, to register an indeterminate number of shares of common stock and preferred stock, such indeterminate principal amount of debt securities and such indeterminate number of warrants to purchase common stock, preferred stock or debt securities as shall have an aggregate initial offering price not to exceed $50 million. This registration statement was declared effective by the SEC on April 13, 2020 and allows the Company, from time to time, to offer up to $50 million of any combination of the securities described in the Form S-3 in one or more offerings. In order for the Company to utilize the effective S-3, it will have to file subsequent prospectus supplement(s) with regard to the securities it will offer, as applicable from time to time. As of the date of issuance of this Form 10-K, no subsequent prospectus supplements to this effect have been filed by the Company.

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date the consolidated financial statements were issued. 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. The accompanying 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.

Outlook - COVID-19 related

The COVID-19 outbreak, which spread worldwide in the first quarter of 2020, has caused significant business disruption. The extent of the impact of the ongoing COVID-19 pandemic on the Company's operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and impact on the Company's customers, employees and vendors, all of which are uncertain and cannot be predicted. These uncertainties could have a material adverse effect on our business, financial condition or results of operations. We have been actively monitoring the COVID-19 situation and its impact on the global economy and the Company. As the global pandemic evolves, we will continue to monitor the extent to which COVID-19 impacts our revenues, expenses and liquidity.

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Results of Operations for the Years Ended December 31, 2020 and 2019

Net Sales. Net sales were as follows:


	Dollars in Thousands
	Years Ended
	December 31,				Change
	2020		2019		$		%
Service revenue, net, less allowance for doubtful accounts	$	5,872	$	3,083	$	2,789	90	%
Other		220		44		176	400	%
Net Sales	$	6,092	$	3,127	$	2,965	95	%

Net sales for the year ended December 31, 2020 were $6.1 million, an increase of $3.0 million, as compared to the same period in 2019. During the year ended December 31, 2020, patient diagnostic service revenue had an increase of $2.9 million as compared to the same period in 2019 due to an increase in cases processed. We billed 3,677 cases during the year ended December 31, 2020 as compared to 1,672 cases during the same period in 2019, or a 120% increase in cases. Case volume increased in 2020 as the Company increased its customer base by 26%; coupled with a steady increase in ordering volume from existing customers. Unless the states have another complete lockdown, as the country experienced in the early months of the COVID-19 pandemic, we believe the 2020 organic growth will be sustained. Patient diagnostic service revenue accounted for 89% and 80% of our total net sales for the years ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020 as compared to the same period in 2019, other revenues increased by $0.2 million and contract diagnostic service revenue decreased by $0.1 million.

Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales increased by $2.0 million for the year ended December 31, 2020 as compared to the same period in 2019. The increase included an increase in patient diagnostic costs offset by a decrease in contract diagnostic costs which are in line with the changes in related revenues discussed above.

Gross Profit. Gross profit and gross margins were as follows:


	Dollars in Thousands
	Years Ended
	December 31,				Margin %
	2020		2019		2020		2019
Gross Profit	$	1,150	$	219	19	%	7	%

Gross margin was 19% of total net sales, for the year ended December 31, 2020, compared to 7% of total net sales for the same period in 2019 and the gross profit was approximately $1.2 million and $0.2 million during the years ended December 31, 2020 and 2019, respectively. The gross margin increased during the year ended December 31, 2020, as compared to the prior year period, as a result of increases in case volume and revenue. We operate a fully staffed CLIA and CAP certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. The increase in case volume enabled our laboratory to yield economies of scale and to leverage fixed expenses. We anticipate case volume to increase in 2021 and for our costs per case to improve as additional economies of scale are possible.

Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs and depreciation and amortization, including any intangible asset impairment. Our operating expenses decreased by $0.9 million to $10.3 million for the year ended December 31, 2020 as compared to $11.2 million for the year ended December 31, 2019. This decrease is the result of a decrease in intangible asset impairment of $1.6 million and a decrease in general and administrative costs of $0.1 million. The decreases were partially offset by an increase of $0.8 million in sales and marketing costs, which is primarily increased personnel costs related to our increase in patient diagnostic service revenues.

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Other Income (Expense). We recorded net other expense, of $1.5 million and $2.4 million for the years ended December 31, 2020 and 2019, respectively. The current year period net expense of $1.5 million includes $0.3 million of interest expense from the amortization of debt discounts, net of accretion of debt premiums, related to convertible notes, $0.2 million of other interest expense and $1.2 million in expense for loss on extinguishment of convertible notes which was recorded in conjunction with the March 2020 Amendment. The expenses were partially offset by $0.2 million of other income and gains on settlements of liabilities. Approximately $0.1 million of the other income is funds we received from the U.S. Department of Health and Human Services (“HHS”). As part of the CARES Act, HHS distributed funds to healthcare providers that received Medicare fee-for-service reimbursements in 2019. The payments from HHS are not loans and will not be required to be repaid.

During the year ended December 31, 2019, net other expense of approximately $2.3 million included expense from warrant and derivative revaluations of $1.1 million, a loss on issuance of convertible notes of $1.9 million, a loss on litigation of $0.3 million and net interest expense of approximately $0.5 million. These expense items were partially offset by gains on settlements of liabilities of $1.4 million.

Liquidity and Capital Resources

Our working capital positions at December 31, 2020 and 2019 were as follows:


	Dollars in Thousands
	December 31, 2020		December 31, 2019		Change
Current assets (including cash of $2,656 and $848 respectively)	$	4,204	$	1,878	$	2,326
Current liabilities		4,656		4,334		322
Working capital	$	(452)	$	(2,456)	$	2,004

During the year ended December 31, 2020 we received gross proceeds of $8.9 million from sale of 5,770,654 shares of our common stock and $0.8 million from the PPP Loan. We also converted $2.2 million of convertible notes, including interest, into 3,908,145 shares of our common stock.

Analysis of Cash Flows - Years Ended December 31, 2020 and 2019

Net Change in Cash. Cash increased by $1.8 million and $0.5 million during the years ended December 31, 2020 and 2019, respectively.

Cash Flows Used in Operating Activities. The cash flows used in operating activities of $7.4 million during the year ended December 31, 2020 included a net loss of $10.6 million, an increase in accounts receivable of $1.6 million, an increase in inventories and other assets of $0.2 million and a decrease in accounts payable and operating lease liabilities of $0.5 million. These were partially offset by an increase in accrued expenses and other liabilities of $0.7 million and non-cash adjustments of $4.8 million. The non-cash adjustments included $1.3 million for the change in provision for losses on doubtful accounts. We routinely provide a reserve for doubtful accounts as a result of having limited in-network payer contracts. Non-cash adjustments also included $1.2 million for loss on extinguishment of convertible notes, which resulted from a March 2020 amendment to certain Bridge Notes whereby, among other things, the floor price at which conversions may occur was amended from $2.25 to $0.40. See Note 6 – Convertible Notes for further discussion. The other non-cash adjustments to net loss of approximately $2.3 million include, among other things, depreciation and amortization, warrant revaluations and stock based compensation. The cash flows used in operating activities in the year ended December 31, 2019 included the net loss of $13.2 million, an increase in accounts receivable of $0.8 million, a decrease in accounts payable of $1.9 million and a decrease in operating lease liabilities of $0.2 million. These were partially offset by a decrease in other assets of $0.4 million and non-cash adjustments of $6.6 million.

Cash Flows Used In Investing Activities. Cash flows used in investing activities were $0.1 million for the years ended December 31, 2020 and 2019, respectively, resulting from purchases of property and equipment partially offset by proceeds from sales of fixed assets.

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Cash Flows Provided by Financing Activities. Cash flows provided by financing activities totaled $9.3 million for the year ended December 31, 2020, which included proceeds of $8.9 million from the issuance of common stock and proceeds of $0.8 million from the PPP Loan. These proceeds were partially offset by payments on our long-term debt and finance lease obligations of $0.4 million. Cash flows provided by financing activities totaled $9.7 million for the year ended December 31, 2019, which included proceeds of $6.6 million from the issuance of common stock, $1.6 million from the exercise of warrants and $2.1 million from the issuance of convertible notes. These proceeds were partially offset by payments on our long-term debt and convertible notes of $0.5 million and payments for our finance lease obligations and deferred financing costs of $0.1 million.

Off-Balance Sheet Arrangements

At each of December 31, 2020 and December 31, 2019, 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

At December 31, 2020, our contractual obligations and other commitments were as follows:


	Payments Due By Period
(in thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long term debt⁽¹⁾	$	1,068	$	664	$	247	$	70	$	87
Finance lease obligations⁽²⁾		188		60		87		41		—
Operating lease obligations⁽²⁾		342		241		83		18		—
Purchase obligations⁽³⁾		1,735		1,068		447		220		—
	$	3,333	$	2,033	$	864	$	349	$	87

(1)	See Note 5 - "Long-Term Debt" to our accompanying consolidated financial statements included with this Annual Report on Form 10-K.

(2)	See Note 8 - "Leases" to our accompanying consolidated financial statements included with this Annual Report on Form 10-K.

(3)	These amounts represent purchase commitments, including all open purchase orders.

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company’s significant accounting policies are more fully described in Note 2 of the notes to Consolidated Financial Statements included with this Annual Report on Form 10-K. Certain accounting estimates are particularly important to the understanding of the Company’s financial position and results of operations and require the application of significant judgment by the Company’s management and can be materially affected by changes from period to period in economic factors or conditions that are outside the control of management. The Company’s management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on historical operations, future business plans and projected financial results, the terms of existing contracts, the observance of trends in the industry, information provided by

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customers and information available from other outside sources, as appropriate. The following discusses the Company’s critical accounting policies and estimates:

Revenue Recognition

Service revenues are comprised of patient diagnostic services for cancer as well as contract diagnostic services for pharmacogenomics trials. Service revenue is recognized upon completion of the testing process and when the diagnostic result is delivered to the ordering physician and/or customer. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered, including retroactive adjustment under reimbursement agreements with third-party payers. Revenue under third-party payer agreements is subject to audit and retroactive adjustment. Provisions for third-party payer settlements are provided in the period in which the related services are rendered and adjusted in the future periods, as final settlements are determined.

Revenue from clinical research grant is recognized over time as the service is being performed using a proportional performance method. The Company uses an "efforts based" method of assessing performance. If the arrangement requires the performance of a specified number of similar acts (i.e. test), then revenue is recognized in equal amounts as each act is completed.

Other revenues are comprised of the Company’s ICP technology kit sales to bio-pharma customers, clinical research, HemeScreen and COVID-19 antibody tests.

For the year ended December 31, 2020, service revenue represented 96% of our consolidated revenues and other revenues represented 4%. For the year ended December 31, 2019, service revenue represented 99% of our consolidated revenues and other revenues represented 1%.

Allowance for Contractual Discounts

We are reimbursed by payers for services we provide. Payments for services covered by payers average less than billed charges. We monitor revenue and receivables from 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 payers. Accordingly, the total revenue and receivables reported in our financial statements are recorded at the amounts expected to be received from these 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 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.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on estimates of losses related to receivable balances. The risk of collection varies based upon the service, the payer (commercial health insurance and government) and the patient’s ability to pay the amounts not reimbursed by the payer. We estimate the allowance for doubtful accounts based upon several factors including the age of the outstanding receivables, the historical experience of collections, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for the ability to pay. Collection agencies are employed and legal action is taken when we determine that taking collection actions is reasonable relative to the probability of receiving payment on amounts owed. Management judgment is used to assess the collectability of accounts and the ability of our customers to pay. Judgment is also used to assess trends in collections and the effects of systems and business process changes on our expected collection rates. We review the estimation process quarterly and make changes to the estimates as necessary. When it is determined that a customer account is uncollectible, that balance is written off against the existing allowance.

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Accounts Receivable

Accounts Receivable results from diagnostic services provided to self-pay and insured patients, project based testing services, clinical research and miscellaneous product sales. The services provided by the Company are generally due within 30 days from the invoice date. Accounts receivable are reduced by an allowance for doubtful accounts. In evaluating the collectability of accounts receivable, the Company analyzes and identifies trends for each of its sources of revenue to estimate the appropriate allowance for doubtful accounts. For receivables associated with self-pay patients, including patients with insurance and a deductible and copayment, the Company records an allowance for doubtful accounts in the period of services on the basis of past experience of patients unable or unwilling to pay for service fee for which they are financially responsible. For receivables associated with services provided to patients with third-party coverage, the Company analyzes contractually due amounts and provides an allowance, if necessary. The difference between the standard rates and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the grantee’s requisite vesting period on a straight-line basis. For the purpose of valuing stock options granted to our employees, directors and officers, we use the Black-Scholes option pricing model. To determine the risk-free interest rate, we utilized the U.S. Treasury yield curve in effect at the time of the grant with a term consistent with the expected term of our awards. The expected term of the options granted is in accordance with Staff Accounting Bulletins 107 and 110, and is based on the average between vesting terms and contractual terms. The expected dividend yield reflects our current and expected future policy for dividends on our common stock. The expected stock price volatility for our stock options was calculated by examining the trading history for our common stock. We will continue to analyze the expected stock price volatility and expected term assumptions and will adjust our Black-Scholes option pricing assumptions as appropriate

Impairment of Long-Lived Assets

We assess the recoverability of our long-lived assets, which include property and equipment and definite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to our carrying amount to determine whether the asset’s value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13 “Fair Value Measurement (Topic 820)”, which modifies certain disclosure requirements in Topic 820, such as the removal of the 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. The Company adopted this guidance on January 1, 2020. The adoption of this guidance was not material to our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40)”, which aligns the requirements for capitalizing implementation costs incurred in 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. The Company adopted this guidance on January 1, 2020. The adoption of this guidance was not material to our consolidated financial statements.

Recently Accounting Pronouncements Not Yet Adopted

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derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company is currently assessing the potential impact that the adoption of this ASU will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to improve consistent application and simplify the accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. This standard is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of adoption of this ASU and does not expect the adoption of this new standard to have a material impact on its 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, as amended, is effective for the Company for reporting periods beginning after December 15, 2022. The Company is currently assessing the potential impact that the adoption of this ASU will have on its consolidated financial statements.

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 7A. 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.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Precipio, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Precipio, Inc. (the “Company”) as ofDecember 31, 2020 and 2019, the related consolidated statements ofoperations, stockholders’ equity and cash flows for each of the two years in the period endedDecember 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to ~~grants~~the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of ~~plan-based awards~~the Securities and Exchange Commission and the PCAOB.

We conducted our audits in ~~fiscal year~~accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

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matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the estimation for collections over diagnostic testing for which revenue is recognized.

Description of Matter

As described in Note 2 to the consolidated financial statements, the Company records its service revenues from diagnostic testing net of contractual and collection allowances that are estimated based on historical trends and anticipated reimbursement from third party payers. As of December 31, 2020, the Company recognized gross revenue of approximately $15.9 million along with contractual allowances of approximately $8.5 million and collection allowances of approximately $1.3 million. The net revenue figure of approximately $6.1 million is recorded as net sales on the consolidated statements of operations.

The principal considerations for our determination that performing procedures over revenue recognition relating to the service revenue is a critical audit matter is based on the significant judgments by management in estimating the amount to be recognized as revenue as well as the effort and complexity in assessing audit evidence in performing procedures to evaluate the amount recognized. The calculation involves estimating adjustments to gross revenue based upon sales mix and third party contractual terms, such as Medicare rates or variations of Medicare rates.

How We Addressed the Matter

We obtained an understanding of the design of controls in place over the Company’s process to calculate the various allowances. Our audit procedures included the evaluation of significant inputs through the evaluation of the Company's retrospective analysis of allowances as compared to actual payments received, evaluation of estimates based on historical collections by payer and performance of analytical procedures and sensitivity analyses over the Company’s significant inputs to assess the Company’s ability to accurately estimate the allowances. We also tested the underlying data used in management’s calculations for accuracy and completeness, which included detail testing of the service revenue.

Evaluation of changes in convertible debt in determining proper accounting treatment.

Description of Matter

As described in Note 6 to the consolidated financial statements, the Company entered into an amended debt agreement in March 2020 related to convertible bridge notes, which, among other terms, amended the conversion price from $2.25 to $0.40. Based on such modifications, the Company concluded that the amendment should be treated as an extinguishment, which resulted in a loss on extinguishment of debt of $1.2 million. The loss is recorded within other (expense) income on the consolidated statements of operations.

The principal considerations for our determination that the extinguishment of debt is a critical audit matter is based on the inherent complexity and the significant judgments made by management in determining extinguishment through calculating the fair values of the convertible bridge notes at both the pre and post modification date, including the beneficial conversion feature of the securities.

How We Addressed the Matter

Our audit procedures included testing the source information and assumptions made by management underlying the determination of extinguishment, as well as utilizing our valuation specialists to assess the Company’s calculated value for reasonableness of the fair value of the convertible bridge notes at the pre and post modification date.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2016.

Hartford, CT

March 29, 2021

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PRECIPIO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2020 and 2019

(Dollars in thousands, except share data)


	2020		2019
ASSETS
CURRENT ASSETS:
Cash	$	2,656	$	848
Accounts receivable, net		874		574
Inventories		350		184
Other current assets		324		272
Total current assets		4,204		1,878

PROPERTY AND EQUIPMENT, NET		452		431

OTHER ASSETS:
Operating lease right-of-use assets		335		519
Intangibles, net		15,667		16,658
Other assets		55		25
Total assets	$	20,713	$	19,511
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, less debt issuance costs	$	648	$	321
Current maturities of convertible notes, less debt discounts and debt issuance costs		—		142
Current maturities of finance lease liabilities		48		52
Current maturities of operating lease liabilities		225		209
Accounts payable		1,693		1,936
Accrued expenses		2,036		1,639
Deferred revenue		6		35
Total current liabilities		4,656		4,334
LONG TERM LIABILITIES:
Long-term debt, less current maturities and debt issuance costs		362		198
Finance lease liabilities, less current maturities		116		119
Operating lease liabilities, less current maturities		92		317
Common stock warrant liabilities		1,325		1,338
Total liabilities		6,551		6,306
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 15,000,000 shares authorized at December 31, 2020 and December 31, 2019, 47 shares issued and outstanding at December 31, 2020 and December 31, 2019, liquidation preference of $243 at December 31, 2020		—		—
Common stock, $0.01 par value, 150,000,000 shares authorized at December 31, 2020 and December 31, 2019, 17,576,916 and 7,898,117 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively		176		79
Additional paid-in capital		85,523		74,065
Accumulated deficit		(71,564)		(60,939)
Total Precipio, Inc. stockholders’ equity		14,135		13,205
Noncontrolling interest in joint venture		27		—
Total stockholders’ equity		14,162		13,205
Total liabilities and stockholders’ equity	$	20,713	$	19,511

See notes to consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2020 and 2019

(Dollars in thousands, except per share data)


	2020		2019
SALES:
Service revenue, net	$	7,211	$	4,051
Other		220		44
Revenue, net of contractual allowances and adjustments		7,431		4,095
less allowance for doubtful accounts		(1,339)		(968)
Net sales		6,092		3,127
COST OF SALES:
Cost of service revenue		4,842		2,908
Other		100		—
Total cost of sales		4,942		2,908
Gross profit		1,150		219
OPERATING EXPENSES:
Operating expenses		10,296		9,623
Impairment of intangible assets		—		1,590
TOTAL OPERATING EXPENSES		10,296		11,213
OPERATING LOSS		(9,146)		(10,994)
OTHER (EXPENSE) INCOME:
Interest expense, net		(470)		(473)
Warrant revaluation		13		416
Loss on modification of warrants		—		(1,128)
Derivative revaluation		—		(415)
Gain on settlement of liability, net		77		1,437
Loss on extinguishment of debt		(1,225)		(20)
Loss on litigation		—		(266)
Loss on issuance of convertible notes		—		(1,870)
Other income		153		—
Total other (expense) income		(1,452)		(2,319)
LOSS BEFORE INCOME TAXES		(10,598)		(13,313)
INCOME TAX BENEFIT		—		70
NET LOSS		(10,598)		(13,243)

Less: Net income attributable to noncontrolling interest in joint venture		(27)		—
Deemed dividends related to beneficial conversion feature of preferred stock and fair value of warrant down round features		(3,344)		—
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS	$	(13,969)	$	(13,243)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.85)	$	(2.33)
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING		16,477,074		5,695,159

See notes to consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2020 and 2019

(Dollars in thousands)


	Preferred Stock			Common Stock			Additional						Noncontrolling
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares	Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, January 1, 2019	47	$	—	2,298,738	$	23	$	53,796	$	(47,696)	$	6,123	$	—	$	6,123
Net loss	—		—	—		—		—		(13,243)		(13,243)		—		(13,243)
Conversion of convertible notes into common stock	—		—	2,511,173		25		7,528		—		7,553		—		7,553
Issuance of common stock in connection with purchase agreements	—		—	2,778,077		28		6,600		—		6,628		—		6,628
Proceeds upon issuance of common stock from exercise of warrants	—		—	310,200		3		1,572		—		1,575		—		1,575
Write-off warrant liability in conjunction with warrant exercises	—		—	—		—		2,364		—		2,364		—		2,364
Beneficial conversion feature on issuance of convertible notes	—		—	—		—		1,792		—		1,792		—		1,792
Write-off debt discounts (net of debt premiums) in conjunction with convertible note conversions	—		—	—		—		(731)		—		(731)		—		(731)
Write-off debt derivative liability in conjunction with convertible note conversions	—		—	—		—		477		—		477		—		477
Non-cash stock-based compensation	—		—	—		—		668		—		668		—		668
Payment of fractional common shares in conjunction with reverse stock split	—		—	(71)		—		(1)		—		(1)		—		(1)
Balance, December 31, 2019	47	$	—	7,898,117	$	79	$	74,065	$	(60,939)	$	13,205	$	—	$	13,205
Net loss	—		—	—		—		—		(10,625)		(10,625)		27		(10,598)
Conversion of convertible notes into common stock	—		—	3,908,145		39		2,137		—		2,176		—		2,176
Issuance of common stock in connection with purchase agreements	—		—	5,770,654		58		8,871		—		8,929		—		8,929
Write-off debt premiums (net of debt discounts) in conjunction with convertible note conversions	—		—	—		—		270		—		270		—		270
Write-off beneficial conversion feature in conjunction with convertible note extinguishment	—		—	—		—		(523)		—		(523)		—		(523)
Non-cash stock-based compensation	—		—	—		—		703		—		703		—		703
Balance, December 31, 2020	47	$	—	17,576,916	$	176	$	85,523	$	(71,564)	$	14,135	$	27	$	14,162

See notes to consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2020 and 2019

(Dollars in thousands)


	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,598)	$	(13,243)

Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		1,093		1,118
Amortization of operating lease right-of-use asset		213		231
Amortization of finance lease right-of-use asset		50		63
Amortization (accretion) of deferred financing costs, debt discounts and debt premiums		320		111
Loss on extinguishment of debt		—		20
Gain on settlement of liability, net		(77)		(1,437)
Loss on litigation		—		266
Loss on issuance of convertible notes		—		1,870
Loss on extinguishment of convertible notes		1,225		—
Stock-based compensation		703		668
Impairment of intangible assets and goodwill		—		1,590
Provision for losses on doubtful accounts		1,339		966
Warrant revaluation		(13)		(416)
Loss on modification of warrants		—		1,128
Derivative revaluation		—		415
Gain from sale of fixed asset		(55)		—
Changes in operating assets and liabilities:
Accounts receivable		(1,639)		(850)
Inventories		(166)		13
Other assets		(59)		427
Accounts payable		(243)		(1,884)
Operating lease liabilities		(209)		(223)
Accrued expenses and other liabilities		682		26
Net cash used in operating activities		(7,434)		(9,141)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(151)		(55)
Proceeds from sale of fixed asset		55		—
Net cash used in investing activities		(96)		(55)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease obligations		(56)		(46)
Payment of deferred financing costs		—		(120)
Payment of fractional common shares in conjunction with reverse stock split		—		(1)
Issuance of common stock, net of issuance costs		8,929		6,628
Proceeds from exercise of warrants		—		1,575
Proceeds from PPP Loan		787		—
Proceeds from convertible notes		—		2,150
Principal payments on convertible notes		—		(50)
Principal payments on long-term debt		(322)		(473)
Net cash flows provided by financing activities		9,338		9,663
NET CHANGE IN CASH		1,808		467
CASH AT BEGINNING OF PERIOD		848		381
CASH AT END OF PERIOD	$	2,656	$	848

See notes to consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

For the Years Ended December 31, 2020 and 2019

(Dollars in thousands)


	2020		2019
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest	$	20	$	36

SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY
Purchases of equipment financed through accounts payable		—		1
Equipment financed through finance lease obligations		22		23
Discount of 9% on issuance of convertible bridge notes		—		188
Conversion of convertible debt, plus interest, into common stock		2,176		7,553
Beneficial conversion feature on issuance of convertible notes		—		1,792
Initial valuation of warrant liability recorded in conjunction with issuance of convertible notes		—		1,858
Liabilities exchanged for convertible notes		—		2,150
Prepaid insurance financed with loan		23		434
Write-off of beneficial conversion feature in conjunction with convertible note extinguishment		523		—
Right-of-use assets obtained in exchange for operating lease obligations		—		750
Right-of-use assets obtained in exchange for finance lease obligations		29		—
Write-off warrant liability in conjunction with warrant exercises		—		2,364
Write-off of (debt premiums) debt discounts, net, in conjunction with convertible note conversions		(270)		731
Write-off of derivative liability in conjunction with convertible note conversions		—		477

See notes to consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

1. BUSINESS DESCRIPTION

Business Description.

Precipio, Inc., and its subsidiaries, (collectively, “we”, “us”, “our”, the “Company” or “Precipio”) is a cancer diagnostics and reagent technology company providing diagnostic products, reagents 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 technologies developed in collaboration with 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 various academic institutions to capture the expertise, experience and technologies developed within academia to provide a better standard of cancer diagnostics and aim to solve the growing problem of cancer misdiagnosis. In support of this platform, we also operate a research and development facility in Omaha, Nebraska which focuses on the development of various technologies, among them our internally developed proprietary products IV-Cell and HemeScreen. To expand our product offering capabilities, the Omaha facility was recently CLIA and CAP certified in order to process a variety of commercial molecular tests previously referenced out and to further expand our capabilities and know-how in transitioning R&D lab generated technology into a commercial laboratory environment.

The Company also holds an exclusive license to patented ICE-COLD-PCR, or ICP technology from Dana-Farber Cancer Institute, Inc., or Dana-Farber, at Harvard University. PCR is described further below. We believe that such technology will provide additional services and products directed at improving diagnostic outcomes and providing physicians with options for targeted therapies.

Joint Venture.

In April 2020, the Company formed a joint venture with Poplar Healthcare PLLC (“Poplar”), which we refer to as the “Joint Venture”. The Joint Venture was formed by the Limited Liability Company Agreement of Precipio Oncometrix LLC, a Delaware limited liability company (“POC”), which was entered into as of April 11, 2020 (the “Effective Date”), by and among POC, Poplar, and Precipio SPV Inc. (“Precipio SPV”), a newly formed subsidiary of the Company, together with such other persons who from time to time become party to the Limited Liability Company Agreement by executing a counterpart signature page in accordance with the terms hereof. POC was formed as a limited liability company on April 2, 2020 in accordance with the statutes and laws of the State of Delaware relating to limited liability companies, including, without limitation, the Delaware Act, by the filing of a Certificate of Formation with the office of the Secretary of State of the State of Delaware. Precipio SPV was incorporated in the State of Delaware on March 10, 2020 for the sole purpose of being a party to the Joint Venture.

Under the terms of the Joint Venture, Precipio SPV has a 49% ownership interest in the Joint Venture, with Poplar having a 51 % ownership. Pursuant to the Limited Liability Company Agreement, Poplar, at any time, has the right to require Precipio SPV to purchase all, but not less than all, of Poplar’s shares in the Joint Venture (the “Poplar Put Right”). The purchase price for Poplar’s shares shall be $1.00 per share, or fifty-one dollars, and Precipio SPV would, therefore, become the sole 100% owner of the Joint Venture at the time the Poplar Put Right became effective. The Company has determined that it holds a variable interest in the Joint Venture and is the primary beneficiary of the variable interest entity (“VIE”). See Note 2 - Summary of Significant Accounting Policies for further discussion regarding consolidation of variable interest entities.

The business purpose of the Joint Venture is to facilitate and capitalize on the combined capabilities, resources and healthcare industry relationships of its members by partnering, promoting and providing oncology services to office based physicians, hospitals and medical centers. Operational services of the Joint Venture are performed entirely by its members and employees of its members. Precipio SPV’s responsibilities include product and account management services, selling & marketing, laboratory diagnostic services and general & administrative services. Precipio SPV is

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entitled to a management fee for the services it provides. This management fee is established through service agreements which were executed in conjunction with the formation of the Joint Venture. Poplar receives a similar fee for the billing services that it provides.

Going Concern.

The 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 December 31, 2020, the Company had a net loss of $10.6 million, negative working capital of $0.5 million and net cash used in operating activities of $7.4 million. The Company’s ability to continue as a going concern, for the next twelve months from the date the consolidated financial statements were issued, is dependent upon a combination of achieving its business plan, including generating additional revenue and avoiding potential business disruption due to the novel coronavirus (“COVID-19”) pandemic, 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:

●

On March 26, 2020, the Company entered into a second agreement (the “LP 2020 Purchase Agreement”) with Lincoln Park Capital Fund LLC (“Lincoln Park”), 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 2020 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 the consolidated financial statements were issued, we have already received approximately $8.8 million from the LP 2020 Purchase Agreement from the sale of 4,980,000 shares of common stock to Lincoln Park from April 1, 2020 through the date the consolidated financial statements were issued, leaving the Company an additional $1.2 million to draw subsequent to the filing of this Annual Report. See Note 11 Stockholders’ Equity for further discussion on Lincoln Park agreements;

●

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation.

The consolidated financial statements include the accounts of Precipio, Inc. and our wholly owned subsidiaries, and the Joint Venture which is a VIE in which we are the primary beneficiary. Refer to the section titled “Consolidation of Variable Interest Entities” for further information related to our ~~named executive officers~~accounting for the Joint Venture. All inter-company balances and ~~directors.~~ transactions have been eliminated in consolidation.

Use of Estimates.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. The most significant estimates and assumptions with regard to these consolidated financial statements relate to the allowance for doubtful accounts, assumptions used within the fair value of debt and equity transactions, contractual allowances and related impairments. These assumptions require considerable judgment by management. Actual results could differ from the estimates and assumptions used in preparing these consolidated financial statements.

Risks and Uncertainties.

Certain risks and uncertainties are inherent in our day-to-day operations and in the process of preparing our financial statements. The risks and uncertainties may be heightened by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. The more significant of those risks are presented below and throughout the notes to the consolidated financial statements.

The Company operates in the healthcare industry which 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 requirements, 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.

Fair Value.

Unless otherwise specified, book value approximates fair value. The common stock warrant liabilities are recorded at fair value. See Note 12 - Fair Value for additional information.

Other Current Assets.

Other current assets of $0.3 million as of December 31, 2020 include prepaid insurance of approximately $0.3 million and prepaid assets and other receivables of less than $0.1 million. Other current assets of $0.3 million as of December 31, 2019 include prepaid assets of less than $0.1 million, prepaid insurance of $0.2 million and other receivables of less than $0.1 million.

Concentrations of Risk.

From time to time, we may maintain a cash position with financial institutions in amounts that exceed Federal Deposit Insurance Corporation insured limits of up to $250,000 per depositor per financial institution. We have not experienced any losses on such accounts as of December 31, 2020.

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Service companies in the health care industry typically grant credit without collateral to patients. The majority of these patients are insured under third-party insurance agreements. The services provided by the Company are routinely billed utilizing the Current Procedural Terminology (CPT) code set designed to communicate uniform information about medical services and procedures among physicians, coders, patients, accreditation organizations, and payers for administrative, financial, and analytical purposes. CPT codes are currently identified by the Centers for Medicare and Medicaid Services and third-party payers. The Company utilizes CPT codes for Pathology and Laboratory Services contained within codes 80000-89398.

Inventories.

Inventories consist of laboratory supplies and are valued at cost (determined on an average cost basis, which approximates the first-in, first-out method) or net realizable value, whichever is lower. We evaluate inventory for items that are slow moving or obsolete and record an appropriate reserve for obsolescence if needed. We determined that no allowance for slow moving or obsolete inventory was necessary at December 31, 2020 and 2019.

Property and Equipment, net.

Property and equipment are carried at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs are expensed as incurred. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the related assets as follows:


Furniture and fixtures	5 to 7	years
Laboratory equipment	3 to 10	years
Computer equipment and software	3 to 7	years

For assets sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any related gain or loss is reflected in operations for the period. Expenditures for major betterments that extend the useful lives of property and equipment are capitalized.

Intangible Assets.

We review our amortizable long-lived assets for impairment annually or whenever events indicate that the carrying amount of the asset (group) may not be recoverable. An impairment loss may be needed if the sum of the future undiscounted cash flows is less than the carrying amount of the asset (group). The amount of the loss would be determined by comparing the fair value of the asset to the carrying amount of the asset (group). There were no impairment charges on our amortizable long-lived assets during the years ended December 31, 2020 and 2019.

In-process research and development (“IPR&D”) represents the fair value assigned to research and development assets that were not fully developed when acquired. Until the IPR&D projects are completed, the assets are accounted for as indefinite-lived intangible assets and subject to impairment testing. The IPR&D principally related to research projects that were not related to IV-Cell, HemeScreen or ICP. During 2019, the Company made a determination to suspend further research and analysis of these projects, and, as a result, it was more likely than not that the IPR&D was fully impaired, resulting in an impairment charge of $1.6 million in 2019. There was zero IPR&D within the accompanying consolidated balance sheets at December 31, 2020 and 2019, respectively.

Debt Issuance Costs, Debt Discounts and Debt Premiums.

Debt issuance costs, debt discounts and debt premiums are being amortized or accreted over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt and premiums are presented as an increase to the related debt in the accompanying balance sheets. The amortization amount recorded was expense, net of income, of $0.3 million and $0.1 million for the years ended December 31, 2020 and 2019, respectively. Debt discounts and debt premiums are amortized or accreted to interest expense and interest income on the consolidated statement of operations, respectively. See Note 5 – Long Term Debt and Note 6 – Convertible Notes for further discussion.

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Stock-Based Compensation.

All stock-based awards to date have exercise prices equal to the market price of our common stock on the date of grant and have ten-year contractual terms. Stock-based compensation cost is based on the fair value of the portion of stock-based awards that is ultimately expected to vest. The Company utilizes the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. Unvested awards as of December 31, 2020 had vesting periods of up to four years from the date of grant. At December 31, 2020 and 2019, 53,334 unvested awards outstanding are subject to performance vesting conditions, respectively. No awards outstanding at December 31, 2020 and 2019, respectively, are subject to market-based vesting.

Net Sales 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; biomarker testing from bio-pharma customers and from other product sales. 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 14 – 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 payers and others for services rendered, including retroactive adjustment under reimbursement agreements with third-party payers. Provisions for third-party payer 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 less than $0.1 million as of December 31, 2020 and 2019.

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.

Accounts Receivable

Accounts Receivable result from diagnostic services provided to self-pay and insured patients, project based testing services and clinical research. The payment for services provided by the Company are generally due within 30 days from the invoice date. Accounts receivable are reduced by an allowance for doubtful accounts. In evaluating the collectability of accounts receivable, the Company analyzes and identifies trends for each of its sources of revenue to estimate the appropriate allowance for doubtful accounts. For receivables associated with self-pay patients, including patients with insurance and a deductible and copayment, the Company records an allowance for doubtful accounts in the period of services on the basis of past experience of patients unable or unwilling to pay for service fee for which they are financially responsible. For receivables associated with services provided to patients with third-party coverage, the Company analyzes contractually due amounts and provides an allowance, if necessary. The difference between the standard rates and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts.

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Presentation of Insurance Claims and Related Insurance Recoveries.

The Company accounts for its insurance claims and related insurance recoveries at their gross values as standards for health care entities do not allow the Company to net insurance recoveries against the related claim liabilities. There were no insurance claims or insurance recoveries recorded during the years ended December 31, 2020 and 2019.

Advertising Costs.

Advertising costs are expensed as incurred and are included in operating expenses on the consolidated statement of operations. Advertising costs charged to operations totaled approximately $0.1 million in 2020 and 2019, respectively.

Research and Development Costs.

All costs associated with internal research and development are expensed as incurred. These costs include salaries and employee related expenses, operating supplies and facility-related expenses. Research and development costs charged to operations totaled $1.2 million for the years ended December 31, 2020 and 2019, respectively.

Income Taxes.

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities at each balance sheet date using tax rates expected to be in effect in the year the differences are expected to reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the period when the change in tax rates is enacted.

A valuation allowance is established when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance has been applied against the Company’s net deferred tax assets as of December 31, 2020 and 2019, due to projected losses and because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets.

Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of, or changes in tax laws, regulations and interpretations thereof as well as other factors. The Company’s policy is to record interest and penalties directly related to income taxes as income tax expense in the accompanying consolidated statements of operations, of which there was none for the years ended December 31, 2020 and 2019.

Common Stock Warrants.

The Company classifies the issuance of common stock warrants as equity any contracts that (i) require physical settlement or net-stock settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own stocks (physical settlement or net-stock settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside of the Company’s control), or (ii) gives the counterparty a choice of net-cash settlement or settlement in stock (physical settlement or net-stock settlement).

Certain of our issued and outstanding warrants to purchase common stock do not qualify to be treated as equity and accordingly, are recorded as a liability (“Common Stock Warrant Liability”). We are required to present these instruments at fair value at each reporting date and any changes in fair values are recorded as an adjustment to earnings.

Beneficial Conversion Features.

The intrinsic value of a beneficial conversion feature (“BCF”) inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the first conversion date using the effective interest method. If the note payable is retired prior to the

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end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the BCF is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.

Deemed dividends are also recorded for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares. When the preferred shares are non-redeemable the BCF is fully amortized into additional paid-in capital and preferred discount. If the preferred shares are redeemable, the discount is amortized from the commitment date to the first conversion date.

Consolidation of Variable Interest Entities.

We evaluate any entity in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. We consolidate VIEs that are subject to assessment when we are deemed to be the primary beneficiary of the VIE. The process for determining whether we are the primary beneficiary of the VIE is to conclude whether we are a party to the VIE holding a variable interest that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.

We have determined that we hold a variable interest in the Joint Venture, have the power to make significant operational decisions on behalf of the VIE and also have the obligation to absorb the majority of the losses from the VIE. As such we have also determined that we are the primary beneficiary of the VIE. The following table presents information about the carrying value of the assets and liabilities of the Joint Venture which we consolidate and which are included on our consolidated balance sheets. Intercompany balances are eliminated in consolidation and not reflected in the following table.


(dollars in thousands)	December 31, 2020
Assets:
Accounts receivable, net	$	538
Total assets	$	538
Liabilities:
Accrued expenses	$	27
Total liabilities	$	27
Noncontrolling interest in Joint Venture	$	27

The Company entered into the Joint Venture during 2020 and, as such, there are no assets or liabilities of the Joint Venture as of December 31, 2019.

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 1,846,989 and 2,281,701 shares of our common stock have been excluded from the computation of diluted loss per share at December 31, 2020 and 2019, respectively, because the effect is anti-dilutive due to the net loss.

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


	December 31,
	2020	2019
Stock options	822,992	490,330
Warrants	906,497	909,189
Preferred stock	117,500	20,888
Convertible notes	—	861,294
Total	1,846,989	2,281,701

Recently Adopted Accounting Pronouncements.

Recent Accounting Pronouncements Not Yet Adopted.

In August 2020, the FASB issued ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company is currently assessing the potential impact that the adoption of this ASU will have on its consolidated financial statements.

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3. PROPERTY AND EQUIPMENT, NET

A summary of property and equipment at December 31, 2020 and 2019 is as follows:


	2020		2019
Furniture and fixtures	$	12	$	12
Laboratory equipment		330		299
Computer equipment and software		533		463
Equipment under finance leases		467		425
Construction in process		53		23
		1,395		1,222
Less—accumulated depreciation and amortization		(943)		(791)
Total	$	452	$	431

Depreciation expense was approximately $0.2 million and $0.1 million for the years ended December 31, 2020 and 2019, respectively. Depreciation expense during each year includes depreciation related to equipment acquired under finance leases.

4. INTANGIBLES

Intangible assets consist of the following:


	Dollars in Thousands
	December 31, 2020
			Accumulated		Impairment		Net Book
	Cost		Amortization		Charge		Value
Technology	$	18,990	$	3,323	$	—	$	15,667
Customer relationships		250		250		—		—
Backlog		200		200		—		—
Covenants not to compete		30		30		—		—
Trademark		40		40		—		—
	$	19,510	$	3,843	$	—	$	15,667


	Dollars in Thousands
	December 31, 2019
			Accumulated		Impairment		Net Book
	Cost		Amortization		Charge		Value
Technology	$	18,990	$	2,374	$	—	$	16,616
Customer relationships		250		208		—		42
Backlog		200		200		—		—
Covenants not to compete		30		30		—		—
Trademark		40		40		—		—
IPR&D		1,590		—		1,590		—
	$	21,100	$	2,852	$	1,590	$	16,658


	Estimated Useful Life
Technology	20	years
Customer relationships	3	years
Backlog	1	year
Covenants not to compete	1	year
Trademark	2	years

Our IPR&D projects were accounted for as indefinite-lived intangible assets and subject to impairment testing. During 2019, the Company reviewed its IPR&D for impairment and determined that it was more likely than not that the

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IPR&D was fully impaired, resulting in an impairment charge of $1.6 million in 2019. For the year ended December 31, 2020, there was no impairment of IPR&D.

Amortization expense for intangible assets was $1.0 million during the years ended December 31, 2020 and 2019. Amortization expense for intangible assets is expected to be $0.9 million for each of the years ending December 31, 2021, 2022, 2023, 2024 and 2025, respectively.

5. LONG-TERM DEBT

Long-term debt consists of the following:


	Dollars in Thousands
	December 31, 2020		December 31, 2019
Department of Economic and Community Development (DECD)	$	233	$	249
DECD debt issuance costs		(22)		(24)
Financed insurance loan		12		260
September 2018 Settlement		—		34
Paycheck Protection Program		787		—
Total long-term debt		1,010		519
Current portion of long-term debt		(648)		(321)
Long-term debt, net of current maturities	$	362	$	198

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 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 DECD 2018 Loan is a ten-year loan due on December 31, 2027 and includes interest paid monthly at 3.25%.

Due to the economic impact of COVID-19, DECD offered financial relief to all businesses with certain loans, including the Company’s DECD 2018 Loan. The relief includes the option to defer all payments from April 1, 2020 to August 1, 2020 and the deferred payments will be added to the end of the loan. The Company chose to defer its payments and the maturity date of the DECD 2018 Loan was extended to May 31, 2028. The payment deferral modification did not have a material impact on the Company’s cash flows for the year ended December 31, 2020

Debt issuance costs associated with the DECD 2018 Loan were approximately $31,000. Amortization of the debt issuance cost was approximately $2,000 and $3,000 for the years ended December 31, 2020 and 2019, respectively. Net debt issuance costs were approximately $22,000 and $24,000 at December 31, 2020 and 2019, respectively, and are presented as a reduction of the related debt in the accompanying consolidated balance sheets. Amortization for each of the next five years is expected to be approximately $3,000.

Financed Insurance Loan.

The Company finances certain of its insurance premiums (the “Financed Insurance Loans”). In July 2018, the Company financed $0.4 million with a 4.89% interest rate and fully paid off such loan as of July 2019. In July 2019, the Company financed $0.4 million with a 5.0% interest rate and made monthly payments through May of 2020. In July 2020, the Company financed less than $0.1 million with a 5.0% interest rate and will make monthly payments through May 2021. As of December 31, 2020 and 2019, the Financed Insurance Loan outstanding balance of less than $0.1 million and $0.3 million, respectively, was included in current maturities of long-term debt in the Company’s consolidated balance sheets. A corresponding prepaid asset was included in other current assets.

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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 accrued interest at the rate of 10% per annum and was paid in full during the fourth quarter on 2020. As of December 31, 2019, the September 2018 Settlement outstanding balance of approximately $0.1 million was included in current maturities of long-term debt in the Company’s consolidated balance sheet.

Paycheck Protection Program.

On April 23, 2020, the Company entered into a promissory note (the “Promissory Note”) evidencing an unsecured $787,200 loan under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (or “PPP”) was established under the recently congressionally-approved Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The PPP Loan to the Company was made through Webster Bank, N.A.

The term of the PPP Loan is two years. The interest rate on the PPP Loan is 1.00% and payments are deferred for the first six months of the term of the loan. Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted ~~in fiscal year 2019 were~~forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels. The Company will use the eight-week forgiveness period and will apply for forgiveness of the PPP Loan in accordance with the terms of the PPP.

On February 11, 2021, the Company filed its application for loan forgiveness with Webster Bank but no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part. The Company believes it used all of the PPP Loan amount for qualifying expenses. As of the date of issuance of this Report on Form 10-K, using the eight-week forgiveness period, the Company has incurred approximately $0.8 million in payroll, payroll related costs and other anticipated qualifying expenses.

The Promissory Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the Promissory Note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company.

As of December 31, 2020, $0.6 million the PPP Loan’s outstanding balance was included in current maturities of long-term debt and $0.2 million was included in long-term debt in the Company’s consolidated balance sheets.

The aggregate future maturities required on gross long-term debt at December 31, 2020 are as follows:


	2021		2022		2023		2024		2025		2026 and thereafter		Total
DECD loan	$	28	$	29	$	30	$	31	$	32	$	83	$	233
Financed Insurance Loan		12		—		—		—		—		—		12
Paycheck Protection Program		611		176		—		—		—		—		787
	$	651	$	205	$	30	$	31	$	32	$	83	$	1,032

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6. CONVERTIBLE NOTES.

Convertible notes consists of the following:


	Dollars in Thousands
	December 31, 2020		December 31, 2019
Convertible bridge notes	$	—	$	1,938
Convertible bridge notes discount and debt issuance costs		—		(1,796)
Total convertible notes		—		142
Current portion of convertible notes		—		(142)
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”), as amended on November 29, 2018 (the “Amendment Agreement”) and amended on April 16, 2019 (“Amendment No.2 Agreement”). During 2018, pursuant to the 2018 Note Agreement, the Company issued approximately $4.5 million in Senior Secured Convertible Promissory Notes (the “Bridge Notes”) along with warrants.

On April 16, 2019, the Company entered into the Amendment No.2 Agreement which provided the Company with approximately $0.9 million of gross proceeds for the issuance of notes with an aggregate principal of $1.0 million (the “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 $0.1 million 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 12 – 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 at the time of the Amendment No.2 Agreement. The Company also reviewed the redemption features of the April 2019 Bridge Notes and determined that there is a redemption feature (the “Bridge Notes Redemption Feature”) that qualifies as an embedded derivative. 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 year ended December 31, 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

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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 consolidated statements of operations during the year ended December 31, 2019.

On May 14, 2019, the Company entered into a securities purchase agreement pursuant to which, the Company was provided with $1.0 million of gross proceeds for the issuance of notes with an aggregate principal of $1.1 million (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 $0.1 million 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 12 – 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 at the time of issuance of the May 2019 Bridge Notes. The May 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 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 year ended December 31, 2019.

On March 26, 2020, the Company entered into an amendment agreement (the “March 2020 Amendment”) amending the terms of that certain Amendment No. 2 Agreement dated April 16, 2019 and the securities purchase agreement dated May 14, 2019. As a result of the March 2020 Amendment, (i) the maturity date of the April 2019 Bridge Notes and the May 2019 Bridge Notes was extended three months from April 16, 2020 to July 16, 2020, (ii) the floor price at which conversions may occur under the April 2019 Bridge Notes and the May 2019 Bridge Notes was amended from $2.25 to $0.40, and (iii) guaranteed interest on the April 2019 Bridge Notes and the May 2019 Bridge Notes was amended from twelve months to eighteen months.

The Company reviewed the modifications and concluded that the March 2020 Amendment will be treated as an extinguishment of the related April 2019 Bridge Notes and May 2019 Bridge Notes. The difference between the carrying value of the notes just prior to modification (the “Pre-modification Debt”) and the fair value of the notes just after modification (the “Post-modification Debt”) would be recorded as a gain or loss on extinguishment in the consolidated statements of operations. The Company removed the carrying value of the Pre-modification Debt which included $1.0 million of unamortized debt discounts and beneficial conversion features of $0.5 million. The Company calculated the fair value of the Post-modification Debt to be $2.6 million. The Company reviewed whether or not a beneficial conversion feature existed on the Post-modification Debt but the calculation resulted in zero intrinsic value so no new beneficial conversion feature was recorded. Management also reviewed the Bridge Notes Redemption Feature of the post-modification notes but their fair value was zero so no derivative liability was recorded at the time of modification, however this will be reassessed at the end of each reporting period. As a result, the Company recorded a debt premium on the Post-modification Debt of $0.8 million and a loss on extinguishment of convertible notes of $1.2 million in the consolidated statements of operations during the year ended December 31, 2020.

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During the years ended December 31, 2020 and 2019, $2.2 million and $4.8 million, respectively, of Bridge Notes, plus interest, were converted into 3,908,145 and 1,900,766 shares of common stock of the Company, respectively. As a result of the conversions, the Company wrote-off approximately $0.5 million of derivative liability, with an offset to additional paid-in capital, during the year ended December 31, 2019.

During the years ended December 31, 2020 and 2019, the change in Bridge Note debt discounts and debt premiums was as follows:


	For the Years Ended December 31,
	2020				2019
		Debt Discounts		Debt Premiums		Debt Discounts		Debt Premiums
Beginning balance at January 1	$	(1,796)	$	—	$	(1,111)	$	647
Additions:		—		793		(2,088)		—
Deductions:
Amortization (accretion) (1)		703		(385)		273		(167)
Write-off related to note conversions (2)		138		(408)		1,130		(480)
Write-off related to note extinguishment (3)		955		—		—		—
Balance at December 31	$	—	$	—	$	(1,796)	$	—

(1)

Amortization/accretion is recognized as interest expense/income within the 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.

(3)

Write-offs associated with note extinguishment are recognized as a loss and included in loss on extinguishment of convertible notes in the consolidated statements of operations.

Convertible Promissory Notes – Exchange Notes.

During the years ended December 31, 2020 and 2019, zero and $0.6 million, respectively, of previously issued convertible promissory notes (the “Exchange Notes”) were converted into zero and 155,351 shares of common stock of the Company, respectively. As of December 31, 2020 and 2019, the outstanding balance of the Exchange Notes, net of discounts, was zero, respectively.

There was no Exchange Note activity during the year ended December 31, 2020. During the year ended December 31, 2019, the change in Exchange Note debt discounts was as follows:


(Dollars in thousands)
	For the Year Ended December 31, 2019
Beginning balance at January 1	$	(83)
Deductions:
Amortization (1)		2
Write-off related to note conversions (2)		81
Balance at December 31	$	—

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(1)

Amortization is recognized as interest expense within the 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 Exchange Note conversions, during the year ended December 31, 2019, the Company wrote-off less than $0.1 million of derivative liability with an offset to additional paid-in capital.

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 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 year ended December 31, 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 December 31, 2020 and 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”). 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.

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.

During the year ended December 31, 2019, the Company made cash payments of less than $0.1 million on the Leviston Note and $0.7 million of the Leviston note was converted into 184,357 shares of common stock of the Company.

The remaining amount due on the Leviston Note was zero as of December 31, 2020 and 2019, respectively.

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7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.

Accrued expenses at December 31, 2020 and 2019 are as follows:


(dollars in thousands)	2020		2019
Accrued expenses	$	1,332	$	1,268
Accrued compensation		685		247
Accrued interest		19		124
	$	2,036	$	1,639

The Company was able to reduce certain accrued expense and accounts payable amounts through negotiations with certain vendors to settle outstanding liabilities and reversed certain accrued expenses based on statute of limitations for collections being met. The Company recorded these amounts as gains which are included in gain on settlement of liability, net in the consolidated statements of operations. During the years ended December 31, 2020 and 2019, approximately $0.1 million and $1.4 million, respectively, was recorded as a gain.

8. 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 Company leases administrative facilities and 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 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 recognition of ROU assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for 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 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 accounting for 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 Consolidated Balance Sheet	December 31, 2020		December 31, 2019

Assets:
Operating lease assets	Operating lease right-of-use assets, net	$	335	$	519
Finance lease assets	Property and equipment, net		175		184
Total lease assets		$	510	$	703

Liabilities:
Current:
Operating lease obligations	Current maturities of operating lease liabilities	$	225	$	209
Finance lease obligations	Current maturities of finance lease liabilities		48		52
Noncurrent:
Operating lease obligations	Operating lease liabilities, less current maturities		92		317
Finance lease obligations	Finance lease liabilities, less current maturities		116		119
Total lease liabilities		$	481	$	697

As of December 31, 2020, the estimated future minimum lease payments, excluding non-lease components, are as follows:


(dollars in thousands)	Operating Leases		Finance Leases		Total
2021	$	241	$	61	$	302
2022		48		49		97
2023		35		38		73
2024		17		28		45
2025		—		13		13
Thereafter		—		—		—
Total lease obligations		341		189		530
Less: Amount representing interest		(24)		(25)		(49)
Present value of net minimum lease obligations		317		164		481
Less, current portion		(225)		(48)		(273)
Long term portion	$	92	$	116	$	208

Other information as of December 31, 2020 and 2019:


	December 31,	December 31,
	2020	2019
Weighted-average remaining lease term (years):
Operating leases	1.9	2.8
Finance leases	3.6	4.3
Weighted-average discount rate:
Operating leases	8.00%	8.00%
Finance leases	8.28%	7.25%

During the years ended December 31, 2020 and 2019, operating cash flows from operating leases was $0.2 million, respectively. During the years ended December 31, 2020 and 2019, ROU assets obtained in exchange for operating lease liabilities was zero and $0.8 million, respectively, and ROU assets obtained in exchange for financing lease liabilities was less than $0.1 million and zero, respectively.

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Operating Lease Costs

Operating lease costs were $0.2 million and $0.3 million during the years ended December 31, 2020 and 2019, respectively. These costs are primarily related to long-term operating leases for the Company’s facilities and laboratory equipment. Short-term and variable lease costs were less than $0.1 million for the years ended December 31, 2020 and 2019, respectively.

Finance Lease Costs

Finance leases are included in property and equipment, net and finance lease liabilities, less current maturities on the consolidated balance sheets. The associated amortization expense and interest included in the consolidated statements of operations for the years ended December 31, 2020 and 2019 is less than $0.1 million, respectively.

9. COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

The Company has entered into purchase commitments for reagents from suppliers. These agreements started in 2011 and run through 2025. The Company and the suppliers will true up the amounts on an annual basis. The future minimum purchase commitments under these and other purchase agreements are as follows:


Years ending December 31,		(dollars in thousands)
2021	$	1,068
2022		228
2023		219
2024		170
2025		50
Thereafter		—
	$	1,735

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. See below for a discussion on these matters.

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 less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying consolidated balance sheet at December 31, 2020 and 2019.

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. 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. On July 10, 2019, the Court entered an order preliminarily approving the settlement. During the third quarter of 2019, both the Company and the insurance company paid their respective amounts of $0.27 million and $1.68 million, respectively, to an escrow account where the funds were held until they were approved for distribution. On June 3, 2020, the Court approved the settlement and entered an order of dismissal. As of the date the consolidated financial statements were issued, the escrow funds have been released and this matter is closed.

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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.

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.

10. INCOME TAXES

The Company recorded a deferred tax liability of $0.1 million as of December 31, 2018, related to the acquisition of IPR&D through the Merger. This deferred tax liability was recorded to account for the book versus tax basis difference related to the IPR&D intangible asset. This deferred tax liability was excluded from sources of future taxable income, as the timing of its reversal cannot be predicted due to the indefinite life of this IPR&D. As such, this deferred tax liability cannot be used to offset the valuation allowance. As a result of the write-off of the IPR&D in 2019, the related deferred tax liability of $0.1 million was eliminated and is included in income tax benefit in the consolidated statements of operations for the year ended December 31, 2019.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s net deferred tax assets relate primarily to its net operating loss carryforwards, allowance for doubtful accounts and stock-based compensation, offset by property and equipment and intangible assets. The Company has recorded a full valuation allowance to offset the net deferred tax assets, as it is more likely than not that the Company will not realize future benefits associated with these net deferred tax assets at December 31, 2020 and 2019.

At December 31, 2020 and 2019, the Company had net deferred tax assets of $13.5 million and $10.7 million, respectively, against which a full valuation allowance has been recorded. The increase in the valuation allowance for the years ended December 31, 2020 and 2019 is $2.8 million and $1.9 million, respectively, resulting from additional net operating losses generated in the year. The deferred tax liabilities associated with the book versus tax basis difference of

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intangible assets are the result of an asset step-up pursuant to the Merger. Significant components of the Company’s deferred tax assets at December 31, 2020 and 2019 are as follows:


	Dollars in Thousands
	2020		2019
Deferred tax assets:
Net operating loss and credit carryforwards	$	15,941	$	13,989
Allowance for doubtful accounts		986		666
Stock-based compensation		461		292
Other		39		—
Gross deferred tax assets		17,427		14,947
Deferred tax liabilities:
Property and equipment		(94)		(95)
Intangible assets		(3,849)		(4,148)
IPR&D intangible assets		—		—
Gross deferred tax liabilities		(3,943)		(4,243)
Net deferred tax assets		13,484		10,704
Less valuation allowance		(13,484)		(10,704)
Net deferred liability	$	—	$	—

The Company’s provision for income taxes for the years ended December 31, 2020 and December 31, 2019 relates to income taxes in states and other jurisdictions and differs from the amounts determined by applying the statutory federal income tax rate to the loss before income taxes for the following reasons:


	Dollars in Thousands
	2020		2019
Benefit at federal rate	$	(2,231)	$	(2,796)
Increase (decrease) resulting from:
State income taxes—net of federal benefit		(379)		(517)
Miscellaneous permanent differences		48		78
Warrant liability revaluation		(3)		(104)
Meals and entertainment		18		—
Impairment of in-process research and development		—		(70)
Change in valuation allowance		2,547		3,339
Total income tax benefit	$	—	$	(70)

The income tax expense consists of the following for the years ended December 31, 2020 and 2019.


	Dollars in Thousands
	2020		2019
Federal:
Current	$	—	$	—
Deferred		—		(70)
Total Federal	$	—	$	(70)
State:
Current	$	—	$	—
Deferred		—		—
Total State	$	—	$	—
Foreign:
Current	$	—	$	—
Deferred		—		—
Total Foreign	$	—	$	—
Total Tax Provision	$	—	$	(70)

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The Company had approximately $68 million and $61 million of available gross federal and state net operating loss (“NOL”) carryforwards as of December 31, 2020 and 2019, respectively. Beginning in 2018, under the Act, federal loss carryforwards have an unlimited carryforward period, however such losses can only offset 80% of taxable income in any one year. Included in the total NOLs for 2020 are $39 million of federal losses that fall under these new rules. Section 382 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the NOL carryforwards available to be used to offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative change in ownership in excess of 50% over a three-year period, the amount of the NOL carryforwards that the Company may utilize in any one year may be limited. The Company reduced its tax attributes (NOLs and tax credits) and generated a limitation on utilization of such attributes resulting from the Merger.

At December 31, 2020 and 2019, and as a result of the limitations under Section 382 of the Internal Revenue Code, the Company had a total of unused federal tax net operating loss carryforwards with expiration dates as follows:


	Dollars in Thousands
	2020		2019
2036	$	13,470	$	13,470
2037		13,641		3,441
Unlimited life		39,101		42,100
Total Federal	$	66,212	$	59,011

The Company has adopted guidance on accounting for uncertainty in income taxes which clarified the accounting for income taxes by prescribing the minimum threshold a tax position is required to meet before being recognized in the financial statements as well as guidance on de-recognition, measurement, classification and disclosure of tax positions. There are no material uncertain tax positions that would require recognition in the financial statements. The Company is obligated to file income tax returns in the U.S. federal jurisdiction and various U.S. states. Since the Company had losses in the past, all prior years that generated NOLs are open and subject to audit examination in relation to the NOL generated from those years. Our evaluation of uncertain tax positions was performed for the tax years ended December 31, 2014 and forward.

11. 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 December 20, 2018, the Company’s shareholders approved the proposal to authorize the Company’s Board of Directors to, in its discretion, to amend the Company’s Third Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of common stock from 150,000,000 shares to 250,000,000 shares. The Company has not yet affected this increase.

During the year ended December 31, 2019, the Company issued 310,200 shares of its common stock in connection with the exercise of 310,200 warrants. The warrant exercises resulted in net cash proceeds to the Company of approximately $1.6 million during the year ended December 31, 2019.

During the years ended December 31, 2020 and 2019, the Company issued 3,980,145 and 2,511,173 shares of its common stock, respectively, in connection with the conversion of convertible notes, plus interest, totaling $2.2 million and $7.6 million, respectively. See Note 6 – Convertible Notes.

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

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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, 466,667 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. As of August 5, 2019, all shares registered under this S-1 had been sold and/or issued to Lincoln Park. On August 9, 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 1,800,000 shares of common stock that have been or may be issued to Lincoln Park under the LP Purchase Agreement. As of January 9, 2020, all shares registered under this S-1 had been sold and/or issued to Lincoln Park. On January 14, 2020, 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 920,654 shares of common stock that have been or may be issued to Lincoln Park under the LP Purchase Agreement. As of April 6, 2020, all of the additional 920,654 shares registered under this S-1 had been sold and/or issued to Lincoln Park.

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 the Floor Price, defined as the lower of (i) $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) and (ii) $0.10 per share, 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 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.

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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 the consolidated financial statements were issued, we have already received an aggregate of $9.4 million from the sale of common stock to Lincoln Park under the LP Purchase Agreement, including approximately: $1.4 million from the sale of 328,590 shares of common stock during 2018; $6.6 million from the sale of 2,778,077 shares of common stock during 2019; and $1.4 million from the sale of 1,040,654 shares of common stock during 2020. As of April 6, 2020, all registered shares relating to the LP Purchase Agreement had been sold and/or issued to Lincoln Park. The LP Purchase Agreement terminated during our second fiscal quarter of 2020. Effective April 13, 2020, the Company became eligible to sell additional shares to Lincoln Park pursuant to the LP 2020 Purchase Agreement, as discussed below.

LP 2020 Purchase Agreement

On March 26, 2020, the Company entered into a purchase agreement (the “LP 2020 Purchase Agreement”) and a registration rights agreement (the “LP 2020 Registration Rights Agreement”) with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from us, from time to time, up to $10,000,000 of our common stock, subject to certain limitations, during the 24 month term of the LP 2020 Purchase Agreement. Pursuant to the terms of the LP 2020 Purchase Agreement, on the agreement date, the Company issued 250,000 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 2020 Commitment Shares”). Pursuant to the terms of the LP 2020 Registration Rights Agreement, on March 27, 2020, as amended on April 8, 2020, 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, 1,770,000 shares of common stock, which includes the LP 2020 Commitment Shares, that have been or may be issued to Lincoln Park under the LP 2020 Purchase Agreement. The Form S-1 was declared effective by the SEC on April 13, 2020. As of June 22, 2020, all shares registered under this S-1 had been sold and/or issued to Lincoln Park. On June 26, 2020, 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 4,500,000 shares of common stock that have been or may be issued to Lincoln Park under the LP Purchase Agreement. The Form S-1 was amended twice on July 7, 2020 and declared effective by the SEC on July 7, 2020. As of December 31, 2020, 2,960,000 shares registered under this S-1 had been sold and/or issued to Lincoln Park.

Under the LP 2020 Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 50,000 shares of our common stock on any such business day, which we refer to as a Regular Purchase in the LP 2020 Purchase Agreement, provided, however, that (i) the Regular Purchase may be increased to up to 80,000 shares, provided that the closing sale price is not below $1.00 on the purchase date and (ii) the Regular Purchase may be increased to up to 100,000 shares, provided that the closing sale price is not below $1.50 on the purchase date. In each case, the maximum amount of any single Regular Purchase may not exceed $1,000,000 per purchase. Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as we direct, subject to certain conditions. The purchase price for Regular Purchases shall be equal to the lesser of: (i) the lowest sale price of the common shares during the purchase date, or (ii) the average of the three (3) lowest closing sale prices of the common shares during the ten (10) business days prior to the purchase date.

Under applicable rules of The Nasdaq Capital Market, in no event may we issue or sell to Lincoln Park under the LP 2020 Purchase Agreement more than 19.99% of the shares of our common stock outstanding immediately prior to the execution of the LP 2020 Purchase Agreement (which is 1,774,024 shares, based on 8,870,129 shares outstanding immediately prior to the execution of the LP 2020 Purchase Agreement), which limitation we refer to as the Exchange Cap, unless (i) we obtain stockholder approval to issue shares of common stock in excess of the Exchange Cap or (ii) the average price of all applicable sales of our common stock to Lincoln Park under the LP 2020 Purchase Agreement equals or exceeds $0.7306 (which represents the closing consolidated bid price of our common stock on March 25, 2020, plus an incremental amount to account for our issuance of the Commitment Shares to Lincoln Park), such that the transactions contemplated by the LP 2020 Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq

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rules. In any event, the LP 2020 Purchase Agreement specifically provides that we may not issue or sell any shares of our common stock under the LP 2020 Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of The Nasdaq Capital Market.

The LP 2020 Purchase Agreement also prohibits us from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our 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 our 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 we refer to as the Beneficial Ownership Cap.

As of the date of issuance of this Annual Report on Form 10-K, we have already received an aggregate of $8.8 million from the sale of common stock to Lincoln Park under the LP 2020 Purchase Agreement, including approximately $7.5 million from the sale of 4,480,000 shares of common stock during 2020 and $1.3 million from the sale of 500,000 shares of common stock to Lincoln Park which were sold from January 1, 2021 through the date of issuance of this Annual Report on Form 10-K.

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. The authority of the Board of Directors includes, but is not limited to, the determination or fixing of the following with respect to shares of such class or any series thereof: (i) the number of shares; (ii) the dividend rate, whether dividends shall be cumulative and, if so, from which date; (iii) whether shares are to be redeemable and, if so, the terms and amount of any sinking fund providing for the purchase or redemption of such shares; (iv) whether shares shall be convertible and, if so, the terms and provisions thereof; (v) what restrictions are to apply, if any, on the issue or reissue of any additional preferred stock; and (vi) whether shares have voting rights. The preferred stock may be issued with a preference over the common stock as to the payment of dividends. We have no current plans to issue any additional preferred stock. Classes of stock such as the preferred stock may be used, in certain circumstances, to create voting impediments on extraordinary corporate transactions or to frustrate persons seeking to effect a merger or otherwise to gain control of the Company. For the foregoing reasons, any additional preferred stock issued by the Company could have an adverse effect on the rights of the holders of the common stock.

Series B Preferred Stock

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 an underwritten public offering (the “August 2017 Offering”) consisting of the Company’s Series B Preferred Stock and warrants.

The conversion price of the Series B Preferred Stock contains a down round feature. The Company will recognize the effect of the down round feature when it is triggered. At that time, the effect would be treated as a deemed dividend and as a reduction of income available to common shareholders in our basic earnings per share calculation.

The March 2020 Amendment, see Note 6 – Convertible 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 $2.25 per share to $0.40 per share. In connection with the down round adjustment, the Company calculated an incremental beneficial conversion feature of approximately $3.3 million which was recognized as a deemed dividend at time of the down round adjustment (“Deemed Dividend A”).

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There were no conversions of Series B Preferred Stock during the years ended December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, the Company had 6,900 shares of Series B designated and issued and 47 shares of Series B outstanding.

Liquidation Preferences

The following is the liquidation preferences for the Company’s preferred stock;

Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the holders shall be entitled to receive out of the assets of the Corporation an amount equal to the par value, plus any accrued and unpaid dividends thereon, for each share of Preferred Stock before any distribution or payment shall be made to the holders of the Common Stock, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares. If all amounts were paid in full; and thereafter, the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Preferred Stock were fully converted to Common Stock which amount shall be paid pari passu with all holders of Common Stock.

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Common Stock Warrants

The following represents a summary of the warrants outstanding as of December 31, 2020:


			Underlying	Exercise
	Issue Year	Expiration	Shares	Price
Warrants
(1)	2016	January 2021	596	$	544.50
(2)	2017	June 2022	2,540	$	41.25
(2)	2017	June 2022	500	$	7.50
(3)	2017	June 2022	6,095	$	105.00
(4)	2017	August 2022	25,201	$	0.40
(5)	2017	August 2022	4,000	$	46.88
(6)	2017	August 2022	47,995	$	150.00
(6)	2017	August 2022	9,101	$	7.50
(7)	2017	August 2022	16,664	$	0.40
(7)	2017	August 2022	7,335	$	0.40
(8)	2017	October 2022	666	$	0.40
(9)	2018	October 2022	7,207	$	112.50
(10)	2018	April 2023	69,964	$	5.40
(10)	2018	April 2023	121,552	$	5.40
(11)	2018	October 2022	15,466	$	11.25
(12)	2018	July 2023	14,671	$	5.40
(12)	2018	July 2023	14,672	$	5.40
(12)	2018	August 2023	36,334	$	5.40
(12)	2018	August 2023	36,334	$	5.40
(12)	2018	September 2023	19,816	$	5.40
(12)	2018	September 2023	20,903	$	5.40
(13)	2018	November 2023	75,788	$	5.40
(13)	2018	December 2023	51,282	$	5.40
(14)	2019	April 2024	147,472	$	5.40
(15)	2019	May 2024	154,343	$	9.56
			906,497

(1)	These warrants were issued in connection with an offering which was completed in January 2016. Of the remaining outstanding warrants as of December 31, 2020, 357 warrants are recorded as liability, See Note 12 – Fair Value for further discussion, and 239 warrants are treated as equity.

(2)	These warrants were issued in connection with the Merger.

(3)	These warrants were issued in connection with the Merger.

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

(5)	These warrants were issued in connection with the August 2017 Offering.

(6)	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.

(7)	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.

(8)	These warrants were issued in connection with a waiver of default the Company received in the fourth quarter of 2017 in connection with certain convertible promissory notes and are the Convertible Promissory Note Warrants discussed below.

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

(10)	These warrants were issued in connection with the 2018 Note Agreement and are the April 2018 Warrants discussed below.

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

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

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

(14)	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.

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

During the year ended December 31, 2020, 2,692 warrants expired. These warrants had been issued in connection with transactions which were completed between October 2014 and July 2015.

August 2017 Offering Warrants

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

As a result of the March 2020 Amendment, the exercise price of the August 2017 Offering Warrants was adjusted from the previously amended $2.25 to $0.40. 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 $6,000 and recorded this as a deemed dividend (“Deemed Dividend B”).

There were 6,800 August 2017 Offering Warrants exercised during the year ended December 31, 2019 for proceeds to the Company of approximately $15,000. During the year ended December 31, 2019, the intrinsic value of the August 2017 Offering Warrants exercised was approximately $36,000.

Note Conversion Warrants

Upon the closing of the August 2017 Offering, the Company issued 23,999 warrants to purchase the Company's common stock (the “Note Conversion Warrants”). The Note Conversion Warrants have an exercise price of $45.00 per share, a five year term and contain a down round provision.

As a result of the March 2020 Amendment, the exercise price of the Note Conversion Warrants was adjusted from the previously amended $2.25 to $0.40. 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 (“Deemed Dividend C”).

Convertible Promissory Note Warrants

The Convertible Promissory Note Warrants had an original exercise price of $45.00 per share and contain a down round provision.

As a result of the March 2020 Amendment, the exercise price of the Convertible Promissory Note Warrants was adjusted from the previously amended $2.25 to $0.40. 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 (“Deemed Dividend D”).

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Series C Warrants

In connection with a Series C preferred stock offering during 2017, the Company issued 130,857 warrants at an exercise price of $24.45, which contain a down round provision.

There were 25,037 Series C Warrants exercised during the year ended December 31, 2019 for proceeds to the Company of approximately $56,000 and, as a result, there were no Series C Warrants outstanding at December 31, 2020 and 2019, respectively. During the year ended December 31, 2019, the intrinsic value of the Series C Warrants exercised was approximately $43,000.

Creditor Warrants

In the fourth quarter of 2017, the Company entered into Settlement Agreements with the Creditors pursuant to which the Company agreed to issue, to certain of its Creditors, warrants to purchase 7,207 shares of the Company’s common stock at an exercise price of $112.50 per share. The Creditor Warrants were issued in February 2018.

April 2018 Warrants

In connection with the issuance of Bridge Notes in April 2018, the Company issued 243,224 warrants at an exercise price of $11.25 at time of issuance. At issuance, half of these April 2018 Warrants had a five-year term and half had a one-year term.

In April 2019, as a result of the Amendment No.2 Agreement, the exercise price of the April 2018 Warrants was adjusted from the previously amended $7.50 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 loss on modification of warrants in the consolidated statements of operations for the year ended December 31, 2019.

During the year ended December 31, 2019, 51,708 April 2018 Warrants were exercised for proceeds to the Company of $279,000. During the year ended December 31, 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 15,466 warrants with an exercise price of $11.25 to a financial advisor.

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 these Q3 2018 Warrants had a five-year term and half had a one-year term. In September 2018, the exercise price was modified to $7.50.

In April 2019, as a result of the Amendment No.2 Agreement, the exercise price of the Q3 2018 Warrants was adjusted from the previously amended $7.50 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 loss on modification of warrants in the consolidated statements of operations for the year ended December 31, 2019.

There were 53,610 Q3 2018 Warrants exercised during the year ended December 31, 2019 for proceeds to the Company of approximately $290,000. During the year ended December 31, 2019, the intrinsic value of the Q3 2018 Warrants exercised was approximately $133,000.

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Q4 2018 Warrants

In connection with the issuance of the 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 2018 Warrants”).

There were 173,045 Q4 2018 Warrants exercised during the year ended December 31, 2019 for proceeds to the Company of $935,000. During the year ended December 31, 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.

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 $9.56 and a five-year term.

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.

There were no deemed dividends recorded in 2019. The following represents a summary of the dividends recorded for the year ended December 31, 2020:


	Amount Recorded
Deemed Dividends	(in thousands)

Dividends resulting from the March 2020 Amendment
Deemed Dividend A	$	3,333
Deemed Dividend B		6
Deemed Dividend C		*
Deemed Dividend D		5

For the year ended December 31, 2020	$	3,344

* Represents less than one thousand dollars

12. 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 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;

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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 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 consolidated statement of operations.

2016 Warrant Liability

The Company has a warrant liability related to warrants issued in January 2016 (the “2016 Warrant Liability”) and it represents the fair value of such warrants, of which, 357 warrants remain outstanding as of December 31, 2020.

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 1,347 warrants, was canceled on the date of the settlement agreement.

The 2016 Warrant Liability is considered a Level 3 financial instrument and was valued using the Black Scholes model. As of December 31, 2020, assumptions and inputs used in the valuation of the 2016 Warrant Liability include: remaining life to maturity of less than one month; annual volatility of 135%; and a risk-free interest rate of 0.08%. As of December 31, 2019, assumptions and inputs used in the valuation of the 2016 Warrant Liability include: remaining life to maturity of one year; annual volatility of 140%; and a risk-free interest rate of 1.59%. The 2016 Warrant Liability matured and was settled for cash of approximately $0.1 million in January 2021. The balance of the 2016 Warrant Liability was zero as of the date of issuance of this Form 10-K.

Bridge Note Warrant Liabilities

During 2019 and 2018, the Company issued warrants in connection with the issuance of Bridge Notes. All of these warrants issuances were classified as warrant liabilities (the “Bridge Note Warrant Liabilities”). See Note 6 - Convertible Notes for further discussion.

The Bridge Note Warrant Liabilities are considered Level 3 financial instruments and were valued using the Black Scholes model. As of December 31, 2020, assumptions used in the valuation of the Bridge Note Warrant Liabilities include: remaining life to maturity of 1.3 to 3.4 years; annual volatility of 162% to 201%; and risk free rate of 0.10% to 0.17%. As of December 31, 2019, assumptions used in the valuation of the Bridge Note Warrant Liabilities include: remaining life to maturity of 2.3 to 4.4 years; annual volatility of 141% to 163%; and risk free rate of 1.58% to 1.65%.

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During the years ended December 31, 2020 and 2019, 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
	Year Ended December 31, 2020
	2016 Warrant		Bridge Note		Total Warrant
	Liability		Warrant Liabilities		Liabilities
Beginning balance at January 1	$	70	$	1,268	$	1,338
Total gains:
Revaluation recognized in earnings		60		(73)		(13)
Balance at December 31	$	130	$	1,195	$	1,325

	Year Ended December 31, 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		(46)		(370)		(416)
Modification recognized in earnings		–		1,128		1,128
Deductions – warrant liability settlement		–		(2,364)		(2,364)
Balance at December 31	$	70	$	1,268	$	1,338

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 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 consolidated statement of operations.

Bridge Notes Redemption Feature

At the time of the Bridge Note issuances, the Company recorded derivative instruments and valued the derivatives using the “with and without” approach, whereby the Bridge Notes were valued both with the embedded derivative and without. Approximately $0.4 million of Bridge Notes Redemption Feature derivative liabilities were written off due to Bridge Note conversions during the year ended December 31, 2019.

Conversion Option

The Company recorded derivative liabilities related to the Conversion Option of the Exchange Notes and valued them using the Monte Carlo methodology. Approximately $0.1 million of Conversion Option derivative liabilities were written off due to Exchange Note conversions during the year ended December 31, 2019.

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During the year ended December 31, 2019, the change in the fair value of the derivative liabilities was comprised of the following:


(Dollars in thousands)	Year Ended December 31, 2019
	Bridge Notes
	Redemption		Conversion		Total Derivative
	Feature		Option		Liabilities
Beginning balance at January 1	$	30	$	32	$	62
Deductions - write-off in conjunction with convertible note conversions		(438)		(39)		(477)
Total loss:
Revaluation recognized in earnings		408		7		415
Balance at December 31	$	—	$	—	$	—

13. EQUITY INCENTIVE PLAN

The Company currently issues stock awards under its 2017 Stock Option and Incentive Plan, as amended (the ~~“2017 Plan”~~"2017 Plan"). which will expire on June 5, 2027. Per the terms of the 2017 Plan, the shares authorized for issuance under the 2017 Plan were 913,586 at December 31, 2020, of which 90,682 remain available for future grant. The shares authorized under the 2017 Plan are subject to annual increases on January 1 by 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or such lessor number of shares determined by the Company’s Board of Directors or Compensation Committee. During the year ended December 31, ~~2019, no other equity~~2020, the shares authorized for issuance increased by 394,905 shares.

The Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), which has the authority to set the number, exercise price, term and vesting provisions of the awards ~~were~~granted under the Plan, subject to the terms thereof. Either incentive or non-qualified stock options may be granted to ~~our named executive officers and directors. See the notes below the table for details on option vesting schedules.~~

Name Grant Date All Other Option Awards: Number of Securities Underlying Options (#) Exercise or Price of Option Awards ($/sh)⁽¹⁾ Grant Date Fair Value of Option Awards ($)⁽²⁾
Ilan Danieli
Stock options⁽³⁾ 3/18/2019 16,667 2.25 34,000

Carl R. Iberger
Stock options⁽³⁾ 3/18/2019 16,667 2.25 34,000

Ahmed Zaki Sabet
Stock options⁽³⁾ 3/18/2019 16,667 2.25 34,000

Stephen Miller
Stock options⁽⁴⁾⁽⁵⁾ 3/18/2019 23,334 2.25 47,600

⁽¹⁾~~The exercise price~~employees of the Company, but only non-qualified stock ~~awards represent~~options may be granted to non-employee directors and advisors. However, in either case, the Plan requires that stock options must be granted at exercise prices not less than the fair market value of ~~our~~the common stock on the date of the grant. Options issued under the plan vest over periods as determined by the Committee and expire 10 years after the date the option was granted.

Stock Options.

The Company accounts for all stock-based compensation payments to employees and directors, including grants of employee stock options, at fair value at the date of grant ~~as defined~~and expenses the benefit in operating expense in the ~~2017 Plan.~~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.

⁽²⁾~~The amount in this column reflects~~During the ~~aggregate~~year ended December 31, 2020, the Company granted stock options to employees and directors to purchase up to 433,550 shares of common stock at a weighted average exercise price of $2.01. These awards have vesting periods of up to four years and had a weighted average grant date fair value of ~~each stock award granted in accordance with ASC 718, excluding the effect of estimated forfeitures. The amounts shown may not correspond to the actual value that may be recognized.~~$1.85. The fair value calculation of options granted during ~~2019~~2020 used the following assumptions: risk free interest rate of 2.47% based on the U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of 133% based on historical volatility of the Company’s common stock over a time that is consistent with the expected life of the option. Our named executive officers will only realize compensation to the extent the trading price of our common stock is greater than the exercise price of such stock options on the date the options are exercised.

⁽³⁾The award vests over a four year period. Twenty-five percent (25%) of the options vest on the first anniversary of the grant and thereafter the reminder shall vest by 36 equal monthly installments and so long as the executive officer remains an employee of the Company or a Subsidiary on such dates.

⁽⁴⁾~~Includes 6,667 stock options which were performance based and have been forfeited or canceled as of December 31, 2019.~~

⁽⁵⁾Includes 16,667 stock options which vest over a four year period. Twenty-five percent (25%) of the options vest on the first anniversary of the grant and thereafter the reminder shall vest by 36 equal monthly installments and so long as the executive officer remains an employee of the Company or a Subsidiary on such dates.

~~Outstanding Equity Awards at Fiscal 2019 Year-End~~

~~The following table provides certain information concerning outstanding option awards held by our named executive officers as of December 31, 2019.~~

Stock Option Awards⁽¹⁾
Name Option Award Grant Date Number of Securities Underlying Unexercised Options (#) (Exercisable) Number of Securities Underlying Unexercised Options (#) (Unexercisable) Option Exercise Price ($) Option Expiration Date
Ilan Danieli 9/26/2017 2,500 1,945 28.05 9/26/2027
2/16/2018 30,556 36,111 10.65 2/16/2028
3/18/2019 - 16,667 2.25 3/18/2029
Carl Iberger 9/26/2017 2,500 1,945 28.05 9/26/2027
2/16/2018 9,167 10,833 10.65 2/16/2028
3/18/2019 - 16,667 2.25 3/18/2029
Ahmed Zaki Sabet 2/16/2018 8,403 9,931 10.65 2/16/2028
3/18/2019 - 16,667 2.25 3/18/2029
Stephen Miller 11/18/2013 138 - 2,700.00 11/18/2023
2/18/2014 11 - 2,490.00 2/18/2024
4/1/2014 15 - 2,055.00 4/1/2024
4/1/2015 133 - 645.00 4/1/2025
9/26/2017 1,875 1,459 28.05 9/26/2027
2/16/2018 4,583 5,417 10.65 2/16/2028
3/18/2019 - 16,667 2.25 3/18/2029

(1) The award vests over a four year period. Twenty-five percent (25%) of the options vest on the first anniversary of the grant and thereafter the reminder shall vest by 36 equal monthly installments and so long as the executive officer remains an employee of the Company or a Subsidiary on such dates.

~~Fiscal Year 2019 Option Exercises and Stock Vested~~

~~No stock options were exercised by any of our named executive officers during fiscal year 2019.~~

~~Agreements with Our Named Executive Officers~~

~~The Company has entered into employment agreements with each of Mr. Danieli, Mr. Iberger, Mr. Sabet and Mr. Miller.~~

~~Employment Agreement with Mr. Ilan Danieli~~

On August 7, 2018, the Company entered into a revised employment agreement with Ilan Danielli, effective as of that date (the “Danieli Employment Agreement”), in connection with his existing role as Chief Executive Officer of the Company. Pursuant to the Danieli Employment Agreement, Mr. Danieli will receive an annual salary in the amount of $250,000 per year and will be entitled to participate in the Company’s health plan and benefits on terms available to other Company employees.

Mr. Danieli is eligible to receive an annual bonus in accordance with the recommendations made by the Compensation Committee of the Board or a majority of the independent members of the Board. In addition, Mr. Danieli shall be eligible to receive stock options or other equity incentive awards in the Company subject to approval of the Compensation Committee of the Board.

In the event of termination without cause or for good reason (as such terms are defined in the Danieli Employment Agreement), Mr. Danieli shall be entitled to (i) a lump sum payment equal to 9 months of his base salary in effect at the date of termination, less applicable withholding (ii) COBRA benefits for a period of 9 months or such period as further described in the Danieli Employment Agreement and (iii) accelerated vesting of all unvested stock options or equity awards.

Upon death or termination of employment by virtue of disability, Mr. Danieli (or his estate or beneficiaries as applicable) shall have no right to receive any compensation or benefit pursuant to the terms of the agreement on and after the effective date of the termination of employment other than (i) annual salary earned and accrued under the agreement prior to the effective date of termination (ii) earned, accrued and vested benefits and paid time off under the agreement prior to the effective date of termination, subject to the terms of the plans applicable thereto (and any applicable laws and regulations); and (iii) reimbursement under the Agreement for expenses incurred prior to the effective date of termination, subject to the terms of the agreement and the policies applicable thereto.

If a sale event occurs (as defined in the Danieli Employment Agreement) and the Company, its subsidiaries or a successor entity, as the case may be, terminates the employment agreement and the employment of Mr. Danieli without cause or Mr. Danieli terminates the agreement and his employment for good reason, in either case within 12 months following such sale event, then Mr. Danieli shall be entitled to receive Change of Control Severance as set out in the terms of the agreement.

The description of the Danieli Employment Agreement set forth herein does not purport to be complete and is qualified in its entirety by reference to the full text thereof, which was attached as Exhibit 10.1(a) to the Current Report on Form 8-K filed by the Company on August 9, 2018.

~~Employment Agreement with Mr. Carl Iberger~~

On August 7, 2018, the Company entered into a revised employment agreement with Carl Iberger, effective as of that date (the “Iberger Employment Agreement”), in connection with his existing role as Chief Financial Officer of the Company. Pursuant to the Iberger Employment Agreement, Mr. Iberger will receive an annual salary in the amount of $200,000 per year and will be entitled to participate in the Company’s health plan and benefits on terms available to other Company employees.

Mr. Iberger is eligible to receive an annual bonus in accordance with the recommendations made by the Compensation Committee of the Board. In addition, Mr. Iberger shall be eligible to receive stock options or other equity incentive awards in the Company subject to approval of the Compensation Committee of the Board.

In the event of termination without cause or for good reason (as such terms are defined in the Iberger Employment Agreement), Mr. Iberger shall be entitled to (i) a lump sum payment equal to 9 months of his base salary in effect at the date of termination, less applicable withholding (ii) COBRA benefits for a period of 9 months or such period as further described in the Iberger Employment Agreement and (iii) accelerated vesting of all unvested stock options or equity awards.

Upon death or termination of employment by virtue of disability, Mr. Iberger (or his estate or beneficiaries as applicable) shall have no right to receive any compensation or benefit pursuant to the terms of the agreement on and after the effective date of the termination of employment other than (i) annual salary earned and accrued under the agreement prior to the effective date of termination (ii) earned, accrued and vested benefits and paid time off under the agreement prior to the effective date of termination, subject to the terms of the plans applicable thereto (and any applicable laws and regulations); and (iii) reimbursement under the Agreement for expenses incurred prior to the effective date of termination, subject to the terms of the agreement and the policies applicable thereto.

If a sale event occurs (as defined in the Iberger Employment Agreement) and the Company, its subsidiaries or a successor entity, as the case may be, terminates the employment agreement and the employment of Mr. Iberger without cause or Mr. Iberger terminates the agreement and his employment for good reason, in either case within 12 months following such sale event, then Mr. Iberger shall be entitled to receive Change of Control Severance as set out in the terms of the agreement.

The description of the Iberger Employment Agreement set forth herein does not purport to be complete and is qualified in its entirety by reference to the full text thereof, which is attached hereto as Exhibit 10.1(b) to the Current Report on Form 8-K filed by the Company on August 9, 2018.

~~Employment Agreement with Mr. Ahmed Zaki Sabet~~

On August 7, 2018, the Company entered into a revised employment agreement with Ahmed Zaki Sabet, effective as of that date (the “Sabet Employment Agreement”), in connection with his existing role as Chief Operations Officer of the Company. Pursuant to the Sabet Employment Agreement, Mr. Sabet will receive an annual salary in the amount of $150,000 per year and will be entitled to participate in the Company’s health plan and benefits on terms available to other Company employees.

Mr. Sabet is eligible to receive an annual bonus such amount as shall be determined in the sole discretion of the Chief Executive Officer of the Company based on recommendation of the Compensation Committee of the Board. In addition, Mr. Sabet shall be eligible to receive stock options or other equity incentive awards in the Company subject to approval of the Compensation Committee of the Board.

In the event of termination without cause or for good reason (as such terms are defined in the Sabet Employment Agreement), Mr. Sabet shall be entitled to (i) a lump sum payment equal to 9 months of his base salary in effect at the date of termination, less applicable withholding (ii) COBRA benefits for a period of 9 months or such period as further described in the Sabet Employment Agreement and (iii) accelerated vesting of all unvested stock options or equity awards.

Upon death or termination of employment by virtue of disability, Mr. Sabet (or his estate or beneficiaries as applicable) shall have no right to receive any compensation or benefit pursuant to the terms of the agreement on and after the effective date of the termination of employment other than (i) annual salary earned and accrued under the agreement prior to the effective date of termination (ii) earned, accrued and vested benefits and paid time off under the agreement prior to the effective date of termination, subject to the terms of the plans applicable thereto (and any applicable laws and regulations); and (iii) reimbursement under the Agreement for expenses incurred prior to the effective date of termination, subject to the terms of the agreement and the policies applicable thereto.

If a sale event occurs (as defined in the Sabet Employment Agreement) and the Company, its subsidiaries or a successor entity, as the case may be, terminates the employment agreement and the employment of Mr. Sabet without cause or Mr. Sabet terminates the agreement and his employment for good reason, in either case within 12 months following such sale event, then Mr. Sabet shall be entitled to receive Change of Control Severance as set out in the terms of the agreement.

The description of the Sabet Employment Agreement set forth herein does not purport to be complete and is qualified in its entirety by reference to the full text thereof, which is attached as Exhibit 10.1(c) to the Current Report on Form 8-K filed by the Company on August 9, 2018.

~~Employment Agreement with Mr. Stephen Miller~~

On August 7, 2018, the Company entered into a revised employment agreement with Stephen Miller, effective as of that date (the “Miller Employment Agreement”), in connection with his existing role as Chief Commercial Officer of the Company. Pursuant to the Miller Employment Agreement, Mr. Miller will receive an annual salary in the amount of $200,000 per year and will be entitled to participate in the Company’s health plan and benefits on terms available to other Company employees.

Mr. Miller is eligible to receive an annual bonus such amount as shall be determined in the sole discretion of the Chief Executive Officer of the Company based on recommendation of the Compensation Committee of the Board. In addition, Mr. Miller shall be eligible to receive stock options or other equity incentive awards in the Company subject to approval of the Compensation Committee of the Board.

In the event of termination without cause or for good reason (as such terms are defined in the Miller Employment Agreement), Mr. Miller shall be entitled to (i) a lump sum payment equal to 9 months of the greater of $258,500 or Mr. Miller’s base salary in effect at the date of termination, less applicable withholding (ii) COBRA benefits for a period of 9 months or such period as further described in the Miller Employment Agreement and (iii) accelerated vesting of all unvested stock options or equity awards.

Upon death or termination of employment by virtue of disability, Mr. Miller (or his estate or beneficiaries as applicable) shall have no right to receive any compensation or benefit pursuant to the terms of the agreement on and after the effective date of the termination of employment other than (i) annual salary earned and accrued under the agreement prior to the effective date of termination (ii) earned, accrued and vested benefits and paid time off under the agreement prior to the effective date of termination, subject to the terms of the plans applicable thereto (and any applicable laws and regulations); and (iii) reimbursement under the Agreement for expenses incurred prior to the effective date of termination, subject to the terms of the agreement and the policies applicable thereto.

If a sale event occurs (as defined in the Miller Employment Agreement) and the Company, its subsidiaries or a successor entity, as the case may be, terminates the employment agreement and the employment of Mr. Miller without cause or Mr. Miller terminates the agreement and his employment for good reason, in either case within 12 months following such sale event, then Mr. Miller shall be entitled to receive Change of Control Severance as set out in the terms of the agreement.

The description of the Miller Employment Agreement set forth herein does not purport to be complete and is qualified in its entirety by reference to the full text thereof, which is attached hereto as Exhibit 10.1(d) to the Current Report on Form 8-K filed by the Company on August 9, 2018.

~~Compensation Risk Analysis~~

We have reviewed our material compensation policies and practices for all employees and have concluded that these policies and practices are not reasonably likely to have a material adverse effect on us. While risk-taking is a necessary part of growing a business, our compensation philosophy is focused on aligning compensation with the long-term interests of our stockholders as opposed to rewarding short-term management decisions that could pose long-term risks.

~~DIRECTOR COMPENSATION~~

It is our Board’s general policy that compensation for independent directors should be a mix of cash and equity-based compensation. As part of a director’s total compensation, and to create a direct linkage between corporate performance and stockholder interests, our Board believes that a meaningful portion of a director’s compensation should be provided in, or otherwise based on, the value of appreciation in our common stock.

Our Board has the authority to approve all compensation payable to our directors, although our Compensation Committee is responsible for making recommendations to our Board regarding this compensation. Additionally, our Chief Executive Officer may also make recommendations or assist our Compensation Committee in making recommendations regarding director compensation. Our Board and Compensation Committee annually review our director compensation.

~~Cash Compensation~~

Directors who are also our employees are not separately compensated for serving on the Board other than reimbursement for out-of-pocket expenses related to attendance at Board and committee meetings. Independent directors are paid an annual retainer of $20,000 and receive reimbursement for out-of-pocket expenses related to attendance at Board and committee meetings. Independent directors serving on a committee of the Board are paid an additional annual retainer of $2,500 for the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee unless they are also a chairperson of a committee. The chairperson of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee receives an additional annual retainer of $8,000, $4,000 and $4,000, respectively.

~~In 2019, the directors were granted non-qualified options to purchase shares of our common stock.~~

~~Director Summary Compensation Table~~

The following table provides information regarding our compensation for non-employee directors during the year ended December 31, 2019. Directors who are our employees did not receive compensation for serving on the Board or its committees in fiscal year 2019.

Name
Fees Earned or Paid in Cash ($)
⁽⁵⁾
Option Awards ($)⁽¹⁾⁽⁴⁾ All Other Compensation ($) Total ($)
Samuel Riccitelli⁽²⁾ 24,708 10,200 — 34,908
David Cohen 21,458 10,200 — 31,658
Douglas Fisher 26,500 10,200 — 36,700
Mark Rimer 25,000 10,200 — 35,200
Jeffrey Cossman 25,667 10,200 — 35,867
Kathleen LaPorte 26,000 21,286 — 47,286
Richard Sandberg⁽³⁾ 1,667 14,480 — 16,147

⁽¹⁾The amount in this column reflects the aggregate grant date fair value of each stock award granted in accordance with ASC 718, excluding the effect of estimated forfeitures. The amounts shown may not correspond to the actual value that may be recognized. The fair value calculation of options granted during 2019 used the followingfollow assumptions: risk free interest rates of ~~1.60%~~0.40% to ~~2.47%~~1.73%, based on the U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of ~~133%~~138% to ~~139%~~163% based on historical volatility of the Company’s common stock over a time that is consistent with the expected life of the option. ~~Our directors~~

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The following table summarizes stock option activity under our plans during the year ended December 31, 2020:


	Number of	Weighted-Average
	Options	Exercise Price
Outstanding at January 1, 2020	490,330	$	8.30
Granted	433,550		2.01
Forfeited	(100,888)		12.64
Outstanding at December 31, 2020	822,992	$	4.46
Exercisable at December 31, 2020	337,155	$	6.59

As of December 31, 2020, there were 701,533 options that were vested or expected to vest with an aggregate intrinsic value of $0.1 million and a remaining weighted average contractual life of 8.4 years.

During the year ended December 31, 2019, there were 292,604 options granted with a weighted average exercise price of $2.36 and 27,169 options forfeited with a weighted average exercise price of $6.03.

During the years ended December 31, 2020 and 2019, we recorded compensation expense for all stock awards of $0.7 million, respectively, within operating expense in the accompanying statements of operations. As of December 31, 2020, the unrecognized compensation expense related to unvested stock awards was $1.6 million, which is expected to be recognized over a weighted-average period of 1.7 years.

14. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE

ASC Topic 606, “Revenue from contracts with customers”

The Company follows the guidance for the recognition of revenue from contracts with customers to transfer goods and 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.

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 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.

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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 ~~only realize compensation~~recognize revenue utilizing the “effort based” method, measuring its progress toward complete satisfaction of the performance obligation.

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. Service revenue, net for the years ended December 31, 2020 and 2019 was as follows:


(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total
	2020		2019		2020		2019		2020		2019
Medicaid	$	53	$	28	$	—	$	—	$	53	$	28
Medicare		2,882		1,669		—		—		2,882		1,669
Self-pay		408		34		—		—		408		34
Third party payers		3,442		1,725		—		—		3,442		1,725
Contract diagnostics		—		—		426		595		426		595
Service revenue, net	$	6,785	$	3,456	$	426	$	595	$	7,211	$	4,051

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”), revenues from the Company’s ICP technology and bio-pharma projects encompassing genetic diagnostics (collectively “Biomarker”) and other revenues from clinical research grants from state and federal research programs and other product sales.

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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. As of December 31, 2020 and 2019, the deferred revenue was $6,000 and $35,000, respectively.

Contractual Allowances and Adjustments

We are reimbursed by payers for services we provide. Payments for services covered by payers average less than billed charges. We monitor revenue and receivables from 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 payers. Accordingly, the total revenue and receivables reported in our consolidated financial statements are recorded at the amounts expected to be received from these 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 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 payer class during the years ended December 31, 2020 and 2019.


(dollars in thousands)					Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments
	2020		2019		2020		2019		2020		2019
Medicaid	$	53	$	31	$	—	$	(3)	$	53	$	28
Medicare		2,882		1,686		—		(17)		2,882		1,669
Self-pay		411		34		(3)		—		408		34
Third party payers		11,891		5,785		(8,449)		(4,060)		3,442		1,725
Contract diagnostics		426		595		—		—		426		595
		15,663		8,131		(8,452)		(4,080)		7,211		4,051
Clinical research grants and other		220		44		—		—		220		44
	$	15,883	$	8,175	$	(8,452)	$	(4,080)	$	7,431	$	4,095

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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 and ASU 2011-07, Health Care Entities: Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debt, and the ~~trading price~~Allowance for Doubtful Accounts. The change in the allowance for doubtful accounts is directly related to the increase in patient service revenues. The following table presents our reported revenues net of ~~our common stock is greater than~~ the ~~exercise price~~collection allowance and adjustments for the years ended December 31, 2020 and 2019.


	Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total
	2020		2019		2020		2019		2020		2019
Medicaid	$	53	$	28	$	(53)	$	(28)	$	—	$	—
Medicare		2,882		1,669		(387)		(251)		2,495		1,418
Self-pay		408		34		—		—		408		34
Third party payers		3,442		1,725		(899)		(689)		2,543		1,036
Contract diagnostics		426		595		—		—		426		595
		7,211		4,051		(1,339)		(968)		5,872		3,083
Clinical research grants and other		220		44		—		—		220		44
	$	7,431	$	4,095	$	(1,339)	$	(968)	$	6,092	$	3,127

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 consolidated statements of ~~such stock options~~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 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.

The following summarizes the mix of receivables as of December 31, 2020 and 2019:


(dollars in thousands)	2020		2019
Medicaid	$	131	$	107
Medicare		1,054		814
Self-pay		276		88
Third party payers		3,373		2,203
Contract diagnostic services		53		36
	$	4,887	$	3,248
Less allowance for doubtful accounts		(4,013)		(2,674)
Accounts receivable, net	$	874	$	574

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The following table presents the roll-forward of the allowance for doubtful accounts for the year ended December 31, 2020:


			Allowance for
			Doubtful
(dollars in thousands)			Accounts
Balance, January 1, 2020			$	(2,674)
Collection Allowance:
Medicaid	$	(53)
Medicare		(387)
Third party payers		(899)
		(1,339)
Bad debt expense	$	—
Total charges				(1,339)
Balance, December 31, 2020			$	(4,013)

Customer Revenue and Accounts Receivable Concentration

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


	Net sales			Accounts receivable, as of
	Years Ended
	December 31,			December 31,	December 31,
	2020	2019		2020	2019

Customer A	*	19	%	*	*
Customer B	*	11	%	*	17	%
Customer C	*	*		*	12	%

* represents less than 10%

15. SUBSEQUENT EVENTS

The Company has evaluated events and transactions subsequent to December 31, 2020 through the date the ~~options are exercised~~consolidated financial statements were issued.

⁽²⁾~~Mr. Riccitelli resigned from~~Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;

On March 1, 2021 the Board ~~effective December 1, 2019. Any vested option awards as~~accepted the resignation of Mr. ~~Riccitelli’s resignation date may be exercised up until three months following his resignation date. Unvested option awards~~Rimer as a member of the Board, Audit Committee and Compensation Committee, effective March 1, 2021. The Board accepted that Mr. Rimer become an observer, and in such capacity Mr. Rimer will attend, in a non-voting observer capacity, all meetings of the Board.

On March 1, 2021, the Company elected Mr. Ron A. Andrews to fill the vacancy left by Mr. Rimer’s resignation ~~date were canceled or forfeited~~and to serve as ~~of such date.~~

⁽³⁾~~Mr. Sandberg was elected~~ a class III director of the Company, effective March 1, 2021, and until the Company’s 2021 annual meeting of stockholders or his earlier resignation, retirement or removal.

On March 1, 2021, the Board appointed Mr. Sandberg as Chairman of the Board and Dr. Douglas Fisher as a member of the Audit Committee.

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Item 9. Changes in and Disagreements with Accountants on ~~December 3, 2019.~~Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to ensure 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 Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) (“Disclosure Controls”) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls will be modified as systems change and conditions warrant.

⁽⁴⁾~~The aggregate outstanding options for each non-employee director~~An evaluation of the effectiveness of the design and operation of our Disclosure Controls was performed as of the end of the period covered by this Report. This evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, we concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, ~~2019 are:~~2020.

~~Name~~	~~Aggregate Options Outstanding (#)~~
~~Samuel Riccitelli~~		~~9,329~~
~~David Cohen~~		~~12,707~~
~~Douglas Fisher~~		~~12,707~~
~~Mark Rimer~~		~~12,707~~
~~Jeffrey Cossman~~		~~12,707~~
~~Kathleen LaPorte~~		~~12,240~~
~~Richard Sandberg~~		~~7,240~~

(b)⁽⁵⁾~~Includes the following amounts for being a chairperson of a committee; Mr. Riccitelli $5,333; Mr. Fisher $4,000; Mr. Cossman $4,000; and Ms. LaPorte $2,667.~~ Management’s Report on Internal Control Over Financial Reporting

~~Part IV~~Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, our management, with the participation of our principal executive officer and principal financial officer has conducted an assessment, including testing, using the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020.

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There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As a smaller reporting company, the Company is not required to include in this Annual Report a report on the effectiveness of internal control over financial reporting by the Company’s independent registered public accounting firm.

Item 9B. Other Information

None.

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Part III

Item 10. Directors, Executive Officers and Corporate Governance

We intend to file with the Securities and Exchange Commission a definitive Proxy Statement, which we refer to herein as the 2021 Proxy Statement, not later than 120 days after the close of the fiscal year ended December 31, 2020. The information required by this item is incorporated herein by reference to the 2021 Proxy Statement. The information required by this item related to the executive officers can be found in the section captioned “Executive Officers of the Registrant” under Part I, “Item 1. Our Business” of this Annual Report on Form 10-K, and is also incorporated herein by reference.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the 2021 Proxy Statement to be filed with the SEC within 120 days after the year ended December 31, 2020.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to the 2021 Proxy Statement to be filed with the SEC within 120 days after the year ended December 31, 2020.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to the 2021 Proxy Statement to be filed with the SEC within 120 days after the year ended December 31, 2020.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to the 2021 Proxy Statement to be filed with the SEC within 120 days after the year ended December 31, 2020.

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Part IV

Item 15. Exhibits, Financial Statement Schedules

(a)

The following documents are filed as part of this report:

1 Financial Statements. The following financial statements of the Registrant are included in response to Item 8 of this report:

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets of the Registrant and Subsidiary as of December 31, 2020 and 2019.

Consolidated Statements of Operations of the Registrant and Subsidiary for the years ended December 31, 2020 and 2019.

Consolidated Statements of Stockholders’ Equity of the Registrant and Subsidiary for the years ended December 31, 2020 and 2019.

Consolidated Statements of Cash Flows of the Registrant and Subsidiary for the years ended December 31, 2020 and 2019.

Notes to Consolidated Financial Statements of the Registrant and Subsidiary.

2 Financial Statement Schedules.

All financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements.

3 Exhibits. The following exhibits are filed as required by Item 15(a)(3) of this report. Exhibit numbers refer to the paragraph numbers under Item 601 of Regulation S-K:

~~31.1~~
2.1	Agreement and Plan of Merger, dated October 12, 2016 by and among Transgenomic, Inc., New Haven Labs Inc. and Precipio Diagnostics, LLC (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed on October 13, 2016).
2.2	First Amendment to Agreement and Plan of Merger, dated as of February 3, 2017 by and among Transgenomic, Inc., New Haven Labs Inc. and Precipio Diagnostics, LLC (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed on February 2, 2017).
2.3	Second Amendment to Agreement and Plan of Merger, dated as of June 27, 2017 by and among Transgenomic, Inc., New Haven Labs Inc. and Precipio Diagnostics, LLC (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed on June 30, 2017).
3.1	Third Amended and Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the Company’s 8-K filed on June 30, 2017).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed on June 30, 2017).
3.3	Certificate of Elimination (incorporated by reference to Exhibit 3.3 of the Company’s Form 8-K filed on June 30, 2017).
3.4	Certificate of Designation for Series B Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on August 31, 2017).
3.5	Certificate of Designation for Series C Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on November 6, 2017).
3.6	Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation, dated April 25, 2019 (incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed on April 26, 2019).

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4.1	Form of Certificate of the Company’s Common Stock (incorporated by reference to Exhibit 4 of the Company’s Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000).
4.2	Form of Offering Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on August 23, 2017).
4.3	Form of Underwriter Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K filed on August 23, 2017).
4.4	Form of Conversion Warrant (incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K filed on August 23, 2017).
4.5	Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on November 6, 2017).
4.6	Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on November 13, 2017).
4.7	Description of Securities of the Registrant (incorporated by reference to Exhibit 4.7 of the Company’s Form 10-K filed on March 27, 2020).
10.1	License Agreement between the Company and Dana-Farber Cancer Institute dated October 8, 2009 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed on November 5, 2009).
10.2†	Amended and Restated 2017 Stock Option and Incentive Plan (incorporated by reference to Annex D of the Company’s Definitive Proxy Statement on Schedule 14A filed on December 29, 2017).
10.3†	Form of Non-Qualified Stock Option Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on June 28, 2017).
10.4†	Form of Non-Qualified Stock Option Agreement for Company Employees (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on June 28, 2017).
10.5†	Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed on June 28, 2017).
10.6	Form of New Bridge Warrant (incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K filed on June 30, 2017).
10.7	Form of Side Warrant (incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K filed on June 30, 2017).
10.8#	Amended and Restated Pathology Services Agreement, dated March 21, 2017, by and between the Company and Yale University (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K/A filed on July 31, 2017).
10.9	Lease, dated July 11, 2017, by and between the Company and Science Park Development Corporation (incorporated by reference to Exhibit 10.2 of the Company’s Form 8K/A filed on July 31, 2017).
10.10	Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 23, 2018).
10.11	Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed on December 3, 2018).
10.12	Form of Warrant to Purchase Common Stock relating to Amendment No. 2 Agreement (incorporated by reference to Exhibit 10.45 of the Company’s Form 10-K filed on April 16, 2019).
10.13	Form of Warrant to Purchase Common Stock dated May 14, 2019 (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q filed on May 16, 2019).
21.1	Subsidiaries of the Company.
23.1	Consent of Marcum LLP.
31.1	Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
31.2	Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
32.1*	Certification of Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.
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

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101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* 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.

# Confidential treatment has been requested or granted for certain information contained in this exhibit. Such information has been omitted and filed separately with the Securities and Exchange Commission.

† Indicates a management contract or any compensatory plan, contract or arrangement.

Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on this ~~7th~~29^th day of ~~April, 2020.~~March 2021.

Precipio, Inc.

By:	/s/ ILAN DANIELI
		Ilan Danieli, *Chief Executive Officer (Principal Executive Officer)*

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Ilan Danieli	Director and Chief Executive Officer	~~April 7, 2020~~ March 29, 2021
Ilan Danieli	(Principal Executive Officer)

/s/ Carl Iberger	Chief Financial Officer	~~April 7, 2020~~ March 29, 2021
Carl Iberger	(Principal Financial and Accounting Officer)

/s/ ~~Douglas Fisher, M.D.~~Richard Sandberg	Chairman of the Board of Directors	~~April 7, 2020~~ March 29, 2021
~~Douglas Fisher, M.D.~~ Richard Sandberg

/s/ Kathleen LaPorte	Director	~~April 7, 2020~~ March 29, 2021
Kathleen LaPorte

/s/ ~~Mark Rimer~~Ronald Andrews	Director	~~April 7, 2020~~ March 29, 2021
~~Mark Rimer~~ Ronald Andrews

/s/ ~~Richard Sandberg~~Douglas Fisher, M.D.	Director	~~April 7, 2020~~ March 29, 2021
~~Richard Sandberg~~ Douglas Fisher, M.D.

/s/ Jeffrey Cossman, M.D.	Director	~~April 7, 2020~~ March 29, 2021
Jeffrey Cossman, M.D.

/s/ David Cohen	Director	~~April 7, 2020~~ March 29, 2021
David Cohen


x ⌧	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, ~~2019~~2020
OR
¨ ◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period fromto
Commission File Number: 001-36439

~~Delaware~~		~~91-1789357~~
Delaware		91-1789357
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)

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


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	~~Ticker symbol(s)~~ Trading 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	o ◻	Accelerated filer	o ◻
Non-accelerated filer	x ⌧	Smaller reporting company	x ⌧
Emerging growth company	o ◻


		Page No.
PART I.		2
Item 1.	Business	3
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	28
Item 4.	Mine Safety Disclosures	29
PART II.		30
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Consolidated Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 7A.	Quantitative and Qualitative Disclosures About Market Price	39
Item 8.	Financial Statements and Supplementary Data	40
	Report of Independent Registered Public Accounting Firm	40
	Consolidated Balance Sheets as of December 31, 2020 and 2019	42
	Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019	43
	Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and 2019	44
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019	45
	Notes to the Consolidated Financial Statements for the Years Ended December 31, 2020 and 2019	47
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	84
Item 9A.	Controls and Procedures	84
Item 9B.	Other Information	85
PART III.		86
Item 10.	Directors, Executive Officers and Corporate Governance	86
Item 11.	Executive Compensation	86
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	86
Item 13.	Certain Relationships and Related Transactions, and Director Independence	86
Item 14.	Principal Accounting Fees and Services	86
PART IV.		87
Item 15.	Exhibits, Financial Statement Schedules	87
Item 16.	Form 10-K Summary	89

Signatures		90

Name and Principal Position	Year	Salary ($)	Bonus ($)	Option Awards ($)⁽¹⁾	All Other Compensation ($)⁽²⁾	Total ($)
Ilan Danieli, ⁽³⁾	2019	250,000	—	34,000	13,556	297,556
Chief Executive Officer	2018	250,000	—	650,000	13,797	913,797
Carl R. Iberger, ⁽⁴⁾	2019	200,000	—	34,000	10,671	244,671
Chief Financial Officer	2018	200,000	—	195,000	8,160	403,160
Ahmed Zaki Sabet, ⁽⁵⁾	2019	150,000	10,000	34,000	13,758	207,758
Chief Operations Officer	2018	150,000	—	178,750	13,687	342,437
Stephen Miller,⁽⁶⁾	2019	200,000	36,891	47,600	15,323	299,814
Chief Commercial Officer	2018	200,000	—	97,500	13,797	311,297

Name	Grant Date	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Price of Option Awards ($/sh)⁽¹⁾	Grant Date Fair Value of Option Awards ($)⁽²⁾
Ilan Danieli
Stock options⁽³⁾	3/18/2019	16,667	2.25	34,000

Carl R. Iberger
Stock options⁽³⁾	3/18/2019	16,667	2.25	34,000

Ahmed Zaki Sabet
Stock options⁽³⁾	3/18/2019	16,667	2.25	34,000

Stephen Miller
Stock options⁽⁴⁾⁽⁵⁾	3/18/2019	23,334	2.25	47,600

		Stock Option Awards⁽¹⁾
Name	Option Award Grant Date	Number of Securities Underlying Unexercised Options (#) (Exercisable)		Number of Securities Underlying Unexercised Options (#) (Unexercisable)		Option Exercise Price ($)		Option Expiration Date
Ilan Danieli	9/26/2017		2,500		1,945		28.05	9/26/2027
	2/16/2018		30,556		36,111		10.65	2/16/2028
	3/18/2019		-		16,667		2.25	3/18/2029
Carl Iberger	9/26/2017		2,500		1,945		28.05	9/26/2027
	2/16/2018		9,167		10,833		10.65	2/16/2028
	3/18/2019		-		16,667		2.25	3/18/2029
Ahmed Zaki Sabet	2/16/2018		8,403		9,931		10.65	2/16/2028
	3/18/2019		-		16,667		2.25	3/18/2029
Stephen Miller	11/18/2013		138		-		2,700.00	11/18/2023
	2/18/2014		11		-		2,490.00	2/18/2024
	4/1/2014		15		-		2,055.00	4/1/2024
	4/1/2015		133		-		645.00	4/1/2025
	9/26/2017		1,875		1,459		28.05	9/26/2027
	2/16/2018		4,583		5,417		10.65	2/16/2028
	3/18/2019		-		16,667		2.25	3/18/2029

Name	Fees Earned or Paid in Cash ($) ⁽⁵⁾		Option Awards ($)⁽¹⁾⁽⁴⁾		All Other Compensation ($)		Total ($)
Samuel Riccitelli⁽²⁾		24,708		10,200		—		34,908
David Cohen		21,458		10,200		—		31,658
Douglas Fisher		26,500		10,200		—		36,700
Mark Rimer		25,000		10,200		—		35,200
Jeffrey Cossman		25,667		10,200		—		35,867
Kathleen LaPorte		26,000		21,286		—		47,286
Richard Sandberg⁽³⁾		1,667		14,480		—		16,147