Precipio Annual Report 2020

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FY2020 Annual Report · Precipio

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

FORM 10-K

⌧

◻

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-36439

PRECIPIO, INC.

(Exact name of registrant as specified in its charter)

Delaware

91-1789357

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

4 Science Park, New Haven, CT

(Address of principal executive offices)

06511

(Zip Code)

(203) 787-7888
(Registrant’s telephone number, including area code)

Securities registered pursuant to
Section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value per share

Trading
Symbol(s)
PRPO

Name of each exchange on which
registered
The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

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

Yes No X

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.

Yes No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

Yes X No

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

Yes X No

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 repor ting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Non-accelerated filer
Emerging growth company

◻
⌧
◻

Accelerated filer
Smaller reporting company

◻
⌧

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ◻

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 ◻ No ⌧

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 $19.5 million.

As of March 25, 2021, the number of shares of common stock outstanding was 18,132,063.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders (the “2021 Proxy Statement”) is incorporated by

reference in Part III of this Form 10-K to the extent stated herein. The 2021 Proxy Statement, or an amendment to this Form 10-K, will be filed
with the SEC within 120 days after December 31, 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.

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PRECIPIO, INC.
Annual Report on Form 10-K
For the Year Ended December 31, 2020

INDEX

PART I.

Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments

Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures

Page No.
2
3
11
28
28
28
29

PART II.

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

Equity Securities

Item 6. Selected Consolidated Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Price

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and
2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
Notes to the Consolidated Financial Statements for the Years Ended December 31, 2020 and
2019

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Item 9A. Controls and Procedures
Item 9B. Other Information

PART III.

Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services

PART IV.

Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary

Signatures

30
30

30
31
39
40
40
42
43
44

45
47

84
84
85
86
86
86
86

86
86
87
87
89

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PART I.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Annual Report”), including the sections entitled “Risk Factors”
“Management’s Discussion & Analysis of Financial Condition and Results of Operations” and “Our Business”
contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,
which statements involve substantial risks and uncertainties. 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 the novel coronavirus (“COVID-19”) pandemic 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, foreign currency exchange rates, 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 and key trends, 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, projections of future earnings, revenues, synergies, accretion or other
financial items, any statements of the plans, strategies and objectives of management for future operations, retaining
key employees and other risks as described in our reports filed with the Securities and Exchange Commission (the
“SEC”). 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 of such 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 these forward-looking statements for a number of
reasons, including those described in Item 1A, “Risk Factors,” and other factors identified by cautionary language
used elsewhere in this Annual Report.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result

of new information, future events or otherwise, except as required by law.

The following discussion should be read together with our 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.

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Item 1. Our Business

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 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 within academic institutions, and delivering quality diagnostic
information to physicians and their patients worldwide. We operate a cancer diagnostic laboratory located in New
Haven, Connecticut and have partnered with 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.

The Company’s business is to offer an integrated platform aimed at mitigating misdiagnoses. We understand
the issues of commercial laboratories because we are a commercial lab. We isolate testing process problems, we target
testing cost inefficiencies, we develop testing technology to increase diagnostic accuracy and we seek out solutions to
address turnaround time. Combining our commercial and development expertise with academia we continually
expand relationships with subspecialists in order to provide access for physicians and patients.

Industry

We believe that there is currently a significant problem with unaddressed rates of misdiagnosis across
numerous disease states (particularly in blood-related cancers) due to an inefficient and commoditized industry. We
believe that the diagnostic industry focuses primarily on competitive pricing and test turnaround times, at the expense
of quality and accuracy. Increasingly complex disease states are met with eroding specialization rather than increased
subspecialized expertise. According to a study conducted by the National Coalition of Health, this results in an industry
with cancer misdiagnosis rates as high as 28%, which is failing to meet the needs of physicians, patients and the
healthcare system as a whole. New technologies offer improved accuracy; however, many are either inaccessible or
are not economically practical for clinical use. Despite much publicity of the industry transitioning from fee-per-
service to value-based payments, this transition has not yet occurred in diagnostics. When a patient is misdiagnosed,
physicians end up administering incorrect treatments, often creating adverse effects rather than improving outcomes.
We believe that Insurance Providers, Medicare and Medicaid waste valuable dollars on the application of incorrect
treatments and can incur substantial downstream costs. According to a report by Pinnacle Health, the estimated cost
of misdiagnosis within the healthcare system is $750 billion annually. Most importantly however, patients pay the
ultimate price of misdiagnosis with increased morbidity and mortality. We are of the view that the academic path of
specialization produces the critical expertise necessary to correctly diagnose disease, and that academic institutions
have an untapped potential to address this problem. Our solution is to create a unique platform that harnesses sub-
specialist expertise and proprietary technologies to

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deliver the highest standard of diagnostic accuracy and patient care. Physicians, hospitals, payers and, most
importantly, patients all benefit from more accurate diagnostic outcomes.

Market

Our market is the US domestic oncology market where we participate as a commercial diagnostic laboratory.
The Oncology market is estimated to have annual revenues exceeding $20 billion. The Company also services and
provides new technologies to the oncology reagent market in the form of the HemeScreen and IV-Cell product
offerings. The reagent market is estimated to have annual revenues exceeding $14 billion. The annual growth rate of
each market segment is estimated at 5%.

The Company currently provides diagnostic blood cancer testing services in 14 states predominately east of
the Mississippi River from its New Haven, Connecticut commercial lab. Building on our commercial laboratory
expertise, we have developed several impact reagent technologies that are extremely cost effective and reduce the
diagnostic time and material currently needed to perform such tests. The Company anticipates gaining a share of the
oncology reagent market as commercial diagnostic laboratories and oncology practices adopt its new cost effective
technology. See Recent Development – Business Activities.

Our Solution

Our Platform

Our platform is designed to provide better diagnoses for cancer. To our knowledge, we are the only company
focused on addressing the issue of diagnostic accuracy. Third party studies have shown misdiagnoses to be as high as
1 in 5 patients. Our operating platform has been constructed with the mission of not only providing the highest quality
pathology testing services but of developing innovative products to mitigate misdiagnoses. Further, our platform
enables our commercial lab to be utilized as an incubator for the development of new technologies aimed at addressing
misdiagnosis.

Today, the platform is robust and scalable:

● Providing physicians and their patients access to world-class academic experts and technologies;
● Allowing payers to benefit from quality-based outcomes to their patients and increase the likelihood of

cost savings;

● Enabling cross-collaboration between physicians and academic institutions to advance research and

discovery; and

● Providing new technologies to laboratories worldwide that lower costs and reduce lengthy testing

processes.

Our Technology

IV-CellTM

IV-Cell is a proprietary cell culture media that addresses the problem of selective and serial culturing. IV-
Cell is a universal media that enables simultaneous culturing of all 4 hematopoietic cell lineages. This is a significant
breakthrough in processing work required by laboratories worldwide. Internally developed by Precipio, the culturing
technology ensures that no cell lineage is missed in the diagnostic process. IV-Cell allows the laboratory technician
to select any of the 4 lineages during the culturing process.

Hematopoietic Diseases: The diagnostic process of hematopoietic diseases involves chromosomal analysis
by conducting cell-culture based tests by a cytogenetics laboratory to imitate in-vivo conditions. The four groups of
cell lineages cultured are:

● Myeloid cells – indicating myeloid neoplasms (MDS, AML, CML);

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● B-cells – indicating B-cell neoplasms (B-cell lymphoma, mantle cell lymphoma);
● T-cells – indicating T-cell neoplasms (T-cell lymphoma); and
● Plasma cells – indicating plasma cell neoplasms (multiple myeloma)

IV-Cell, our proprietary media, enables the lab technician to begin culturing all 4 cell lineages
simultaneously, effectively mimicking human biology. IV-Cell media ensures that ultimately the correct cell lineage
is cultured, avoiding the risk of misalignment caused by current market media, which may result in a compromised
diagnosis. Precipio’s advanced IV-Cell technology replaces the current time consuming lengthy process whereby the
cytogeneticist must decide up front which cell lineage to select to be cultured. In most cases, due to specimen
limitation, low cellularity, or cell viability, the cytogeneticist can select only one of the above cell lines to culture.
Often, the initial clinical suspicion is not in line with the final diagnosis determined by the pathologist based on the
rest of the work up. Our internal data from testing within the Company’s commercial lab has shown that this occurs
in approximately 40% of bone marrow biopsies. If the wrong cell lineage is selected, the diagnosis may be
compromised (or return a false negative diagnosis) because the lab will be culturing and investigating the wrong cells.

Product confirmation: IV-Cell was validated in our laboratory in parallel with existing commercially
available reagents and has successfully demonstrated superior results. Subsequently, IV-Cell has been used at our
laboratory for the past 3 years on >1,000 clinical specimens, producing superior diagnostic results. IV-Cell also
produces chromosomes with an average band resolution of 500, approximately 25% higher than achieved with
standard culture media.

We are commercializing this technology by providing major laboratories with access to the media. The IV-
Cell technology and media can be purchased via a direct supply contract, whereby Precipio will contract with a
manufacturer (under license and non-disclosure) to produce the media.

2. HemeScreenTM

HemeScreen technology that was initially developed by the Company targeting Myeloproliferative
Neoplasms (“MPN”) has evolved into a “suite” of robust genetic diagnostic panels. Today, the Company is marketing
MPN blood cancer panel and projects the release of additional diagnostic panels during 2021. Regarding the current
MPN HemeScreen panel it is estimated that annually 140,000 patients are diagnosed with the blood cancer
diseases. The National Comprehensive Cancer Network (the “NCCN”) guidelines require that these patients be tested
for genetic mutations in five key genes:

●
●

JAK2 (exon 12);
JAK2 (exon 13)
JAK2 14 (including V617F);

● CALR; and
● MPL

Precipio has registered provisional patents on its proprietary screening panel for all of the above genes. The
Company’s revolutionary technology enables screening to be completed in one rapid scanning process. The
HemeScreen test screens for the presence of these mutations in an extremely efficient and very economical manner. In
developing HemeScreen, Precipio focused on improving the economics of providing blood cancer diagnostic tests and

reducing laboratory technician time consumed in the testing process. By using Precipio’s HemeScreen media
laboratories can:

1. Reduce the batch requirements for the test;
2. Significantly reduce the turnaround time for results;
3. Provide improved clinical service to physicians; and
4. Yield significant costs savings.

In addressing the diagnostic results it is very important to understand that the clinical significance of these
mutations is substantial to patient treatment. Case in point, a mutation in the JAK2 gene indicates the patient may be
eligible for a targeted therapy. A positive result in the CALR or MPL gene indicates a good prognosis, meaning the
disease

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is less aggressive, and the physician may therefore choose to treat the patient in a less aggressive manner. The results
of these genetic tests are critical to determining a treatment plan, and therefore the importance, and the speed of which
the results are delivered, may significantly impact patient care. HemeScreen represents exactly what Precipio’s
technology and focus is all about, targeting misdiagnoses.

Today, for this type of cancer testing we believe physician ordering patterns for the test are encumbered by
the economics (reimbursement less costs to test) and length of time (2 to 4 weeks) for results to be reported. As a
result of the costs and length of test reporting time, we believe, patients needing this exact type of testing, to assist in
determining therapeutic options, may not be afforded the opportunity. We believe the HemeScreen technology
addresses both issues by providing substantial reductions in both time and cost to test for these genetic mutations.

At the current reimbursement levels (approximately $600 for the full panel at Medicare rates) and given the
costs of labor and of the existing reagents to process the tests, laboratories running the test in house must either batch
samples to gain efficiency, or send the test out to another reference laboratory. Most hospital laboratories don’t have
the volume and patient frequency to economically justify running the test, and therefore they send the test out. This
has created an industry average turnaround time for results of between 2-4 weeks (depending on the lab providing the
test).

As a certified CLIA laboratory, Precipio offers HemeScreen testing and 48 hour turnaround. As a product
company, Precipio has introduced the HemeScreen Reagent Rental (“HSSR”) program to high-end commercial labs,
regional hospital groups, large oncology practices and smaller office based oncology practices. The HSSR program is
a turn-key solution offering appropriately sized diagnostic equipment, training on the equipment and new technology,
and a research use only (“RUO”) reagent purchase program size to the account.

At an average reimbursement rate of approximately $600 per test, the current US Market Revenue Potential
is approximately $80 million per year, in addition to international demand. We believe HemeScreen is a game changer
technology for these tests and we believe HemeScreen has the capability of impacting physician use of the test.

The HemeScreen technology is projected to evolve into a suite of screening products addressing numerous

others genes. If successful, we therefore believe our technology may materially increase the HemeScreen market.

ICE-COLD-PCR

ICP technology was developed at Harvard and is licensed exclusively to us by Dana-Farber. ICP is a unique,
proprietary, patented specimen enrichment technology that increases the sensitivity of molecular based tests from
approximately 90-95% to 99.99%. Traditional molecular testing is done on tumor biopsies. These tests are typically
conducted at disease onset, when the patient undergoes a biopsy. In the typical course of treatment, a patient is rarely
re-biopsied, and therefore, genetic information is based solely on the initial biopsy. Tumors are known to shed cells
into the patient’s bloodstream where they circulate alongside normal cells; however, existing testing methodologies
are not sufficiently sensitive to differentiate between tumor and normal cells. The increased sensitivity provided by
ICP allows for testing of genetic mutations that occur within tumors to be conducted on peripheral blood samples,
termed liquid biopsies. This technical capability enables physicians to test for genetic mutations through a simple
blood test rather than an invasive biopsy extracted from the actual tumor. The results of such tests can be used for
diagnosis, prognosis and therapeutic decisions. The technology is encapsulated within a chemical (reagent) used
during the specimen preparation process, which enriches (amplifies) the tumor DNA detected within the blood sample
while suppressing the normal DNA. In addition to offering this technology as a clinical service, we are developing
panels that will be sold as reagent kits to other laboratories to enable this testing in their facilities, thereby improving
their test sensitivity and more accurate diagnoses via liquid biopsies. The business model of selling reagents to other
laboratories expands the reach and impact of our technology while eliminating the reimbursement risks from running
the tests in-house.

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

● Cost: surgical procedures are usually performed in a costly hospital environment;

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● Surgical access: various tumor sites are not always accessible (e.g. brain tumors), in which cases

no biopsy is available for diagnosis;

● Risk: patient health may not permit undergoing an invasive surgery; therefore, a biopsy cannot be

obtained at all; and

● Time: the process of scheduling and coordinating a surgical procedure often takes time, delaying

the start of patient treatment.

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

information from a tumor:

● Tumors are heterogeneous by nature: a tissue sample from one area of the tumor may not properly
represent the tumor’s entire genetic composition; thus, the diagnostic results from a tumor may be
incomplete and non-representative.

● Metastases: in order to accurately test a patient with metastatic disease, ideally an individual

biopsy sample should be taken from each site (if those sites are even known). These biopsies are
very difficult to obtain; therefore, physicians often rely on biopsies taken only from the primary
tumor site.

We license the ICP technology from Dana-Farber through a license agreement referred to herein as the
License Agreement. The License Agreement grants us an exclusive license to the ICP technology, subject to a non-
exclusive license granted to the U.S. government, in the areas of mutation detection using Sanger (di-deoxy)
sequencing and mitochondrial DNA analysis for all research, diagnostic, prognostic and therapeutic uses in humans,
animals, viruses, bacteria, fungi, plants or fossilized material. The License Agreement also grants us a non-exclusive
license in the areas of mutation detection using DHPLC, surveyor-endonuclease-based mutation detection and next
generation sequencing techniques. We paid Dana-Farber an initial license fee and are required to make milestone
payments with respect to the first five licensed products or services we develop using the licensed technology, as well
as royalties ranging from high single to low double digits on net sales of licensed products and services for sales made
by us and sales made to any distributors. The License Agreement remains in effect until we cease to sell licensed
products or services under said agreement. Dana-Farber has the right to immediately terminate the License Agreement
if (i) we cease to carry on our business with respect to licensed products and services, (ii) we fail to make any payments
under the License Agreement (subject to a cure period), (iii) we fail to comply with due diligence obligations under
the License Agreement (subject to a cure period), (iv) we default in our obligations to procure and maintain insurance
as required by the License Agreement, (v) any of our officers is convicted of a felony relating to the manufacture, use,
sale or importation of licensed products under the License Agreement, (vi) we materially breach any provision of the
License Agreement (subject to a cure period), or (vii) we or Dana-Farber become insolvent. We may terminate the
License Agreement for convenience upon 180 days’ prior written notice.

Our Products & Services

Our offerings consist of clinical diagnostic services harnessing the expertise of pathologists from premier
academic institutions and the commercialization and application of our various technologies. Our clinical diagnostic
services focus on the diagnosis of different hematopoietic or blood-related cancers and the delivery of an accurate
diagnosis to oncologists, with demonstrated superior results through the harnessing of subspecialized academic
pathologists. Our proprietary cytogenetics media IV-Cell enables laboratories to arrive at more accurate results while
reducing inventory and other operating costs. Our proprietary HemeScreen panels enable hospitals and laboratories
(whether reference labs or physician-office labs, called POLs) to run an important genetic mutation test at an
economically lower cost, resulting in faster results delivered to physicians and their patients. Our liquid biopsy
technology, ICP, enables detection of abnormalities in blood samples down to as low as .01%. Our COVID testing
distribution agreements enable the Company to provide to Point-of-Care providers an easy to use, highly accurate
(<99%) 10 minute FDA approved COVID anti-body test. Our customers are oncologists, hospitals, reference
laboratories, POLs, pharma and biotech companies. The Company believes that its technologies enable customers to
achieve more accurate results for their patients, with improved economics, as well as providing results that could lead
to improvements in clinical outcomes.

We provide our CLIA and CAP certified laboratory services and products in our New Haven CT and Omaha
NE facilities. Laboratory operations include sub-departments such as flow cytometry, immuno-histochemistry,
cytogenetics,

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and molecular testing. Our laboratory operations are directed by our Chief Medical Officer, a board certified
pathologist. As mandated by State and Federal regulations our laboratory is inspected every two years by a
Connecticut state-appointed inspector and/or CAP. Furthermore, the laboratory supervisors and medical director must

conduct a self-inspection every two years (rotating with the state inspection) and must submit those results to the state
department of health. Our facility in Omaha was also recently certified as a CLIA and CAP facility.

Our Strategy

Our vision is to mitigate the problem of cancer misdiagnosis, caused by two industry-wide problems. The
first problem is the lack of access to subspecialist expertise; the second is addressing diagnostic costs and time to
test. In order to accomplish our vision we have established two folds to our business. The first is the
pathology/diagnostic business which is aimed at addressing the first problem of subspecialist expertise. Our platform
enables subspecialist expertise to be aggregated. Utilizing academic expert pathologists across multiple academic
institutions enables the Company to provide access for the community based oncologist to subspecialists. The second
aspect of our business is the development of products/technologies that improve commercial laboratory testing quality,
lower costs and significantly reduce the diagnostic time to test.

In support of our strategy, the Company’s commercial laboratory serves two functions. First, it serves our
oncology customers by analyzing the patient biopsies received using the technologies we’ve developed. The goal is
to provide them with a diagnosis rendered by an expert and as required an academic subspecialist. The second function
of our commercial lab is to serve as an incubator for our R&D center to design, develop and test new technologies. The
Company recognizes the importance of development but prides itself on truly understanding how to transition
technology from the R&D lab to a commercial lab setting. The importance of being able to prove the efficacy of new
technology in a commercial lab environment over long periods of time and a large four-digit sample size is invaluable.

Competition

Our principal competition in clinical pathology services comes largely from two groups. The first group
consists of companies that specialize in oncology and offer directly competing services to our diagnostic services.
These companies provide a high level of service focused on oncology and offer their services to oncologists and
pathology departments within hospitals. Competitors in this group include Neogenomics, GenPath Diagnostics and
Inform Diagnostics. The second group consists of large commercial companies that offer a wide variety of laboratory
tests ranging from simple chemistry tests to complex genetic testing. Competitors in this group include LabCorp and
Quest Diagnostics. Within the liquid biopsy market, our competitors include Foundation Medicine, Guardant Health
and Trovagene, Inc.

Competitive Advantage

In addition to our internally generated products, the Company capitalizes on the intellectual expertise and
technologies developed by experts within academic institutions. While several industry papers report a case
misdiagnosis rate as high as 28%, we believe that leveraging our assets with academic expertise can significantly
reduce this rate. In an initial data set of over 100 clinical cases received and processed by us and with a diagnosis
rendered by academic pathologists, we believe less than 1% have resulted in misdiagnosis. The diagnostic report
provided by us was then requested by a patient or the patient’s physician for a second opinion to be conducted by
another laboratory. In these instances, less than 1% were in disagreement with our report’s original diagnosis. Though
less than 5% of all cancer patients are treated in academic centers that benefit from this specialized expertise, the
majority of patients are diagnosed by commercial reference laboratories. These commercial laboratories and
diagnostic companies have broad access to and serve over 95% of all cancer patients; however, their lack of specialized
expertise results in significantly higher misdiagnosis rates. Academic institutions also invest heavily in the
development of new technologies, most of which is used internally and does not benefit outside or commercial lab
patients. Our platform provides all patients with access to these innovative technologies developed by us and in
collaboration with other academic institutions we engage with.

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Government Regulation

The healthcare industry is subject to extensive regulation by a number of governmental entities at the federal,
state and local level. Laws and regulations in the healthcare industry are extremely complex and, in many instances,
the industry does not have the benefit of significant regulatory or judicial interpretation. Our business is impacted not
only by those laws and regulations that are directly applicable to us but also by certain laws and regulations that are
applicable to our payers, vendors and referral sources. While our management believes we are in compliance with all
of the existing laws and regulations applicable to us, such laws and regulations are subject to rapid change and often
are uncertain in their application and enforcement. Further, to the extent we engage in new business initiatives, we
must continue to evaluate whether new laws and regulations are applicable to us. There can be no assurance that we
will not be subject to scrutiny or challenge under one or more of these laws or that any enforcement actions would not
be successful. Any such challenge, whether or not successful, could have a material adverse effect upon our business
and consolidated financial statements.

Our current active laboratory certifications can be found on http://www.precipiodx.com/accreditations.html.
The laboratory operations are governed by Standard Operating Procedure manuals, or SOPs, which detail each aspect
of the laboratory environment including the work flow, quality control, maintenance, and safety. These SOPs are
reviewed and approved annually and signed off by the laboratory manager and medical director.

Among the various federal and state laws and regulations that may govern or impact our current and planned

operations are the following:

Reimbursement

As blood-related cancers are more likely to be developed later in life, the largest insurance provider is
Medicare, which constitutes approximately 40% of our patients’ cases. Non-Medicare patients are typically insured
by private insurance companies who provide patient coverage and pay for patients’ health-related costs. These private
insurance companies will often adjust their rates according to the insurance rates annually published by the Center for
Medicare and Medicaid Services, or CMS. We, and other providers, typically bill according to the codes relevant to
the tests we conduct.

Medicare and Medicaid Reimbursement

Many of the services that we provide are reimbursed by Medicare and state Medicaid programs and are

therefore subject to extensive government regulation.

Medicare is a federally funded program that provides health insurance coverage for qualified persons age 65
or older, some disabled persons, and persons with end-stage renal disease and persons with Lou Gehrig’s disease.
Medicaid programs are jointly funded by the federal and state governments and are administered by states under
approved plans.

Medicaid provides medical benefits to eligible people with limited income and resources and people with
disabilities, among others. Although the federal government establishes general guidelines for the Medicaid program,
each state sets its own guidelines regarding eligibility and covered services. Some individuals, known as “dual
eligibles”, may be eligible for benefits under both Medicare and a state Medicaid program. Reimbursement under the
Medicare and Medicaid programs is contingent on the satisfaction of numerous rules and regulations, including those
requiring certification and/or licensure. Congress often enacts legislation that affects the reimbursement rates under
government healthcare programs.

Approximately 40% of our revenue for the year ended December 31, 2020 was derived directly from
Medicare, Medicaid or other government-sponsored healthcare programs. Also, we indirectly provide services to
beneficiaries of Medicare, Medicaid and other government-sponsored healthcare programs through managed care

entities. Should there be material changes to federal or state reimbursement methodologies, regulations or policies,
our direct reimbursements from government-sponsored healthcare programs, as well as service fees that relate
indirectly to such reimbursements, could be adversely affected.

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Healthcare Reform

In recent years, federal and state governments have considered and enacted policy changes designed to reform
the healthcare industry. The most prominent of these healthcare reform efforts, the Affordable Care Act, has resulted
in sweeping changes to the U.S. system for the delivery and financing of health care. As currently structured, the
Affordable Care Act increases the number of persons covered under government programs and private insurance;
furnishes economic incentives for measurable improvements in health care quality outcomes; promotes a more
integrated health care delivery system and the creation of new health care delivery.

Research and Development Expenses

For the years ended December 31, 2020 and 2019, we recorded $1.2 million, respectively, of research and
development expenses. More information regarding our research and development activities can be found in the
section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under
Item 7 of this Annual Report.

Employees

As of March 25, 2021, Precipio employed fifty-four (54) employees on a full-time basis and three
(3) employees on a part-time basis. Of the total, twelve (12) were in Finance, General and Administration, twenty-one
(21) were in laboratory operations, ten (10) were in Sales and Marketing, five (5) were in Customer Service and
Support and nine (9) were in Research & Development.

Executive Officers of the Registrant

Our executive officers, their ages as of March 25, 2021 and their respective positions are as follows:

Ilan Danieli, Chief Executive Officer, age 49

Mr. Danieli was the founder of Precipio Diagnostics LLC and was the Chief Executive Officer of Precipio
Diagnostics LLC since 2011. Mr. Danieli assumed the role of Chief Executive Officer of Precipio, Inc. at the time of
a June 2017 merger transaction (the “Merger”). With over 20 years managing small and medium-size companies,
some of his previous experiences include COO of Osiris, a publicly-traded company based in New York City with
operations in the US, Canada, Europe and Asia; VP of Operations for Laurus Capital Management, a multi-billion
dollar hedge fund; and in various other entrepreneurial ventures. Ilan holds an MBA from the Darden School at the
University of Virginia, and a BA in Economics from Bar-Ilan University in Israel.

Carl R. Iberger, Chief Financial Officer, age 68

Mr. Iberger was named Chief Financial Officer in October 2016. For the years 1990 through 2015, Mr.
Iberger held the positions of Chief Financial Officer and Executive Vice President at Dianon Systems, DigiTrace Care
Services and SleepMed, Inc. Mr. Iberger has significant diagnostic healthcare experience in mergers and acquisitions,
private equity transactions, public offerings and executive management in high growth environments. Mr. Iberger
holds a Master’s Degree in Finance from Hofstra University and a Bachelor of Science Degree in Accounting from
the University of Connecticut.

Compliance with Environmental Laws

We believe we are in compliance with current environmental protection requirements that apply to us or our

business. Costs attributable to environmental compliance are not currently material.

Intellectual Property

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We license the ICP technology from Dana-Farber through the License Agreement. The License Agreement
grants us an exclusive license to the ICP technology, subject to a non-exclusive license granted to the U.S. government,
in the areas of mutation detection using Sanger (di-deoxy) sequencing and mitochondrial DNA analysis for all
research, diagnostic, prognostic and therapeutic uses in humans, animals, viruses, bacteria, fungi, plants or fossilized
material. The Company has filed provisional patents for its proprietary HemeScreen and IV-Cell technologies.

Corporate History

Precipio, Inc. was incorporated in Delaware on March 6, 1997. Our principal office is located at 4

Science Park, New Haven, Connecticut 06511.

Our internet address is www.precipiodx.com. Information found on our website is not incorporated by
reference into this report. We make available free of charge through our website our Securities and Exchange
Commission, or SEC, filings furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC.

Item 1A. Risk Factors

The following risks and uncertainties, together with all other information in this Annual Report on Form 10-
K, including our consolidated financial statements and related notes, should be considered carefully. Any of the risk
factors we describe below could adversely affect our business, financial condition or results of operations, and could
cause the market price of our common stock to fluctuate or decline.

Risk factor Summary

● There is substantial doubt about our ability to continue as a going concern.

● We will require significant additional financing to sustain our operations and without it we will not be able

to continue operations.

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

● We have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot

be certain that we will achieve or sustain profitability

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

● We have been, and may continue to be, subject to costly litigation.

● The commercial success of our product candidates will depend upon the degree of market acceptance of
these products among physicians, patients, health care payers and the medical community and on our ability
to successfully market our product candidates.

●

If we cannot compete successfully with our competitors, including new entrants in the market, we may be
unable to increase or sustain our revenue or achieve and sustain profitability.

● We may not be able to develop new products or enhance the capabilities of our systems to keep pace with
rapidly changing technology and customer requirements, which could have a material adverse effect on our
business and operating results.

● We face risks related to health pandemics and other widespread outbreaks of contagious disease, including
the novel coronavirus, COVID-19, which could significantly disrupt our operations and impact our financial
results.

● We may experience temporary disruptions and delays in processing biological samples at our facilities.

● We depend upon a limited number of key personnel, and if we are not able to retain them or recruit additional
qualified personnel, the execution of our strategy, management of our business and commercialization of our
product candidates could be delayed or negatively impacted.

● We will need to increase the size of our organization, and we may experience difficulties in managing growth.

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● We currently have limited experience in marketing products. If we are unable to establish marketing and
sales capabilities and retain the proper talent to execute on our sales and marketing strategy, we may not be
able to generate product revenue.

● Cybersecurity risks could compromise our information and expose us to liability, which may harm our ability

to operate effectively and may cause our business and reputation to suffer.

● Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal tax
purposes is subject to limitation and risk that could further limit our ability to utilize our net operating losses.

● We face risks related to the PPP Loan which could negatively impact our financial position.

● Governmental payers and health care plans have taken steps to control costs.

● Changes in payer mix could have a material adverse impact on our net sales and profitability.

● Our laboratories require ongoing CLIA certification.

● Failure to comply with HIPAA could be costly.

● Our failure to comply with any applicable government laws and regulations or otherwise respond to claims
relating to improper handling, storage or disposal of hazardous chemicals that we use may adversely affect
our results of operations.

● We may become subject to the Anti-Kickback Statute, Stark Law, False Claims Act, Civil Monetary Penalties
Law and may be subject to analogous provisions of applicable state laws and could face substantial penalties
if we fail to comply with such laws.

● We cannot be certain that measures taken to protect our intellectual property will be effective.

● We depend on certain technologies that are licensed to us. We do not control these technologies and any

loss of our rights to them could prevent us from selling some of our products.
● Third parties may assert ownership or commercial rights to inventions we develop.
● Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential

information or misappropriated trade secrets.

● The testing, manufacturing and marketing of medical diagnostic devices entails an inherent risk of product

liability and personal injury claims.

● All of our diagnostic technology development and our clinical services are performed at two laboratories,
and in the event either or both of these facilities were to be affected by a termination of the lease or a man-
made or natural disaster, our operations could be severely impaired.

● An impairment in the carrying value of our intangible assets could negatively affect our results of

operations

● The price of our common stock may fluctuate significantly, which could negatively affect us and holders of

our common stock.

● The price of our stock may be vulnerable to manipulation.

●

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

Increased costs associated with corporate governance compliance may significantly impact our results of
operations.

● We have not paid dividends on our common stock in the past and do not expect to pay dividends on our
common stock for the foreseeable future. Any return on investment may be limited to the value of our
common stock.

●

If securities or industry analysts do not publish research or reports about our business, or if they change their
recommendations regarding our stock adversely, our stock price and trading volume could decline.

● The sale or issuance of our common stock to Lincoln Park may cause significant dilution and the sale of
the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could
cause the price of our common stock to fall.

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● The issuance of our common stock to creditors or litigants may cause significant dilution to our

stockholders and cause the price of our common stock to fall.

Risks Related to Our Business and Strategy

There is substantial doubt about our ability to continue as a going concern.

Our independent registered public accounting firm has issued an opinion on our consolidated financial
statements included in this Annual Report on Form 10-K that states that the consolidated financial statements were
prepared assuming we will continue as a going concern. Our consolidated financial statements have been prepared
using accounting principles generally accepted in the United States of America applicable for a going concern, which
assume that we will realize our assets and discharge our liabilities in the ordinary course of business. We have incurred
substantial operating losses and have used cash in our operating activities for the past few years. As of and for the year
ended December 31, 2020, we 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. Our consolidated financial statements do not include any adjustments to
the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a
going concern. We also cannot be certain that additional financing, if needed, will be available on acceptable terms,
or at all, and our failure to raise capital when needed could limit our ability to continue our operations. 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.

To date, we have experienced negative cash flow from development of our diagnostic technology, as well as
from the costs associated with establishing a laboratory and building a sales force to market our products and
services. We expect to incur substantial net losses for the foreseeable future to further develop and commercialize our
diagnostic technology. We also expect that our selling, general and administrative expenses will continue to increase
due to the additional costs associated with market development activities and expanding our staff to sell and support
our products. Our ability to achieve or, if achieved, sustain profitability is based on numerous factors, many of which
are beyond our control, including the market acceptance of our products, competitive product development and our
market penetration and margins. We may never be able to generate sufficient revenue to achieve or, if achieved, sustain
profitability.

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

We will require significant additional financing to sustain our operations and without it we will not be able to
continue operations.

At December 31, 2020, we had a working capital deficit of $0.5 million. We had an operating cash flow
deficit of $7.4 million for the year ended December 31, 2020 and a net loss of $10.6 million for the year ended
December 31, 2020. We do not currently have sufficient financial resources to fund our operations or those of our
subsidiaries. Therefore, we need additional funds to continue these operations.

To facilitate ongoing operations and product development, on March 26, 2020, the Company entered into a
purchase agreement with Lincoln Park (the “LP 2020 Purchase Agreement”), pursuant to which Lincoln Park has
agreed to purchase 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.

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. If obtaining sufficient funding from Lincoln Park were to prove unavailable or prohibitively dilutive, we will
need to secure another source of funding in order to satisfy our working capital needs. Even if we sell all $10,000,000
under the Purchase Agreement to Lincoln Park, we may still need additional capital to fully implement our business,
operating and development plans. Should the financing we require to sustain our working capital needs be unavailable
or prohibitively

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expensive when we require it, the consequences could be a material adverse effect on our business, operating results,
financial condition and prospects. As of the date the consolidated financial statements were issued, we have already
received $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.

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

As of December 31, 2020, we had cash of $2.7 million and our working capital was approximately negative
$0.5 million. Due to our recurring losses from operations and the expectation that we will continue to incur losses in
the future, we will be required to raise additional capital to complete the development and commercialization of our
current product candidates and to pay off our obligations. To date, to fund our operations and develop and
commercialize our products, we have relied primarily on equity and debt financings. When we seek additional capital,
we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to
do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors,
including market conditions, our operating performance and investor sentiment. If we are unable to raise additional
capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the
development and/or commercialization of one or more of our product candidates, restrict or cease our operations or
obtain funds by entering into agreements on unattractive terms.

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

We have incurred losses since our inception and expect to incur losses in the future. As of and for the year
ended December 31, 2020, we 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. For the year ended December 31, 2020, we have experienced negative
cash flow from development of our diagnostic technology, as well as from the costs associated with establishing a
laboratory and building a sales force to market our products and services. We expect to incur substantial net losses for
the foreseeable future to further develop and commercialize our diagnostic technology. We also expect that our selling,
general and administrative expenses will continue to increase due to the additional costs associated with market
development activities and expanding our staff to sell and support our products. Our ability to achieve or, if achieved,
sustain profitability is based on numerous factors, many of which are beyond our control, including the market
acceptance of our products, competitive product development and our market penetration and margins. We may never
be able to generate sufficient revenue to achieve or, if achieved, sustain profitability.

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

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

We have had several customers who, from time to time, have individually represented 10% or more of our
total revenue, or whose accounts receivable balances individually represented 10% or more of our total accounts
receivable.

For the year ended December 31, 2020, no customer individually represented 10% or more of our total
revenue. For the year ended December 31, 2019, two customers represented approximately 30% of our total
revenue. We expect to maintain the relationship with these customers, however, the loss of, or significant decrease in
demand from, any of our top customers could have a material adverse effect on our business, results of operations and
financial condition.

At December 31, 2020, no customer represented 10% or more of our total accounts receivable. At December
31, 2019, two customers accounted for approximately 29% of our total accounts receivable. The business risks
associated

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with this concentration, including increased credit risks for these and other customers and the possibility of related
bad debt write-offs, could negatively affect our margins and profits. Additionally, the loss of any of our top customers,
whether through competition or consolidation, or a disruption in sales to such a customer, could result in a decrease
of the Company’s future sales, earnings and cash flows. Generally, we do not require collateral or other securities to
support our accounts receivable and while we are directly affected by the financial condition of our customers,
management does not believe significant credit risks exist at December 31, 2020.

We have been, and may continue to be, subject to costly litigation.

We have been, and may continue to be, subject to legal proceedings. Due to the nature of our business and
our lack of sufficient capital resources to pay our obligations on a timely basis, we may be subject to a variety of
regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of our business. The results
of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including
the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions
of judges and juries and the possibility that decisions may be reversed on appeal. Such litigation has been, and in the
future, could be, costly, time-consuming and distracting to management, result in a diversion of resources and could
materially adversely affect our business, financial condition and operating results.

In addition, we may settle some litigation through the issuance of equity securities which may result in

significant dilution to our stockholders.

The commercial success of our product candidates will depend upon the degree of market acceptance of these
products among physicians, patients, health care payers and the medical community and on our ability to
successfully market our product candidates.

Our products may never gain significant acceptance in the marketplace and, therefore, may never generate
substantial revenue or profits for us. Our ability to achieve commercial market acceptance for our existing and future
products will depend on several factors, including:

●

our ability to convince the medical community of the clinical utility of our products and their potential
advantages over existing diagnostics technology;
the willingness of physicians and patients to utilize our products; and

●

the agreement by commercial third-party payers and government payers to reimburse our products, the
scope and amount of which will affect patients’ willingness or ability to pay for our products and will
likely heavily influence physicians’ decisions to recommend our products.

In addition, physicians may rely on guidelines issued by industry groups, such as the NCCN, medical

societies, such as the College of American Pathologists, or CAP, or other key oncology-related organizations before
utilizing any diagnostic test. Although we have a study underway to demonstrate the clinical utility of our existing
products, none of our products are, and may never be, listed in any such guidelines.

We believe that publications of scientific and medical results in peer-reviewed journals and presentations at
leading conferences are critical to the broad adoption of our products. Publication in leading medical journals is subject
to a peer-review process, and peer reviewers may not consider the results of studies involving our products sufficiently
novel or worthy of publication. The failure to be listed in physician guidelines or to be published in peer-reviewed
journals could limit the adoption of our products. Failure to achieve widespread market acceptance of our products
would materially harm our business, financial condition, and results of operations.

If we cannot compete successfully with our competitors, including new entrants in the market, we may be unable
to increase or sustain our revenue or achieve and sustain profitability.

The medical diagnostic industry is intensely competitive and characterized by rapid technological
progress. We face significant competition from competitors ranging in size from diversified global companies with
significant research and development resources to small, specialized firms whose narrower product lines may allow
them to be more effective

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in deploying related PCR technology in the genetic diagnostic industry. Our closest competitors fall largely into two
groups, consisting of companies that specialize in oncology and offer directly competing services to our diagnostic
services, offering their services to oncologists and pathology departments within hospitals, as well as large commercial
companies that offer a wide variety of laboratory tests that range from simple chemistry tests to complex genetic
testing. The technologies associated with the molecular diagnostics industry are evolving rapidly and there is intense
competition within such industry. Certain molecular diagnostics companies have established technologies that may be
competitive to our product candidates and any future tests that we develop. Some of these tests may use different
approaches or means to obtain diagnostic results, which could be more effective or less expensive than our tests for
similar indications. Moreover, these and other future competitors have or may have considerably greater resources
than we do in terms of technology, sales, marketing, commercialization and capital resources. These competitors may
have substantial advantages over us in terms of research and development expertise, experience in clinical studies,
experience in regulatory issues, brand name exposure and expertise in sales and marketing as well as in operating
central laboratory services. Many of these organizations have financial, marketing and human resources greater than
ours; therefore, there can be no assurance that we can successfully compete with present or potential competitors or
that such competition will not have a materially adverse effect on our business, financial position or results of
operations.

We are currently engaged in a study, which commenced in July 2017, to demonstrate the impact of academic
pathology expertise on diagnostic accuracy. There is no assurance that this study, or other studies or trials we may
conduct, will demonstrate favorable results. If the results of this study, or other studies or trials we may conduct,

demonstrate unfavorable or inconclusive results, customers may choose our competitors’ products over our products
and our commercial opportunities may be reduced or eliminated.

We believe that many of our competitors spend significantly more on research and development-related
activities than we do. Our competitors may discover new diagnostic tools or develop existing technologies to compete
with our diagnostic technology. Our commercial opportunities will be reduced or eliminated if these competing
products are more effective, are more convenient or are less expensive than our product candidates.

We may not be able to develop new products or enhance the capabilities of our systems to keep pace with rapidly
changing technology and customer requirements, which could have a material adverse effect on our business and
operating results.

Our success depends on our ability to develop new products and applications for our diagnostic technology
in existing and new markets, while improving the performance and cost-effectiveness of our systems. New
technologies, techniques or products could emerge that might offer better combinations of price and performance than
our current or future products and systems. Existing or future markets for our products, as well as potential markets
for our diagnostic product candidates, are characterized by rapid technological change and innovation. It is critical to
our success that we anticipate changes in technology and customer requirements and successfully introduce new,
enhanced and competitive technologies to meet our customers’ and prospective customers’ needs on a timely and cost-
effective basis. At the same time, however, we must carefully manage the introduction of new products. If customers
believe that such products will offer enhanced features or be sold for a more attractive price, they may delay purchases
until such products are available. We may also have excess or obsolete inventory of older products as we transition to
new products and our experience in managing product transitions is very limited. If we do not successfully innovate
and introduce new technology into our product lines or effectively manage the transitions to new product offerings,
our revenues and results of operations will be adversely impacted.

Competitors may respond more quickly and effectively than we do to new or changing opportunities,
technologies, standards or customer requirements. We anticipate that we will face increased competition in the future
as existing companies and competitors develop new or improved products and as new companies enter the market
with new technologies.

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We face risks related to health pandemics and other widespread outbreaks of contagious disease, including the
novel coronavirus, COVID-19, which could significantly disrupt our operations and impact our financial results.

Our business could be disrupted and materially adversely affected by the recent outbreak of COVID-19. In
December 2019, an outbreak of respiratory illness caused by a strain of novel coronavirus, COVID-19, began in China.
As of March 2021, that outbreak has led to numerous confirmed cases worldwide, including in the United States. The
outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on
businesses and commerce. Global health concerns, such as coronavirus, could also result in social, economic, and
labor instability in the countries in which we or the third parties with whom we engage operate.

The spread of COVID-19 has created a worldwide humanitarian and economic crisis. The events we are
living through are in many ways unprecedented, with large-scale quarantines, border closings, school closings, and

physical distancing. Governments and communities have been jolted into action to “flatten the curve.” As an
organization we have accelerated our actions to protect employees, customers and suppliers.

The progression of the outbreak and its effects on our business and operations are uncertain. While we can
only estimate the financial impacts to our business, based on current data, we have experienced business interruptions
in certain urban markets that continue to range from 30% to 85%. With the understanding that it is extremely difficult
to project the full and ongoing impact of state-by-state quarantine and shelter-in-place orders, we anticipate that such
rules and restrictions on businesses will continue through 2021 and quite possibly beyond, in various degrees, as the
country re-opens state by state, county by county and city by city. Returning to normalcy is conditioned on many
factors surrounding the control and or eradication of COVID-19. As such, we are unable to provide additional insight
on the impact to our business at this time.

Going forward, we expect that challenges to our business will continue. We have been and will continue to
be prudent in managing through this economic crisis. Digital connectivity is now fundamental to the continuity of
our business operations. We continually engage our employees and customers in keeping safe. We monitor adherence
to governmental guidelines. We have employed remote work where possible. In this unchartered time, we recognize
the need for frequent and transparent communication to all parties. As necessary, we will provide additional
information related to this economic condition, including the impact to our future operating results due to downturns
in global economies and financial markets.

We may experience temporary disruptions and delays in processing biological samples at our facilities.

We may experience delays in processing biological samples caused by software and other errors. Any delay

in processing samples could have an adverse effect on our business, financial condition and results of operations.

We depend upon a limited number of key personnel, and if we are not able to retain them or recruit additional
qualified personnel, the execution of our strategy, management of our business and commercialization of our
product candidates could be delayed or negatively impacted.

Our success is largely dependent upon the continued contributions of our officers and employees. Our success
also depends in part on our ability to attract and retain highly qualified scientific, commercial and administrative
personnel. In order to pursue our test development and commercialization strategies, we will need to attract and hire
additional personnel with specialized experience in a number of disciplines, including assay development, laboratory
and clinical operations, sales and marketing, billing and reimbursement. There is intense competition for personnel in
the fields in which we operate. If we are unable to attract new employees and retain existing employees, the
development and commercialization of our product candidates and any future tests could be delayed or negatively
impacted. If any of them becomes unable or unwilling to continue in their respective positions, and we are unable to
find suitable replacements, our business and financial results could be materially negatively affected.

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We will need to increase the size of our organization, and we may experience difficulties in managing growth.

We are a small company with 54 full-time employees as of March 25, 2021. Future growth will impose
significant added responsibilities on members of management, including the need to identify, attract, retain, motivate
and integrate highly skilled personnel. We may increase the number of employees in the future depending on the

progress of our development of diagnostic technology. Our future financial performance and our ability to
commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any
future growth effectively. To that end, we must be able to:

integrate additional management, administrative, manufacturing and regulatory personnel;

●
● maintain sufficient administrative, accounting and management information systems and controls; and
●
We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our

hire and train additional qualified personnel.

financial results.

We currently have limited experience in marketing products. If we are unable to establish marketing and sales
capabilities and retain the proper talent to execute on our sales and marketing strategy, we may not be able to
generate product revenue.

We have developed limited experience in marketing our products and services. We intend to continue to
develop our in-house marketing organization and sales force, which will require significant capital expenditures,
management resources and time. We will have to compete with other diagnostic companies to recruit, hire, train and
retain marketing and sales personnel.

If we are unable to further grow our internal sales, marketing and distribution capabilities, we may pursue
collaborative arrangements regarding the sales and marketing of our product candidates or future products, however,
we may not be able to establish or maintain such collaborative arrangements, or if we are able to do so, they may not
have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not
be successful. We may have little or no control over the marketing and sales efforts of such third parties and our
revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also
face competition in our search for third parties to assist us with the sales and marketing efforts of our product
candidates.

Cybersecurity risks could compromise our information and expose us to liability, which may harm our ability to
operate effectively and may cause our business and reputation to suffer.

Cybersecurity refers to the combination of technologies, processes and procedures established to protect
information technology systems and data from unauthorized access, attack, or damage. We rely on our information
systems to provide security for processing, transmission and storage of confidential information about our patients,
customers and personnel, such as names, addresses and other individually identifiable information protected by the
Health Insurance Portability and Accountability Act, (“HIPAA”), other privacy laws. Cyber-attacks are increasingly
more common, including in the health care industry. The regulatory environment surrounding information security
and privacy is increasingly demanding, with the frequent imposition of new and changing requirements. Compliance
with changes in privacy and information security laws and with rapidly evolving industry standards may result in our
incurring significant expense due to increased investment in technology and the development of new operational
processes.

We have not experienced any known attacks on our information technology systems that compromised any
confidential information. We maintain our information technology systems with safeguard protection against cyber-
attacks including passive intrusion protection, firewalls and virus detection software. However, these safeguards do
not ensure that a significant cyber-attack could not occur. Although we have taken steps to protect the security of our
information systems and the data maintained in those systems, it is possible that our safety and security measures will
not prevent the systems’ improper functioning or damage or the improper access or disclosure of personally
identifiable information such as in the event of cyber-attacks.

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Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and
similar breaches can create system disruptions or shutdowns or the unauthorized disclosure of confidential
information. If personal information or protected health information is improperly accessed, tampered with or
disclosed as a result of a security breach, we may incur significant costs to notify and mitigate potential harm to the
affected individuals, and we may be subject to sanctions and civil or criminal penalties if we are found to be in violation
of the privacy or security rules under HIPAA or other similar federal or state laws protecting confidential personal
information. In addition, a security breach of our information systems could damage our reputation, subject us to
liability claims or regulatory penalties for compromised personal information and could have a material adverse effect
on our business, financial condition and results of operations.

Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal tax purposes is
subject to limitation and risk that could further limit our ability to utilize our net operating losses.

Under U.S. federal income tax law, a corporation’s ability to utilize its net operating losses, or NOLs, to
offset future taxable income may be significantly limited if it experiences an “ownership change” as defined in
Section 382 of the Internal Revenue Code, as amended. In general, an ownership change will occur if there is a
cumulative change in a corporation’s ownership by “5-percent shareholders” that exceeds 50 percentage points over
a rolling three-year period. A corporation that experiences an ownership change will generally be subject to an annual
limitation on the use of its pre-ownership change NOLs equal to the value of the corporation immediately before the
ownership change, multiplied by the long-term tax-exempt rate (subject to certain adjustments). The annual limitation
for a taxable year generally is increased by the amount of any “recognized built-in gains” for such year and the amount
of any unused annual limitation in a prior year. On December 22, 2017, a law commonly known as the Tax Cuts and
Jobs Act, or the TCJ Act, was enacted in the United States. Certain provisions of the TCJ Act impact the ability to
utilize NOLs generated in 2018 and forward; any limitation to our annual use of NOLs could require us to pay a
greater amount of U.S. federal (and in some cases, state) income taxes, which could reduce our after-tax income from
operations for future taxable years and adversely impact our financial condition. 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.

We face risks related to the Paycheck Protection Program loan (PPP Loan), which could negatively impact our
financial position.

On April 23, 2020, the Company entered into the Promissory Note evidencing an unsecured $787,200 loan
under the PPP. The PPP was established under the recently congressionally-approved CARES Act and is administered
by the U.S. Small Business Administration (“SBA”). The PPP Loan to the Company is being 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 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 believes it used all of the PPP Loan amount
for qualifying expenses. 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. If
forgiveness is not granted by the SBA, the PPP Loan, in whole or in part, will need to be repaid by the Company,
which could have an adverse effect on our future cash flows and financial position.

Reimbursement and Regulatory Risks Relating to Our Business

Governmental payers and health care plans have taken steps to control costs.

Medicare, Medicaid and private insurers have increased their efforts to control the costs of health care
services, including clinical testing services. They may reduce fee schedules or limit/exclude coverage for certain types
of tests that we perform. Medicaid reimbursement varies by state and is subject to administrative and billing
requirements and budget pressures. We expect efforts to reduce reimbursements, impose more stringent cost controls
and reduce utilization of

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testing services will continue. These efforts, including changes in laws or regulations, may have a material adverse
impact on our business.

Changes in payer mix could have a material adverse impact on our net sales and profitability.

Testing services are billed to physicians, patients, government payers such as Medicare, and insurance
companies. Tests may be billed to different payers depending on a particular patient’s medical insurance coverage.
Government payers have increased their efforts to control the cost, utilization and delivery of health care services as
well as reimbursement for laboratory testing services. Further reductions of reimbursement for Medicare and Medicaid
services or changes in policy regarding coverage of tests or other requirements for payment, such as prior authorization
or a physician or qualified practitioner’s signature on test requisitions, may be implemented from time to time.
Reimbursement for the laboratory services component of our business is also subject to statutory and regulatory
reduction. Reductions in the reimbursement rates and changes in payment policies of other third party payers may
occur as well. Such changes in the past have resulted in reduced payments as well as added costs and have decreased
test utilization for the clinical laboratory industry by adding more complex new regulatory and administrative
requirements. As a result, increases in the percentage of services billed to government payers could have an adverse
impact on our net sales.

Our laboratories require ongoing CLIA certification.

The Clinical Laboratory Improvement Amendments of 1988, or CLIA, extended federal oversight to virtually
all clinical laboratories by requiring that they be certified by the federal government or by a federally-approved
accreditation agency. The CLIA requires that all clinical laboratories meet quality assurance, quality control and
personnel standards. Laboratories must also undergo proficiency testing and are subject to inspections.

The sanctions for failure to comply with the CLIA requirements include suspension, revocation or limitation
of a laboratory’s CLIA certificate, which is necessary to conduct business, cancellation or suspension of the
laboratory’s approval to receive Medicare and/or Medicaid reimbursement, as well as significant fines and/or criminal
penalties. The loss or suspension of a CLIA certification, imposition of a fine or other penalties, or future changes in
the CLIA law or regulations (or interpretation of the law or regulations) could have a material adverse effect on us.

We believe that we are in compliance with all applicable laboratory requirements, but no assurances can be

given that our laboratories will pass all future certification inspections.

Failure to comply with HIPAA could be costly.

HIPAA and associated regulations protect the privacy and security of certain patient health information and
establish standards for electronic health care transactions in the United States. These privacy regulations establish
federal standards regarding the uses and disclosures of protected health information. Our laboratories are subject to
HIPAA and its associated regulations. If we fail to comply with these laws and regulations we could suffer civil and
criminal penalties, fines, exclusion from participation in governmental health care programs and the loss of various
licenses, certificates and authorizations necessary to operate our patient testing business. We could also incur liabilities
from third party claims.

Our failure to comply with any applicable government laws and regulations or otherwise respond to claims relating
to improper handling, storage or disposal of hazardous chemicals that we use may adversely affect our results of
operations.

Our research and development and commercial activities involve the controlled use of hazardous materials
and chemicals. We are subject to federal, state, local and international laws and regulations governing the use, storage,
handling and disposal of hazardous materials and waste products. If we fail to comply with applicable laws or
regulations, we could be required to pay penalties or be held liable for any damages that result and this liability could
exceed our financial resources. We cannot be certain that accidental contamination or injury will not occur. Any such
accident could damage our research and manufacturing facilities and operations, resulting in delays and increased
costs.

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We may become subject to the Anti-Kickback Statute, Stark Law, False Claims Act, Civil Monetary Penalties Law
and may be subject to analogous provisions of applicable state laws and could face substantial penalties if we fail
to comply with such laws.

There are several federal laws addressing fraud and abuse that apply to businesses that receive reimbursement
from a federal health care program. There are also a number of similar state laws covering fraud and abuse with respect
to, for example, private payers, self-pay and insurance. Currently, we receive a substantial percentage of our revenue
from private payers and from Medicare. Accordingly, our business is subject to federal fraud and abuse laws, such as
the Anti-Kickback Statute, the Stark Law, the False Claims Act, the Civil Monetary Penalties Law and other similar
laws. Moreover, we are already subject to similar state laws. We believe we have operated, and intend to continue to
operate, our business in compliance with these laws. However, these laws are subject to modification and changes in
interpretation, and are enforced by authorities vested with broad discretion. Federal and state enforcement entities
have significantly increased their scrutiny of healthcare companies and providers which has led to investigations,
prosecutions, convictions and large settlements. We continually monitor developments in this area. If these laws are
interpreted in a manner contrary to our interpretation or are reinterpreted or amended, or if new legislation is enacted
with respect to healthcare fraud and abuse, illegal remuneration, or similar issues, we may be required to restructure
our affected operations to maintain compliance with applicable law. There can be no assurances that any such
restructuring will be possible or, if possible, would not have a material adverse effect on our results of operations,
financial position, or cash flows.

Anti-Kickback Statute

A federal law commonly referred to as the “Anti-Kickback Statute” prohibits the knowing and willful offer,
payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging
for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or
services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The term
“remuneration” has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of
payments or providing anything at less than its fair market value. The Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act, or the PPACA, amended the intent requirement of the
Anti-Kickback Statute such that a person or entity can be found guilty of violating the statute without actual knowledge
of the statute or specific intent to violate the statute. Further, the PPACA now provides that claims submitted in
violation of the Anti-Kickback Statute constitute false or fraudulent claims for purposes of the federal False Claims
Act, or FCA, including the failure to timely return an overpayment. Many states have adopted similar prohibitions
against kickbacks and other practices that are intended to influence the purchase, lease or ordering of healthcare items
and services reimbursed by a governmental health program or state Medicaid program. Some of these state
prohibitions apply to remuneration for referrals of healthcare items or services reimbursed by any third-party payer,
including commercial payers and self-pay patients.

Stark Law

Section 1877 of the Social Security Act, or the Stark Law, prohibits a physician from referring a patient to
an entity for certain “designated health services” reimbursable by Medicare if the physician (or close family members)
has a financial relationship with that entity, including an ownership or investment interest, a loan or debt relationship
or a compensation relationship, unless an exception to the Stark Law is fully satisfied. The designated health services
covered by the law include, among others, laboratory and imaging services. Some states have self-referral laws similar
to the Stark Law for Medicaid claims and commercial claims.

Violation of the Stark Law may result in prohibition of payment for services rendered, a refund of any
Medicare payments for services that resulted from an unlawful referral, $15,000 civil monetary penalties for specified
infractions, criminal penalties, and potential exclusion from participation in government healthcare programs, and
potential false claims liability. The repayment provisions in the Stark Law are not dependent on the parties having an
improper intent; rather, the Stark Law is a strict liability statute and any violation is subject to repayment of all amounts
arising out of tainted referrals. If physician self-referral laws are interpreted differently or if other legislative
restrictions are issued, we could incur significant sanctions and loss of revenues, or we could have to change our
arrangements and operations in a way that could have a material adverse effect on our business, prospects, damage to
our reputation, results of operations and financial condition.

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False Claims Act

The FCA prohibits providers from, among other things, (1) knowingly presenting or causing to be presented,
claims for payments from the Medicare, Medicaid or other federal healthcare programs that are false or fraudulent;
(2) knowingly making, using or causing to be made or used, a false record or statement to get a false or fraudulent
claim paid or approved by the federal government; or (3) knowingly making, using or causing to be made or used, a
false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. The “qui
tam” or “whistleblower” provisions of the FCA allow private individuals to bring actions under the FCA on behalf of

the government. These private parties are entitled to share in any amounts recovered by the government, and, as a
result, the number of “whistleblower” lawsuits that have been filed against providers has increased significantly in
recent years. Defendants found to be liable under the FCA may be required to pay three times the actual damages
sustained by the government, plus civil penalties ranging between $5,500 and $11,000 for each separate false claim.

There are many potential bases for liability under the FCA. The government has used the FCA to prosecute
Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, and
providing care that is not medically necessary or that is substandard in quality. The PPACA also provides that claims
submitted in connection with patient referrals that result from violations of the Anti-Kickback Statute constitute false
claims for the purpose of the FCA, and some courts have held that a violation of the Stark law can result in FCA
liability, as well. In addition, a number of states have adopted their own false claims and whistleblower provisions
whereby a private party may file a civil lawsuit in state court. We are required to provide information to our employees
and certain contractors about state and federal false claims laws and whistleblower provisions and protections.

Civil Monetary Penalties Law

The Civil Monetary Penalties Law prohibits, among other things, the offering or giving of remuneration to a
Medicare or Medicaid beneficiary that the person or entity knows or should know is likely to influence the
beneficiary’s selection of a particular provider or supplier of items or services reimbursable by a federal or state
healthcare program. This broad provision applies to many kinds of inducements or benefits provided to patients,
including complimentary items, services or transportation that are of more than a nominal value. This law could affect
how we have to structure our operations and activities.

Intellectual Property Risks Related to Our Business

We cannot be certain that measures taken to protect our intellectual property will be effective.

We rely upon trade secrets, copyright and trademark laws, non-disclosure agreements and other contractual
confidentiality provisions to protect our confidential and proprietary information that we are not seeking patent
protection for various reasons. Such measures, however, may not provide adequate protection for our trade secrets or
other proprietary information. If such measures do not protect our rights, third parties could use our technology and
our ability to compete in the market would be reduced.

We depend on certain technologies that are licensed to us. We do not control these technologies and any loss of
our rights to them could prevent us from selling some of our products.

We have entered into license agreements with third parties for certain licensed technologies that are, or may
become, relevant to the products we market, or plan to market, including our license agreement with Dana-Farber
pursuant to which we license our ICP technology. In addition, we may in the future elect to license third party
intellectual property to further our business objectives and/or as needed for freedom to operate for our products. We
do not and will not own the patents, patent applications or other intellectual property rights that are the subject of these
licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents, patent
applications and other intellectual property rights are or will be subject to the continuation of and compliance with the
terms of those licenses.

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We might not be able to obtain licenses to technology or other intellectual property rights that we require.
Even if such licenses are obtainable, they may not be available at a reasonable cost or multiple licenses may be needed
for the same product (e.g., stacked royalties). We could therefore incur substantial costs related to royalty payments
for licenses obtained from third parties, which could negatively affect our gross margins. Further, we could encounter
delays in product introductions, or interruptions in product sales, as we develop alternative methods or products.

In some cases, we do not or may not control the prosecution, maintenance, or filing of the patents or patent
applications to which we hold licenses, or the enforcement of these patents against third parties. As a result, we cannot
be certain that drafting or prosecution of the licensed patents and patent applications by the licensors have been or will
be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and
other intellectual property rights.

Third parties may assert ownership or commercial rights to inventions we develop.

Third parties may in the future make claims challenging the inventorship or ownership of our intellectual
property. For example, third parties that have been introduced to or have benefited from our inventions may attempt
to replicate or reverse engineer our products and circumvent ownership of our inventions. In addition, we may face
claims that our agreements with employees, contractors, or consultants obligating them to assign intellectual property
to us are ineffective, or in conflict with prior or competing contractual obligations of assignment, which could result
in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability
to capture the commercial value of such inventions. Litigation may be necessary to resolve an ownership dispute, and
if we are not successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights
in that intellectual property. Either outcome could have an adverse impact on our business.

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential
information or misappropriated trade secrets.

Although we try to ensure that our employees and consultants do not use the proprietary information or know-
how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent
contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other
proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against
these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could
result in substantial costs and be a distraction to management and other employees.

The testing, manufacturing and marketing of medical diagnostic devices entails an inherent risk of product
liability and personal injury claims.

To date, we have experienced no product liability or personal injury claims, but any such claims arising in
the future could have a material adverse effect on our business, financial condition and results of operations. Potential
product liability or personal injury claims may exceed the amount of our insurance coverage or may be excluded from
coverage under the terms of our policy or limited by other claims under our umbrella insurance policy. Additionally,
our existing insurance may not be renewed by us at a cost and level of coverage comparable to that presently in effect,
if at all. In the event that we are held liable for a claim against which we are not insured or for damages exceeding the
limits of our insurance coverage, such claim could have a material adverse effect on our cash flow and thus potentially
a materially adverse effect on our business, financial condition and results of operations.

All of our diagnostic technology development and our clinical services are performed at two laboratories, and in
the event either or both of these facilities were to be affected by a termination of the lease or a man-made or
natural disaster, our operations could be severely impaired.

We are performing all of our diagnostic services in our CLIA laboratory located in New Haven, Connecticut
and our research and development operations are based in our facility in Omaha, Nebraska. Despite precautions taken
by us, any future natural or man-made disaster at these laboratories, such as a fire, earthquake or terrorist activity,
could cause

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substantial delays in our operations, damage or destroy our equipment and testing samples or cause us to incur
additional expenses.

In addition, we are leasing the facilities where our laboratories operate. We are currently in compliance with
all and any lease obligations, but should the leases terminate for any reason, or if at any time either of the laboratories
is moved due to conditions outside our control, it could cause substantial delay in our diagnostics operations, damage
or destroy our equipment and biological samples or cause us to incur additional expenses. In the event of an extended
shutdown of either laboratory, we may be unable to perform our services in a timely manner or at all and therefore
would be unable to operate in a commercially competitive manner. This could harm our operating results and financial
condition.

Further, if we have to use a substitute laboratory while our facilities were shut down, we could only use
another facility with established state licensure and accreditation under CLIA. We may not be able to find another
CLIA-certified facility and comply with applicable procedures, or find any such laboratory that would be willing to
perform the tests for us on commercially reasonable terms. Additionally, any new laboratory opened by us would be
subject to certification under CLIA and licensure by various states, which would take a significant amount of time and
result in delays in our ability to continue our operations.

An impairment in the carrying value of our intangible assets could negatively affect our results of operations.

A significant portion of our assets are intangible assets which are reviewed at least annually for impairment.
If we do not realize our business plan, our intangible assets may become impaired resulting in an impairment loss in
our results of operations.

Risks Related to Our Common Stock

The price of our common stock may fluctuate significantly, which could negatively affect us and holders of our
common stock.

There has been, and continues to be, a limited public market for our common stock, and an active trading
market for our common stock has not and may never develop or, if developed, be sustained. The trading price of our
common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some
of which are beyond our control. These factors include:

These factors include:

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actual or anticipated fluctuations in our financial condition and operating results:
actual or anticipated changes in our growth rate relative to our competitors;
competition from existing products or new products that may emerge;
announcements by us, our academic institution partners, or our competitors of significant acquisitions,
strategic partnerships, joint ventures, collaborations, or capital commitments;
failure to meet or exceed financial estimates and projections of the investment community or that we
provide to the public and the revision of any financial estimates and projections that we provide to the
public;

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issuance of new or updated research or reports by securities analysts;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
additions, transitions or departures of key management or scientific personnel;
disputes or other developments related to proprietary rights, including patents, litigation matters, and
our ability to obtain patent protection for our technologies;
changes to reimbursement levels by commercial third-party payers and government payers, including
Medicare, and any announcements relating to reimbursement levels;

● Government shut-down or partial shut-downs impacting the financial markets, the United States

Securities and Exchange Commission and other related agencies;

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announcement or expectation of additional debt or equity financing efforts;
sales of our common stock by us, our insiders, or our other stockholders; and
general economic and market conditions

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These and other market and industry factors may cause the market price and demand for our common stock
to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from
readily selling their shares of our common stock and may otherwise negatively affect the liquidity of our common
stock. In addition, the stock market in general has experienced price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of
a stock has been volatile, holders of that stock have instituted securities class action litigation against the company
that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending
the lawsuit. Such a lawsuit could also divert the time and attention of our management.

The price of our stock may be vulnerable to manipulation.

We believe our common stock has been the subject of significant short selling by certain market participants.
Short sales are transactions in which a market participant sells a security that it does not own. To complete the
transaction, the market participant must borrow the security to make delivery to the buyer. The market participant is
then obligated to replace the security borrowed by purchasing the security at the market price at the time of required
replacement. If the price at the time of replacement is lower than the price at which the security was originally sold
by the market participant, then the market participant will realize a gain on the transaction. Thus, it is in the market
participant’s interest for the market price of the underlying security to decline as much as possible during the period
prior to the time of replacement.

Because our unrestricted public float has been small relative to other issuers, previous short selling efforts
have impacted, and may in the future continue to impact, the value of our stock in an extreme and volatile manner to
our detriment and the detriment of our shareholders. Efforts by certain market participants to manipulate the price of
our common stock for their personal financial gain may cause our stockholders to lose a portion of their investment,
may make it more difficult for us to raise equity capital when needed without significantly diluting existing
stockholders, and may reduce demand from new investors to purchase shares of our stock.

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

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

On April 29, 2020, we received a letter from Nasdaq notifying us that for the past 30 consecutive business
days, the closing bid price per share of our common stock was below the $1.00 minimum bid price requirement for
continued listing on the Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(a)(2), or the Bid Price Rule.
As a result, we were notified by Nasdaq that we were not in compliance with the Bid Price Rule. Nasdaq provided us
until December 28, 2020 to regain compliance with the Bid Price Rule.

On June 29, 2020, the Company received a letter from Nasdaq stating that because the Company’s shares
had a closing bid price at or above $1.00 per share for a minimum of ten (10) consecutive business days, the
Company’s stock had regained compliance with the Minimum Bid Price Requirement for continued listing on Nasdaq,
and that the matter is now closed.

We are currently in compliance with Nasdaq listing requirements, however, if Nasdaq were to delist our

securities, we could face significant consequences, including:

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a limited availability for market quotations for our securities;
reduced liquidity with respect to our securities;

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a determination that our common stock is a “penny stock,” which will require brokers trading in our
common stock to adhere to more stringent rules and possibly result in reduced trading;
activity in the secondary trading market for our common stock;
limited amount of news and analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.

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In addition, we would no longer be subject to Nasdaq rules, including rules requiring us to have a certain

number of independent directors and to meet other corporate governance standards.

Increased costs associated with corporate governance compliance may significantly impact our results of
operations.

As a public company, we incur significant legal, accounting, and other expenses due to our compliance with
regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act of 2002,
or the Sarbanes-Oxley Act, as well as rules implemented by the SEC, and NASDAQ. The SEC and other regulators
have continued to adopt new rules and regulations and make additional changes to existing regulations that require
our compliance. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank
Act, was enacted. There are significant corporate governance and executive compensation related provisions in the
Dodd-Frank Act that have required the SEC to adopt additional rules and regulations in these areas. Stockholder
activism, the current political environment, and the current high level of government intervention and regulatory
reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance
costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our
management and other personnel devote a substantial amount of time to these compliance programs and monitoring
of public company reporting obligations, and as a result of the new corporate governance and executive compensation

related rules, regulations, and guidelines prompted by the Dodd-Frank Act, and further regulations and disclosure
obligations expected in the future, we will likely need to devote additional time and costs to comply with such
compliance programs and rules. These rules and regulations will cause us to incur significant legal and financial
compliance costs and will make some activities more time-consuming and costly.

The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal
control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures
that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is
recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that
information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our
principal executive and financial officers. Our current controls and any new controls that we develop may become
inadequate, and weaknesses in our internal control over financial reporting may be discovered in the future. Any
failure to develop or maintain effective controls could adversely affect the results of periodic management evaluations
and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal
control over financial reporting, which we may be required to include in our periodic reports that we file with the SEC
under Section 404 of the Sarbanes-Oxley Act, and could harm our operating results, cause us to fail to meet our
reporting obligations, or result in a restatement of our prior period financial statements. If we are not able to
demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived
as inadequate, or that we are unable to produce timely or accurate financial statements, investors may lose confidence
in our operating results, and the price of our common stock could decline.

We are required to comply with certain of the SEC rules that implement Section 404 of the Sarbanes-Oxley
Act, which requires management to certify financial and other information in our quarterly and annual reports and
provide an annual management report on the effectiveness of our internal control over financial reporting. This
assessment needs to include the disclosure of any material weaknesses in our internal control over financial reporting
identified by our management or our independent registered public accounting firm. During the evaluation and testing
process, if we identify one or more material weaknesses in our internal control over financial reporting or if we are
unable to complete our evaluation, testing, and any required remediation in a timely fashion, we will be unable to
assert that our internal control over financial reporting is effective.

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These developments could make it more difficult for us to retain qualified members of our Board of Directors,
or qualified executive officers. We are presently evaluating and monitoring regulatory developments and cannot
estimate the timing or magnitude of additional costs we may incur as a result. To the extent these costs are significant,
our general and administrative expenses are likely to increase.

We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common
stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.

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.

The trading market for our common stock relies in part on the research and reports that equity research
analysts publish about us and our business. We do not control these analysts. The price of our common stock could
decline if one or more equity research analysts downgrade our common stock or if they issue other unfavorable
commentary or cease publishing reports about us or our business.

The sale or issuance of our common stock to Lincoln Park may cause significant dilution and the sale of the
shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the
price of our common stock to fall.

On March 26, 2020, we entered into the LP 2020 Purchase Agreement pursuant to which Lincoln Park has
agreed to purchase up to an aggregate of $10,000,000 of our common stock (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. The purchase price for the shares that we may sell to Lincoln
Park under the LP 2020 Purchase Agreement will fluctuate based on the price of our common stock. Depending on
market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall. We generally
have the right to control the timing and amount of any future sales of our shares to Lincoln Park. Additional sales of
our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by
us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional shares of our common stock
that may be available for us to sell pursuant to the LP 2020 Purchase Agreement. If and when we do sell shares to
Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at
any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution
to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our
common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

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.

The issuance of our common stock to creditors or litigants may cause significant dilution to our stockholders and
cause the price of our common stock to fall

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We may seek to settle outstanding obligations to vendors, debtholders or litigants in any litigation through
the issuance of our common stock or other security to such persons. Such issuances may cause significant dilution to
our stockholders and cause the price of our common stock to fall.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We currently lease approximately 7,630 square feet of laboratory and office space in New Haven,
Connecticut, which we occupy under a lease expiring in December 2021 with annual rental payments of $0.2 million.
We also lease approximately 5,300 square feet of laboratory space in Omaha, Nebraska, which we occupy under a
lease expiring in May 2022 with annual rental payments of less than $0.1 million. We believe that these facilities are
adequate to meet our current and planned needs. We believe that if additional space is needed in the future, we could
find alternate space at competitive market rates as needed.

Item 3. Legal Proceedings

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.

The outcome of legal proceedings and claims brought against us are subject to significant uncertainty.
Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these
legal matters were resolved against us in the same reporting period for amounts in excess of management’s
expectations, our financial statements for such reporting period could be materially adversely affected. In general, the
resolution of a legal matter could prevent us from offering our services or products to others, could be material to our
financial condition or cash flows, or both, or could otherwise adversely affect our operating results.

The Company is involved in legal proceedings related to matters, which are incidental to its business and 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 sheets at December 31, 2020 and 2019.

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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.

Item 4. Mine Safety Disclosures

Not Applicable.

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PART II

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

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:

Quarter Ended March 31, 2021
First Quarter (through March 25, 2021)
Year Ended December 31, 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2019
First Quarter
Second Quarter
Third Quarter

High

Low

$ 3.89 $ 2.10

$ 2.30 $ 0.68
$ 1.51 $ 0.58
$ 7.00 $ 1.16
$ 2.64 $ 1.94

$ 3.90 $ 1.83
$ 9.15 $ 1.89
$ 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.

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

Service revenue, net, less allowance for doubtful accounts
Other
Net Sales

2020

2019
$ 5,872 $ 3,083 $ 2,789
176
$ 6,092 $ 3,127 $ 2,965

220

90 %
400 %
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:

Gross Profit

Dollars in Thousands

Years Ended
December 31,

Margin %

2020
$ 1,150 $

2019

2020

2019

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

Current assets (including cash of $2,656 and $848 respectively)
Current liabilities
Working capital

December 31, 2020 December 31, 2019 Change
$

4,204 $
4,656
(452) $

1,878 $
4,334
(2,456) $

2,326
322
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)
Long term debt(1)
Finance lease obligations(2)
Operating lease obligations(2)
Purchase obligations(3)

Less
Than 1
Year
$ 1,068 $ 664 $ 247 $

Total

1-3 Years 3-5 Years

188
342
1,735

60
241
1,068

87
83
447

More
than 5
Years
87
—
—
—
87

70 $
41
18
220

$ 3,333 $ 2,033 $ 864 $ 349 $

(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

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 of December
31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for each of
the two years in the period ended December 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 of December 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 Note 1, 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 Note 1. 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 the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in 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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ASSETS
CURRENT ASSETS:

Cash
Accounts receivable, net
Inventories
Other current assets

PRECIPIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2020 and 2019
(Dollars in thousands, except share data)

2020

2019

2,656
874
350
324

848
574
184
272

Total current assets

PROPERTY AND EQUIPMENT, NET

OTHER ASSETS:

Operating lease right-of-use assets
Intangibles, net
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Current maturities of long-term debt, less debt issuance costs
Current maturities of convertible notes, less debt discounts and debt issuance costs
Current maturities of finance lease liabilities
Current maturities of operating lease liabilities
Accounts payable
Accrued expenses
Deferred revenue

Total current liabilities
LONG TERM LIABILITIES:

Long-term debt, less current maturities and debt issuance costs
Finance lease liabilities, less current maturities
Operating lease liabilities, less current maturities
Common stock warrant liabilities

Total liabilities

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
Additional paid-in capital
Accumulated deficit

Total Precipio, Inc. stockholders’ equity

Noncontrolling interest in joint venture

Total stockholders’ equity

Total liabilities and stockholders’ equity

4,204

1,878

452

431

335
15,667
55
20,713

648
—
48
225
1,693
2,036
6
4,656

362
116
92
1,325
6,551

519
16,658
25
19,511

321
142
52
209
1,936
1,639
35
4,334

198
119
317
1,338
6,306

—

176
85,523
(71,564)
14,135
27
14,162
20,713

79
74,065
(60,939)
13,205
—
13,205
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
Other
Revenue, net of contractual allowances and adjustments
less allowance for doubtful accounts
Net sales

COST OF SALES:

Cost of service revenue
Other
Total cost of sales
Gross profit

OPERATING EXPENSES:

Operating expenses
Impairment of intangible assets
TOTAL OPERATING EXPENSES
OPERATING LOSS
OTHER (EXPENSE) INCOME:

Interest expense, net
Warrant revaluation
Loss on modification of warrants
Derivative revaluation
Gain on settlement of liability, net
Loss on extinguishment of debt
Loss on litigation
Loss on issuance of convertible notes
Other income
Total other (expense) income
LOSS BEFORE INCOME TAXES
INCOME TAX BENEFIT
NET LOSS

Less: Net income attributable to noncontrolling interest in joint venture
Deemed dividends related to beneficial conversion feature of preferred stock and
fair value of warrant down round features
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON
STOCKHOLDERS

BASIC AND DILUTED LOSS PER COMMON SHARE
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON
STOCK OUTSTANDING

7,211
220
7,431
(1,339)
6,092

4,842
100
4,942
1,150

10,296
—
10,296
(9,146)

(470)
13
—
—
77
(1,225)
—
—
153
(1,452)
(10,598)
—
(10,598)

(27)

(3,344)

(13,969)

(0.85)

4,051
44
4,095
(968)
3,127

2,908
—
2,908
219

9,623
1,590
11,213
(10,994)

(473)
416
(1,128)
(415)
1,437
(20)
(266)
(1,870)
—
(2,319)
(13,313)
70
(13,243)

—

(13,243)

(2.33)

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)

Noncontrolling
Interest in

Preferred Stock

Common Stock

Additional

Outstanding Par Outstanding Par
Shares

Value Shares

Paid-in Accumulated

Total

Value Capital Deficit

Precipio, Inc. Joint Venture Total

Balance, January 1,
2019

Net loss
Conversion of
convertible notes into
common stock
Issuance of common
stock in connection
with purchase
agreements
Proceeds upon
issuance of common
stock from exercise of
warrants
Write-off warrant
liability in
conjunction with
warrant exercises
Beneficial conversion
feature on issuance of
convertible notes
Write-off debt
discounts (net of debt
premiums) in
conjunction with
convertible note
conversions
Write-off debt
derivative liability in
conjunction with
convertible note
conversions
Non-cash stock-based
compensation
Payment of fractional
common shares in
conjunction with
reverse stock split

Balance,
December 31, 2019

Net loss
Conversion of
convertible notes into
common stock
Issuance of common
stock in connection
with purchase
agreements

47 $ —
— —

2,298,738 $ 23 $ 53,796 $
—
—

—

(47,696) $
(13,243)

6,123 $
(13,243)

— $ 6,123
— (13,243)

— —

2,511,173

7,528

—

7,553

— 7,553

— —

2,778,077

6,600

—

6,628

— 6,628

— —

310,200

1,572

—

1,575

— 1,575

— —

—

2,364

— —

—

1,792

—

2,364

— 2,364

1,792

— 1,792

— —

—

(731)

—

(731)

—

(731)

— —

—

477

— —

—

668

—

477

668

—

477

668

— —

(71)

—

(1)

—

(1)

—

(1)

47 $ —
— —

7,898,117
—

$ 79 $ 74,065 $
—
—

(60,939) $
(10,625)

13,205 $
(10,625)

— $ 13,205
27 (10,598)

— —

3,908,145

2,137

—

2,176

— 2,176

— —

5,770,654

8,871

—

8,929

— 8,929

— —

—

270

—

270

—

270

— —

—

(523)

— —

—

703

—

(523)

703

—

(523)

—

703

47 $ — 17,576,916

$ 176 $ 85,523 $

(71,564) $

14,135 $

27 $ 14,162

See notes to consolidated financial statements.

Write-off debt
premiums (net of debt
discounts) in
conjunction with
convertible note
conversions
Write-off beneficial
conversion feature in
conjunction with
convertible note
extinguishment
Non-cash stock-based
compensation

Balance,
December 31, 2020

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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)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

2020

2019

(10,598)

(13,243)

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

Depreciation and amortization
Amortization of operating lease right-of-use asset
Amortization of finance lease right-of-use asset
Amortization (accretion) of deferred financing costs, debt discounts and debt premiums
Loss on extinguishment of debt
Gain on settlement of liability, net
Loss on litigation
Loss on issuance of convertible notes
Loss on extinguishment of convertible notes
Stock-based compensation
Impairment of intangible assets and goodwill
Provision for losses on doubtful accounts
Warrant revaluation
Loss on modification of warrants
Derivative revaluation

1,093
213
50
320
—
(77)
—
—
1,225
703
—
1,339
(13)
—
—

1,118
231
63
111
20
(1,437)
266
1,870
—
668
1,590
966
(416)
1,128
415

Gain from sale of fixed asset

Changes in operating assets and liabilities:

Accounts receivable
Inventories
Other assets
Accounts payable
Operating lease liabilities
Accrued expenses and other liabilities
Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment
Proceeds from sale of fixed asset

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease obligations
Payment of deferred financing costs
Payment of fractional common shares in conjunction with reverse stock split
Issuance of common stock, net of issuance costs
Proceeds from exercise of warrants
Proceeds from PPP Loan
Proceeds from convertible notes
Principal payments on convertible notes
Principal payments on long-term debt

Net cash flows provided by financing activities

NET CHANGE IN CASH
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD

(55)

(1,639)
(166)
(59)
(243)
(209)
682
(7,434)

(151)
55
(96)

(56)
—
—
8,929
—
787
—
—
(322)
9,338
1,808
848
2,656

—

(850)
13
427
(1,884)
(223)
26
(9,141)

(55)
—
(55)

(46)
(120)
(1)
6,628
1,575
—
2,150
(50)
(473)
9,663
467
381
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)

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the period for interest

2020

2019

SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER
NON-CASH COMMON STOCK RELATED ACTIVITY
Purchases of equipment financed through accounts payable
Equipment financed through finance lease obligations
Discount of 9% on issuance of convertible bridge notes
Conversion of convertible debt, plus interest, into common stock
Beneficial conversion feature on issuance of convertible notes
Initial valuation of warrant liability recorded in conjunction with issuance of convertible
notes
Liabilities exchanged for convertible notes
Prepaid insurance financed with loan
Write-off of beneficial conversion feature in conjunction with convertible note
extinguishment
Right-of-use assets obtained in exchange for operating lease obligations
Right-of-use assets obtained in exchange for finance lease obligations
Write-off warrant liability in conjunction with warrant exercises
Write-off of (debt premiums) debt discounts, net, in conjunction with convertible note
conversions
Write-off of derivative liability in conjunction with convertible note conversions

See notes to consolidated financial statements.

—
22
—
2,176
—

—
—
23

523
—
29
—

(270)
—

1
23
188
7,553
1,792

1,858
2,150
434

—
750
—
2,364

731
477

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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.

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 accounting for the Joint Venture.
All inter-company balances and 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
Laboratory equipment
Computer equipment and software

5 to 7 years
3 to 10 years
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)
Assets:
Accounts receivable, net

Total assets

Liabilities:
Accrued expenses
Total liabilities

Noncontrolling interest in Joint Venture

December 31, 2020

$
$

$
$
$

538
538

27
27
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:

Stock options
Warrants
Preferred stock
Convertible notes
Total

December 31,

2020
822,992
906,497
117,500
—

2019
490,330
909,189
20,888
861,294
1,846,989 2,281,701

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.

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.

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.

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3. PROPERTY AND EQUIPMENT, NET

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

Furniture and fixtures
Laboratory equipment
Computer equipment and software
Equipment under finance leases
Construction in process

Less—accumulated depreciation and amortization

Total

2020

2019

12 $

330
533
467
53
1,395
(943)
452 $

12
299
463
425
23
1,222
(791)
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

Cost

Accumulated
Amortization

Impairment
Charge

Net Book
Value

Technology
Customer relationships
Backlog
Covenants not to compete
Trademark

18,990 $
250
200
30
40
19,510 $

3,323 $
250
200
30
40
3,843 $

— $
—
—
—
—
— $

15,667
—
—
—
—
15,667

Dollars in Thousands
December 31, 2019

Accumulated
Amortization

Impairment
Charge

Net Book
Value

Cost
18,990 $
250
200
30
40
1,590
21,100 $

Technology
Customer relationships
Backlog
Covenants not to compete
Trademark
IPR&D

Technology
Customer relationships
Backlog
Covenants not to compete
Trademark

2,374 $
208
200
30
40
—
2,852 $

— $
—
—
—
—
1,590
1,590 $

16,616
42
—
—
—
—
16,658

Estimated Useful Life

20 years
3 years
1 year
1 year
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:

Department of Economic and Community Development (DECD)
DECD debt issuance costs
Financed insurance loan
September 2018 Settlement
Paycheck Protection Program
Total long-term debt
Current portion of long-term debt
Long-term debt, net of current maturities

Department of Economic and Community Development

Dollars in Thousands
December 31, 2020 December 31, 2019
249
233 $
$
(24)
(22)
260
12
34
—
—
787
519
1,010
(321)
(648)
198
362 $

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.

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:

DECD loan
Financed Insurance Loan
Paycheck Protection Program

2022 2023 2024 2025

2021
$ 28 $ 29 $ 30 $ 31 $ 32 $
—
—
$ 651 $ 205 $ 30 $ 31 $ 32 $

—
—

12
611

—
176

—
—

2026 and
thereafter Total
83 $ 233
12
787
83 $ 1,032

—
—

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6. CONVERTIBLE NOTES.

Convertible notes consists of the following:

Convertible bridge notes
Convertible bridge notes discount and debt issuance costs
Total convertible notes
Current portion of convertible notes
Convertible notes, net of current maturities

Dollars in Thousands

December 31, 2020 December 31, 2019
1,938
— $
$
(1,796)
—
142
—
(142)
—
—
— $

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:

Beginning balance at January 1

Additions:
Deductions:

For the Years Ended December 31,
2019
2020

Debt
Discounts

(1,796) $
—

Debt
Premiums
—
793

Debt
Discounts

(1,111) $
(2,088)

Debt
Premiums
647
—

Amortization (accretion) (1)
Write-off related to note conversions (2)
Write-off related to note extinguishment (3)

(167)
(480)
—
—
(1) Amortization/accretion is recognized as interest expense/income within the consolidated statements of

273
1,130
—
(1,796) $

703
138
955
— $

(385)
(408)
—
—

Balance at December 31

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)

Beginning balance at January 1

Deductions:

Amortization (1)
Write-off related to note conversions (2)

Balance at December 31

For the Year Ended
December 31, 2019

(83)

2
81
—

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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)
Accrued expenses
Accrued compensation
Accrued interest

2020

2019

1,332 $
685
19
2,036 $

1,268
247
124
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

Operating lease right-of-use assets, net
Property and equipment, net

Assets:

Operating lease assets
Finance lease assets
Total lease assets

Liabilities:
Current:

Operating lease obligations Current maturities of operating lease liabilities
Finance lease obligations Current maturities of finance lease liabilities

335 $
175
510 $

225 $
48

519
184
703

209
52

Noncurrent:

Operating lease obligations Operating lease liabilities, less current maturities
Finance lease obligations Finance lease liabilities, less current maturities

Total lease liabilities

92
116
481 $

317
119
697

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

are as follows:

Operating Leases
$

(dollars in thousands)
2021
2022
2023
2024
2025
Thereafter
Total lease obligations
Less: Amount representing interest
Present value of net minimum lease obligations
Less, current portion
Long term portion

Other information as of December 31, 2020 and 2019:

Weighted-average remaining lease term (years):

Operating leases
Finance leases

Weighted-average discount rate:

Operating leases
Finance leases

241
48
35
17
—
—
341
(24)
317
(225)
92

Finance Leases

Total

61
49
38
28
13
—
189
(25)
164
(48)
116

302
97
73
45
13
—
530
(49)
481
(273)
208

December 31,
2020

December 31,
2019

1.9
3.6

8.00%
8.28%

2.8
4.3

8.00%
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,
2021
2022
2023
2024
2025
Thereafter

LITIGATIONS

(dollars in thousands)
1,068
$
228
219
170
50
—
1,735

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.

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

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:

Deferred tax assets:

Net operating loss and credit carryforwards
Allowance for doubtful accounts
Stock-based compensation
Other

Gross deferred tax assets
Deferred tax liabilities:

Property and equipment
Intangible assets
IPR&D intangible assets
Gross deferred tax liabilities
Net deferred tax assets
Less valuation allowance
Net deferred liability

Dollars in Thousands

2020

2019

$ 15,941 $ 13,989
666
292
—
14,947

986
461
39
17,427

(94)
(3,849)
—
(3,943)
13,484
(13,484)

— $

(95)
(4,148)
—
(4,243)
10,704
(10,704)
—

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:

Benefit at federal rate
Increase (decrease) resulting from:
State income taxes—net of federal benefit
Miscellaneous permanent differences
Warrant liability revaluation
Meals and entertainment
Impairment of in-process research and development
Change in valuation allowance
Total income tax benefit

Dollars in Thousands

2020

2019

$ (2,231) $ (2,796)

(379)
48
(3)
18
—
2,547
$ — $

(517)
78
(104)
—
(70)
3,339
(70)

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

Federal:
Current
Deferred

Total Federal

State:

Current
Deferred

Total State

Foreign:
Current
Deferred

Dollars in Thousands

2020

2019

$ — $ —
(70)
(70)

—
$ — $

$ — $ —
—
$ — $ —

—

$ — $ —
—

—

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:

2036
2037
Unlimited life
Total Federal

Dollars in Thousands

2020

2019

$ 13,470 $ 13,470
3,441
42,100
$ 66,212 $ 59,011

13,641
39,101

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:

Warrants
(1)
(2)
(2)
(3)
(4)
(5)

Issue Year

Expiration

Price

Underlying Exercise

2016
2017
2017
2017
2017
2017

January 2021
June 2022
June 2022
June 2022
August 2022
August 2022

500 $

596 $ 544.50
2,540 $ 41.25
7.50
6,095 $ 105.00
25,201 $
0.40
4,000 $ 46.88

(6)
(6)
(7)
(7)
(8)
(9)
(10)
(10)
(11)
(12)
(12)
(12)
(12)
(12)
(12)
(13)
(13)
(14)
(15)

2017
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019

August 2022
August 2022
August 2022
August 2022
October 2022
October 2022

April 2023
April 2023

October 2022

July 2023
July 2023
August 2023
August 2023
September 2023
September 2023
November 2023
December 2023

April 2024
May 2024

47,995 $ 150.00
7.50
9,101 $
0.40
16,664 $
0.40
7,335 $
0.40
666 $
7,207 $ 112.50
5.40
69,964 $
5.40
121,552 $
15,466 $ 11.25
5.40
14,671 $
5.40
14,672 $
5.40
36,334 $
5.40
36,334 $
5.40
19,816 $
5.40
20,903 $
5.40
75,788 $
5.40
51,282 $
5.40
147,472 $
9.56
154,343 $

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:

Deemed Dividends

Dividends resulting from the March 2020 Amendment
Deemed Dividend A
Deemed Dividend B
Deemed Dividend C
Deemed Dividend D

For the year ended December 31, 2020

* Represents less than one thousand dollars

12. FAIR VALUE

Amount Recorded
(in thousands)

3,333
6
*
5

3,344

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

Beginning balance at January 1

Total gains:

Revaluation recognized in earnings

Balance at December 31

Beginning balance at January 1

Additions:
Total (gains) losses:

2016 Warrant
Liability
$

Bridge Note

Total Warrant

Warrant Liabilities Liabilities
1,268

1,338

60
130

(73)
1,195

(13)
1,325

Year Ended December 31, 2019

2016 Warrant
Liability
$

Bridge Note

Total Warrant

Warrant Liabilities Liabilities
1,016
1,858

1,132
1,858

116
–

Revaluation recognized in earnings
Modification recognized in earnings
Deductions – warrant liability settlement

Balance at December 31

(46)
–
–
70

(370)
1,128
(2,364)
1,268

(416)
1,128
(2,364)
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)

Beginning balance at January 1

Deductions - write-off in conjunction with convertible note
conversions
Total loss:

Revaluation recognized in earnings

Balance at December 31

Year Ended December 31, 2019

Bridge Notes
Redemption

Conversion

Feature

Option

Total Derivative
Liabilities

30 $

32 $

(438)

(39)

(477)

408
— $

7
— $

415
—

13. EQUITY INCENTIVE PLAN

The Company currently issues stock awards under its 2017 Stock Option and Incentive Plan, as amended
(the "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,
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 granted under the
Plan, subject to the terms thereof. Either incentive or non-qualified stock options may be granted to employees of the
Company, but only non-qualified stock 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 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 and expenses the benefit in operating expense in
the consolidated statements of operations over the service period of the awards. The Company records the expense for
stock-based compensation awards subject to performance-based milestone vesting over the remaining service period
when management determines that achievement of the milestone is probable. Management evaluates when the
achievement of a performance-based milestone is probable based on the expected satisfaction of the performance
conditions as of the reporting date. The fair value of each stock option granted is estimated on the date of grant using
the Black-Scholes option pricing model, which requires various assumptions including estimating stock price
volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.

During the 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 $1.85. The fair value calculation
of options granted during 2020 used the follow assumptions: risk free interest rates of 0.40% to 1.73%, based on the
U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of 138% to 163% based on
historical volatility of the Company’s common stock over a time that is consistent with the expected life of the option.

Table of Contents

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

2020:

Outstanding at January 1, 2020

Granted
Forfeited

Outstanding at December 31, 2020
Exercisable at December 31, 2020

Number of

Weighted-Average

Options
490,330 $
433,550
(100,888)
822,992 $
337,155 $

Exercise Price

8.30
2.01
12.64
4.46
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

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)

Medicaid
Medicare
Self-pay
Third party payers
Contract diagnostics
Service revenue, net

Diagnostic Testing

2020

2019

Biomarker Testing
2020

2019

Total

2020

2019

53 $

28 $ — $ — $

28
1,669
34
1,725
595
$ 6,785 $ 3,456 $ 426 $ 595 $ 7,211 $ 4,051

—
—
—
426

1,669
34
1,725
—

—
—
—
595

2,882
408
3,442
426

2,882
408
3,442
—

53 $

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)

Medicaid
Medicare
Self-pay
Third party payers
Contract diagnostics

Clinical research grants and other

Gross Revenues

Contractual Allowances and Revenues, net of Contractual
Allowances and adjustments

adjustments

2019

2020

2019

2020

2019

— $
—
(3)
(8,449)
—
(8,452)
—
(8,452) $

(3) $

(17)
—
(4,060)
—
(4,080)
—
(4,080) $

53 $

2,882
408
3,442
426
7,211
220
7,431 $

28
1,669
34
1,725
595
4,051
44
4,095

2020
$

53 $

31 $

2,882
411
11,891
426
15,663
220

1,686
34
5,785
595
8,131
44

$ 15,883 $ 8,175 $

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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 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 the collection allowance and adjustments for the years ended December 31, 2020 and 2019.

(dollars in thousands)

Contractual Allowances

Allowances for doubtful

Revenues, net of

and adjustments

accounts

Total

2020

2019

2020

2019

2020

2019

Medicaid
Medicare
Self-pay
Third party payers
Contract diagnostics

Clinical research grants and other

53 $

28 $

2,882
408
3,442
426
7,211
220

1,669
34
1,725
595
4,051
44

(53) $
(387)
—
(899)
—
(1,339)
—

$ 7,431 $

4,095 $ (1,339) $

Costs to Obtain or Fulfill a Customer Contract

— $

(28) $
(251)
—
(689)
—
(968)
—

—
1,418
2,495
34
408
1,036
2,543
595
426
3,083
5,872
44
220
(968) $ 6,092 $ 3,127

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 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)
Medicaid
Medicare
Self-pay
Third party payers
Contract diagnostic services

Less allowance for doubtful accounts
Accounts receivable, net

2020

2019

131 $

1,054
276
3,373
53
4,887 $
(4,013)

874 $

107
814
88
2,203
36
3,248
(2,674)
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:

(dollars in thousands)
Balance, January 1, 2020
Collection Allowance:
Medicaid
Medicare
Third party payers

Bad debt expense
Total charges
Balance, December 31, 2020

Allowance for

Doubtful
Accounts

(2,674)

(53)
(387)
(899)
(1,339)
—

(1,339)
(4,013)

Customer Revenue and Accounts Receivable Concentration

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

periods.

Net sales

Years Ended
December 31,

Accounts receivable, as of

December 31,

2020

2019

2020

2019

*
*
*

19 %
11 %
*

*
*
*

*
17 %
12 %

Customer A
Customer B
Customer C

* represents less than 10%

15. SUBSEQUENT EVENTS

The Company has evaluated events and transactions subsequent to December 31, 2020 through the date the

consolidated financial statements were issued.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;
On March 1, 2021 the Board accepted the resignation of Mr. 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 and to serve as 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 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.

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, 2020.

(b) Management’s Report on Internal Control Over Financial Reporting

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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Item 10. Directors, Executive Officers and Corporate Governance

Part III

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:

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

Table of Contents

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 29th day of
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
Ilan Danieli

Director and Chief Executive Officer
(Principal Executive Officer)

/s/ Carl Iberger
Carl Iberger

Chief Financial Officer
(Principal Financial and Accounting Officer)

March 29, 2021

/s/ Richard Sandberg
Richard Sandberg

Chairman of the Board of Directors

March 29, 2021

/s/ Kathleen LaPorte
Kathleen LaPorte

Director

/s/ Ronald Andrews
Ronald Andrews

Director

/s/ Douglas Fisher, M.D.
Douglas Fisher, M.D.

Director

/s/ Jeffrey Cossman, M.D.
Jeffrey Cossman, M.D.

Director

/s/ David Cohen
David Cohen

Director

March 29, 2021