HTG MOLECULAR DIAGNOSTICS, INC (Form: 10-Q, Received: 08/08/2017 16:24:47)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

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

Commission File Number: 001-37369

HTG Molecular Diagnostics, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	86-0912294
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3430 E. Global Loop Tucson, AZ	85706
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (877) 289-2615

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒

		Emerging growth company	☒

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

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

As of August 4, 2017, the registrant had 11,448,443 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations	2
	Condensed Statements of Comprehensive Loss	3
	Condensed Statement of Changes in Stockholders’ Deficit	4
	Condensed Statements of Cash Flows	5
	Notes to Unaudited Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 5.	Other Information	57
Item 6.	Exhibits	57
Signatures		58
Exhibit Index		59

PART I—FINANCI AL INFORMATION

Item 1. Financial Statements (Unaudited).

HTG Molecular Diagnostics, Inc.

Condensed Balance Sheets

	June 30,		December 31,
	2017		2016
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	13,398,036	$	7,507,659
Short-term investments available-for-sale, at fair value		—		4,304,901
Accounts receivable		1,550,868		1,377,441
Inventory, net of allowance of $207,880 at June 30, 2017 and $270,307 at December 31, 2016		1,313,507		1,511,053
Prepaid expenses and other		468,431		433,328
Total current assets		16,730,842		15,134,382

Deferred offering costs		—		49,630
Property and equipment, net		2,880,487		3,270,197
Total assets	$	19,611,329	$	18,454,209



Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	1,343,912		$	761,663
Accrued liabilities		1,213,611			1,670,286
Deferred revenue - current		637,929			335,659
NuvoGen obligation - current		509,618			604,751
Term loan payable - current		6,668,789			6,389,782
Other current liabilities		224,875			258,850
Total current liabilities		10,598,734			10,020,991
Term loan payable - non-current, net of discount and debt issuance costs		2,214,820			5,389,137
NuvoGen obligation - non-current, net of discount		7,811,866			8,017,356
Other non-current liabilities		533,806			619,587
Total liabilities		21,159,226			24,047,071
Commitments and Contingencies
Stockholders’ deficit:
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2017 and December 31, 2016; 11,358,324 shares issued and outstanding, at June 30, 2017; 7,939,967 and 7,938,571 shares issued and outstanding, respectively, at December 31, 2016		11,357			7,938
Additional paid-in-capital		125,703,966			110,081,334
Treasury stock, no shares as of June 30, 2017 and 1,396 shares as of December 31, 2016		—			(75,000	)
Accumulated other comprehensive loss		—			(1,090	)
Accumulated deficit		(127,263,220	)		(115,606,044	)
Total stockholders’ deficit		(1,547,897	)		(5,592,862	)
Total liabilities and stockholders' deficit	$	19,611,329		$	18,454,209

See notes to the unaudited condensed financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenue:
Product	$	407,177		$	577,127		$	948,321		$	1,177,317
Service		1,353,579			1,318,689			2,183,604			1,583,731
Total revenue		1,760,756			1,895,816			3,131,925			2,761,048
Cost of revenue		1,236,904			932,976			2,532,206			1,776,446
Gross margin		523,852			962,840			599,719			984,602

Operating expenses:
Selling, general and administrative		4,413,437			4,712,637			8,651,904			9,406,345
Research and development		1,618,889			2,611,591			2,885,952			4,605,692
Total operating expenses		6,032,326			7,324,228			11,537,856			14,012,037
Operating loss		(5,508,474	)		(6,361,388	)		(10,938,137	)		(13,027,435	)

Other income (expense):
Interest expense		(350,058	)		(538,889	)		(748,478	)		(931,346	)
Interest income		17,622			31,092			29,711			66,571
Other income		8			18,442			8			18,442
Total other income (expense)		(332,428	)		(489,355	)		(718,759	)		(846,333	)
Net loss before income taxes		(5,840,902	)		(6,850,743	)		(11,656,896	)		(13,873,768	)
Provision for income taxes		—			860			280			4,259
Net loss	$	(5,840,902	)	$	(6,851,603	)	$	(11,657,176	)	$	(13,878,027	)
Net loss per share, basic and diluted	$	(0.60	)	$	(0.98	)	$	(1.31	)	$	(2.00	)
Shares used in computing net loss per share, basic and diluted		9,769,322			7,018,502			8,875,177			6,952,012

See notes to the unaudited condensed financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net loss	$	(5,840,902	)	$	(6,851,603	)	$	(11,657,176	)	$	(13,878,027	)
Other comprehensive income, net of tax effect:
Unrealized gain on short and long-term investments		736			4,522			1,090			43,873
Comprehensive loss	$	(5,840,166	)	$	(6,847,081	)	$	(11,656,086	)	$	(13,834,154	)

See notes to the unaudited condensed financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Statement of Changes in Stockholders’ Deficit

(Unaudited)

	Common Stock					Additional Paid-In			Treasury			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount			Capital			Stock			Loss			Deficit			Deficit
Balance at January 1, 2017		7,938,571	$	7,938		$	110,081,334		$	(75,000	)	$	(1,090	)	$	(115,606,044	)	$	(5,592,862	)
Exercise of stock options		40,809		41			109,745			—			—			—			109,786
Stock-based compensation expense		—		—			814,429			—			—			—			814,429
Vesting of restricted stock units		154,000		154			—			—			—			—			154
Employee stock purchase plan		39,972		40			100,872			—			—			—			100,912
Issuance of common stock from the ATM Offering, net of issuance costs of $0.7 million		3,184,972		3,185			14,672,585			—			—			—			14,675,770
Retirement of treasury stock		—		(1	)		(74,999	)		75,000			—			—			—
Net loss		—		—			—			—			—			(11,657,176	)		(11,657,176	)
Unrealized gain on short and long-term investments		—		—			—			—			1,090						1,090
Balance at June 30, 2017		11,358,324	$	11,357		$	125,703,966		$	-		$	-		$	(127,263,220	)	$	(1,547,897	)

See notes to the unaudited condensed financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2017			2016
Operating activities
Net loss	$	(11,657,176	)	$	(13,878,027	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		587,466			728,828
Accretion of discount on NuvoGen obligation		99,377			104,467
Provision for excess inventory		244,026			149,763
Amortization of Growth Term Loan discount and issuance costs		231,319			267,047
Stock-based compensation expense		814,583			322,136
Employee stock purchase plan expense		29,223			—
Accretion of incentive from landlord		(71,000	)		(59,165	)
Accrued interest on available-for-sale securities investments		5,991			125,138
Changes in operating assets and liabilities:
Accounts receivable		(173,427	)		(1,195,148	)
Inventory		(19,673	)		(161,570	)
Prepaid expenses and other		(35,103	)		(228,723	)
Deferred offering costs		49,630			—
Accounts payable		480,025			799,786
Accrued liabilities		(456,675	)		(42,404	)
Deferred revenue		278,310			136,231
Net cash used in operating activities		(9,593,104	)		(12,931,641	)
Investing activities
Purchase of property and equipment		(152,339	)		(1,620,946	)
Sales, redemptions and maturities of available-for-sale securities		4,300,000			18,700,000
Purchase of available-for-sale securities		—			(3,381,271	)
Net cash provided by investing activities		4,147,661			13,697,783
Financing activities
Payment of offering costs		(201,475	)		—
Proceeds from Growth Term Loan		—			5,000,000
Payments on Growth Term Loan		(3,126,629	)		(1,450,576	)
Proceeds from ATM offering		14,907,245			—
Payments on capital leases		(24,796	)		(66,706	)
Proceeds from exercise of stock options		109,786			2,142
Proceeds from shares purchased under the stock purchase plan		71,689			146,758
Payments on NuvoGen obligation		(400,000	)		(181,250	)
Net cash provided by financing activities		11,335,820			3,450,368
Increase in cash and cash equivalents		5,890,377			4,216,510
Cash and cash equivalents at beginning of period		7,507,659			3,293,983
Cash and cash equivalents at end of period	$	13,398,036		$	7,510,493
Noncash investing and financing activities
Fixed asset purchases payable and accrued at period end		72,224			214,033
Offering costs payable at period end		30,000			—
Carrying value of demonstration units transferred from property and equipment to inventory		26,807			—
Stock issued for settlement of accrued bonus		—			(364,910	)
Purchase of property and equipment under capital lease		—			209,588
Incentive from landlord		—			710,000
Retirement of treasury stock		75,000			—
Supplemental cash flow information
Cash paid for interest	$	417,782		$	559,832

See notes to the unaudited condensed financial statements.

HTG Molecular Diagnostics, Inc.

Notes to Unaudited Condensed Financial Statements

Note 1. Description of Business

HTG Molecular Diagnostics, Inc. (the “Company”) is a commercial stage company that develops and markets products and services based on proprietary technology that facilitates the routine use of targeted molecular profiling. The Company derives revenue from sales of the Company’s automation systems and integrated next-generation sequencing-based HTG EdgeSeq assays and from sample processing, custom research use only assay development, and collaboration services.

The Company operates in one segment and the majority of its customers are located in the United States. For the three and six months ended June 30, 2017 approximately 34% and 27%, respectively, of the Company’s revenue was generated from sales to customers located outside of the United States, compared with 10% for both the three and six months ended June 30, 2016.

Note 2. Basis of Presentation

Basis of Presentation

The accompanying interim unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect the accounts of the Company as of June 30, 2017 and for the three and six months ended June 30, 2017 and 2016. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The accompanying interim unaudited, condensed financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and the results of its operations and cash flows, as of and for the periods presented. The unaudited condensed balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for annual financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 23, 2017.

Going Concern

In accordance with the criteria of Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , management has assessed the Company’s ability to continue as a going concern within one year of the filing date of this Quarterly Report on Form 10‑Q with the SEC in August 2017. The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, the Company has had recurring operating losses and negative cash flows from operations since its inception and has an accumulated deficit of approximately $127.3 million as of June 30, 2017. As of June 30, 2017, the Company had available cash and cash equivalents of approximately $13.4 million, and had current liabilities of approximately $10.6 million plus an additional $10.6 million in long-te rm liabilities primarily attributable to its asset-secured growth capital term loan with Oxford Finance, LLC and Silicon Valley Bank (the “Growth Term Loan”) and to an obligation to NuvoGen Research, LLC (“NuvoGen”). The Company has raised $14.9 million in net proceeds through August 4, 2017 under a sales agreement entered into with Cantor Fitzgerald & Co. (“Cantor Fitzgerald”) (see Note 11). After considering the net proceeds raised under the sales agreement with Cantor Fitzgerald, and without assuming any additional sales that may be made under the sales agreement with Cantor Fitzgerald, management believes that the Company’s existing resources will be sufficient to fund the Company’s planned operations and expenditures into the beginning of the first quarter of 2018. However, the Company cannot provide assurance that its plans will not change or that changed circumstances will not result in the depletion of its capital resources more rapidly than it currently anticipates. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited condensed financial statements do not include any adjustments that may result from the outcome of these uncertainties.

The Company will need to raise additional capital to fund its operations until its revenue reaches a level sufficient to provide for self-sustaining cash flows. There can be no assurance that additional capital will be available on acceptable terms, or at all, or that the Company’s revenue will reach a level sufficient to provide for self-sustaining cash flows. If sufficient additional capital is not available as and when needed, the Company may have to delay, scale back or discontinue one or more product development programs, curtail its commercialization activities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that the Company

otherwis e would have sought to develop or commercialize independently, cease operations altogether, pursue a sale of the Company at a price that may result in up to a total loss on investment for its stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all assets. In addition, if the Company defaults under its term loan agreement, its lenders could foreclose on its assets, including substantially all of its cash and cash equivalents which are held in accounts with its lenders.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include revenue recognition, stock-based compensation expense, income tax valuation allowances, recovery of long-lived assets, inventory obsolescence and inventory valuation. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

The carrying value of financial instruments classified as current assets and current liabilities approximate fair value due to their liquidity and short-term nature. Investments that are classified as available-for-sale are recorded at fair value, which was determined using quoted market prices, broker or dealer quotations or alterative pricing sources with reasonable levels of transparency. The Growth Term Loan and NuvoGen obligation are considered financial instruments. However, the Company is unable to reasonably determine the fair value of these obligations.

Concentration Risks

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and uncollateralized accounts receivable. The Company maintains the majority of its cash balances in the form of cash deposits in bank checking and money market accounts in amounts in excess of federally insured limits. Management believes, based upon the quality of the financial institution, that the credit risk with regard to these deposits is not significant.

The Company sells its instruments, consumables, sample processing services, custom panel design and development services primarily to biopharmaceutical companies, academic institutions and molecular labs. The Company routinely assesses the financial strength of its customers and credit losses have been minimal to date.

The Company had product revenue consisting of revenue from the sale of instruments and consumables for the three and six months ended June 30, 2017 and 2016, as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Instruments	$	148,479	$	3,119	$	171,058	$	82,300
Consumables		258,698		574,008		777,263		1,095,017
Total product revenue	$	407,177	$	577,127	$	948,321	$	1,177,317

The Company had service revenue consisting of revenue from custom assay development and sample processing for the three and six months ended June 30, 2017 and 2016, as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Custom assay development	$	582,072	$	—	$	623,359	$	—
Sample processing		469,096		1,318,689		1,257,834		1,583,731
Collaboration agreement		302,411		—		302,411		—
Total service revenue	$	1,353,579	$	1,318,689	$	2,183,604	$	1,583,731

The Company’s top three customers accounted for 16%, 15% and 13% of the Company’s total revenue for the three months ended June 30, 2017, compared with 60%, 11% and 5% for the three months ended June 30, 2016. The top three customers accounted for 16%, 12% and 9% of the Company’s revenue for the six months ended June 30, 2017, compared with 43%, 18% and 7% for the six months ended June 30, 2016.

The top two customers accounted for approximately 13% and 12% of the Company’s accounts receivable as of June 30, 2017, compared with approximately 28% and 15% as of December 31, 2016.

The Company currently relies on a single supplier to supply a subcomponent used in the HTG Ed geSeq processors and a second single supplier to provide raw materials used in its HTG EdgeSeq proprietary assays. A loss of either of these suppliers could significantly delay the delivery of products or the completion of services to be performed, which i n turn would materially affect the Company’s ability to generate revenue.

Recently Adopted Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory . The standard requires inventory within the scope of the ASU to be measured using the lower of cost and net realizable value. The changes apply to all types of inventory, except those measured using last-in, first-out (“LIFO”) method or the retail inventory method, and are intended to more clearly articulate the requirements for the measurement and disclosure of inventory and to simplify the accounting for inventory by eliminating the notions of replacement cost and net realizable value less a normal profit margin. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company adopted this guidance effective January 1, 2017. The Company previously measured its inventory at the lower of cost or market with cost being determined by the first-in, first-out (“FIFO”) method. The adoption of the guidance did not have a material impact on the Company’s interim unaudited condensed financial statements.

In April 2016, the FASB issued ASU No. 2016-09, Share-Based Payment: Simplifying the Accounting for Share-Based Payments . The standard addresses several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company adopted this guidance effective January 1, 2017. Excess tax benefits recorded upon adoption of this standard are not material to the condensed balance sheets. The elimination of the APIC pool affects the treasury stock method used to calculate weighted average shares outstanding; however, the impact was not material. The Company elected to change its policy surrounding forfeitures, and beginning January 1, 2017, the Company no longer estimates the number of awards expected to be forfeited but instead accounts for them as they occur. The Company implemented this portion of the guidance using a modified retrospective approach. However, the cumulative adjustment was not material to additional paid-in capital and therefore was not recorded. Other provisions of ASU 2016-09 had no impact on the Company’s interim unaudited condensed financial statements.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.

In March 2016, the FASB issued ASU No. 2016-08, Revenue Recognition: Clarifying the new Revenue Standard’s Principal-Versus-Agent Guidance (“ASU 2016-08”). The standard amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in ASU 2016-08, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the Company may be the principal in one or more specified goods or services and the agent for others.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing . The amendments in this standard affect the guidance in ASU 2014-09 by clarifying two aspects: identifying performance obligations and the licensing implementation guidance.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients. The amendments in this standard affect the guidance in ASU 2014-09 by clarifying certain specific aspects of ASU 2014-09, including assessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical corrections.

The new revenue standard and the standards that amend it will be effective for public entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is in the initial stages of evaluating the effect of adoption of ASU 2014-09 on its financial statements and continues to evaluate the available transition methods. The Company has begun assessing the standard for

all of its contracts with customers, which includes performing a detailed review of how the new standard affects each of its different types of customer contracts and comparing historical accounting policies and practices to the new standard. The Company will continu e its evaluation of the standards update through the date of adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). Under this standard, which applies to both lessors and lessees, lessees will be required to recognize for all leases (except for short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in a company’s financial statements, with certain practical expedients available. The effect of adoption of this standard on our financial statements will depend on the leases existing at January 1, 2018. Based on the Company’s preliminary assessment of its office and equipment leases that are in place as of June 30, 2017, however, and considering the practical expedients, the Company expects that adoption of ASU 2016‑02 will not have a material effect on its statements of operations, will result in a gross-up on its balance sheets of less than $3.0 million relating to office and equipment leases and will have no effect on its statements of cash flows. The Company will continue to assess the new guidance and its potential applicability to the other existing agreements, or to new agreements that it may enter into subsequent to June 30, 2017, through the date of adoption.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses , which requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The effect of adoption will depend on the financial instruments held by the Company at the time. Based on the instruments currently held, however, the Company does not believe the adoption of this standard will have a significant impact on its financial statements, given the high credit quality of the obligors to its available-for-sale debt securities and its limited history of bad debt expense relating to trade accounts receivable.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. When considering the activity within the Company’s condensed statements of cash flows for the six months ended June 30, 2017 and 2016, the Company does not believe the adoption of this standard will have a significant impact on its financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting . The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The new standard will be effective on January 1, 2018; however, early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.

Note 3. Inventory

Inventory, net of allowance, consisted of the following as of the date indicated:

	June 30,			December 31,
	2017			2016
Raw materials	$	1,106,363		$	1,222,437
Work in process		106			1,762
Finished goods		414,918			557,161
Total gross inventory		1,521,387			1,781,360
Less inventory allowance		(207,880	)		(270,307	)
	$	1,313,507		$	1,511,053

For the three and six months ended June 30, 2017, the Company recorded net decreases in the inventory reserve of $66,250 and $62,427, respectively, compared with net increases of $73,305 and $91,542, respectively, for the three and six months ended June 30, 2016, to adjust for estimated shrinkage and obsolescence. For the three and six months ended June 30, 2017, the Company recorded adjustments to provision for excess inventory of $51,599 and $244,026, respectively. For the three and six months ended June 30, 2016, the Company recorded adjustments to provision for excess inventory of $119,221 and $149,763, respectively. Adjustments in these periods to the allowance for estimated shrinkage, obsolescence and excess inventory were recognized within cost of revenue in the condensed statement of operations.

Note 4. Fair Value Instruments

The carrying value of financial instruments classified as current assets and current liabilities approximate fair value due to their liquidity and short-term nature. Investments that are classified as available-for-sale are recorded at fair value, which is determined using quoted market prices, broker dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Financial assets and liabilities measured at fair value are classified in their entirety in the fair value hierarchy, based on the lowest level input significant to the fair value measurement. The following table classifies the Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016, respectively, in the fair value hierarchy:

	Balance at June 30, 2017
	Level 1		Level 2		Level 3		Total
Asset included in:
Cash and cash equivalents
Money market securities	$	12,434,936	$	—	$	—	$	12,434,936
Total	$	12,434,936	$	—	$	—	$	12,434,936

	Balance at December 31, 2016
	Level 1		Level 2		Level 3		Total
Asset included in:
Cash and cash equivalents
Money market securities	$	6,443,102	$	—	$	—	$	6,443,102
Investments available-for-sale at fair value
U.S. government obligations	$	1,300,663	$	—	$	—	$	1,300,663
Corporate debt securities	$	—	$	3,004,238	$	—	$	3,004,238
Total	$	7,743,765	$	3,004,238	$	—	$	10,748,003

There are no other financial instruments subject to fair value measurement on a recurring basis. Transfers to and from Levels 1, 2 and 3 are recognized at the end of the reporting period. There were no transfers between levels for the six months ended June 30, 2017 or for the year ended December 31, 2016.

Level 1 instruments include U.S. Government money market funds and U.S. Treasuries. These instruments are valued using quoted market prices for identical unrestricted instruments in active markets. The Company defines active markets for debt instruments based on both the average daily trading volume and the number of days with trading activity. Level 2 instruments include corporate debt securities. Valuations of Level 2 instruments can be verified to quoted prices, recent trading activity for identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

Fair values of these assets are based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques. These valuation models and analytical tools use market pricing or similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers. The Company did not adjust any of the valuations received from these third parties with respect to any of its Level 1 or 2 securities for the periods ended June 30, 2017 or December 31, 2016.

Note 5. Available for Sale Securities

The Company had no available-for-sale securities as of June 30, 2017. The following is a summary of the Company’s available-for-sale securities at December 31, 2016.

	December 31, 2016
			Gross			Gross			Fair Value
	Amortized			Unrealized	Unrealized					(Net Carrying
	Cost			Gains	Losses					Amount)
U.S. Treasury securities	$	1,300,151	$	512	$		—		$		1,300,663
Corporate debt securities		3,005,840		—			(1,602	)			3,004,238
Total available-for-sale securities	$	4,305,991	$	512	$		(1,602	)	$		4,304,901

The net adjustment to unrealized holding gains on available-for-sale securities, net of tax in other comprehensive income totaled $736 and $1,090 for the three and six months ended June 30, 2017, respectively, and $4,522 and $43,873 for the three and six months ended June 30, 2016, respectively.

Note 6. Property and Equipment

Property and equipment, net, consists of the following:

	June 30,			December 31,
	2017			2016
Office equipment	$	505,221		$	447,580
Leasehold improvements		1,854,052			1,847,378
Laboratory and manufacturing equipment		2,703,030			2,659,621
Field equipment		131,096			131,096
Software		150,451			150,451
Construction in progress		261,633			176,963
		5,605,483			5,413,089
Less: accumulated depreciation and amortization		(2,724,996	)		(2,142,892	)
	$	2,880,487		$	3,270,197

Depreciation and leasehold improvement amortization expense was $291,421 and $587,466 for the three and six months ended June 30, 2017, respectively, and $371,805 and $728,828 for the three and six months ended June 30, 2016, respectively.

Note 7. Accrued Liabilities

Accrued liabilities consist of the following:

	June 30,		December 31,
	2017		2016
Employee compensation and benefits	$	683,197	$	1,088,773
Employee compensation for future absences		198,682		173,533
Interest		60,240		82,591
Professional fees		89,795		79,029
Other		181,697		246,360
	$	1,213,611	$	1,670,286

Note 8. Growth Term Loan

There have been no significant modifications to the terms and conditions of the Growth Term Loan since the disclosures made in the Company’s Annual Report on Form 10-K, filed with the SEC on March 23, 2017. The remaining principal repayments due under the Growth Term Loan as of June 30, 2017 are as follows for each fiscal year:

2017	$	3,263,152
2018		5,163,822
Total Growth Term Loan payments		8,426,974
Less discount and deferred financing costs		(150,049	)
Plus final fee premium		606,684
Total Growth Term Loan, net	$	8,883,609

Note 9. Other Agreements

NuvoGen Obligation

There have been no significant modifications to the terms and conditions of the Company’s NuvoGen obligation since the disclosures made in the Company’s Annual Report on Form 10-K, filed with the SEC on March 23, 2017. The minimum remaining payments due to NuvoGen at June 30, 2017 are as follows for each fiscal year, although actual payments could be significantly more than provided in the table in 2018 and beyond, to the extent that 6% of the Company’s revenue exceeds $400,000:

2017	$	400,000
2018		400,000
2019		400,000
2020		400,000
2021		400,000
2022 and beyond		6,298,743
Total NuvoGen obligation payments		8,298,743
Less discount		22,741
Total NuvoGen obligation, net	$	8,321,484

Development Agreements

Illumina, Inc. Agreement

In June 2017, the Company entered into an Amended and Restated Development and Component Supply Agreement with Illumina, Inc. (“Illumina”), effective May 31, 2017 (the “Restated Agreement”), which amended and restated the parties’ IVD Test Development and Component Supply Agreement entered into in October 2014 (the “Original Agreement”). The Restated Agreement provides for the development and worldwide commercialization by the Company of nuclease-protection-based RNA or DNA profiling tests (“IVD test kits”) for use with Illumina’s MiSeqDx sequencer in the field of diagnostic oncology testing in humans (the “Field”).

Under the Restated Agreement, the parties have agreed to continue activities under the first development plan which was entered into pursuant to the Original Agreement, and the Company may, at its discretion, submit additional development plans for IVD test kits in the Field to Illumina for its approval, not to be unreasonably withheld.

Under each development plan, Illumina will provide specified regulatory support and rights, and develop and deliver to the Company an executable version of custom software, which, when deployed on Illumina’s MiSeqDx sequencer, would enable sequencing by the end-user of the subject IVD test kit probe library. Illumina retains ownership of the custom software, subject to the Company’s right to use the custom software in connection with the commercialization of IVD test kits. The Company is required to pay Illumina up to $0.6 million in the aggregate upon achievement of specified regulatory milestones relating to the IVD test kits. There have been no additional contractual milestones reached since the disclosures made by the Company in its Annual Report on Form 10-K, file d with the SEC on March 23, 2017. In addition, the Company has agreed to pay Illumina a single digit percentage royalty on net sales of any IVD test kits that the Company commercializes pursuant to the Restated Agreement. The Company has submitted one additional development plan for an IVD test kit to Illumina, resulting in a required payment to Illumina of $50,000 for the three and six months

ended June 30, 2017, included in accounts payable in the condensed balance sheets as of June 30, 2017. Ongoing rese arch and development costs for development plans under the Restated Agreement have been expensed as incurred.

Absent earlier termination, the Restated Agreement will expire in May 2027; however, Illumina is no longer obligated to notify the Company of changes in its products that may affect the Company’s IVD test kits after May 31, 2023. The Company may terminate the Restated Agreement at any time upon 90 days’ written notice and may terminate any development plan under the Restated Agreement upon 30 days’ prior written notice. Illumina may terminate the Restated Agreement upon 30 days’ prior written notice if the Company undergoes certain changes of control, subject to a transition period of up to 12 months for then-ongoing development plans. Either party may terminate the Restated Agreement upon the other party’s material breach of the Restated Agreement that remains uncured for 30 days, or upon the other party’s bankruptcy.

Other Development Agreements

There have been no significant modifications or financial events relating to the development agreements entered into by the Company in prior periods with Invetech PTY Ltd. or Life Technologies Corporation since the disclosures made by the Company in its Annual Report on Form 10-K, filed with the SEC on March 23, 2017.

Collaboration Agreements

Merck KGaA Agreement

The Company earned the first milestone-based payment under its Master CDx Agreement with Merck KGaA, Darmstadt, Germany (“Merck KGaA”) in the second quarter of 2017. Service revenue of $25,000 was recognized for the completion of these research and development services using the proportional performance method of revenue recognition for the three and six months ended June 30, 2017 related to this agreement.

Other Collaboration Agreements

There have been no significant modifications or financial events relating to the previously disclosed collaboration agreement entered into by the Company with Bristol-Myers Squibb since disclosures made by the Company in its Annual Report on Form 10‑K, filed with the SEC on March 23, 2017.

Other Agreements with Related Parties

Refer to Note 14 for discussion of agreements with related parties.

Note 10. Net Loss Per Share

Net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock or common stock equivalents outstanding. The numerator and the denominator used in computing both basic and diluted net loss per share for each period are the same. The following table provides the numerator and denominator used in computing basic and diluted net loss per share for the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Numerator:
Net loss	$	(5,840,902	)	$	(6,851,603	)	$	(11,657,176	)	$	(13,878,027	)
Denominator:
Weighted-average shares outstanding-basic and diluted		9,769,322			7,018,502			8,875,177			6,952,012
Net loss per share, basic and diluted	$	(0.60	)	$	(0.98	)	$	(1.31	)	$	(2.00	)

The following outstanding options and warrants were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive:

	Six Months Ended June 30,
	2017		2016
Options to purchase common stock		1,436,978		1,055,831
Common stock warrant		219,723		219,723
Restricted stock units		208,999		24,999

Note 11. Stockholders’ Deficit

Cantor Fitzgerald & Co. Market Offering

In April 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which the Company may offer and sell, from time to time, through Cantor Fitzgerald, shares of the Company’s common stock, par value $0.001 per share, by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended (the “ATM Offering”). In April 2017, the Company also filed a prospectus supplement (File No. 333-216977) with the SEC relating to the offer and sale of up to $20,000,000 of common stock in the ATM Offering. In June 2017, the Company filed an amendment to the prospectus supplement with the SEC to increase the amount of common stock that may be offered and sold in the ATM Offering under the Sales Agreement to $40,000,000 in the aggregate, inclusive of the common stock previously sold in the ATM Offering prior to the date of the amendment.

As of June 30, 2017, the Company has sold 3,184,972 shares of common stock under the ATM Offering at then-market prices for total gross proceeds of approximately $15.4 million. After sales commissions and $0.2 million of other offering expenses paid and payable by the Company in connection with the ATM Offering, the Company’s aggregate net proceeds through June 30, 2017 were approximately $14.7 million. These costs have been recorded as a reduction of proceeds received in arriving at the amount recorded in additional paid-in capital as of June 30, 2017.

Treasury Stock

In January 2017, the Company’s board of directors approved the retirement of the 1,396 shares of the Company’s common stock previously held in treasury, and returned them to the status of authorized and unissued shares of the Company’s common stock.

Stock-based Compensation

As of June 30, 2017, there were 89,968 shares available for issuance under the Company’s 2014 Equity Incentive Plan (the “Plan”) and options to purchase 1,436,978 shares of common stock were outstanding, including 714,443 options that were fully vested. As of June 30, 2017, there was total unrecognized compensation expense of $1,010,315 related to unvested stock options, which the Company expects to recognize over a weighted-average period of approximately 1.93 years.

A summary of the Plan’s stock option activity is as follows:

	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Balance at December 31, 2016		1,161,705		$	3.35	7.7		$	36,887
Granted		349,000		2.04
Exercised		(40,809	)	2.69				$	152,071
Forfeited		(30,057	)		3.23
Expired/Cancelled		(2,861	)		9.03
Balance at June 30, 2017		1,436,978		$	3.03		7.8	$	538,789
Exercisable at June 30, 2017		714,443		$	3.40	6.5		$	214,339

As of June 30, 2017, there were 208,999 restricted stock units (“RSUs”) outstanding, including 10,000 vested and unissued RSUs and 198,999 unvested RSUs. Unrecognized compensation expense related to the remaining unvested RSUs was $173,737 at June 30, 2017, which the Company expects to recognize over a weighted-average remaining service period of 0.6 years.

A summary of the Plan’s RSU activity is as follows:

	Restricted Stock Units (RSU)			Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2016		355,499		$	2.41
Granted		10,000			1.75
Exercised		(154,000	)		2.44
Forfeited		(2,500	)		2.46
Balance at June 30, 2017		208,999		$	2.36

Stock-based compensation expense recorded in the condensed statements of operations for the three and six months ended June 30, 2017 and 2016 was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Selling, general and administrative	$	294,591	$	112,043	$	574,174	$	233,593
Research and development		93,103		30,056		181,464		67,790
Cost of revenue		30,243		9,989		58,945		20,753
	$	417,937	$	152,088	$	814,583	$	322,136

Note 12. Commitments and Contingencies

Legal Matters

The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property and product liability. As a result, the Company may be subject to various legal proceedings from time to time. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Any current litigation is considered immaterial and counter claims have been assessed as remote.

Leases

The Company leases office and laboratory space in Tucson, Arizona under two non-cancelable operating leases. There have been no changes to the Company’s office and laboratory space leases since the disclosures made by the Company in its Annual Report on Form 10-K, filed with the SEC on March 23, 2017. The Company’s remaining minimum real estate lease payments before common area maintenance charges for each fiscal year as of June 30, 2017 are as follows:

2017	$	254,964
2018		512,533
2019		514,977
2020		517,457
2021		43,139
	$	1,843,070

As of June 30, 2017, the Company also has capital lease commitments consisting of approximately $115,000 of leases for computer equipment varying in length from 36 to 48 months and an equipment financing arrangement of approximately $13,000 with a vendor that expires in December 2017 that have not been included in the minimum lease payments schedule above.

Product Warranty

The following is a summary of the Company’s general product warranty reserve:

	Six Months Ended June 30,
	2017			2016
Beginning balance	$	50,426		$	20,213
Cost of warranty claims		(4,296	)		(32,760	)
Increase (decrease) in warranty reserve		(14,817	)		49,024
Ending balance	$	31,313		$	36,477

Warranty reserve is included in accrued liabilities in the condensed balance sheets as of June 30, 2017 and December 31, 2016. Expense relating to the recording of this reserve is recorded in cost of revenue within the condensed statements of operations.

Note 13. Income Taxes

The Company provides for income taxes based upon management’s estimate of taxable income or loss for each respective period. The Company recognizes an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These temporary differences would result in deductible or taxable amounts in future years, when the reported amounts of the assets are recovered or liabilities are settled, respectively.

In each period since inception, the Company has recorded a valuation allowance for the full amount of its net deferred tax assets, as it is not more likely than not that these will be realized. As a result, the Company has not recorded any federal or state income tax benefit in the condensed statements of operations; however, state income tax expense has been recorded for state minimum taxes.

The Company periodically reviews its filing positions for all open tax years in all U.S. federal, state and international jurisdictions where the Company is or might be required to file tax returns or other required reports.

The Company applies a two-step approach to recognizing and measuring uncertain tax positions. The Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in a court of last resort. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the more likely than not criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect the Company’s results of operations, financial position and cash flows. The Company has not identified any uncertain tax positions at June 30, 2017 or December 31, 2016.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2017 and December 31, 2016, respectively, and has not recognized interest or penalties of significance during the six months ended June 30, 2017 and 2016, respectively, since there are no material unrecognized tax benefits. The Company has not made or had payments due for income taxes for the periods ended June 30, 2017 or December 31, 2016, other than state minimum taxes. Management believes no material change to the amount of unrecognized tax benefits will occur within the next 12 months.

The Company has established a valuation allowance against the entire net deferred tax asset. A preliminary analysis of past and subsequent equity offerings by the Company, and other transactions that have an impact on the Company’s ownership structure, concluded that the Company may have experienced one or more ownership changes under Sections 382 and 383 of the Internal Revenue Code or IRC. Provisions of the IRC place special limitations on the usage of net operating losses and credits following an ownership change. Such limitations may limit or eliminate the potential future tax benefit to be realized by the Company from its accumulated net operating losses and research and development credits.

Note 14. Related Party Transactions

QIAGEN Agreement

In June 2017, the Company entered into the first statement of work (“SOW One”) under its Master Assay Development, Commercialization and Manufacturing Agreement (“Governing Agreement”) with QIAGEN Manchester Limited (“QML”), a wholly owned subsidiary of QIAGEN, N.V. QIAGEN North American Holdings, Inc., a wholly owned subsidiary of QIAGEN N.V., is a greater than 5% holder of the Company’s outstanding common stock.

SOW One addresses the initial activities of the Company and QML in support of the development and potential commercialization of a next generation sequencing-based companion diagnostic assay (the “PDP Assay”) that is the subject of a sponsor project agreement between QML and a biopharmaceutical company (“Pharma One”). The parties expect development activities for the PDP Assay to be the subject of more than one work plan under the sponsor project agreement and a corresponding number of statements of work under the Governing Agreement.

The Company has determined that SOW One is a collaborative arrangement under ASC 808 and a multiple-element arrangement under ASC 605-25. After reviewing the deliverables under the arrangement, the Company concluded that all of the fixed and determinable contract consideration should be allocated to the development services to be performed by the Company.

QML will pay the Company a monthly fee for development work performed by Company and its subcontractors (collectively, the “Monthly Fee”). The Monthly Fee is not contingent upon successful acceptance of project milestones by Pharma One; therefore, the Monthly Fee will be recognized as the respective payment amount becomes fixed or determinable and collectability from QML is reasonably assured. The Company and QML also will share any net profits resulting from performance of the development work as determined pursuant to the Governing Agreement. Such profit sharing payment(s) is deemed to be fixed or determinable upon completion of SOW One deliverables, acceptance of corresponding deliverables by Pharma One, and the calculation of net profit is mutually agreed by QML and the Company.

Revenue of $277,400 has been included in service revenue in the condensed statements of operations for the three and six months ended June 30, 2017 relating to SOW One Monthly Fees, and in accounts receivables in the condensed balance sheets as of June 30, 2017, and no profit sharing payments have been received or recognized as of June 30, 2017. Costs relating to SOW One of $222,200 have been included in research and development expense in the condensed statements of operations for the three and six months ended June 30, 2017. No costs or revenue relating to SOW One were included in the condensed statements of operations for the three and six months ended June 30, 2016 as SOW One was not established until June 2017.

SOW One will expire when all activities and deliverables have been completed by the respective responsible party and all payments from QML to the Company have been delivered, including any required profit sharing, unless terminated earlier in accordance with the terms of the Governing Agreement.

Contemporaneous with entry into SOW One, the Governing Agreement was amended to provide that neither the Company nor QML may terminate SOW One or the Governing Agreement to the extent it relates to SOW One in the event of a change of control.

Investor Rights Agreement

Effective June 2, 2017, the Company agreed with Novo Holdings A/S, formerly known as Novo A/S, a greater than 5% holder of the Company’s outstanding common stock, that notwithstanding the termination provisions of the Amended and Restated Investor Rights Agreement (“IRA”) dated May 11, 2015 between the Company and certain stockholders named therein, Novo Holdings A/S would be entitled to demand registration rights set forth in the IRA until the earlier of (a) May 11, 2018 and (b) such time as all registrable securities held by the holder may be sold under Rule 144 during any 90-day period.

Note 15. Subsequent Events

Notice of Potential Delisting from The NASDAQ Capital Market

The Company’s common stock is currently listed on The NASDAQ Capital Market under the symbol “HTGM.” On July 31, 2017, the Company received notice from NASDAQ that the Company’s Market Value of Listed Securities (“MVLS”) did not satisfy The NASDAQ Capital Market continued listing requirements set forth in NASDAQ Stock Market Rule 5550(b)(2), nor does the Company satisfy alternative continued listing criteria under the stockholders’ equity or net income standards. The NASDAQ continued listing rules provide the Company a compliance period of 180 calendar days in which to regain compliance with the MVLS requirements. If at any time during this compliance period the Company’s MVLS closes at $35 million or more for a minimum of ten consecutive business days, the Company will regain compliance with NASDAQ’s continued listing requirements. In the event the Company does not regain compliance prior to the expiration of the compliance period, the Company’s common stock will be subject to delisting. There can be no assurance that the Company will be able to regain compliance with the MVLS requirement.

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

The following discussion and analysis should be read in conjunction with our financial statements and notes thereto for the year ended December 31, 2016, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 23, 2017. This discussion and analysis contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward looking statements include, but are not limited to, statements about:

•

our ability to successfully commercialize our products and services, including our HTG EdgeSeq assays and corresponding automation system;

•

our ability to generate sufficient revenue or raise additional capital to meet our working capital needs;

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our ability to secure regulatory clearance or approval, domestically and internationally, for the clinical use of our products;

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our ability to develop new technologies to expand our product offerings, including direct-target sequencing for detection of mutations in genomic DNA and/or expressed RNA (such as single-point mutations and gene rearrangements, including gene fusions and insertions), and methods to detect mutation load and microsatellite instability;

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the activities anticipated to be performed by us and third parties under development projects and programs, and the expected benefits and outcomes of such projects and programs;

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the implementation of our business model and strategic plans for our business;

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the regulatory regime for our products, domestically and internationally;

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our strategic relationships, including with holders of intellectual property relevant to our technologies, manufacturers of next-generation sequencing, or NGS, instruments and consumables, critical component suppliers, distributors of our products, and third parties who conduct our clinical studies;

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our intellectual property position;

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our ability to comply with the restrictions of our debt facility and meet our debt obligations;

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our expectations regarding the market size and growth potential for our life sciences and diagnostic businesses;

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our expectations regarding trends in the demand for sample processing by our biopharmaceutical customers;

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any estimates regarding expenses, future revenues, capital requirements, and stock performance; and

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our ability to sustain and manage growth, including our ability to develop new products and enter new markets.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this filing and are subject to risks and uncertainties. We discuss many of these risks in greater detail in Part II, Item 1A - “Risk Factors” and elsewhere in this filing. You should carefully read the “Risk Factors” section of this filing to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. These statements, like all statements in this report, speak only as of their date, and except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Overview

We are a commercial stage company that develops and markets products and services based on proprietary technology that facilitates the routine use of targeted molecular profiling. Molecular profiling is the collection of information about multiple molecular targets, such as DNA and RNA, also called biomarkers, in a biological sample. Molecular profiling information has many important applications, from basic research to molecular diagnostics in personalized medicine. Our technology can be used throughout that range of applications, which is just one of its many benefits. Our focus is on clinical applications. Our primary customer segments include biopharmaceutical companies, academic research centers and molecular testing laboratories.

Historically, molecular profiling has faced several technical challenges in clinical applications. These include (i) limited “multiplexing,” which means only a few biomarkers could be tested in a single sample; (ii) the need for vast amounts of sample to test more than a few biomarkers, which often required several different technologies conducted in different locations; (iii) complex sample preparation; and (iv) manual and/or time-consuming workflows. Even where it was possible to test tens, hundreds or thousands of biomarkers, such as with fixed arrays, data analysis could be quite complicated and time consuming.

Our proprietary technology has several key differentiators, including (i) multiplexing from tens to thousands of biomarkers in a single sample; (ii) very low sample input requirements; (iii) simple, extraction-free sample preparation, which is effective with a wide variety of samples; (iv) automated workflow with sample-to-result turnaround times rivaling any current competitor; and (v) simplified data output. In addition, our HTG EdgeSeq assay technology, launched in 2014, generates a molecular profiling library for detection using NGS. Among other things, NGS provides improved sensitivity and dynamic range for our HTG EdgeSeq assays. We believe these advantages position us to outperform most other now-available molecular profiling technologies, especially in certain sample types, such as formalin-fixed, paraffin-embedded, or FFPE, tissue. While we continue to advance our technology, we are particularly focused on gaining market recognition and expanding our product offerings and biopharmaceutical company collaborations.

Our current sources of revenue include sample processing, custom research use only, or RUO, assay development and collaboration services and sales of our automation systems and integrated NGS-based HTG EdgeSeq assays. Our current assay product offerings include the following:

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HTG EdgeSeq Oncology Biomarker Panel,

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HTG EdgeSeq Immuno-Oncology Assay,

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HTG EdgeSeq microRNA Whole-Transcriptome Assay,

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HTG EdgeSeq DLBCL Cell of Origin Assay,

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HTG EdgeSeq DLBCL Cell of Origin Assay EU,

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HTG EdgeSeq PATH Assay, and

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HTG EdgeSeq ALK Plus Assay EU.

Our assays are currently sold for research use only, except in Europe where our diffuse large B-cell lymphoma, or DLBCL, assay and our HTG EdgeSeq ALK Plus Assay EU are CE-marked and available for diagnostic use. We continue work on the pre-market approval, or PMA, submission for our HTG EdgeSeq ALK Plus Assay in the United States. We also have a focused development pipeline of new profiling products, which includes planned panels for translational research, drug development, and molecular diagnostics with initial focus in immuno-oncology. We have completed feasibility testing on our direct-target-sequencing “version 2” chemistry, or V2 chemistry, which is now available as a service offering for detection of certain DNA mutations in our VERI/O laboratory.

Our HTG EdgeSeq assays are automated on either our HTG Edge or HTG EdgeSeq platform, which may also be referred to as an “instrument” or “processor” and which, together with the assay, is a fully integrated system. Our HTG Edge platform can run both our original, plate-based assays and our NGS-based HTG EdgeSeq assays. We continue to support a small number of customers interested in utilizing our plate-based assays on a custom manufacturing basis; however, in 2016, based on market trends and customer feedback, we shifted our product focus to our NGS‑based HTG EdgeSeq system.

Customers can also obtain the advantages of our proprietary technology by engaging us to perform certain pre-clinical and clinical research-related services, including drug development and translational research. Our services include processing samples for molecular profiling data and designing custom research or investigational profiling assays.

As we navigate product-related regulatory requirements to launch additional molecular diagnostic products, initially in Europe and then in the United States, we expect our research products and services will continue to drive market recognition and technology adoption. Further, we expect that strategically positioning our proprietary technology, products and services in drug or other clinical

development programs will drive a future, ongoing portfolio of molecular diagnostic products, including companion di agnostic products.

We have incurred significant losses since our inception, and we have never been profitable. We incurred net losses of $5.8 million and $11.7 for the three and six months ended June 30, 2017, respectively, and $6.9 million and $13.9 for the three and six months ended June 30, 2016, respectively. As of June 30, 2017, we had an accumulated deficit of approximately $127.3 million. As of June 30, 2017, we had available cash and cash equivalents totaling approximately $13.4 million, and had current liabilities of approximately $10.6 million, plus an additional $10.6 million in long-term liabilities primarily attributable to our Growth Term Loan and our obligation to NuvoGen.

Recent Developments

In April 2017, we entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co., as sales agent, pursuant to which we may offer and sell, from time to time, through Cantor Fitzgerald, shares of our common stock by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act, or the ATM Offering, and filed a prospectus supplement (File No. 333-216977) with the SEC relating to the offer and sale of up to $20,000,000 of common stock in the ATM Offering. In June 2017, we filed an amendment to the prospectus supplement with the SEC to increase the amount of common stock that may be offered and sold in the ATM Offering to $40,000,000 in the aggregate, inclusive of the common stock previously sold in the ATM Offering prior to the date of the amendment. As of August 4, 2017, we have sold 3,274,341 shares of common stock in the ATM Offering at then-market prices for total gross proceeds of approximately $15.6 million. After sales commissions and other expenses payable by us in connection with the ATM Offering, our aggregate net proceeds from the ATM Offering through August 4, 2017 were approximately $14.9 million.

In June 2017, we announced that our new HTG EdgeSeq PATH Assay for research uses had been launched for sale in the United States and Europe. The HTG EdgeSeq PATH Assay was designed for retrospective gene expression profiling to complement traditional immunohistochemistry, or IHC, testing.

In June 2017, we amended and restated our IVD Test Development and Component Supply Agreement with Illumina, Inc. to, among other things, extend the agreement term and increase the number of in-vitro diagnostic test kits that may be developed for use with Illumina sequencing technology.

In June 2017, we entered the first statement of work, or SOW One, with QIAGEN Manchester Limited, or QML, under the parties’ Master Assay Development, Commercialization and Manufacturing Agreement, or the Governing Agreement. SOW One addresses development activities expected to be conducted by us and QML in connection with the initial phase of a sponsored project agreement entered into between QML and a pharmaceutical company. Under SOW One, we and QML are expected to perform development work for the initial phase of what is expected to become a multi-stage project leading to the potential development and commercialization of a next generation sequencing-based companion diagnostic assay. The development work is expected to support one of the pharmaceutical company’s therapeutic development and commercialization programs

In July 2017, we announced the initiation of our second development program with QML, under the Governing Agreement. Our HTG EdgeSeq technology will be used in the program to develop gene expression profiling assays for use with NGS technology in support of another pharmaceutical company’s therapeutic development and commercialization programs.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2017 and 2016

	Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
	2017			2016			$			%			2017			2016			$			%
Revenue:
Product	$	407,177		$	577,127		$	(169,950	)		(29	%)	$	948,321		$	1,177,317		$	(228,996	)		(19	%)
Service		1,353,579			1,318,689			34,890			3	%		2,183,604			1,583,731			599,873			38	%
Total revenue		1,760,756			1,895,816			(135,060	)		(7	%)		3,131,925			2,761,048			370,877			13	%
Cost of revenue		1,236,904			932,976			303,928			33	%		2,532,206			1,776,446			755,760			43	%
Gross margin		523,852			962,840			(438,988	)		(46	%)		599,719			984,602			(384,883	)		(39	%)
Gross margin percentage		30	%		51	%								19	%		36	%
Operating expenses:
Selling, general and administrative		4,413,437			4,712,637			(299,200	)		(6	%)		8,651,904			9,406,345			(754,441	)		(8	%)
Research and development		1,618,889			2,611,591			(992,702	)		(38	%)		2,885,952			4,605,692			(1,719,740	)		(37	%)
Total operating expenses		6,032,326			7,324,228			(1,291,902	)		(18	%)		11,537,856			14,012,037			(2,474,181	)		(18	%)
Operating loss		(5,508,474	)		(6,361,388	)		852,914			(13	%)		(10,938,137	)		(13,027,435	)		2,089,298			(16	%)
Other expense, net		(332,428	)		(489,355	)		156,927			(32	%)		(718,759	)		(846,333	)		127,574			(15	%)
Net loss before income taxes	$	(5,840,902	)	$	(6,850,743	)	$	1,009,841			(15	%)	$	(11,656,896	)	$	(13,873,768	)	$	2,216,872			(16	%)

Revenue

We generate revenue from the sale of our HTG Edge and HTG EdgeSeq instruments and our consumables, which consist primarily of our proprietary molecular profiling panels and other assay components. Together, all such consumables may be referred to as assays, assay kits or kits. We also generate revenue through the sale of services related to our proprietary technology, such as sample processing, custom research use only assay development and, pursuant to collaboration agreements with our biopharmaceutical customers, development of IVD assays. Total revenue for the three months ended June 30, 2017, decreased by 7% to $1.8 million compared with $1.9 million for the three months ended June 30, 2016, primarily as a result of a single customer contract producing approximately $1.1 million of sample processing revenue in the second quarter of 2016. Total revenue for the six months ended June 30, 2017, increased by 13% to $3.1 million compared with $2.8 million for the six months ended June 30, 2016. The overall revenue increase for the six months ended June 30, 2017 compared to the same period in the prior year was primarily the result of service revenue generated from an increased number of customers and an increasing component of revenue from collaborative development agreements with our biopharmaceutical company customers, both trends which we expect to continue in future reporting periods.

Product revenue

Product revenue includes revenue from the sale of our HTG Edge and HTG EdgeSeq instruments and related consumables, and was $0.4 million and $0.9 million for the three and six months ended June 30, 2017, respectively, compared with $0.6 million and $1.2 million for the three and six months ended June 30, 2016, respectively, and was comprised of the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Instruments	$	148,479	$	3,119	$	171,058	$	82,300
Consumables		258,698		574,008		777,263		1,095,017
Total product revenue	$	407,177	$	577,127	$	948,321	$	1,177,317

Revenue generated from instrument sales, rental and extended warranty services for the three and six months ended June 30, 2017, was $148,000 and $171,000, respectively, compared with $3,000 and $82,000 for the three and six months ended June 30, 2016, respectively. Consumables revenue was $0.3 million and $0.8 million for the three and six months ended June 30, 2017, respectively, and $0.6 million and $1.1 million for the three and six months ended June 30, 2016, respectively. The decrease in product revenue from 2016 to 2017 is primarily attributable to our focus on biopharmaceutical customers whose preference has been to access our technology via our service offerings. We expect our revenue mix to continue to contain a high proportion of biopharmaceutical service revenue in the near term. We also expect that potential companion diagnostic products resulting from our collaborations with

biopharmaceutical customers will be commercialized in the future and we will continue to independently develop additional menu items for commercial clinical diagnostic markets, both in European and U.S. markets using our HTG EdgeSeq platform.

Service revenue

Service revenue, consisting of services such as sample processing, custom assay development and collaborative development services for biopharmaceutical company customers, increased to $1.4 million and $2.2 million for the three and six months ended June 30, 2017, respectively, compared with $1.3 million and $1.6 million for the three and six months ended June 30, 2016, respectively. Service revenue reflects primarily new and increasing activity with our growing biopharmaceutical company customer base.

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Custom assay development	$	582,072	$	—	$	623,359	$	—
Sample processing		469,096		1,318,689		1,257,834		1,583,731
Collaboration agreement		302,411		—		302,411		—
Total service revenue	$	1,353,579	$	1,318,689	$	2,183,604	$	1,583,731

Our increased service revenue for the three and six months ended June 30, 2017, compared with the same periods in 2016 reflects growth both in the number of biopharmaceutical company customers purchasing our service offerings and in the amount of work performed on newly initiated biopharmaceutical company collaboration agreements, including the initiation of development services to be performed under the first stat ement of work entered into under our Governing Agreement with QML. Sample processing revenue for the second quarter of 2016 included approximately $1.1 million of revenue from a single biopharmaceutical company customer for which a backlog of samples was processed during the period. We continue to enter into new agreements or expand the scope of our existing biopharmaceutical collaborations and service agreements with biopharmaceutical company customers, who have chosen our proprietary technologies for use in their translational research and drug development programs, and who prefer to access our technology via services. This has driven expansion of service product mix as programs move through various stages of custom assay development and validation, proof of concept, processing of customer samples and movement toward IVD assay development. Because of existing agreements with biopharmaceutical company customers and continued efforts to expand our services to new biopharmaceutical company customers in the future, we expect our service revenue to continue to increase in both absolute dollars and as a percentage of total revenue for the remainder of 2017.

Cost of revenue

Cost of revenue includes the aggregate costs incurred in manufacturing, delivering, installing and servicing instruments and consumables, as well as costs incurred for services performed for customers by our VERI/O laboratory and product development department. Cost of revenue increased by $304,000, or 33%, and $756,000, or 43%, in the three and six months ended June 30, 2017, respectively, compared with the three and six months ended June 30, 2016. These costs were primarily driven by the variety of service revenue generated in our VERI/O laboratory during the period, which has resulted in the expansion of our VERI/O laboratory staffing, facilities and equipment to accommodate this increase in the demand for services in our VERI/O laboratory over that of the same period in the prior year and in anticipation of further demand increases.

Selling, general and administrative expenses

Selling, general and administrative expenses were $4.4 million and $8.7 million for the three and six months ended June 30, 2017, respectively, compared with $4.7 million and $9.4 million for the three and six months ended June 30, 2016, respectively. These reductions were a direct result of the reorganization of our commercial sales team in 2016, to gain efficiency and to focus predominantly on the pharmaceutical market while reducing our investments in the academic research market.

Research and development expenses

Research and development expenses were $1.6 million and $2.9 million for the three and six months ended June 30, 2017, respectively, compared with $2.6 million and $4.6 million for the three and six months ended June 30, 2016, respectively. The decrease in research and development expenses for the three and six months ended June 30, 2017 compared to the same periods in 2016, were primarily due to the suspension of Project JANUS in the third quarter 2016. The curtailment of Project JANUS activity has allowed us to focus on other, nearer-term product development projects, including those under the scope of our new collaboration agreements. The decrease was partially offset by an increase in project development costs relating to the initiation of SOW One under our Governing Agreement with QML in the second quarter of 2017.

Cash Flows for the Six Months Ended June 30, 2017 and 2016

The following table summarizes the primary sources and uses of cash for each of the periods presented:

	Six Months Ended June 30,
	2017			2016
Net cash provided by (used in):
Operating activities	$	(9,593,104	)	$	(12,931,641	)
Investing activities		4,147,661			13,697,783
Financing activities		11,335,820			3,450,368
Increase in cash and cash equivalents	$	5,890,377		$	4,216,510

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2017 totaled $9.6 million and reflected (i) a net loss of $11.7 million; (ii) net non-cash items of $2.0 million, consisting primarily of depreciation and amortization of $0.6 million, amortization of the discount, final payment premium and deferred financing costs on the Growth Term Loan of $0.2 million, stock-based compensation of $0.8 million, accretion of our NuvoGen discount of $0.1 million, and a provision for excess inventory of $0.2 million; and (iii) a net cash inflow from changes in balances of operating assets and liabilities of $0.1 million. The significant items comprising the changes in balances of operating assets and liabilities were increase in accounts payable, partially offset by a decrease in accrued liabilities during the period.

Net cash used in operating activities for the six months ended June 30, 2016 totaled $12.9 million and reflected (i) the net loss of $13.9 million, (ii) net non-cash items of $1.6 million, consisting primarily of depreciation and amortization of $0.7 million, amortization of the discount on the NuvoGen obligation and of the discount, final payment premium and deferred financing costs on the growth term loan of $0.4 million, share-based compensation of $0.3 million, a provision for excess inventory of $0.2 million, and accrued interest on available-for-sale securities of $0.1 million, and (iii) a net cash inflow from changes in balances of operating assets and liabilities of $0.7 million, consisting primarily of increase in accounts receivable due to the increase in service revenue generated though the second quarter of 2016, partially offset by increased accounts payable primarily relating to the research and development project expenses payable at June 30, 2016.

Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2017 totaled $4.1 million and was comprised primarily of proceeds from maturities of available-for-sale securities of $4.3 million during the period.

Net cash provided by investing activities for the six months ended June 30, 2016 totaled $13.7 million and was comprised of available-for-sale securities activities, including maturities of $18.7 million and purchases of $3.4 million of available-for-sale securities during the period.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2017 totaled $11.3 million and consisted primarily of $14.7 million in net proceeds from our ATM Offering, offset by $3.1 million and $0.4 million in payments on our outstanding Growth Term Loan and NuvoGen obligations, respectively.

Net cash provided by financing activities for the six months ended June 30, 2016 totaled $3.5 million and consisted primarily of $5.0 million in proceeds from the draw of our growth term loan B availability in March 2016 to fund ongoing business operations, partially offset by $1.5 million in payments on the outstanding Growth Term Loan balance.

Liquidity and Capital Resources

Since our inception, our operations have primarily been financed through the issuance of our common stock, redeemable convertible preferred stock, the incurrence of debt and cash received from product sales, services revenue and other income. As of June 30, 2017, we had $13.4 million in cash and cash equivalents and $17.3 million of debt outstanding on our Growth Term Loan, NuvoGen obligation and capital lease obligations.

In August 2014, we entered into an asset-secured Growth Term Loan with Oxford Finance, LLC and Silicon Valley Bank (see Note 8 to our interim unaudited condensed financial statements included in this report). We borrowed the first tranche of the Growth

Term Loan in the amount of $11.0 million in August 2014 and the second tranche of the Growth Term Loan in the amount of $5.0 million in March 2016. The first and second tranches of the Growth Term Loan accrue interest annually at 8.5% and 8.75%, respectively, a nd mature on September 1, 2018. Payments under the Growth Term Loan could result in a significant reduction of our working capital.

Pursuant to our Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co., we may offer and sell, from time to time, through Cantor Fitzgerald as our sales agent, shares of our common stock having an aggregate sale price of up to $40.0 million under our Registration Statement on Form S-3 (File No. 333-216977) and a prospectus supplement, as amended, and accompanying prospectus thereunder. All sales of common stock pursuant to the agreement with Cantor Fitzgerald must be made by a method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act. As of August 4, 2017, we have sold 3,274,341 shares of common stock in the ATM Offering at then-market sales prices for total gross proceeds of approximately $15.6 million, and accordingly we may sell up to additional $24.4 million of common stock in the ATM Offering. There can be no assurance that we will be able to access additional capital through the ATM Offering when needed or in sufficient amounts, or at all.

Funding Requirements

We have had recurring operating losses and negative cash flows from operations since our inception and have an accumulated deficit of approximately $127.3 million as of June 30, 2017. As of June 30, 2017, we had cash and cash equivalents of approximately $13.4 million, and had current liabilities of approximately $10.6 million, plus an additional $10.6 million in long-term liabilities primarily attributable to our Growth Term Loan and NuvoGen obligation. We believe that our existing resources, including funds raised through August 4, 2017 under our Controlled Equity Offering Sales Agreement with Cantor Fitzgerald, will be sufficient to fund our planned operations and expenditures into the beginning of the first quarter of 2018. However, we cannot provide assurances that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate. These circumstances raise substantial doubt about our ability to continue as a going concern.

Until our revenue reaches a level sufficient to support self-sustaining cash flows, if ever, we will need to raise additional capital to fund our continued operations, including our product development and commercialization activities related to our current and future products. Future funding requirements will depend on a number of factors, including our ability to generate significant product and service revenues, our ability to repay our debt obligations as they become due, the cost and timing of establishing additional sales, marketing and distribution capabilities, the ongoing cost of research and development activities, the cost and timing of regulatory clearances and approvals, the effect of competing technology and market developments, the nature and timing of companion diagnostic development collaborations we may establish, and the extent to which we acquire or invest in businesses, products and technologies.

Additional capital may not be available at such times or in amounts needed by us. Even if sufficient capital is available to us, it might be available only on unfavorable terms. If we are unable to raise additional capital in the future when required and in sufficient amounts or on terms acceptable to us, we may have to delay, scale back or discontinue one or more product development programs, curtail our commercialization activities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue a sale of our company at a price that may result in up to a total loss on investment to our stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all of our assets. In addition, if we default under our term loan agreement, our lenders could foreclose on our assets, including substantially all of our cash and short-term investments which are held in accounts with our lenders.

Contractual Obligations

As of June 30, 2017, there have been no material changes to our contractual obligations and commitments outside of the ordinary course of business from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations” in our Annual Report on Form 10-K filed with the SEC on March 23, 2017.

Off-Balance Sheet Arrangements

Through June 30, 2017, we have not entered into any off-balance sheet arrangements as defined by applicable SEC regulations.

Recently Adopted and Recently Issued Accounting Pronouncements

See Note 2. Basis of Presentation – Recently Adopted and Recently Issued Accounting Pronouncements in the notes to the interim unaudited condensed financial statements included in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operation is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of 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 revenue and expenses during the reporting period. Items subject to estimates based on judgments include, but are not limited to: revenue recognition, stock-based compensation expense, the value of the warrant liability, the resolution of uncertain tax positions, income tax valuation allowances, recovery of long-lived assets and provisions for doubtful accounts, inventory obsolescence and inventory valuation. Actual results could differ from these estimates and such differences could affect the results of operations in future periods.

There were no changes in our critical accounting policies and estimates during the six months ended June 30, 2017 from those set forth in “Critical Accounting Policies and Significant Judgments and Estimates” in our December 31, 2016 Annual Report on Form 10-K filed with the SEC on March 23, 2017 other than the following:

In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory . The standard requires inventory within the scope of the ASU to be measured using the lower of cost and net realizable value. The changes apply to all types of inventory, except those measured using the last-in, first-out, or LIFO, method or using the retail inventory method, and are intended to more clearly articulate the requirements for the measurement and disclosure of inventory and to simplify the accounting for inventory by eliminating the notions of replacement cost and net realizable value less a normal profit margin. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. We adopted this guidance prospectively for the fiscal year beginning January 1, 2017. We previously measured our inventory at the lower of cost or market with cost being determined by the first-in, first-out, or FIFO, method. The adoption of the guidance did not have a material impact on our interim unaudited condensed financial statements.

In April 2016, the FASB issued ASU No. 2016-09, Share-Based Payment: Simplifying the Accounting for Share-Based Payments . The standard addresses several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. We adopted this guidance effective January 1, 2017. Excess tax benefits to be recorded upon adoption of this standard are not material to the condensed balance sheets. The elimination of the APIC pool affects the treasury stock method used to calculate weighted average shares outstanding; however, the impact was not material. We elected to change our policy surrounding forfeitures, and beginning January 1, 2017, we no longer estimate the number awards expected to be forfeited but rather account for them as they occur. We were required to implement this portion of the guidance using a modified retrospective approach. However, the cumulative adjustment was not material to additional paid-in capital and, as such, was not recorded. Other provisions of ASU No. 2016-09 had no impact on our interim unaudited condensed financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. We had cash and cash equivalents of $13.4 million at June 30, 2017, which primarily consist of U.S. Government money market funds. These funds have lower risk than traditional money market funds and are subject to fewer withdrawal penalties and limitations. Still, such interest-bearing instruments carry some degree of risk; however, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Our Growth Term Loan A and B debt bears interest at fixed interest rates of 8.5% and 8.75%, respectively. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our condensed financial statements.

As we continue to expand internationally our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Historically, a majority of our revenue has been denominated in U.S. dollars, although we sell our products and services directly in certain markets outside of the United States denominated in local currency, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States. The effect of a 10% adverse change in exchange rates on foreign denominated receivables and payables would not have a material impact on our results of operations during the periods presented. As our operations in countries outside of the United States grow, our results of operations and cash flows will be subject to potentially greater fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. To date, we have not entered into any foreign currency hedging contracts, although we may do so in the future.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported with the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, 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; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of June 30, 2017, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting.

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not engaged in any material legal proceedings. However, in the normal course of business, we may from time to time be named as a party to legal claims, actions and complaints, including matters involving employment, intellectual property others.

Item 1A. Risk Factors.

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this report, and in our other public filings, before deciding to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. You should consider all of the risk factors described when evaluating our business. We have marked with an asterisk (*) those risk factors that did not appear as separate risk factors in, or reflect changes to the similarly titled risk factors included in, our Annual Report on Form 10-K filed with the SEC on March 23, 2017.

Risks Related to our Business and Strategy

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. We incurred net losses of $5.8 million and $11.7 million for the three and six months ended June 30, 2017, respectively, and $6.9 million and $13.9 million for the three and six months ended June 30, 2016, respectively. As of June 30, 2017, we had an accumulated deficit of $127.3 million. We expect that our losses will continue for the foreseeable future as we will be required to invest significant additional funds to support product development, including development of our next generation instrument platforms, development of our new HTG EdgeSeq panels, including our initial U.S. IVD assay, and the commercialization of our HTG EdgeSeq system and proprietary consumables. We also expect that our selling, general and administrative expenses will continue to increase due to the additional costs associated with market development activities, expanding our staff to sell and support our products and services, and the increased administrative costs associated with being a public company. 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 and services, 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.

We might not be able to continue as a going concern absent our ability to raise additional equity or debt capital. Even if capital is available, it might be available only on unfavorable terms.*

This Quarterly Report on Form 10-Q for the period ended June 30, 2017, includes disclosures regarding management’s assessment of its ability to continue as a going concern, as our current liquidity position and recurring losses from operations since inception and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern. We have had recurring operating losses and negative cash flows from operations since inception, and we have an accumulated deficit of approximately $127.3 million as of June 30, 2017. As of June 30, 2017, we had cash and cash equivalents of approximately $13.4 million and had current liabilities of approximately $10.6 million plus an additional $10.6 million in long-term liabilities primarily attributable to our Growth Term Loan and NuvoGen obligation. We have raised approximately $14.9 million in net proceeds through August 4, 2017 under our sales agreement with Cantor Fitzgerald & Co. After considering the net proceeds raised under the sales agreement with Cantor Fitzgerald & Co. since June 30, 2017, and without assuming any additional sales that may be made under the sales agreement, we believe that our existing cash resources will be sufficient to fund our planned operations and expenditures into the beginning of the first quarter of 2018. However, we cannot provide assurances that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate.

To date, to fund our operations and develop and commercialize our products, we have relied primarily on equity and debt financings and revenue generated from the sale of our HTG Edge and HTG EdgeSeq systems, the sale of our proprietary consumables and related services. We will need to raise additional capital to fund our continued operations until our revenue reaches a level sufficient to provide for self-sustaining cash flows, if ever. There can be no assurance that additional capital will be available to us

when needed or on acceptable terms, or that our revenue will reach a level sufficient to provide for self-sustaining cash f lows. If we are unable to raise additional capital in the future when required or in sufficient amounts or on terms acceptable to us, we may have to delay, scale back or discontinue one or more product development programs, curtail our commercialization ac tivities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue a sale of our company at a price that may result in a total loss on investment for our stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all o f our assets. In addition, if we default under our term loan agreement, our lenders could foreclose on our assets, including substantially all of our cash and short-term investments which are held in accounts with our lenders.

Even if capital is available, it might be available only on unfavorable terms. Any additional equity or convertible debt financing into which we enter could be dilutive to our existing stockholders. Any future debt financing into which we enter may impose covenants upon us that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us.

If we obtain additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all. If we are unable to continue as a going concern, holders of our common stock or other securities may lose the entire value of their investment.

Payments under the instruments governing our indebtedness may reduce our working capital. In addition, a default under our term loan agreement could cause a material adverse effect on our financial position.*

In August 2014, we entered into a $16.0 million term loan agreement with Oxford Finance LLC and Silicon Valley Bank, who we collectively refer to as the lenders. Under the terms of the term loan agreement, the lenders initially provided us with a term loan of $11.0 million. In March 2016, we borrowed the remaining $5.0 million pursuant to the term loan agreement. The loan is secured by a lien covering substantially all of our assets, excluding patents, trademarks and other intellectual property rights (except for rights to payments related to the sale, licensing or disposition of such intellectual property rights) and certain other specified property. The interest-only payment period expired in April 2016, and we are currently required to make monthly principal and interest payments through September 2018. Payments under the term loan agreement could result in a significant reduction of our working capital, which in turn could significantly impact our need to raise additional capital in order to continue as a going concern. As of June 30, 2017, we had $8.9 million outstanding under the term loan agreement, of which amount $6.7 million is scheduled to become due and payable over the 12 months following such date, compared to cash and cash equivalents of approximately $13.4 million. If we default under our term loan agreement, our lenders could foreclose on our assets, including substantially all of our cash, which is held in accounts with our lenders.

Pursuant to the terms of an asset purchase agreement with NuvoGen Research, LLC, or NuvoGen, pursuant to which we acquired certain intellectual property, we agreed to pay NuvoGen the greater of $400,000 or 6% of our yearly revenue until the total aggregate cash compensation paid to NuvoGen under the agreement equals $15.0 million. For fiscal years 2013 to 2017, NuvoGen agreed to accept annual fixed fees in the range of $543,750 to $800,000, paid in quarterly installments, and to defer the balance of any revenue-based payments. To date, we have paid NuvoGen approximately $6.7 million. As of June 30, 2017, we have not deferred any revenue-based payments. For 2017, our annual fixed fee payable to NuvoGen is $800,000, payable in quarterly installments. Beginning in 2018, we are again obligated to pay the greater of $400,000 or 6% of our annual revenue plus amounts, if any, deferred in the 2017 period by which 6% of revenue exceeds the $800,000 fixed fee plus 5% interest on any such deferred amounts until the obligation is repaid in full. Payments to NuvoGen could result in a significant reduction in our working capital.

Our term loan agreement requires us, and any debt arrangements we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:

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dispose of assets;

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complete mergers or acquisitions;

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incur indebtedness;

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encumber assets;

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pay dividends or make other distributions to holders of our capital stock;

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make specified investments;

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change certain key management personnel; and

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engage in transactions with our affiliates.

These restrictions could inhibit our ability to pursue our business strategies. If we default under our obligations under the term loan agreement, the lenders could proceed against the collateral granted to them to secure our indebtedness or declare all obligation under the term loan agreement to be due and payable. In certain circumstances, procedures by the lenders could result in a loss by us of all of our equipment and inventory, which are included in the collateral granted to the lenders. If any indebtedness under the term loan agreement were to be accelerated, there can be no assurance that our assets would be sufficient to repay in full that indebtedness. In addition, upon any distribution of assets pursuant to any liquidation, insolvency, dissolution, reorganization or similar proceeding, the holders of secured indebtedness will be entitled to receive payment in full from the proceeds of the collateral securing our secured indebtedness before the holders of other indebtedness or our common stock will be entitled to receive any distribution with respect thereto.

We may incur additional indebtedness in the future. The debt instruments governing such indebtedness may contain provisions that are as, or more, restrictive than the provisions governing our existing indebtedness under the term loan agreement. If we are unable to repay, refinance or restructure our indebtedness when payment is due, the lenders could proceed against the collateral granted to them to secure such indebtedness or force us into bankruptcy or liquidation.

We are dependent on our Governing Agreement with QML, and poor performance under the agreement or the termination of the agreement could negatively impact our business.*

A key strategic focus of our business is to enter into collaboration agreements with biopharmaceutical companies for the development, manufacture and commercialization of companion diagnostic assays for use with their drug development programs. In particular, we are focused on oncology-based collaborations.

In November 2016, we entered a Governing Agreement with QML, a wholly owned subsidiary of QIAGEN N.V. Under the Governing Agreement, we and QML jointly seek collaborations with biopharmaceutical companies for the development, manufacture and potential commercialization of companion diagnostic assays. QML contracts with interested biopharmaceutical companies for specified projects, and we and QML enter into statements of work for each project. Our relationship with QML under the Governing Agreement is exclusive in the oncology field, subject to the achievement of certain performance targets. We expect that revenues under the Governing Agreement will constitute a significant portion of our revenues over the next few years .

We have limited or no control over the amount and timing of resources that QML will dedicate to activities under the Governing Agreement, and we are subject to a number of other risks associated with our dependence on the Governing Agreement, including:

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There could be disagreements regarding the Governing Agreement, the initiation or conduct of activities under statements of work for specified projects, the achievement of milestone or other payments, the ownership of intellectual property, or research and development, regulatory, commercialization or other strategy. These disagreements might delay or terminate the development, manufacture or commercialization of companion diagnostic assays, delay or eliminate potential payments under the Governing Agreement or increase our costs under or outside of the Governing Agreement;

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QML may not allocate adequate resources or otherwise support the development of collaborations with biopharmaceutical companies, including if they no longer view our Governing Agreement as in their best financial or other interests; and

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QML may not perform as expected, including with regard to making any required payments, and the Governing Agreement may not provide adequate protection for us or may not be effectively enforced.

In addition, we and QML have the right to te rminate the Governing Agreement in certain circumstances. If the Governing Agreement is terminated early, we may not be able to find another company to assist us with the development, manufacture and commercialization of companion diagnostic assays for bio pharmaceutical companies should we wish to do so. If we fail maintain a successful relationship with QML under the Governing Agreement, our development, manufacture and commercialization of companion diagnostic assays may be delayed, scaled back, or otherw ise may not occur , and our anticipated revenue from the Governing Agreement could be severely limited or eliminated . In addition, we may be unable to enter into new collaborative arrangements with biopharmaceutical companies or, if necessary, modify our ex isting arrangements on acceptable terms. Any of these could have a material adverse effect on our business, results of operations and financial condition.

Our HTG EdgeSeq product portfolio requires the use of NGS instrumentation and reagents and could be adversely affected by actions of third party NGS product manufacturers over whom we have no control.

A key element of our strategy is to establish our HTG EdgeSeq system as the best sample and library preparation method for clinical applications of next generation sequencers. We depend at least in part on the availability of NGS instrumentation and reagents, and the ability of our HTG EdgeSeq products to operate seamlessly with NGS instrumentation. Any significant interruption or delay in the ability of our HTG EdgeSeq products to operate on or with NGS instrumentation could reduce demand for our products and result in a loss of customers.

Our reputation, and our ability to continue to establish or develop our technology for clinical applications of next generation sequencers, are dependent upon the availability of NGS instrumentation and the reliable performance of our products with NGS instrumentation. We are not able to control the providers of NGS instrumentation, which increases our vulnerability to interoperability problems with the products that they provide. For example, providers of NGS instruments may discontinue existing products, or introduce new NGS instrumentation products with little or no notice to us. This may cause some of our products not to be operable with one or more NGS instruments or may adversely affect regulatory approvals of our future IVD HTG EdgeSeq products, potentially for extended periods of time. Any interruption in the ability of our products to operate on NGS instruments could harm our reputation or decrease market acceptance of our products, and our business, financial condition and operating results may be materially and adversely affected. We also could experience additional expense in developing new products or changes to existing products to meet developments in NGS instrumentation, and our business, financial condition and operating results may be materially and adversely affected.

Current medical device regulation in the United States and other jurisdictions requires manufacturers of IVD molecular profiling tests that use NGS detection, referred to as NGS IVD tests, to include in regulatory submissions, technical information about the NGS products that are required for performance of, but are not supplied with, the NGS IVD test. These regulatory agencies also require that the NGS instrumentation have “locked” software for the detection of the NGS IVD test results. Thus, to obtain regulatory approval for NGS IVD tests, manufacturers like us, currently must have arrangements with NGS product manufacturers to gain access to technical information and NGS instrument software. We currently have agreements with two NGS product manufacturers that grant us rights to develop, manufacture and sell future HTG EdgeSeq NGS IVD tests in specified fields, subject to, among other things, the NGS product manufacturers’ rights to terminate such agreements and discontinue products or implement product design changes that could adversely affect our HTG EdgeSeq NGS IVD tests. There can be no assurance that our agreements with these NGS product manufacturers, or any future NGS product manufacturers that we contract with, will not be terminated earlier than we currently expect, that an NGS product manufacturer will perform its contractual duties to us, or that we will otherwise receive the benefits we anticipate receiving under those agreements. In addition, if regulatory agencies do not change their requirements for NGS IVD test approval or clearance and the NGS instrument manufacturers close their systems to third party NGS IVD test development (in general or with specific NGS IVD test manufacturers) and we are not able to maintain or enforce our agreements with such manufacturers, we may not be able to meet our commercial goals and our business, financial condition and operating results may be materially and adversely affected.

The development of future products is dependent on new methods and/or technologies that we may not be successful in developing.*

We are planning to expand our product offerings in the fields of detecting expressed gene rearrangements (e.g., gene fusions and/or insertions) and genomic or expressed DNA mutations. We believe we have successfully demonstrated proof of concept that our technology is able to detect certain expressed gene rearrangements and genomic or expressed DNA mutations, but to date our work in this area has only been on relatively few applications or may not have the specificity required for certain applications. We cannot guarantee that we will be able to successfully develop these applications on a commercial scale. If we are unsuccessful at developing additional applications involving gene rearrangements or DNA mutations, we may be limited in the breadth of additional products we can offer in the future, which could impact our future revenues and profits.

We have initiated development of a new version of our HTG EdgeSeq system that will target the lower-volume through put lab market. This development program, which we refer to as Project JANUS, is expected to increase our addressable market by enabling efficient molecular profiling of smaller quantity batches of samples. This program involves the development of new chem istry that is not currently compatible with our existing HTG Edge or HTG EdgeSeq platforms. We have temporarily suspended the development of the Project JANUS program in favor of other product development projects. If we are unable to resume or successfull y develop this new version of our HTG EdgeSeq system and in the market window we anticipate, automation of our new chemistry could be delayed and our addressable market could be limited, which could harm our business, results of operations and financial co ndition.

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 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, including gene expression analysis, liquid-based specimen analysis (e.g., plasma, blood and urine) and single-cell analysis, 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.

If we do not successfully manage the development and launch of new products, our financial results could be adversely affected.*

We face risks associated with launching new products and with undertaking to comply with regulatory requirements for certain of our products. If we encounter development or manufacturing challenges, adjust our product development priorities, or discover errors during our product development cycle, the product launch date(s) may be delayed or certain product development projects may be terminated. The expenses or losses associated with unsuccessful product development or launch activities or lack of market acceptance of our new products could adversely affect our business or financial condition.

If we do not achieve, sustain or successfully manage our anticipated growth, our business and growth prospects will be harmed.

Our current personnel, systems and facilities may not be adequate to support our business plan and future growth. Our need to effectively manage our operations, growth and various projects requires that we, among other things:

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continue to improve our operational, financial, management and regulatory compliance controls and reporting systems and procedures;

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attract and retain sufficient numbers of talented employees;

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manage our commercialization activities effectively and in a cost-effective manner;

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manage our relationship with third parties related to the commercialization of our products; and

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manage our development efforts effectively while carrying out our contractual obligations to contractors and other third parties.

Moreover, growth will place significant strains on our management and our operational and financial systems and processes. For example, expanded market penetration of our HTG EdgeSeq system and related proprietary panels, and future development and approval of diagnostic products, are key elements of our growth strategy that will require us to hire and retain additional sales and marketing, regulatory, manufacturing and quality assurance personnel. If we do not successfully forecast the timing and cost of the development of new panels and diagnostic products, the regulatory clearance or approval for product marketing of any future diagnostic products or the demand and commercialization costs of such products, or manage our anticipated expenses accordingly, our operating results will be harmed.

Our future success is dependent upon our ability to expand our customer base and introduce new applications.*

Our current customer base is primarily composed of biopharmaceutical companies, academic institutions and molecular labs that perform analyses using or obtain services based on our HTG Edge or HTG EdgeSeq systems and consumables for research use only, which means that the products or data from services may not be used for clinical diagnostic purposes. In July 2016, we obtained CE marking in Europe for our HTG EdgeSeq system and HTG EdgeSeq DLBCL Cell of Origin Assay EU. In March 2017, we obtained CE marking in Europe for our HTG EdgeSeq ALK Plus Assay EU. These products may now be used by customers for diagnostic purposes in Europe. Currently, we do not intend to and, where applicable, do not have appropriate licenses or permits to conduct diagnostic testing services. Our success will depend, in part, upon our ability to increase our market penetration among our product and service customer bases and to expand our market by developing and marketing new clinical diagnostic tests and RUO applications (whether product or service), and to introduce diagnostic products into clinical laboratories in the United States and other jurisdictions after obtaining the requisite regulatory clearances or approvals. We may not be able to successfully complete development of or commercialize any of our planned future tests and applications. To achieve these goals, we will need to conduct substantial research and development, conduct clinical validation studies, expend significant funds, expand and scale-up our research, development, service and manufacturing processes and facilities, expand and train our sales force; and seek and obtain regulatory clearance or approvals of our new tests and applications, as required by applicable regulations. Additionally, we must demonstrate to laboratory directors, physicians and third-party payors that our current and any future diagnostic products are effective in obtaining clinically relevant information that can inform treatment decisions, and that our HTG EdgeSeq systems and related panels can enable an equivalent or superior approach than other available technology. Furthermore, we expect that a combination of increasing the installed base of our HTG EdgeSeq systems and entering into additional service and custom assay development agreements with biopharmaceutical customers will drive increased demand for our relatively high margin panels. If we are not able to successfully increase our installed base and biopharmaceutical customer relationships, then sales of our products and services, and our margins for these revenue items may not meet expectations. Attracting new customers and introducing new products and services requires substantial time and expense. Any failure to expand our existing customer base, or launch new products, including diagnostic products or services, would adversely affect our ability to improve our operating results.

Our financial results may vary significantly from quarter to quarter or may fall below the expectations of investors or securities analysts, each of which may adversely affect our stock price.*

Investors should consider our business and prospects considering the risks and difficulties we expect to encounter in the new, uncertain and rapidly evolving markets in which we compete. Because these markets are new and evolving, predicting their future growth and size is difficult. We expect that our visibility into future sales of our products, including volumes, prices and product mix between instruments, consumables and services, will continue to be limited and could result in unexpected fluctuations in our quarterly and annual operating results.

Numerous other factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual operating results. For example, two customers accounted for 16% and 12% of our revenue for the six months ended June 30, 2017, and two customers accounted for 13% and 12% of our accounts receivable balance as of June 30, 2017. If orders from our top customers are reduced or discontinued, our revenue in future periods may materially decrease. Fluctuations in our operating results may make financial planning and forecasting difficult. In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively affect our business and prospects. Factors that may contribute to fluctuations in our operating results include many of the risks described under the caption “Risk Factors – Risks Related to Our Business and Strategy” of this report. In addition, one or more of such factors may cause our revenue or operating expenses in one period to be disproportionately higher or lower relative to the others. Our products involve a significant capital commitment from our customers or may depend on customer studies that have variable or indefinite timelines and accordingly, involve a lengthy sales cycle. We may expend significant effort in attempting to make a particular sale, which may be deferred by the customer or never occur. Accordingly, comparing our operating results on a period-to-period basis may not be meaningful, and investors should not rely on our past results as an indication of our future performance. If such fluctuations occur or if our operating results deviate from our expectations or the expectations of investors or securities analysts, our stock price may be adversely affected.

Our sales cycle is lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.

Our sales process involves numerous interactions with multiple individuals within any given organization, and often includes in-depth analysis by potential customers of our products (where in some instances we will provide a demonstration unit for their use and evaluation), performance of proof-of-principle studies, preparation of extensive documentation and a lengthy review process. As a result of these factors, the capital investment required in purchasing our instruments and the budget cycles of our customers, the time from initial contact with a customer to our receipt of a purchase order can vary significantly and be up to 12 months or longer. Given the length and uncertainty of our sales cycle, we have in the past experienced, and likely will in the future experience, fluctuations in

our instrument sales or service revenues on a period-to-period basis. In addition, any failure to meet customer expectations could result in customers choosing to retain their existing systems or s ervice providers or to purchase systems or services other than ours.

If the utility of our HTG EdgeSeq system, proprietary profiling panels, services and solutions in development is not supported by studies published in peer-reviewed medical publications, the rate of adoption of our current and future products and the rate of reimbursement of our future products by third-party payors may be negatively affected.

We anticipate that we will need to maintain a continuing presence in peer-reviewed publications to promote adoption of our products by biopharmaceutical companies, academic institutions and molecular labs and to promote favorable coverage and reimbursement decisions. We believe that peer-reviewed journal articles that provide evidence of the utility of our current and future products or the technology underlying the HTG EdgeSeq system, consumables and services are important to our commercial success. It is critical to the success of our sales efforts that we educate a sufficient number of clinicians and administrators about our HTG EdgeSeq system, our current panels and services and our future solutions, and demonstrate the research and clinical benefits of these solutions. Our customers may not adopt our current and future solutions, and third-party payors may not cover or adequately reimburse our future products, unless they determine, based on published peer-reviewed journal articles and the experience of other researchers and clinicians, that our products provide accurate, reliable, useful and cost-effective information. Peer-reviewed publications regarding our products and solutions may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from studies that would be the subject of the article. If our current and future solutions or the technology underlying our HTG EdgeSeq platform, our current panels and services or our future solutions do not receive sufficient favorable exposure in peer-reviewed publications, the rate of research and clinician adoption and positive coverage and reimbursement decisions could be negatively affected

We provide our HTG Edge and HTG EdgeSeq systems and profiling panels free of charge or through other arrangements to customers or key opinion leaders through evaluation agreements or reagent rental programs, and these programs may not be successful in generating recurring revenue from sales of our systems and proprietary panels.*

We sell our HTG Edge and HTG EdgeSeq systems and profiling panels under different arrangements to expand our installed base and facilitate the adoption of our platform.

In some instances, we provide equipment free of charge under evaluation agreements for a limited period of time to permit the user to evaluate the system for their purposes in anticipation of a decision to purchase the system. We retain title to the equipment under such arrangements unless the evaluator purchases the equipment, and in most cases, require evaluation customers to purchase a minimum quantity of consumables during the evaluation period.

When we place a system under a reagent rental agreement, we install equipment in the customer’s facility without a fee and the customer agrees to purchase consumable products at a stated priced over the term of the agreement. While some of these agreements did not historically contain a minimum purchase requirement, we have included a minimum purchase requirement in all reagent rental agreements since 2015, and will continue to do so in the future. We retain title to the equipment and such title is transferred to the customer at no additional charge at the end of the initial arrangement. The cost of the instrument under the agreement is expected to be recovered in the fees charged for consumables, to the extent sold, over the term of the agreement.

Other arrangements might include a collaboration agreement whereby an academic or a commercial collaborator agrees to provide samples free of charge in exchange for the use of a HTG Edge and/or HTG EdgeSeq system at no cost in furtherance of a research or clinical project.

Any of the foregoing arrangements could result in lost revenues and profit and potentially harm our long-term goal of achieving profitable operations. In addition, despite the fact we require customers who receive systems we continue to own to carry insurance sufficient to protect us against any equipment losses, we cannot guarantee that they will maintain such coverage, which may expose us to a loss of the value of the equipment in the event of any loss or damage.

There are instances where we provide our systems to key opinion leaders free of charge, to gather data and publish the results of their research to assist our marketing efforts. We have no control over some of the work being performed by these key opinion leaders, or whether the results will be satisfactory. It is possible that the key opinion leader may generate data that is unsatisfactory and could potentially harm our marketing efforts. In addition, customers may from time to time create negative publicity about their experience with our systems, which could harm our reputation and negatively affect market perception and adoption of our platform.

Placing our HTG Edge and HTG EdgeSeq systems under evaluation agreements, under reagent rental agreements or with our key opinion leaders without receiving payment for the instruments could require substantial additional working capital to provide additional units for sale to our customers.

Our strategy of developing companion diagnostic products may require large investments in working capital and may not generate any revenues.

A key component of our strategy is the development of companion diagnostic products designed to determine the appropriate patient population for administration of a particular therapeutic to more successfully treat a variety of illnesses. Successfully developing a companion diagnostic product depends both on regulatory approval for administration of the therapeutic, as well as regulatory approval of the diagnostic product. Even if we are successful in developing products that would be useful as companion diagnostic products, and potentially receive regulatory approval for such products, the biopharmaceutical companies that develop the corresponding therapeutics may ultimately be unsuccessful in obtaining regulatory approval for any such therapeutic, or, even if successful, select a competing technology to use in their regulatory submission instead of ours. The development of companion diagnostic products requires a significant investment of working capital which may not result in any future income. This could require us to raise additional funds which could dilute our current investors, or could impact our ability to continue our operations in the future.

Our current business depends on levels of research and development spending by academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results.*

Our revenue is currently derived from sales of our HTG Edge and HTG EdgeSeq systems, proprietary panels, and the development of custom assays and sample processing for research applications to biopharmaceutical companies, academic institutions and molecular labs, predominantly in the United States and Europe. The demand for our products and services will depend in part upon the research and development budgets of these customers, which are impacted by factors beyond our control, such as:

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changes in government programs that provide funding to research institutions and companies;

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macroeconomic conditions and the political climate;

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changes in the regulatory environment;

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differences in budgetary cycles;

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market-driven pressures to consolidate operations and reduce costs; and

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market acceptance of relatively new technologies, such as ours.

We believe that any uncertainty regarding the availability of research funding may adversely affect our operating results and may adversely affect sales to customers or potential customers that rely on government funding. In addition, academic, governmental and other research institutions that fund research and development activities may be subject to stringent budgetary constraints that could result in spending reductions, reduced allocations or budget cutbacks, which could jeopardize the ability of these customers to purchase our products. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. Any decrease in our customers’ budgets or expenditures, or in the size, scope or frequency of capital or operating expenditures, could materially and adversely affect our business, operating results and financial condition.

We have limited experience in marketing and selling our products, and if we are unable to successfully commercialize our products, our business may be adversely affected.

We have limited experience marketing and selling our products. Our HTG Edge system was introduced for sale in the life sciences research market in the third quarter of 2013. Our HTG EdgeSeq chemistry was introduced for sale in the life sciences research market in the third quarter of 2014. Our dedicated HTG EdgeSeq system was introduced for sale in the life sciences research market in the fourth quarter of 2015. Our VERI/O service laboratory was announced in June 2016. We currently market our products through our own sales force in the United States and Europe, and have distributors in parts of Europe and the Middle East. In the future, we intend to expand our sales and support team in the United States, continue to build a direct sales and support team in Europe and establish additional distributor and/or third party contract sales team relationships in other parts of the world. However, we may not be able to market and sell our products effectively. Our sales of life science research products and potential future diagnostic products will depend in large part on our ability to successfully increase the scope of our marketing efforts and establish and maintain a sales force commensurate with our then applicable markets. Because we have limited experience in marketing and selling our products in the life science research market and in marketing and selling our products in the diagnostic market, our ability to forecast demand, the infrastructure required to support such demand and the sales cycle to customers is unproven. If we do not build an efficient and effective sales force and distributor relationships targeting these markets, our business and operating results will be adversely affected.

If we do not obtain regulatory clearance or approval to market our products for diagnostic purposes, we will be limited to marketing our products for research use only. In addition, if regulatory l imitations are placed on our diagnostic products our business and growth will be harmed.*

In many jurisdictions, including the United States, we are currently limited to marketing all or some of our HTG Edge and HTG EdgeSeq systems and proprietary profiling panels for research use only, which means that we cannot make any diagnostic or clinical claims for those products in those jurisdictions. We have sought and intend to continue to seek regulatory clearances or approvals in the United States and other jurisdictions to market certain panels for diagnostic purposes; however, we may not be successful in doing so.

The FDA regulates diagnostic kits sold and distributed through interstate commerce in the United States as medical devices. Unless an exemption applies, generally, before a new medical device may be sold or distributed in the United States, or may be marketed for a new use in the United States, the medical device must receive either FDA clearance of a 510(k) pre-market notification or pre-market approval. Thus, before we can market or distribute our profiling panels, including our mRNA and miRNA panels, as IVD kits for use by clinical testing laboratories in the United States, we must first obtain pre-market clearance or pre-market approval from the FDA. Even if or when we apply for clearance or approval from the FDA for any of our products, the process can be lengthy and unpredictable. We are working collaboratively with multiple biopharmaceutical companies to clinically validate our HTG EdgeSeq DLBCL Cell of Origin Assay, which we believe can classify DLBCL as either ABC or GCB subtype and detect the expression of additional drug-linked gene targets such as PD-1, PD-L1 and CD19. We expect to submit the DLBCL assay for U.S. regulatory clearances or approvals at some future time if and when our work with the biopharmaceutical companies reaches an appropriate stage. We initiated a modular PMA submission process to obtain FDA approval of our HTG EdgeSeq ALK Plus Assay to detect certain gene fusions in lung cancer in 2016. We cannot provide any assurances that our clinical studies or collaborations with biopharmaceutical companies will be completed or, if completed, have the desired outcomes or that we will meet the regulatory clearance or approval timelines for either product. Further, even if we complete the requisite clinical validations and submit or complete submission of an application, we may not receive FDA clearance or approval for the commercial use of our tests on a timely basis, or at all. If we are unable to obtain regulatory clearance or approval, or if clinical diagnostic laboratories do not accept our cleared or approved tests, our ability to grow our business could be compromised.

Similarly, foreign countries have either implemented or are in the process of implementing increased regulatory controls that require that we submit applications for review and approval by foreign regulatory bodies. We obtained the right to CE mark the HTG EdgeSeq DLBCL Cell of Origin Assay EU and the HTG EdgeSeq ALK Plus Assay EU for sale as IVDs in Europe, in July 2016 and March 2017, respectively. If we are unable to maintain CE marking or achieve appropriate ex-U.S. approvals on any of our products for their intended commercial uses on a timely basis or at all, or if clinical diagnostic laboratories or other customers outside the United States do not accept our tests, our ability to grow our business outside of the United States could be compromised.

Clinical studies of any product candidate that we intend to market as an IVD kit may not be successful. If we are unable to successfully complete non-clinical and clinical studies of our product candidates or experience significant delays in doing so, our business will be materially harmed.*

Our clinical diagnostic business prospects in the United States and other applicable jurisdictions will depend on our ability to successfully complete clinical studies for product candidates that we intend to market as IVD kits. A failure of one or more clinical studies can occur at any stage of testing. The outcome of non-clinical studies may not be predictive of the success of clinical studies, and interim results, if any, of a clinical study do not necessarily predict final results. Moreover, non-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in non-clinical and clinical studies have nonetheless failed to obtain pre-marketing clearance or approval for their products. Completion of clinical studies, announcement of results of the studies and our ability to obtain regulatory approvals could be delayed for a variety of reasons, including:

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unsatisfactory results of any clinical study, including failure to meet study objectives ;

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the failure of our principal third-party investigators to perform our clinical studies on our anticipated schedules;

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imposition of a clinical hold following an inspection of our clinical study operations or trial sites by the FDA or other regulatory authorities;

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our inability to adhere to clinical study requirements directly or with third parties, such as contract research organizations;

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different interpretations of our non-clinical and clinical data, which could initially lead to inconclusive results; and

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delays in obtaining suitable patient samples for use in a clinical study;

Our development costs will increase if we have material delays in any clinical study or if we need to perform more or larger clinical studies than planned. If the delays are significant, or if any of our products do not prove to be equivalent to a predicate device or safe or effective, as applicable, or do not receive required regulatory approvals, our financial results and the commercial prospects

for our product candidates will be harmed. Furthermore, our inability to complete our clinical studies in a timely manner could jeopardize our ability to obtain regulatory approval.

If our HTG EdgeSeq systems and proprietary profiling panels fail to achieve and sustain sufficient market acceptance, or we are not able to continue to expand our service relationships with biopharmaceutical customers, we will not generate expected revenue, and our prospects may be harmed.*

We are currently focused on selling our HTG EdgeSeq systems and profiling panels within the life sciences research market. We plan to develop panels for many different disease states including companion diagnostics to determine the proper course of treatment for those diseases. We may experience reluctance, or refusal, on the part of physicians to order, and third-party payors to cover and provide adequate reimbursement for, our panels if the results of our research and clinical studies, and our sales and marketing activities relating to communication of these results, do not convey to physicians, third-party payors and patients that the HTG EdgeSeq systems and related profiling panels provide equivalent or better diagnostic information than other available technologies and methodologies. We believe our panels represent an emerging methodology in diagnosing disease states, and we may have to overcome resistance among physicians to adopting it for the marketing of our products to be successful. Even if we are able to obtain regulatory approval from the FDA, the use of our panels may not become the standard diagnostic tool for those diseases on which we plan to focus our efforts.

In addition, a key component of our strategy is to develop diagnostic tools in conjunction with biopharmaceutical companies’ drug development programs, to help assess the proper course of treatment for specific diseases. Even if we are successful in developing those diagnostic tools and receive regulatory approval, we still may not be successful in marketing those diagnostic tests. Furthermore, the decision to advance an underlying drug candidate through clinical trials and ultimately to commercialization is in the discretion of biopharmaceutical companies with which we collaborate. Our biopharmaceutical partners may take certain actions that could negatively impact the utility and marketability of our diagnostic tests. For example, our biopharmaceutical partners could:

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determine not to actively pursue the development or commercialization of an applicable drug candidate, including due to the failure to demonstrate sufficient efficacy, the occurrence of safety or tolerability issues, or any number of other reasons;

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fail to obtain necessary regulatory approval of an applicable drug candidate;

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obtain regulatory approval for a drug candidate in a manner that neither requires nor recommends the use of a companion diagnostic test prior to its use; or

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choose alternative diagnostic tests to market with their products instead of ours.

Any of these events could limit our diagnostic test sales and revenues and have a material adverse effect on our business, operating results and financial condition.

As part of our current business model, we intend to seek to enter into strategic collaborations and licensing arrangements with third parties to develop diagnostic tests.*

We have relied, and expect to continue to rely, on strategic collaborations and licensing agreements with third parties to develop or in-license technologies based on which we develop profiling panels. We have entered into agreements with third parties to facilitate or enable our development of assays, and ultimately diagnostic tests, to aid in the diagnosis of oncology, breast-related disorders, melanoma and other diseases. We intend to enter into additional similar agreements with life sciences companies, biopharmaceutical companies and other researchers for future diagnostic products. However, we cannot guarantee that we will enter into any additional agreements. In particular, our life sciences research or biopharmaceutical customers are not obligated to collaborate with us or license technology to us, and they may choose to develop diagnostic products themselves or collaborate with our competitors. Establishing collaborations and licensing arrangements is difficult and time-consuming. Discussions may not lead to collaborations or licenses on favorable terms, or at all. Potential collaborators or licensors may elect not to work with us based upon their assessment of our financial, regulatory or intellectual property position. To the extent that we enter new collaboration or licensing agreements, they may never result in the successful development or commercialization of future tests or other products for a variety of reasons, including because our collaborators may not succeed in performing their obligations or may choose not to cooperate with us. We cannot control the amount and timing of our collaborators’ resources that will be devoted to performing their responsibilities under our agreements with them. Moreover, to the extent we agree to work exclusively with a party in a given area, our opportunities to collaborate with others would be limited. Even if we establish new relationships, they may never result in the successful development or commercialization of future tests or other products. Disputes with our collaborators could also impair our reputation or result in development delays, decreased revenues and litigation expenses.

Our research and development efforts will be hindered if we are not able to contract with third parties for access to archival patient samples.

Our future development of products for clinical indications will require access to archival patient samples for which data relevant to the clinical indication of interest is known. We rely on our ability to secure access to these archived patient samples, including FFPE tissue, plasma, serum, whole blood preserved in PAX-gene, or various cytology preparations, together with the information pertaining to the clinical outcomes of the patients from which the samples were taken. Owners or custodians of relevant samples may be difficult to identify and/or identified samples may be of poor quality or limited in number or amount. Additionally, others compete with us for access to these samples for both research and commercial purposes. Even when an appropriate cohort of samples is identified, the process of negotiating access to these samples can be lengthy because it typically involves numerous parties and approval levels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, and intellectual property ownership. In addition, in some instances the cost to acquire samples can be prohibitively expensive. If we are not able to negotiate access to archived patient samples on a timely basis and on acceptable terms, or at all, or if our competitors or others secure access to these samples before us, our ability to research, develop and commercialize future products will be limited or delayed.

The life sciences research and diagnostic markets are highly competitive. We face competition from enhanced or alternative technologies and products, which could render our products and/or technologies obsolete. If we fail to compete effectively, our business and operating results will suffer.*

We face significant competition in the life sciences research and diagnostics markets. We currently compete with both established and early-stage life sciences research companies that design, manufacture and market instruments and consumables for gene expression analysis, liquid-based specimen analysis (e.g., plasma, blood and urine), single-cell analysis, PCR, digital PCR, other nucleic acid detection and additional applications. These companies use well-established laboratory techniques such as microarrays or quantitative PCR, or qPCR, as well as newer technologies such as next generation sequencing. We believe our principal competitors in the life sciences research market are Agilent Technologies, Inc., ArcherDx, Inc., BioRad Laboratories, Fluidigm Corporation, Foundation Medicine, Inc., Genomic Health, Illumina, Inc., Abbott Molecular, Luminex Corporation, Affymetrix, Inc., NanoString Technologies, Inc., entities owned and controlled by QIAGEN N.V., Roche Diagnostics, a division of the Roche Group of companies, and Thermo Fisher Scientific, Inc. In addition, there are several other market entrants in the process of developing novel technologies for the life sciences market. One or more of our competitors could develop a product that is superior to a product we offer or intend to offer or our technology and products may be rendered obsolete or uneconomical by advances in existing technologies.

Within the diagnostic market, there are competitors that manufacture systems for sales to hospitals and laboratories and other competitors that offer tests conducted through CLIA laboratories. We will also compete with commercial diagnostics companies. Most of our current competitors are either publicly traded, or are divisions of publicly traded companies, and enjoy a number of competitive advantages over us, including:

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greater name and brand recognition, financial and human resources;

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broader product lines;

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larger sales forces and more established distributor networks;

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substantial intellectual property portfolios;

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larger and more established customer bases and relationships; and

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better established, larger scale, and lower cost manufacturing capabilities.

We believe that the principal competitive factors in all of our target markets include:

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cost of capital equipment;

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cost of consumables and supplies;

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reputation among customers;

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innovation in product offerings;

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flexibility and ease-of-use;

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accuracy and reproducibility of results; and

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compatibility with existing laboratory processes, tools and methods.

We believe that additional competitive factors specific to the diagnostics market include:

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breadth of clinical decisions that can be influenced by information generated by tests;

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volume, quality, and strength of clinical and analytical validation data;

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availability of coverage and adequate reimbursement for testing services; and

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economic benefit accrued to customers based on testing services enabled by products.

Our products may not compete favorably and we may not be successful in the face of increasing competition from new products and technologies introduced by our existing competitors or new companies entering our markets. In addition, our competitors may have or may develop products or technologies that currently or in the future will enable them to produce competitive products with greater capabilities or at lower costs than ours. Any failure to compete effectively could materially and adversely affect our business, financial condition and operating results.

We are dependent on single third-party suppliers for a certain subcomponent of our systems and raw materials used in our assays, and the loss of any of these suppliers could harm our business.*

We currently rely on a single supplier to supply a subcomponent used in our HTG EdgeSeq processors. We also predominantly rely on a single third-party supplier for various raw materials used to manufacture our consumable products. We periodically forecast our needs for such raw materials and enter into standard purchase orders with such supplier. Our contracts with these suppliers do not commit them to carry inventory or make available any particular quantifies, and either supplier may give other customers’ needs higher priority than ours and we may not be able to obtain adequate supplies in a timely manner or on commercially reasonable terms. If we were to lose any such suppliers, we may not be able to identify or enter into agreements with alternative suppliers on a timely basis on acceptable terms, or at all. If we should encounter delays or difficulties in securing the quality and quantity of materials we require for our products, our supply chain would be interrupted which would adversely affect our sales. A loss of any of these suppliers could significantly delay the delivery of our applicable product(s), which in turn would materially affect our ability to generate revenue. If any of these events occur, our business and operating results could be materially harmed.

We may encounter manufacturing difficulties that could impede or delay production of our HTG EdgeSeq systems.

We began manufacturing our HTG EdgeSeq system internally in 2016. We have limited experience with manufacturing the system and our internal manufacturing operations may encounter difficulties involving, among other things, scale-up of manufacturing processes, production efficiency and output, regulatory compliance, quality control and quality assurance, and shortages of qualified personnel. Any failure in our planned internal manufacturing operations could cause us to be unable to meet demand for these systems, delay the delivery of the system to customers, and harm our business relationships and reputation.

If we encounter difficulties in our planned internal manufacturing operations, we may need to engage a third-party supplier, provided we cannot be sure we will be able to do so in a timely manner, or at all, or on favorable terms.

Any of these factors could cause us to delay or suspend production of our HTG EdgeSeq system, entail unplanned additional costs and materially harm our business, results of operations and financial condition.

If our Tucson facilities become unavailable or inoperable, the manufacturing of our instrument and consumable products or our ability to process sales orders will be interrupted and our business could be materially harmed.

We manufacture our consumable products and our HTG EdgeSeq system in our Tucson, Arizona facilities. In addition, our Tucson facilities are the center for order processing, receipt of critical components of our HTG EdgeSeq instrument and shipping products to customers. We do not have redundant facilities. Damage or the inability to utilize our Tucson facilities and the equipment we use to perform research and development and manufacture our products could be costly, and we would require substantial lead-time to repair or replace this facility and equipment. The Tucson facilities may be harmed or rendered inoperable by natural or man-made disasters, including flooding, wind damage, power spikes and power outages, which may render it difficult or impossible for us to perform these critical functions for some period of time. The inability to manufacture consumables, process customer samples or ship products to customers for even a short period of time may result in the loss of customers or harm our reputation, and we may be unable to regain those customers in the future. Although we possess insurance for damage to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

We expect to generate a portion of our revenue internationally and are subject to various risks relating to our international activities which could adversely affect our operating results.*

During the three and six months ended June 30, 2017, approximately 34% and 27% of our revenue was generated from sales to customers located outside of the United States, respectively, compared with 10% for both the three and six months ended June 30, 2016. We expect that a percentage of our future revenue will continue to come from international sources, and we expect to expand

our overseas operations and develop opportunities in addition al areas. Engaging in international business involves a number of difficulties and risks, including:

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required compliance with existing and changing foreign regulatory requirements and laws;

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required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, data privacy requirements, labor laws and anti-competition regulations;

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export and import restrictions;

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various reimbursement, pricing and insurance regimes;

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laws and business practices favoring local companies;

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longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

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political and economic instability;

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potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers, including transfer pricing, value added and other tax systems, double taxation and restrictions and/or taxation on repatriation of earnings;

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tariffs, customs charges, bureaucratic requirements and other trade barriers;

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difficulties and costs of staffing and managing foreign operations, including difficulties and costs associated with foreign employment laws;

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increased financial accounting and reporting burdens and complexities; and

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difficulties protecting, procuring, or enforcing intellectual property rights, including from reduced or varied protection for intellectual property rights in some countries.

As we expand internationally our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Historically, most of our revenue has been denominated in U.S. dollars, although we have sold our products and services in local currency outside of the United States, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States. As our operations in countries outside of the United States grows, our results of operations and cash flows will increasingly be subject to fluctuations due to changes in foreign currency exchange rates, which could negatively impact our results of operations in the future. For example, if the value of the U.S. dollar increases relative to foreign currencies, in the absence of an offsetting change in local currency prices, our revenue could be adversely affected as we convert revenue from local currencies to U.S. dollars.

If we dedicate significant resources to our international operations and are unable to manage these risks effectively, our business, operating results and prospects will suffer. Moreover, we cannot be certain that the investment and additional resources required in establishing operations in other countries will produce desired levels of revenue or profitability.

In addition, any failure to comply with applicable legal and regulatory obligations could negatively impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities.

We rely on distributors for sales of our products in several markets outside of the United States.

We have established exclusive and non-exclusive distribution agreements for our HTG EdgeSeq platforms and related profiling panels within parts of Europe and the Middle East. We intend to continue to grow our business internationally, and to do so, in addition to expanding our own direct sales and support team, we plan to attract additional distributors and sales partners to maximize the commercial opportunity for our products. We cannot guarantee that we will be successful in attracting desirable distribution and sales partners or that we will be able to enter into such arrangements on favorable terms. Distributors and sales partners may not commit the necessary resources to market and sell our products to the level of our expectations or may favor marketing the products of our competitors. If current or future distributors or sales partners do not perform adequately, or we are unable to enter into effective arrangements with distributors or sales partners in particular geographic areas, we may not realize long-term international revenue growth.

Limitations in the use of our products could harm our reputation or decrease market acceptance of our products; undetected errors or defects in our products could harm our reputation, decrease market acceptance of our products or expose us to product liability claims.

Our products are subject to the limitations set forth in the product labeling, which may not satisfy the needs of all customers. For example, in the past we have introduced new panels that initially were intended to be used with specific sample types. Because our customers desire that our panels be broadly applicable to many biological sample types, these initial limitations could harm our

reputation or decrease market acceptance of our products. If that occurs, we may in cur significant costs, the attention of our key personnel could be diverted, or other significant customer relations problems may arise, which could harm our business and operating results.

Similarly, our products may contain undetected errors or defects when first introduced or as new versions are released. Since our current customers use our products for research and if cleared or approved for diagnostic applications, disruptions or other performance problems with our products may damage our customers’ businesses and could harm our reputation. If that occurs, we may incur significant costs, the attention of our key personnel could be diverted, or other significant customer relations problems may arise. We may also be subject to warranty and liability claims for damages related to errors or defects in our products. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our products could harm our business and operating results.

The sale and use of products or services based on our technologies, or activities related to our research and clinical studies, could lead to the filing of product liability claims if someone were to allege that one of our products contained a design or manufacturing defect which resulted in the failure to adequately perform the analysis for which it was designed. A product liability claim could result in substantial damages and be costly and time consuming to defend, either of which could materially harm our business or financial condition. We cannot assure investors that our product liability insurance could adequately protect our assets from the financial impact of defending a product liability claim. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing insurance coverage in the future.

The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact our future financial position and results of operations.

Existing U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of future foreign earnings. Should the scale of our international business activities expand, any such changes in the U.S. taxation of such activities could increase our worldwide effective tax rate and harm our future financial position and results of operations.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2016, we had federal net operating loss carryforwards, or NOLs, to offset future taxable income of approximately $102.2 million, which will begin to expire in 2021 if not utilized. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period) is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We believe we may have already experienced an ownership change and may in the future experience one or more additional ownership changes, and thus, our ability to use pre-ownership change NOLs and other pre-ownership change tax attributes to offset post-ownership change income may be limited. Such limitations may cause a portion of our NOL and credit carryforwards to expire. In addition, future changes in our stock ownership, including as a result of future financings, as well as changes that may be outside of our control, could result in ownership changes under Section 382 of the Code. Our NOLs may also be impaired under similar provisions of state law. We have recorded a full valuation allowance related to our NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.

Acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm our business.

We may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures, technology licenses or investments in complementary businesses. We have limited experience with respect to business, product or technology acquisitions or the formation of collaborations, strategic alliances and joint ventures or investing in complementary businesses. Any of these transactions could be material to our financial condition and operating results and expose us to many risks, including:

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disruption in our relationships with customers, distributors or suppliers as a result of such a transaction;

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unanticipated liabilities related to acquired companies;

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difficulties integrating acquired personnel, technologies and operations into our existing business;

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diversion of management time and focus from operating our business to acquisition integration challenges;

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increases in our expenses and reductions in our cash available for operations and other uses; and

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possible write-offs or impairment charges relating to acquired businesses.

Foreign acquisitions involve unique risks in addition to those mentioned above, including those r elated to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. Also, the anticipated benefit of any acquisition may not materialize . Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial conditio n. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.

If any members of our management team were to leave us or we are unable to recruit, train and retain key personnel, we may not achieve our goals.

Our future success depends on our ability to recruit, train, retain and motivate key personnel, including our senior management, research and development, manufacturing, service and sales and marketing personnel. If we were to lose one or more of our key employees, we may experience difficulties in competing effectively, developing our technologies and implementing our business strategies. Competition for qualified personnel is intense, and we may not be able to attract talent. Our growth depends, in part, on attracting, retaining and motivating highly trained sales personnel with the necessary scientific background and ability to understand our systems at a technical level to effectively identify and sell to potential new customers, including new biopharmaceutical company customers. In particular, the commercialization of our HTG EdgeSeq system and related panels requires us to continue to establish and maintain a sales and support team to optimize the market for research tools, then to fully optimize a broad array of diagnostic market opportunities if we receive approval for any future diagnostic products. We do not maintain fixed term employment contracts or, except for our Chief Executive Officer, key man life insurance with any of our employees. Because of the complex and technical nature of our products and the dynamic market in which we compete, any failure to retain our management team or to attract, train, retain and motivate other qualified personnel could materially harm our operating results and growth prospects.

Our operating results may be harmed if we are required to collect sales, services or other related taxes for our products and services in jurisdictions where we have not historically done so.

We do not believe that we are required to collect sales, use, services or other similar taxes from our customers in certain jurisdictions. However, one or more countries or states may seek to impose sales, use, services, or other tax collection obligations on us, including for past sales. A successful assertion by one or more jurisdictions that we should collect sales or other taxes on the sale of our products and services could result in substantial tax liabilities for past sales and decrease our ability to compete for future sales. Each country and each state has different rules and regulations governing sales and use taxes and these rules and regulations are subject to varying interpretations that may change over time. We review these rules and regulations periodically and, when we believe sales and use taxes apply in a particular jurisdiction, voluntarily engage tax authorities in order to determine how to comply with their rules and regulations. We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in jurisdictions where we presently believe sales and use taxes are not due.

Providers of goods or services are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similar taxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our products and services, we may be liable for past taxes in addition to being required to collect sales or similar taxes in respect of our products and services going forward. Liability for past taxes may also include substantial interest and penalty charges. Our customer contracts provide that our customers must pay all applicable sales and similar taxes. Nevertheless, customers may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes or we may determine that it would not be feasible to seek reimbursement. If we are required to collect and pay back taxes and the associated interest and penalties and if our customers do not reimburse us for all or a portion of these amounts, we will have incurred unplanned expenses that may be substantial. Moreover, imposition of such taxes on our products and services going forward will effectively increase the cost of such products and services to our customers.

Many states are also pursuing legislative expansion of the scope of goods and services that are subject to sales and similar taxes as well as the circumstances in which a vendor of goods and services must collect such taxes. Furthermore, legislative proposals have been introduced in Congress that would provide states with additional authority to impose such taxes. Accordingly, it is possible that either federal or state legislative changes may require us to collect additional sales and similar taxes from our customers in the future.

Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, foreign liability, employee benefits liability, property, automobile, umbrella, workers’ compensation, crime (including cybercrime), fiduciary, products liability, pollution, errors and omissions and directors’ and officers’ insurance. We do not

know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business and harm our reputation and ability to provide our services on a timely basis.

Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for reliable and secure point-to-point transport of our HTG Edge and HTG EdgeSeq systems and consumables to our customers and, as applicable, customers’ samples to our laboratory, and for enhanced tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any instrumentation, consumables or samples, it would be costly to replace such instrumentation or consumables in a timely manner and may be difficult to replace customers’ samples lost or damaged in shipping, and such occurrences may damage our reputation and lead to decreased demand for our products and increased cost and expense to our business. In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery services we use would adversely affect our ability to process orders for our products or receive recipient samples on a timely basis.

We face risks related to handling of hazardous materials and other regulations governing environmental safety.

Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous materials and the generation, transportation and storage of waste. We could discover that we or an acquired business is not in material compliance with these regulations. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, and any liability could exceed our resources or any applicable insurance coverage we may have, which events could adversely affect our business.

Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware, software, and internet applications and related tools and functions could result in damage to our reputation and/or subject us to costs, fines or lawsuits.

Our business requires manipulating, analyzing and storing large amounts of data. In addition, we rely on an enterprise software system to operate and manage our business. We also maintain personally identifiable information about our employees. Our business therefore depends on the continuous, effective, reliable and secure operation of our computer hardware, software, networks, Internet servers and related infrastructure. To the extent that our hardware and software malfunction or access to our data by internal personnel is interrupted, our business could suffer. The integrity and protection of our employee and company data is critical to our business and employees have a high expectation that we will adequately protect their personal information. The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs. Although our computer and communications software is protected through physical and software safeguards, it is still vulnerable to natural or man-made hazards, such as fire, storm, flood, power loss, wind damage, telecommunications failures, physical or software break-ins, software viruses and similar events. These events could lead to the unauthorized access, disclosure and use of non-public information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. If our computer systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which could harm our business. In addition, any sustained disruption in internet access provided by other companies could harm our business.

Risks Related to Government Regulation and Diagnostic Product Reimbursement

Our “research use only” products for the life sciences market could become subject to regulation as medical devices by the FDA or other regulatory agencies in the future which could increase our costs and delay our commercialization efforts, thereby materially and adversely affecting our life sciences business and results of operations.

In the United States, our products are currently labeled and sold for research use only, and not for the diagnosis or treatment of disease, and are sold to a variety of parties, including biopharmaceutical companies, academic institutions and molecular labs. Because such products are not intended for use in clinical practice in diagnostics, and the products cannot include clinical or

diagnostic claims, they are exempt from many regulatory requirements otherwise applicable to medical devices. In p articular, while the FDA regulations require that RUO products be labeled, “For Research Use Only. Not for use in diagnostic procedures,” the regulations do not otherwise subject such products to the FDA’s pre- and post-market controls for medical devices.

A significant change in the laws governing RUO products or how they are enforced may require us to change our business model in order to maintain compliance. For instance, in November 2013 the FDA issued a guidance document entitled “Distribution of In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only”, or the RUO Guidance, which highlights the FDA’s interpretation that distribution of RUO products with any labeling, advertising or promotion that suggests that clinical laboratories can validate the test through their own procedures and subsequently offer it for clinical diagnostic use as a laboratory developed test is in conflict with RUO status. The RUO Guidance further articulates the FDA’s position that any assistance offered in performing clinical validation or verification, or similar specialized technical support, to clinical laboratories, conflicts with RUO status. If we engage in any activities that the FDA deems to be in conflict with the RUO status held by the products that we sell, we may be subject to immediate, severe and broad FDA enforcement action that would adversely affect our ability to continue operations. Accordingly, if the FDA finds that we are distributing our RUO products in a manner that is inconsistent with its regulations or guidance, we may be forced to stop distribution of our RUO tests until we are in compliance, which would reduce our revenues, increase our costs and adversely affect our business, prospects, results of operations and financial condition. In addition, the FDA’s proposed implementation for a new framework for the regulation of Laboratory Developed Tests, or LDTs, may negatively impact the LDT market and thereby reduce demand for RUO products.

If the FDA requires marketing authorization of our RUO products in the future, there can be no assurance that the FDA will ultimately grant any clearance or approval requested by us in a timely manner, or at all.

Approval and/or clearance by the FDA and foreign regulatory authorities for any diagnostic tests will take significant time and require significant research, development and clinical study expenditures and ultimately may not succeed.

Before we begin to label and market our products for use as clinical diagnostics in the United States, including as companion diagnostics, unless an exemption applies, we will be required to obtain either 510(k) clearance or PMA from the FDA. In addition, we may be required to seek FDA clearance for any changes or modifications to our products that could significantly affect their safety or effectiveness, or would constitute a change in intended use. The 510(k) clearance processes can be expensive, time-consuming and uncertain. In addition to the time required to conduct clinical studies, if necessary, it generally takes from four to twelve months from submission of an application to obtain 510(k) clearance; however, it may take longer and 510(k) clearance may never be obtained. Even if the FDA accepts a 510(k) submission for filing, the FDA may request additional information or clinical studies during its review. Our ability to obtain additional regulatory clearances for new products and indications may be significantly delayed or may never be obtained. In addition, we may be required to obtain PMAs for new products or product modifications. The requirements of the more rigorous PMA process could delay product introductions and increase the costs associated with FDA compliance. As with all IVD products, the FDA reserves the right to redefine the regulatory path at the time of submission or during the review process, and could require a more burdensome approach. Even if we were to obtain regulatory approval or clearance, it may not be for the uses we believe are important or commercially attractive, in which case we would not be permitted to market our product for those uses.

A 510(k) clearance or PMA submission for any future medical device product would likely place substantial restrictions on how the device is marketed or sold, and we will be required to continue to comply with extensive regulatory requirements, including, but not limited to QSRs, registering manufacturing facilities, listing the products with the FDA, and complying with labeling, marketing, complaint handling, adverse event and medical device reporting requirements and corrections and removals. We cannot assure you that we will successfully maintain the clearances or approvals we may receive in the future. In addition, any clearances or approvals we obtain may be revoked if any issues arise that bring into question our products’ safety or effectiveness. Any failure to maintain compliance with FDA regulatory requirements could harm our business, financial condition and results of operations.

Sales of our diagnostic products outside the United States will be subject to foreign regulatory requirements governing clinical studies, vigilance reporting, marketing approval, manufacturing, product licensing, pricing and reimbursement. These regulatory requirements vary greatly from country to country. As a result, the time required to obtain approvals outside the United States may differ from that required to obtain FDA approval and we may not be able to obtain foreign regulatory approvals on a timely basis or at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA and foreign regulatory authorities could require additional testing. In addition, the FDA regulates exports of medical devices. Failure to comply with these regulatory requirements or obtain required approvals could impair our ability to commercialize our diagnostic products outside of the United States.

We expe ct to rely on third parties to conduct any future studies of our diagnostic products that may be required by the FDA or other regulatory authorities, and those third parties may not perform satisfactorily.*

We do not have the ability to independently conduct the clinical studies or other studies that may be required to obtain FDA and other regulatory clearance or approval for our diagnostic products, including the HTG EdgeSeq system and related proprietary panels. Accordingly, we expect to rely on third parties, such as medical institutions and clinical investigators, and providers of NGS instrumentation, to conduct such studies and/or to provide information necessary for our submissions to regulatory authorities. Our reliance on these third parties for clinical development activities or information will reduce our control over these activities. These third-parties may not complete activities on schedule or conduct studies in accordance with regulatory requirements or our study design. Similarly, providers of NGS instrumentation may not place the same importance on our regulatory submissions as we do. Our reliance on third parties that we do not control will not relieve us of any applicable requirement to prepare, and ensure compliance with, the various procedures requires under good clinical practices, or the submission of all information required in connection with requested regulatory approvals. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our diagnostic products.

Even if we are able to obtain regulatory approval or clearance for our diagnostic products, we will continue to be subject to ongoing and extensive regulatory requirements, and our failure to comply with these requirements could substantially harm our business.

If we receive regulatory approval or clearance for our diagnostic products, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as compliance with QSRs, inspections by the FDA, continued adverse event and malfunction reporting, corrections and removals reporting, registration and listing, and promotional restrictions, and we may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to market our diagnostic products and/or may be subject to fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions; and criminal prosecution. In addition, we may be subject to similar regulatory compliance actions of foreign jurisdictions.

If Medicare and other third-party payors in the United States and foreign countries do not approve coverage and adequate reimbursement for our future clinical diagnostic tests enabled by our technology, the commercial success of our diagnostic products would be compromised.

We plan to develop, obtain regulatory approval for and sell clinical diagnostics products for a number of different indications. Successful commercialization of our clinical diagnostic products depends, in large part, on the availability of coverage and adequate reimbursement for testing services using our diagnostic products from third-party payors, including government insurance plans, managed care organizations and private insurance plans. There is significant uncertainty surrounding third-party coverage and reimbursement for the use of tests that incorporate new technology, such as the HTG EdgeSeq system and related applications and assays. Reimbursement rates have the potential to fluctuate depending on the region in which the testing is provided, the type of facility or treatment center at which the testing is done, and the third-party payor responsible for payment. If our customers are unable to obtain positive coverage decisions from third-party payors approving reimbursement for our tests at adequate levels, the commercial success of our products would be compromised and our revenue would be significantly limited. Even if we do obtain favorable reimbursement for our tests, third-party payors may withdraw their coverage policies, review and adjust the rate of reimbursement, require co-payments from patients or stop paying for our tests, which would reduce revenue for testing services based on our technology and demand for our diagnostic products.

The American Medical Association Current Procedural Terminology, or CPT, Editorial Panel created new CPT codes that could be used by our customers to report testing for certain large-scale multianalyte GSPs, including our diagnostic products, if approved. Effective January 1, 2015, these codes allow for uniform reporting of broad genomic testing panels using technology similar to ours. While these codes standardize reporting for these tests, coverage and payment rates for GSPs remain uncertain and we cannot guarantee that coverage and/or reimbursement for these tests will be provided in the amounts we expect, or at all. Initially, industry associations recommended that payment rates for GSPs be cross-walked to existing codes on the clinical laboratory fee schedule. On October 27, 2014, CMS issued preliminary determinations for 29 new molecular pathology codes, including the GSPs, of gapfill rather than crosswalking as recommended by the Association for Molecular Pathology. This means that local private MACs, such as Palmetto, Novidian, Novitas and Cahaba, were instructed to determine the appropriate fee schedule amounts in the first year, and CMS calculated a national payment rate based on the median of those local fee schedule amounts in the second year. This process may make it more difficult for our customers to obtain coverage and adequate reimbursement for testing services using our diagnostic products. We cannot assure that CMS and other third-party payors will establish reimbursement rates sufficient to cover the costs incurred by our customers in using our clinical diagnostic products, if approved. On September 25, 2015, CMS released final 2015

pricing for 10 of these codes, and did not issue any pricing on the remaining 19. CPTs 81445 and 81450 for the assessment of 5-50 genes in solid and liquid tumors, respectively, and final gapfill pricing of $597 and $648, respectively, was set for 2015 and is the pricing for 2016. CPT 81455 for the assessment of 51 or more genes in solid and liquid tumors has not yet been priced.

Even if we are able to establish coverage and reimbursement codes for our clinical diagnostic products in development, we will continue to be subject to significant pricing pressure, which could harm our business, results of operations, financial condition and prospects.

Third-party payors, including managed care organizations as well as government payors such as Medicare and Medicaid, have increased their efforts to control the cost, utilization and delivery of healthcare services, which may include decreased coverage or reduced reimbursement. From time to time, Congress has considered and implemented changes to the Medicare fee schedules in conjunction with budgetary legislation, and pricing and payment terms, including the possible requirement of a patient co-payment for Medicare beneficiaries for laboratory tests covered by Medicare, and are subject to change at any time. Reductions in the reimbursement rate of third-party payors have occurred and may occur in the future. Reductions in the prices at which testing services based on our technology are reimbursed in the future could result in pricing pressures and have a negative impact on our revenue. In many countries outside of the United States, various coverage, pricing and reimbursement approvals are required. We expect that it will take several years to establish broad coverage and reimbursement for testing services based on our products with payors in countries outside of the United States, and our efforts may not be successful.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and other federal and state healthcare laws applicable to our business and marketing practices. If we are unable to comply, or have not complied, with such laws, we could face substantial penalties.

Our operations may be, and may continue to be, directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal and state anti-kickback statutes, false claims statutes, civil monetary penalties laws, patient data privacy and security laws, physician transparency laws and marketing compliance laws. These laws may impact, among other things, our proposed sales and marketing and education programs.

The laws that may affect our ability to operate include, but are not limited to:

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the Federal Anti-kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation, rather, if one purpose of the remuneration is to induce referrals, the Federal Anti-Kickback Statute is violated;

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the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits, among other things, physicians who have a financial relationship, including an investment, ownership or compensation relationship with an entity, from referring Medicare and Medicaid patients to that entity for designated health services, which include clinical laboratory services, unless an exception applies. Similarly, entities may not bill Medicare, Medicaid or any other party for services furnished pursuant to a prohibited referral. Unlike the Federal Anti-Kickback Statute, the Stark Law is a strict liability statute, meaning that all of the requirements of a Stark Law exception must be met in order to be compliant with the law;

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federal civil and criminal false claims laws, including the False Claims Act, and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other governmental third-party payors that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money to the Federal Government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the Federal Government, which may apply to entities that provide coding and billing advice to customers; the Federal Government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

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HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcar e benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or privat e) and knowingly and willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to he althcare matters; similar to the Federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the healthcare fraud statute or specific intent to violate it to have committed a violation;

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HIPAA, as amended by HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, maintenance, or disclosure of individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information;

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the Federal Physician Payments Sunshine Act, which require certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of value made to physicians and teaching hospitals, as well as applicable manufacturers and group purchasing organizations to report annually to CMS certain ownership and investment interests held by physicians and their immediate family members; and

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state law equivalents of each of the above federal laws, such as anti-kickback, self-referral, and false claims laws which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payor, including commercial insurers; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the Federal Government that otherwise restricts payments that may be made to healthcare providers; state laws that require device manufacturers to file reports with states regarding marketing information, such as the tracking and reporting of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities (compliance with such requirements may require investment in infrastructure to ensure that tracking is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships, which could potentially have a negative effect on our business and/or increase enforcement scrutiny of our activities); and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, with differing effects.

Promotional activities for FDA-regulated products have been the subject of significant enforcement actions brought under healthcare reimbursement laws, fraud and abuse laws, and consumer protection statutes, among other theories. Advertising and promotion of medical devices are also regulated by the Federal Trade Commission and by state regulatory and enforcement authorities. In addition, under the Federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims.

In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including our relationships with physicians and other health care providers, and our evaluation, reagent rental and collaboration arrangements with customers, and sales and marketing efforts could be subject to challenge under one or more of such laws.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, individual imprisonment, disgorgement, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

We are exposed to the risk of fraud or other misconduct by our employees, independent contractors, principal investigators, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless or negligent failures to, among other things: (i) comply with the regulations of the FDA, CMS, the Department of Health and Human Services Office of Inspector General, or OIG, and other similar foreign regulatory bodies; (ii) provide true, complete and accurate information to the FDA and other similar regulatory bodies; (iii) comply with manufacturing standards we have established; (iv) comply with healthcare

fraud and abuse laws and regulations in the United States and similar foreign fraudulent misconduct laws; or (v) report financial information or data accurately, or disclose unauthorized activities to us. These laws may impact, among other things, our activities with collaborators and key opinion leaders, as well as our sales, marketing and education programs. In particular, the promotion, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws may re strict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of cl inical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and our co de of conduct and the other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the impositi on of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, d iminished profits and future earnings, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of our operatio ns. Any of these actions or investigations could result in substantial costs to us, including legal fees, and divert the attention of management from operating our business.

Healthcare policy changes, including recently enacted legislation reforming the United States healthcare system, may have a material adverse effect on our financial condition and results of operations.*

On April 1, 2014, the Protecting Access to Medicare Act of 2014, or PAMA, was signed into law, which, among other things, significantly alters the current payment methodology under the Medicare Clinical Laboratory Fee Schedule, or CLFS. Under the new law, starting January 1, 2016 and every three years thereafter (or annually in the case of advanced diagnostic lab tests), clinical laboratories must report laboratory test payment data for each Medicare-covered clinical diagnostic lab test that it furnishes during a period to be defined by future regulations. The reported data must include the payment rate (reflecting all discounts, rebates, coupons and other price concessions) and the volume of each test that was paid by each private payor (including health insurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations). Beginning in 2017, the Medicare payment rate for each clinical diagnostic lab test will be equal to the weighted median amount for the test from the most recent data collection period. The payment rate will apply to laboratory tests furnished by a hospital laboratory if the test is separately paid under the hospital outpatient prospective payment system. It is too early to predict the impact on reimbursement for our products in development.

Also under PAMA, CMS is required to adopt temporary billing codes to identify new tests and new advanced diagnostic laboratory tests that have been cleared or approved by the FDA. For an existing test that is cleared or approved by the FDA and for which Medicare payment is made as of April 1, 2014, CMS is required to assign a unique billing code if one has not already been assigned by the agency. In addition to assigning the code, CMS was required to publicly report payment for the tests no later than January 1, 2016. We cannot determine at this time the full impact of the new law on our business, financial condition and results of operations.

The Affordable Care Act, or ACA, makes changes that could significantly impact the biopharmaceutical and medical device industries and clinical laboratories. For example, the ACA imposes a multifactor productivity adjustment to the reimbursement rate paid under Medicare for certain clinical diagnostic laboratory tests, which may reduce payment rates. These or any future proposed or mandated reductions in payments may apply to some or all of the clinical laboratory tests that our diagnostics customers use our technology to deliver to Medicare beneficiaries, and may reduce demand for our diagnostic products.

Other significant measures contained in the ACA include, for example, coordination and promotion of research on comparative clinical effectiveness of different technologies and procedures, initiatives to revise Medicare payment methodologies, such as bundling of payments across the continuum of care by providers and physicians, and initiatives to promote quality indicators in payment methodologies. Further, the ACA includes a deductible 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, which became effective January 1, 2013. However, the Consolidated Appropriations Act of 2016, signed into law in December 2015, includes a two-year moratorium on the medical device excise tax that applies between January 1, 2016 and December 31, 2017. Absent further legislative action, the tax will be automatically reinstated for medical device sales beginning January 1, 2018. The ACA also includes significant new fraud and abuse measures, including required disclosures of financial arrangements with physician customers, lower thresholds for violations and increasing potential penalties for such violations. However, the future of the ACA is uncertain. There have been judicial and Congressional challenges to certain aspects of the ACA. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. In January 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of

any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The U.S. House of Representatives passed leg islation known as the American Health Care Act of 2017 in May 2017. More recently, the Senate Republicans have released and then updated a draft bill known as the Better Care Reconciliation Act of 2017. Each of these Congressional proposals would repeal an d replace certain aspects of the ACA if ultimately enacted. The Senate Republicans have also contemplated legislation to repeal the ACA without companion legislation to replace it. The prospects for enactment of these legislative initiatives remain uncerta in. Further, Congress also could consider other legislation to replace elements of the ACA. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, then-President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013, and, following passage of the Bipartisan Budget Act of 2015, will stay in effect through 2025 unless Congressional action is taken. On January 2, 2013, then-President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Various healthcare reform proposals have also emerged from federal and state governments. Changes in healthcare law or policy, such as the creation of broad test utilization limits for diagnostic products in general or requirements that Medicare patients pay for portions of clinical laboratory tests or services received, could substantially impact the sales of our tests, increase costs and divert management’s attention from our business. Such co-payments by Medicare beneficiaries for laboratory services were discussed as possible cost savings for the Medicare program as part of the debt ceiling budget discussions in mid-2011 and may be enacted in the future. In addition, sales of our tests outside of the United States will subject us to foreign regulatory requirements, which may also change over time.

We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or in countries outside of the United States in which we may do business, or the effect any future legislation or regulation will have on us. The taxes imposed by the new federal legislation and the expansion in government’s effect on the United States healthcare industry may result in decreased profits to us, lower reimbursements by payors for our products or reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations. The full impact of the ACA, as well as other laws and reform measures that may be proposed and adopted in the future, remains uncertain, but may continue the downward pressure on medical device pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs, which could have a material adverse effect on our business operations. There have been judicial and congressional challenges to certain aspects of the ACA, and we expect additional challenges and amendments in the future.

Risks Related to Intellectual Property

If we are unable to protect our intellectual property effectively, our business would be harmed.

We rely on patent protection as well as trademark, copyright, trade secret and other intellectual property rights protection and contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Our U.S. and foreign patent and patent application portfolio relates to our nuclease-protection-based technologies as well as to lung cancer and melanoma and DLBCL biomarker panels discovered using our nuclease-protection-based technology. We have exclusive or non-exclusive licenses to multiple U.S. and foreign patents and patent applications covering technologies that we may elect to utilize in developing diagnostic tests for use on our HTG EdgeSeq system. Those licensed patents and patent applications cover technologies related to the diagnosis of breast cancer and melanoma.

If we fail to protect our intellectual property, third parties may be able to compete more effectively against us and we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property.

We cannot assure investors that any of our currently pending or future patent applications will result in issued patents, and we cannot predict how long it will take for such patents to be issued. Further, we cannot assure investors that other parties will not challenge any patents issued to us or that courts or regulatory agencies will hold our patents to be valid or enforceable. We cannot guarantee investors that we will be successful in defending challenges made against our patents. Any successful third-party challenge to our patents could result in the unenforceability or invalidity of such patents.

The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. Furthermore, in the biotechnology field, courts frequently render opinions that may adversely affect the patentability of certain inventions or discoveries, including opinions that may adversely affect the patentability of methods for analyzing or comparing nucleic acids molecules, such as RNA or DNA.

The patent positions of companies engaged in development and commercialization of molecular diagnostic tests are particularly uncertain. Various courts, including the U.S. Supreme Court, have recently rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to molecular diagnostics. Specifically, these decisions stand for the proposition that patent claims that recite laws of nature (for example, the relationships between gene expression levels and the likelihood of risk of recurrence of cancer) are not themselves patentable unless those patent claims have sufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting efforts designed to monopolize the law of nature itself. What constitutes a “sufficient” additional feature is uncertain. Accordingly, this evolving case law in the United States may adversely impact our ability to obtain new patents and may facilitate third-party challenges to our existing owned and licensed patents.

The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:

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We might not have been the first to make the inventions covered by each of our patents and pending patent applications.

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We might not have been the first to file patent applications for these inventions.

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Others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies.

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It is possible that none of our pending patent applications will result in issued patents, and even if they issue as patents, they may not provide a basis for commercially viable products, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties.

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We may not develop additional proprietary products and technologies that are patentable.

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The patents of others may have an adverse effect on our business.

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We apply for patents covering our products and technologies and uses thereof, as we deem appropriate. However, we may fail to apply for patents on important products and technologies in a timely fashion or at all.

In addition to pursuing patents on our technology, we take steps to protect our intellectual property and proprietary technology by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners and, when needed, our advisors. Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets.

In addition, competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If our intellectual property is not adequately protected so as to protect our market against competitors’ products and methods, our competitive position could be adversely affected, as could our business.

We have not yet registered certain of our trademarks, including “HTG Edge,” “HTG EdgeSeq,” “VERI/O,” and “qNPA” in all of our potential markets. If we apply to register these trademarks, our applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. In addition, opposition or cancellation proceedings may be filed against our

trademark applications and registrations, and our trademarks may not survive such proceed ings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

To the extent our intellectual property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against our competitors’ products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

We may need to depend on certain technologies that are licensed to us. We would 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 several license agreements with third parties for certain licensed technologies that are, or may become relevant to the products we market, or plan to market. 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 a 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.

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.

Certain of the U.S. patent rights we own, have licensed or may license relate to technology that was developed with U.S. government grants, in which case the U.S. government has certain rights in those inventions, including, among others, march-in license rights. In addition, federal regulations impose certain domestic manufacturing requirements with respect to any products within the scope of those U.S. patent claims.

We may be involved in lawsuits to protect or enforce our patent or other proprietary rights, to determine the scope, coverage and validity of others’ patent or other proprietary rights, or to defend against third-party claims of intellectual property infringement, any of which could be time-intensive and costly and may adversely impact our business or stock price.

We may from time to time receive notices of claims of infringement and misappropriation or misuse of other parties’ proprietary rights, including with respect to third-party trade secrets, infringement by us of third-party patents and trademarks or other rights, or challenges to the validity or enforceability of our patents, trademarks or other rights. Some of these claims may lead to litigation. We cannot assure investors that such actions will not be asserted or prosecuted against us or that we will prevail in any or all such actions.

Litigation may be necessary for us to enforce our patent and other proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us. In addition, any litigation that may be necessary in the future could result in substantial costs, even if we were to prevail, and diversion of resources and could have a material adverse effect on our business, operating results or financial condition.

As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietary rights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we currently have. In addition, future litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may provide little or no deterrence or protection. Therefore, our commercial success may depend in part on our non-infringement of the patents or proprietary rights of third parties. Numerous significant intellectual property issues have been litigated, and will likely continue to be litigated, between existing and new participants in our existing and targeted markets and competitors may assert that our products infringe their intellectual property rights as part of a business strategy to impede our successful entry into those markets. We have not conducted comprehensive freedom-to-operate searches to determine whether the commercialization of our products or other business activities would infringe patents issued to third parties. Third parties may assert that we are employing their proprietary technology without authorization. In addition, our

competitors and others may have patents or may in the future obtain patents and claim that use of our pro ducts infringes these patents. We could incur substantial costs and divert the attention of our management and technical personnel in defending against any of these claims. Parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or m ore licenses from third parties, or be prohibited from selling certain products. We may not be able to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products to avoid infringing third-party patents or proprietary rights. Defen se of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability to grow and gain market acceptance for ou r products.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

In addition, our agreements with some of our suppliers, distributors, customers and other entities with whom we do business require us to defend or indemnify these parties to the extent they become involved in infringement claims against us, including the claims described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we are required or agree to defend or indemnify any of these third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results, or financial condition.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’ former employers.

Many of our employees were previously employed at other medical diagnostic companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. A loss of key research personnel work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Our products contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our products.

Our products contain software tools licensed by third-party authors under “open source” licenses. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar products with less development effort and time and ultimately could result in a loss of product sales.

Although we monitor our use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot assure investors that our processes for controlling our use of open source software in our products will be effective. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products on terms that are not economically feasible, to re-engineer our products, to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results, and financial condition.

We use third-party software that may be difficult to replace or cause errors or failures of our products that could l ead to lost customers or harm to our reputation.

We use software licensed from third parties in our products. In the future, this software may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of this software could result in delays in the production of our products until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business. In addition, any errors or defects in third-party software, or other third-party software failures could result in errors, defects or cause our products to fail, which could harm our business and be costly to correct. Many of these providers attempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have additional liability to our customers or third-party providers that could harm our reputation and increase our operating costs.

We will need to maintain our relationships with third-party software providers and to obtain software from such providers that do not contain any errors or defects. Any failure to do so could adversely impact our ability to deliver reliable products to our customers and could harm our results of operations.

Risks Related to Being a Public Company

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.*

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of The NASDAQ Stock Market, or NASDAQ. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We have performed system and process evaluation and testing of our internal controls over financial reporting to allow management to report annually on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. This has required and will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts as we continue to make this assessment and ensure maintenance of proper internal controls on an ongoing basis.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we fail to establish and maintain proper and effective internal control over financial reporting, we may not be able to produce timely and accurate financial statements, and our ability to accurately report our financial results could be adversely affected. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the Securities and Exchange Commission, or SEC, or other regulatory authorities.

Complying with the laws and regulations affecting public companies will increase our costs and the demands on management and could harm our operating results.

As a public company, and particularly after we cease to be an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and NASDAQ impose numerous requirements on public companies, including requiring changes in corporate governance practices. Also, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. Our management and other personnel will need to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

As an “emerging growth company,” we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an “emerging growth company.” When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply

with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.

We are an “emerging growth company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.*

We are an “emerging growth company,” as defined in the JOBS Act, enacted in April 2012, and for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years following the completion of our May 5, 2015 IPO, however, we would cease to be an “emerging growth company” before the end of that five-year period as of the following December 31, if we have more than approximately $1.0 billion in annual revenue, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year, or as of the date we issue more than $1.0 billion of non-convertible debt over a three-year period. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.

Risks Related to Our Common Stock

We may not be able to satisfy the applicable continued listing requirements of NASDAQ.*

Our common stock is currently listed on The NASDAQ Capital Market under the symbol “HTGM.” Effective April 17, 2017, the listing of our common stock was transferred to The NASDAQ Capital Market from The NASDAQ Global Market following our appeal to a NASDAQ Hearings Panel, or Panel, of the delisting notice we received from NASDAQ on February 14, 2017. On April 12, 2017, the Panel found us in compliance with the applicable market value of listed securities, or MVLS, requirement for listing on The NASDAQ Capital Market. On July 31, 2017, we received a notice from NASDAQ that we are no longer in compliance with the applicable MVLS requirement for continued listing on The NASDAQ Capital Market. The NASDAQ continued listing rules provide a compliance period of 180 calendar days in which we can regain compliance with the MVLS requirement. There can be no assurance that we will be able to regain compliance with the MVLS requirement or satisfy alternative criteria for continued listing on The NASDAQ Stock Market. If we are not able to regain and maintain compliance with NASDAQ’s continued listing requirements, our common stock may be delisted from trading on NASDAQ. The delisting of our common stock from trading on NASDAQ may have a material adverse effect on the market for, and liquidity and price of, our common stock and impair our ability to raise capital. Delisting from NASDAQ could also have other negative results, including, without limitation, the potential loss of confidence by customers and employees, the loss of institutional investor interest and fewer business development opportunities. If our common stock is delisted from trading on NASDAQ, trading of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the OTC Markets or OTC Bulletin Board. In such event, it could become more difficult to dispose of or obtain accurate quotations for the price of our common stock, and there may also be a reduction in our coverage by security analysts and the news media, which may cause the price of our common stock to decline further.

We expect that our stock price will fluctuate significantly.

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:

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actual or anticipated quarterly variation in our results of operations or the results of our competitors;

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announcements by us or our competitors of new products, significant contracts, commercial relationships or capital commitments;

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failure to obtain or delays in obtaining product approvals or clearances from the FDA or foreign regulators;

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adverse regulatory or reimbursement announcements;

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issuance of new or changed securities analysts’ reports or recommendations for our stock;

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developments or disputes concerning our intellectual property or other proprietary rights;

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commencement of, or our involvement in, litigation;

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market conditions in the life sciences and molecular diagnostics markets;

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manufacturing disruptions;

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any future sales of our common stock or other securities;

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any change to the composition of our board of directors, executive officers or key personnel;

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our failure to meet applicable NASDAQ listing standards and the possible delisting of our common stock from NASDAQ;

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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

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general economic conditions and slow or negative growth of our markets; and

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the other factors described in this report under the caption “Risk Factors – Risks Related to Our Common Stock.”

The stock market in general, and market prices for the securities of health technology companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where 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 were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

In addition, to date our common stock has generally been sporadically and thinly traded. As a consequence, the trading of relatively small quantities of our shares may disproportionately influence the price of our common stock in either direction. The price for our common stock could decline precipitously if even a moderate amount of our common stock is sold on the market without commensurate demand.

If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.*

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

One of the holders of our securities is entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended, or the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by these and subsequent sales. New investors could also gain rights superior to our existing stockholders.

Pursuant to our 2014 Equity Incentive Plan, or 2014 Plan, our board of directors is authorized to grant stock options and other equity-based awards to our employees, directors and consultants. The number of shares available for future grant under the 2014 Plan will automatically increase on January 1 of each year by 4% of the total number of shares of our common stock outstanding on

December 31 of the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of the increase in any given year. In addition, our board of directors approved the granting of rights to eligible employees to purchase shares of our common stock pursuant to our 2014 Employee Stock Purchase Plan, or ESPP, beginning January 1, 2016. The number of shares of our common stock reserved for issuance under the ESPP will automatically increase on January 1 of each calendar year by the lesser of 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year and 195,000 shares, subject to the ability of our board of directors to take action to reduce the size of the increase in any given year. Currently, we plan to register the increased number of shares available for issuance under the 2014 Plan and ESPP each year. Increases in the number of shares availabl e for future grant or purchase may result in additional dilution, which could cause our stock price to decline.

Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.*

Our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned a majority of our capital stock at June 30, 2017. Accordingly, our executive officers, directors and principal stockholders acting together will be able to determine the composition of the board of directors, and may be able to approve all matters requiring stockholder approval, including mergers and other business combinations, and continue to have significant influence over our operations. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on our stock price and may prevent attempts by our stockholders to replace or remove the board of directors or management.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends is currently prohibited by the terms of our debt facility, and any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their stock.

Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. These provisions include:

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authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

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limiting the removal of directors by the stockholders;

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creating a staggered board of directors;

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prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

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eliminating the ability of stockholders to call a special meeting of stockholders; and

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establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.

Item 1B. Unresolved Staff Comments

None.

Item 2. Unregistered Sales of Equi ty Securities and Use of Proceeds.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

A list of the exhibits filed as part of this Quarterly Report on Form 10-Q is set forth on the Exhibit Index and is incorporated herein by reference.

SIGNAT URES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HTG Molecular Diagnostics, Inc.

Date: August 8, 2017	By:	/s/ Timothy B. Johnson
		Timothy B. Johnson
		President and Chief Executive Officer (Principal Executive Officer)

Date: August 8, 2017	By:	/s/ Shaun D. McMeans
		Shaun D. McMeans
		Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit Number		Description

2.1		Asset Purchase Agreement dated January 9, 2001, as amended by and between the Registrant, NuvoGen, L.L.C., Stephen Felder and Richard Kris (incorporated by reference to Exhibit 2.1 to the Registrant’s registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

3.1		Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 12, 2015).

3.2		Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 12, 2015).

4.1		Reference is made to Exhibits 3.1 and 3.2.

4.2		Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

4.3		Common Stock Warrant issued by the Registrant to the University of Arizona, dated March 13, 2009 (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

4.4		Series E Preferred Stock Warrant issued by the Registrant to Silicon Valley Bank, dated August 22, 2014 (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

4.5		Series E Preferred Stock Warrant issued by the Registrant to Oxford Finance LLC, dated August 22, 2014 (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

4.6		Form of Warrant issued by Registrant to bridge financing investors (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

4.7		Form of Warrant issued by Registrant to bridge financing investors (incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

4.8		Amended and Restated Investor Rights Agreement by and among the Registrant and certain of its stockholders, dated May 11, 2015 (incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014).

4.9		Common Stock Warrant issued by the Registrant to Oxford Finance LLC, dated March 28, 2016 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 31, 2016).

10.1		Controlled Equity Offering Sales Agreement, by and between the Registrant and Cantor Fitzgerald & Co., dated April 13, 2017 (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37369), filed with the SEC on April 13, 2017).

10.2		Registration Rights Letter Agreement, effective June 2, 2017, by and between the Registrant and Novo Holdings A/S (f/k/a Novo A/S).

10.3*		Amended and Restated Development and Component Supply Agreement, effective May 31, 2017, by and between the Registrant and Illumina, Inc.

10.4		First Amendment to Master Assay Development, Commercialization and Manufacturing Agreement, dated June 14, 2017, by and between the Registrant and QIAGEN Manchester Limited.

10.5*		Statement of Work No. 1, dated June 14, 2017, under Master Assay Development, Commercialization and Manufacturing Agreement between the Registrant and QIAGEN Manchester Limited.

Exhibit Number		Description
31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

31.2		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

32.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

_______________


*	We have requested confidential treatment for certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

Exhibit 10.2

March 28, 2017

NOVO A/S

Attn: Managing Partner

Re: Registration Rights

Ladies and Gentlemen:

This letter agreement (this “ Agreement ”) will serve to memorialize the understanding between HTG Molecular Diagnostics, Inc. (the “ Company ”) and NOVO A/S (“ Holder ”) with respect to the Registrable Securities held by Holder. Capitalized terms used and not defined herein have the meanings ascribed to such terms in that certain Amended and Restated Investor Rights Agreement, entered into December 22, 2014, by and between the Company, the Holder and the other parties named therein, as amended (the “ IRA ”).

The Company hereby agrees that, in exchange for Holder’s execution and delivery to the Company of that certain Waiver of Registration Rights, with respect to a Registration Statement on Form S-3 to be filed by the Company on or about the date hereof, if, as of June 2, 2017, (i) the number of Registrable Securities held by Holder on such date exceeds 5% of the outstanding shares of Common Stock of the Company and (ii) Holder reasonably determines in good faith in its sole discretion that Holder is an “affiliate” of the Company for purposes of Rule 144 of the Securities Act of 1933, as amended, then notwithstanding the termination provisions of Section 2.15 of the IRA, Holder will be entitled to the demand registration rights set forth under Sections 2.3 and 2.5 of the IRA (each as modified to reflect that Holder is the sole owner of Registrable Securities and that the requirement for an anticipated aggregate price to the public of at least $5,000,000 be reduced to $2,000,000) until the earlier of (a) May 11, 2018 and (b) such time as all Registrable Securities held by Holder may be sold under said Rule 144 during any 90-day period. In the event the aforementioned registration rights become operative on June 2, 2017, Sections 2.5, 2.6, 2.7, 2.8, 2.9 and 4 (other than Section 4.3) of the IRA shall, mutatis mutandi, govern the parties’ rights and obligations with respect to such registration rights; provided, however, that if the Company exercises its right to delay Holder’s request for registration pursuant to Section 2.5(c) or 2.3(e), then Holder’s right to request registration hereunder shall be extended beyond May 11, 2018 by a number of days equal to any delay imposed by the Company’s exercise of the rights under Section 2.5(c) or 2.3(e).

This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of signatures by facsimile or PDF will be as effective as the delivery of original signatures. Any term of this Agreement may be amended or waived only with the written consent of both parties to this Agreement. This Agreement shall be construed and enforced in accordance with and governed by the State of Delaware, without giving effect to the conflicts of law principles thereof.

[Remainder of Page Intentionally Blank]

Sincerely,

/s/ Timothy B. Johnson

Timothy B. Johnson

President and Chief Executive Officer

HTG Molecular Diagnostics, Inc.

Accepted and Agreed:

NOVO A/S

By: /s/ Thomas Dyrberg

Name: Thomas Dyrberg under specific power or attorney
Title: Managing Partner Novo Ventures

Exhibit 10.3

***Text Omitted and Filed Separately with

The Securities and Exchange Commission.

Confidential Treatment Requested Under

17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.

AMENDED AND RESTATED

IVD TEST development AND COMPONENT SUPPLY AGREEMENT

This Amended and Restated IVD Test Development and Component Supply Agreement (the “Agreement” ) is effective as of May 31, 2017 (the “Effective Date” ) and is made by and between Illumina, Inc., a Delaware corporation having a place of business at 5200 Illumina Way, San Diego, California 92122, ( “Illumina” ) and HTG Molecular Diagnostics, Inc., a Delaware corporation having a place of business at 3430 E Global Loop, Tucson, Arizona 85706 ( “Company” ). Illumina and Company may also individually be referred to herein as a “Party” and collectively as the “Parties” .

WITNESSETH:

WHEREAS, the Company desires to develop and commercialize one or more test kits that will use components supplied by Illumina and will be commercialized for use on Illumina’s diagnostic instrument(s);

WHEREAS, Illumina is willing to supply certain components for the test kits and provide Company certain regulatory and development support for such test kits;

WHEREAS the Parties previously entered into an IVD Test Development and Component Supply Agreement, dated October 15, 2014 (“ Original Agreement ”), and a first Development Plan, dated October 29, 2015, as amended on August 23, 2016 (collectively, “ First Development Plan ”).

WHEREAS the Parties now wish to amend and restate the Original Agreement in its entirety as of the Effective Date, provided that the Parties intend the Original Agreement terms and conditions to apply to any liability that accrued under the Original Agreement or First Development Plan prior to the Effective Date of this Agreement.

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto do hereby amend and restate the Original Agreement in its entirety, on and as of the Effective Date, and agree as follows:

Article I.
Definitions

The following capitalized terms shall have the respective meanings set forth below:

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or general partnership or managing member interests, by contract or otherwise. Without limiting the generality of the foregoing, a

Person shall be deemed to control any other Person in which it owns, directly or indirectly, a majority of the ownership interests. Notwithstanding the foregoing, Helix Holdings I, LLC, and its subsidiaries and members, and GRAIL, Inc., and its subsidiaries and shareholders, are not Affiliates of Illumina for purposes of this Agreement.

“Commercially Reasonable Efforts” means, with respect to the efforts to be expended by a Party with respect to its obligations expressly specified in this Agreement, the reasonable, diligent, good faith efforts to accomplish such obligations as such Party would normally use to accomplish similar obligations under similar circumstances. Commercially Reasonable Efforts shall be determined on a case-by-case basis, and it is anticipated that the level of effort shall be different for different markets, and shall change over time, reflecting (among other things) changes in the status of the applicable market(s) involved.

“Components” means, as context requires, those components that Illumina supplies to (a) Company under this Agreement for (i) development of an IVD Test Kit, and (ii) to the extent expressly agreed by the Parties in the Development Plan for an IVD Test Kit, inclusion in such IVD Test Kit, or (b) a Customer for purposes of using an IVD Test Kit. The Components are set forth on Exhibit A as it may be amended from time to time by mutual written agreement of the Parties. The Components set forth on Exhibit A are and will be standard, “off the shelf,” non-custom consumables ( e . g ., MiSeqDx consumables) that are generally available to other customers in addition to Company, rather than custom consumables developed solely for Company. The Custom Software is not a Component.

“ Customer ” means an end-user of an IVD Test Kit.

“ Custom Software ” is defined in Section 2.04(c).

“ Development Plan ” means the document executed by authorized representatives of each Party containing the designs and plans for carrying out the activities necessary to develop and seek Regulatory Approval for an IVD Test Kit and related Custom Software under this Agreement and, for each stage, sets forth the key target milestones, target timelines to milestones, anticipated functional resources needed from Illumina and the estimated time commitment from each such Illumina resource.

“Documentation” means all documentation necessary for Regulatory Approval of an IVD Test Kit or Custom Software in any country in the Territory, which documentation is owned or controlled by Illumina and its Affiliates and to which the Company is granted a right of reference pursuant to Section 9.03 below. Documentation may include, among other things: (a) applications, registrations, licenses, authorizations, design control records, master files, and Regulatory Approvals concerning the applicable Components, Custom Software and IVD Hardware; (b) correspondence and reports submitted to or received from Regulatory Authorities; and (c) analytical, clinical, manufacturing and controls, and other data relied upon and submitted in support of any of the foregoing with respect to the applicable Components, Custom Software and IVD Hardware.

“ Excluded Activities ” means any and all uses of a Component that (i) involve the disassembling, reverse-engineering, reverse-compiling, or reverse-assembling of the Components, or (ii) involve the separation, extraction, or isolation of components or elements of Components or other unauthorized analysis of the Components or their formulation.

“Excluded Fields” means any and all fields of use outside the Field. Excluded Fields include, without limitation, human leukocyte antigen, forensic, microbial, and prenatal (including non-invasive prenatal) testing.

“Field” means diagnostic oncology testing in humans, including without limitation, prognostic, companion diagnostic, and disease classification testing.

“FDA” means the United States Food and Drug Administration or any successor governmental authority having substantially the same function.

“ Gene Expression Profiling ” means, notwithstanding any common usage, the detection in a biological sample of nucleic acids, such as DNA and/or RNA (including mRNA and/or miRNA), by nucleic acid sequencing using IVD Hardware of (i) synthetic DNA probes added to the sample prior to sequencing (“ Protection Probes ”) or (ii) portions of DNA and/or RNA targeted by Protection Probes or (iii) amplicons of (i) or (ii).

“Illumina Intellectual Property Rights” means any and all Intellectual Property Rights owned or controlled by Illumina or its Affiliates that cover Components, Custom Software, or IVD Hardware but only to the extent such Intellectual Property Rights are required to use Components, Custom Software, or IVD Hardware with an IVD Test Kit as authorized under this Agreement in the applicable Field without infringing such Intellectual Property Rights.

“Intellectual Property Right(s)” means all rights in patent, copyrights (including rights in computer software), know-how, trademark, service mark and trade dress rights and other industrial or intellectual property rights under the Laws of any jurisdiction, whether registered or not and including all applications or rights to apply therefor and registrations thereto.

“IVD Hardware” means Illumina’s nucleic acid sequencing instrument labeled by Illumina for human in-vitro diagnostic use on which the IVD Test Kit will be designed to work. IVD Hardware includes embedded software and may include ancillary software necessary for the operation of the IVD Hardware, but for clarity the Custom Software is not part of IVD Hardware for purposes of this definition. The IVD Hardware is set forth in Exhibit B as it may be amended from time to time by mutual written agreement of the Parties.

“IVD Test Kit” means a Gene Expression Profiling test for use in the Field with Custom Software, IVD Hardware, and Components, which test is developed and commercialized pursuant to this Agreement and comprises at least (i) test-specific elements supplied by Company ( e . g ., probes, primers, and enzymes); and (ii) data analysis/interpretation software developed by Company that accepts IVD Hardware standard output files, which is separate and distinct from Custom Software. To the extent the Parties expressly agree in the Development Plan for such IVD Test Kit, an IVD Test Kit may include Components supplied to Company by

Illumina under this Agreement. Each IVD Test Kit will be described in detail in the applicable Development Plan.

“ Law ” means all statutes, statutory instruments, regulations, ordinances, or legislation to which a Party is subject; common law and the law of equity as applicable to the Parties; binding court orders, judgments or decrees; industry code of practice, guidance, policy or standards enforceable by law; and applicable, directions, policies, guidance, rules or orders enforceable by law made or given by a governmental or regulatory authority.

“Revenue” means the gross amount invoiced by Company and its Affiliates to independent third parties for the sale, transfer, or other disposition of IVD Test Kits or license of the Custom Software in the Territory, less the following items as applicable to such IVD Test Kits or Custom Software to the extent actually taken or incurred with respect to such sale and all in accordance with standard allocation procedures, allowance methodologies and accounting methods consistently applied, in accordance with GAAP (except as otherwise provided below):

(a) credits or allowances for returns, rejections, recalls, or billing corrections;

(b) separately itemized invoiced freight, postage, shipping and insurance, handling and other transportation costs;

(c) sales, use, value added, medical device and other taxes (excluding income taxes), tariffs, customs duties, surcharges and other governmental charges levied on the production, sale, transportation, delivery or use of the IVD Test Kits or Custom Software in the Territory that are incurred at time of sale or are directly related to the sale;

(d) any quantity, cash or other trade discounts, rebates, returns, refunds, charge backs, fees, credits or allowances, retroactive price reductions and billing corrections; and

(e) written-off bad debt not to exceed 4% of the cumulative amounts invoiced, net of (a) – (c), for the pertinent Period (defined in Section 7.01).

Except as otherwise permitted in this definition, no deductions shall be made for commissions paid to individuals or entities, or for cost of collections. Company’s transfer of IVD Test Kits or Custom Software to an Affiliate (unless such transfer is a final sale to an Affiliate end-user) will not be included in Revenue. For the avoidance of doubt, gross amount invoiced by Affiliates for sale, transfer or other disposition of the IVD Test Kits or license of Custom Software in Territory is included in Revenue. If an IVD Test Kit is sold, transferred or otherwise provided, or Custom Software licensed, to a third party in a manner that is not an arm’s-length transaction ( e . g ., at no charge or without an invoice), then Revenue will include the amount deemed to have been invoiced to that third party at the Running Average Revenue; provided that, no invoice amounts will be imputed to or assessed on IVD Test Kits or Custom Software that (i) are used solely in pre-clinical or clinical trials, or (ii) do not exceed [***]% of the total amount of IVD Test Kits sold, transferred, or otherwise disposed of, or Custom Software licensed (as the case may be), in the corresponding Period (defined in Section 7.01) and are (A) used for internal research,

*** CONFIDENTIAL TREATMENT REQUESTED

development or manufacturing studies, testing, verification, validation or quality assurance; (B) distributed free of charge or at fully allocated manufacturing costs in the course of research conducted in furtherance of IVD Test Kit development or Regulatory Approvals; or (C) distributed free of charge for product evaluation purposes or other promotional efforts, compassionate use or any indigent patient program. If an IVD Test Kit is sold, transferred, or otherwise provided, or Custom Software licensed, to a distributor that is not an Affiliate for re-sale, then the amount invoiced to the distributor shall be multiplied by [***] in calculating Revenue.

In the case of a service performed by Company or its Affiliate for a third party that employs an IVD Test Kit and Custom Software, Revenue shall include the Running Average Revenue for the IVD Test Kits and Custom Software used in the services.

“Other IP” means any and all Intellectual Property Rights of third parties (excluding Illumina’s Affiliates) to the extent pertaining to or covering the Fields and the use of the IVD Test Kits in the Fields (excluding general uses of the Components not in regard to any specific field of use) or compositions in the IVD Test Kit other than the Components. By way of non-limiting example, third party Intellectual Property Rights for non-invasive pre-natal testing, for specific diagnostic methods, for specific forensic methods, or for specific nucleic acid biomarkers, probe sequences, or combinations of biomarkers or sequences, are examples of Other IP.

“Person” means any individual or corporation, association, partnership, limited liability company, joint venture, joint stock or other company, business trust, trust, organization, university, college, Governmental Authority or other entity of any kind.

“Regulatory Approval” means all approvals, licenses and consents, clearances and CE marking from applicable governmental authorities (if any) required to commercialize, as the context requires, an IVD Test Kit, Custom Software, IVD Hardware, or Components in any country in the Territory (including without limitation all applicable pricing and governmental reimbursement approvals).

“ Regulatory Authority ” means the FDA or any other person, organization or agency having competent jurisdiction to grant Regulatory Approval in each applicable jurisdiction of the Territory.

“ Running Average Revenue ” means the average of gross selling price of an IVD Test Kit and/or Custom Software (as the context requires) less allowable deductions (those set forth in (a) – (e) in the Definition of “Revenue” above) in the applicable country during any relevant Period (defined in Section 7.01) determined in reference to sales of IVD Test Kits and/or Custom Software (as the context requires) in similar quantities as those involved in the underlying activity for which that determination is being made.

“ Standard Terms ” means Illumina’s standard terms and conditions of sale applicable to such product, as such standard terms and conditions may be updated from time to time pursuant to Illumina’s prevailing practices.

*** CONFIDENTIAL TREATMENT REQUESTED

“Term” is defined in Section 11.01.

“Territory” means worldwide, except where prohibited by Law.

Article II.
Development of IVD Test Kits

2.01 IVD Test Kits . Subject to the terms and conditions of this Agreement, Company may develop, make (or have made), use and commercialize (including, selling and importing and having sold and imported) IVD Test Kits. Each IVD Test Kit will be intended and labeled for use in one of the Fields. If Company wishes to develop IVD Test Kits for use outside of the Fields, Company must negotiate new terms and conditions with Illumina for such additional IVD tests; provided, however, Illumina is under no obligation to enter into such negotiations or to complete such negotiations.

2.02 Development Plans .

(a) As of the Effective Date, the Parties have already entered into and begun performing under the First Development Plan concerning the first IVD Test Kit to be developed under this Agreement. The terms and conditions of the Original Agreement shall apply to any liability that accrued under the Original Agreement or First Development Plan prior to the Effective Date. For clarity, HTG is not obligated to pay a Custom Software installation fee as provided in Section 2.07(a) under the First Development Plan.

(b) Any additional IVD Test Kits will be described in additional Development Plans, each of which will be added to this Agreement by an amendment pursuant to Section 14.10. Illumina will not unreasonably withhold its agreement to add additional IVD Test Kits to this Agreement pursuant to one or more Development Plans that are on commercially reasonable terms consistent with this Agreement and the First Development Plan; provided however, that Illumina may withhold its agreement, in its sole and absolute discretion, to any additional IVD Test Kit and/or corresponding Development Plan that: (i) utilizes IVD Hardware that has not been utilized in prior IVD Test Kit Development Plans under this Agreement; (ii) utilizes a Component that has not been utilized in prior IVD Test Kit Development Plans under this Agreement; or (iii) would cause Illumina or its Affiliate not to comply with Law, or result in a breach of any agreement, contract or other arrangement to which Illumina or its Affiliate is a party.

(c) Notwithstanding anything to the contrary in this Agreement, the Parties recognize that each Development Plan is speculative and uncertain in its nature. The Parties provide no assurance that a Development Plan will result in an IVD Test Kit that is useful or capable of Regulatory Approval despite the use of Commercially Reasonable Efforts. Accordingly, the Parties provide no warranty or assurance regarding the results of any Development Plan and they will not be in breach of this Agreement solely for any failure of the Development Plan to achieve its commercial objectives.

2.03 Company Development Responsibilities . Company shall timely take Commercially Reasonable Efforts to:

(a) Subject to Illumina’s fulfillment of its responsibilities in Section 2.04 below, conduct the Development Plan;

(b) seek, obtain, and maintain Regulatory Approvals for each IVD Test Kit and related Custom Software as set forth in the Development Plan, subject to Company’s right to discontinue development or commercialization of an IVD Test Kit and related Custom Software in its sole discretion;

(c) purchase, at its own expense, as it deems necessary, and when supplied in accordance with the terms and conditions of this Agreement, the IVD Hardware required to conduct the Development Plan from Illumina, Illumina’s Affiliate, or its authorized distributor; and

(d) purchase, at its own expense, the Components required to conduct the Development Plan from Illumina when supplied in accordance with the terms and conditions of this Agreement.

2.04 Illumina Development Responsibilities . Illumina shall timely take Commercially Reasonable Efforts to:

(a) Provide the development and regulatory support relating to the Components, Custom Software and the IVD Hardware (as they relate to the IVD Test Kit) as specified in the Development Plan, up to a reasonable maximum number of hours specified in the Development Plan starting no later than 90 days after both Parties signing of the Development Plan (unless otherwise agreed to by the Parties);

(b) to the extent not specified in the Development Plan and as is otherwise required by a Regulatory Authority in a country agreed to by the Parties in the Development Plan, provide such additional appropriate and timely support and Documentation for the IVD Hardware, Custom Software, and Components for each IVD Test Kit submission to a Regulatory Authority, subject to Sections 2.05(a) and 9.03 and the fees set forth in Section 2.06(b);

(c) develop a custom test execution software module for use on the IVD Hardware with the IVD Test Kit, pursuant to the Development Plan and Section 3.07 (the “ Custom Software ”)

(d) supply the IVD Hardware to Company when ordered in accordance with the terms and conditions of this Agreement; and

(e) supply the Components required to execute the Development Plan when ordered in accordance with the terms and conditions of this Agreement.

2.05 Joint Responsibilities . The Parties agree to timely take Commercially Reasonable Efforts to:

(a) Consider any guidance and feedback obtained from Regulatory Authorities, including that obtained during pre-submission meetings (or foreign equivalent) and work together, in good faith, to negotiate a corresponding amendment to the Development Plan ( e . g ., timelines, scope, or limits to support) or other provisions of this Agreement in a mutually acceptable manner, subject to the following and without limiting Section 2.06(b):

(i) if Illumina’s performance under such amended Development Plan exceeds the amount of hours contemplated for Illumina support in the original Development Plan by more than [***]%, then Illumina shall not be obligated to perform any such excess hours ( e . g ., if the original Development Plan contemplated [***] hours of Illumina support, then Illumina shall be permitted to cease performance under the Development Plan after it performs an additional [***] hours of support under the amended Development Plan), and Company shall be permitted, in its discretion and at its expense to perform the remainder of Illumina’s obligations under the Development Plan to the extent feasible; and

(ii) if Company’s performance of the remainder of Illumina’s obligations described above is not feasible or would not, in Illumina’s discretion, satisfy the Regulatory Authorities, then the Parties shall in good faith coordinate a wind down of the Development Plan (and of the Agreement if no other Development Plans can reasonably be performed in view of guidance and feedback from the Regulatory Authorities).

(b) agree on the final configuration of each IVD Test Kit; provided that, in the event of disagreement, Illumina shall have final decision making authority on the configuration of IVD Hardware, Components, and Custom Software, and Company shall have final decision making authority on all other matters of IVD Test Kit configuration (excluding the issue of whether or not Components will be included in an IVD Test Kit, which issue may only be resolved by the written agreement of both Parties in the applicable Development Plan).

2.06 Initial Fee; Costs and Expenses During the Development of IVD Test Kits .

(a) Initial Fee. Company has already paid to Illumina a one-time, non-refundable initial fee pursuant to the Original Agreement.

(b) Development and Regulatory Support Fees . Company shall pay to Illumina an hourly fee at the rate of $[***] per hour for each hour of development and regulatory support provided by Illumina under a Development Plan that exceeds [***] total hours of support, unless Company is required to submit a PMA application, in which case the hourly fee would only apply to support in excess of [***] total hours.

*** CONFIDENTIAL TREATMENT REQUESTED

2.07 Additional Payments. For each IVD Test Kit developed under this Agreement Company shall pay the following non-refundable and non-creditable payments to Illumina:

(a)

Upon Illumina’s installation of the Custom Software module for each IVD Test Kit, except the IVD Test Kit that is the subject of the First Development Plan, (payable once per IVD Test Kit, upon first installation on Company’s IVD Hardware): $[***]

(b) United States: Upon submission to FDA for each IVD Test Kit:

(i) 510(k) application: $[***]

(ii) PMA application: $[***]

(d) Upon first regulatory clearance/approval/registration by any Regulatory Authority of each IVD Test Kit, Company shall pay Illumina $[***] (note FDA approval, if first, will trigger payments under both (b) and (c)).

2.08 No Significant Changes to Illumina’s Regulatory Scheme . Notwithstanding anything in this Agreement to the contrary,

(a) If any guidance or feedback from a Regulatory Authority indicates that continuation of one or more Development Plan(s) would require a change to the Class II exempt status of the IVD Hardware and such change to exemption status cannot be avoided by changes to the Development Plan, then the Parties will use Commercially Reasonable Efforts to coordinate a wind down of the affected Development Plan(s).

(b) Illumina will not be required under this Agreement to obtain any new (as of the signature date of this Agreement (in its amended and restated form)) Regulatory Approvals for Components or IVD Hardware unless expressly specified in the applicable Development Plan.

(c) Illumina will not be required under this Agreement to provide any regulatory support for: (i) site-specific regulatory submissions before the FDA (or any similar submissions before any similar foreign Regulatory Authority); (ii) expansions of indications or uses of an IVD Test Kit in any field other than a Field (including technical changes and/or multiple kit versions to facilitate such claims); or (iii) expansions of uses of an IVD Test Kit for any sample type for which Illumina has not previously received regulatory clearance or approval for the corresponding Components and IVD Hardware.

*** CONFIDENTIAL TREATMENT REQUESTED

Article III.
Commercialization of IVD Test Kit

3.01 IVD Test Kit Manufacturing and Commercialization; Custom Software Distribution.

(a) Company (i) may elect, in its sole discretion, to manufacture and commercialize, or, if applicable, cease to manufacture and commercialize, each IVD Test Kit and distribute, or if applicable, cease to distribute, the Custom Software in all or any part of the Territory; and (ii) shall be responsible to provide all Customer support for each IVD Test Kit, and, except as expressly provided in Section 3.07, the Custom Software; provided that Illumina shall provide product support to Company and its Customers for purchased Components and IVD Hardware consistent with the Standard Terms for such Components and IVD Hardware.

(b) Company shall refer to Illumina all Customer support inquiries that Company has reasonably determined to be caused by, or directed to, the IVD Hardware or Components used in connection with an IVD Test Kit.

3.02 Company Decision Not to Commercialize . The Parties acknowledge that Company retains at all times final decision making authority on whether or where to commercialize any IVD Test Kit or distribute any Custom Software developed under a Development Plan and this Agreement. Without limiting the generality of the foregoing, Company shall not be in breach of this Agreement for any failure to manufacture or commercialize an IVD Test Kit or distribute the Custom Software for use with an IVD Test Kit.

3.03 Co-Branding . Unless both Parties agree differently in writing, the IVD Test Kit(s) shall not bear Illumina branding or labeling, provided that the Components and IVD Hardware shall retain the Illumina branding and labeling as provided by Illumina. Communications between Company and Illumina pursuant to this Section shall be effective if transmitted electronically ( e.g ., by email) between representatives of the Parties’ Marketing groups.

3.04 Components . Except to the extent the Parties expressly agree otherwise in a Development Plan, IVD Test Kits will not include Components, and Illumina and its Affiliates will sell Components directly to Customers in the ordinary course of business. In such case, Company shall, unless otherwise required by an applicable Regulatory Authority, cause IVD Test Kit labeling to direct Customers to purchase the Components required for use with the applicable IVD Test Kit from Illumina. To the extent the Parties expressly agree in a Development Plan for a particular IVD Test Kit, Illumina may sell Components to Company for inclusion in the IVD Test Kit. The Parties acknowledge that under such arrangement it may be necessary to add additional provisions to the Development Plan concerning the terms and conditions of sale of such Components from Company to its Customers as part of an IVD Test Kit.

3.05 Forecast . Company shall, no later than the 1 ^st day of each calendar month, provide a written non-binding forecast detailing Company’s reasonable, good-faith, estimates of: (i) the type and quantity of Components that Company anticipates requiring for IVD Test Kit development purposes to the extent not already specified in a Development Plan; and (ii) the type and quantity of Components that Company anticipates its Customers requiring in connection with their use of the IVD Test Kits during each of the following 12 months.

3.06 Compliance. Company may not market, sell, or otherwise commercialize an IVD Test Kit or Custom Software in any jurisdiction where such activities are prohibited by Law, or in any manner prohibited by Law. Company will promptly (within five business days of receipt) provide Illumina with copies of any and all correspondence received from any Regulatory Authority pertaining to obtaining or maintaining Regulatory Approval for an IVD Test Kit or Custom Software or otherwise concerning the commercialization of an IVD Test Kit or Custom Software.

3.07 Custom Software.

(a) Illumina will develop the Custom Software pursuant to the Development Plan and in accordance with the specifications agreed-upon in the Development Plan. The Parties will test the Custom Software as set forth in the Development Plan. Company will be responsible for validating the Custom Software and its performance relative to the IVD Test Kit.

(b) As between the Parties, Illumina will retain ownership of the Custom Software. Upon completion and validation of the Custom Software pursuant to the Development Plan, Illumina will deliver to Company an executable version of the Custom Software wrapped in an installer package, including written instructions for installation. Subject to, and contingent upon compliance with, the terms and conditions of this Agreement, Illumina hereby grants to Company the personal, non-transferable (except as otherwise provided in Section 14.04), non-exclusive right during the Term or as otherwise provided in Section 11.01 to: (i) use the Custom Software for development of IVD Test Kits; (ii) distribute such installer package, solely in executable object code and in compliance with Illumina written instructions, to its Customers; (iii) install or cause the Customer to install the Custom Software on the Customers’ IVD Hardware by running such installer package, and (iv) notwithstanding any applicable Standard Terms, convey to the Customer the right to install and use such Custom Software in connection with the IVD Test Kit on the IVD Hardware. Any purported transfer, grant, or other conveyance of the rights granted in this Section 3.07(b) (or any portion of such rights) is prohibited and will be null, void, and of no effect. Subject to Company’s payment of the Revenue Share and material compliance with its obligations under this Agreement, Illumina covenants not to remove or disable the Custom Software installed on any Customer’s IVD Hardware, unless the Customer so requests or such removal or disabling is necessary to correct errors or defects with the IVD Hardware or the Customer’s use of the IVD Hardware.

(c) Company will not receive access to the source code for the Custom Software. Company may not, directly or indirectly, on its own behalf or by assisting or enabling any third party: (i) modify, adapt, improve, translate, reverse engineer, decompile, disassemble, or create derivative works of the Custom Software; (ii) attempt to defeat, avoid, by-pass, remove, deactivate, or otherwise circumvent any software protection mechanisms in the Custom Software, including without limitation, any such mechanism used to restrict or control the functionality of the Software, or (iii) attempt to derive the source code or the underlying ideas, algorithms, structure, or organization form of the Custom Software.

(d) As between the Parties, Company is solely responsible for distributing and otherwise commercializing the Custom Software. Without limiting the generality of the foregoing, as between the Parties, Company is solely responsible for: (i) providing the Custom Software to its Customers, by distributing the installer package or installing or having installed the Custom Software as set forth in (b) above; and (ii) except to the limited extent expressly set forth in (e) below, supporting or having supported the Custom Software and its Customers’ use of the Custom Software. For clarity, Company may only install, have installed, or allow its Customers to install, the Custom Software on the IVD Hardware for which it was designed, and for use with the IVD Test Kit for which it was designed, as specified in the applicable Development Plan.

(e) Company will test, validate, and accept the Custom Software pursuant to the Development Plan. Following Company’s acceptance of the Custom Software pursuant to the Development Plan:

(i) if Illumina identifies any defect or malfunction in the Custom Software that interferes with the functionality of the Custom Software and other similar custom software modules developed for Illumina’s other in vitro diagnostic development partners for use with the IVD Hardware (a “ Revealed Defect ”), Illumina will notify Company and Illumina will remedy such Revealed Defect and deliver to Company a new version of the Custom Software (for distribution to its Customers pursuant to this Section 3.07) within a Commercially Reasonable period of time;

(ii) if Company identifies any other defect or malfunction in the Custom Software that interferes with the functionality of the Custom Software, the Parties will negotiate in good faith the terms under which Illumina will (if agreement is reached) remedy such malfunction at the hourly rate for other development work set forth in Section 2.06(b) ; and

(iii) if Company desires that Illumina provide any enhancements, modifications, or improvements to the Custom Software, the Parties will negotiate in good faith the terms under which Illumina may perform such work at the hourly rate for other development work set forth in Section 2.06(b).

(f) For clarity, Illumina will not be required to provide any enhancements, modifications, fixes, or improvements to the Custom Software except to the limited

extent set forth in Section 3.07(e)(i) above or as the Parties may otherwise agree pursuant to Sections 3.07(e)(ii) or (iii) above.

Article IV.
Purchase of IVD Hardware

4.01 Company Use. During the Term Company shall, in its sole discretion as needed for IVD Test Kit research and development, purchase, for its internal use only (except as provided in Section 4.03), all of its requirements for IVD Hardware from Illumina, an Illumina Affiliate, or an authorized Illumina distributor/reseller.

4.02 Company Customers. During the Term Company shall advise Customers of its IVD Test Kit that Illumina, an Illumina Affiliate, or an authorized Illumina distributor/reseller are the only sources for purchase of IVD Hardware that produce the standard output files necessary for the analysis/interpretation software included in or with such IVD Test Kit.

4.03 Reagent Rental Program. If Company wishes to implement a reagent rental program that includes the IVD Hardware, it shall purchase the IVD Hardware for such program from Illumina and lease such IVD Hardware to its Customers; provided, however, it may not resell, loan, or otherwise transfer any of these IVD Hardware. Under a reagent rental arrangement, Company would purchase the IVD Hardware and Illumina would install (or have installed on its behalf) the IVD Hardware at the Customer facility, and Company would supply the I VD Test Kit to such Customer. Company and Illumina agree to negotiate in good faith regarding a separate written agreement regarding any reagent rental program. Nothing in this Section 4.03 shall limit Company from implementing a reagent rental program that does not include the IVD Hardware.

Article V.
Quality

5.01 Quality Audits. During the Term of this Agreement, Illumina agrees to allow Company (at Company’s sole expense) to audit Illumina’s operations that pertain to Components, Custom Software or the IVD Hardware, upon [***] days’ prior written notice, during normal business hours, no more often than once per calendar year, unless otherwise required more often by an applicable Regulatory Authority, only to the extent necessary to satisfy Company’s obligations under applicable Law. Such notice will list the names, titles, and affiliations of every Company representative that Company wishes to attend the audit. Illumina may in its reasonable discretion deny access to any person on such list (by providing Company with reasonable prior notice), and may deny access to any person not included on such list. The locations, times, dates, scope, and goals for such audits must be reasonably agreed upon in writing by the Parties prior to commencement of the audit; provided that audit scope or goals required by an applicable Regulatory Authority shall be deemed mutually approved by the Parties. Illumina shall reasonably cooperate in the conduct of any audit conducted pursuant to this section. Company will comply with all of Illumina’s reasonable directions when conducting any

*** CONFIDENTIAL TREATMENT REQUESTED

audit. All information learned by Company in the course of such audit is Illumina Confidential Information. If requested by Illumina, Company will cause any person conducting the audit to sign Illumina’s confidentiality agreement prior to conducting such audit; provided that the terms thereof are substantially similar to the confidentiality obligations in this Agreement. Company will issue, in writing, to Illumina all findings of any such audit within 30 days of the audit.

5.02 Product Changes .

(a) As used in this Article V, the period of time commencing on the Effective Date and ending six years thereafter is referred to as the “ Change Period .” Company acknowledges that Illumina is constantly innovating and developing new products and new versions of products. Illumina acknowledges that voluntary changes to IVD Hardware and/or Components incur costs and risks for both Parties, and will only be considered during the Change Period with sufficient rationale and justification. With respect to IVD Hardware, Illumina does not intend to make material changes during the Change Period. Illumina will provide Company with written notice of any material voluntary change to IVD Hardware during the Change Period that would require implementation at Customer sites as a field upgrade, at least [***] prior to making such change. With regard to Components, Illumina will provide Company with written notice of any material voluntary changes to form, fit, or function during the Change Period at least [***] prior to making such change, in order to allow Company to plan accordingly. As used in this paragraph and in (b) below, a material change is a change that Illumina reasonably expects to require Company to make a filing or submission to any Regulatory Authority in connection with obtaining or maintaining Regulatory Approval for the IVD Test Kit.

(b) Illumina reserves the right to make changes to IVD Hardware and Components due to safety, applicable Laws, regulatory requirements, or failure to conform to specifications, and may be required to make changes caused by Force Majeure. Illumina will notify Company in writing of any such material changes during the Change Period. Following such notice, and upon Company’s reasonable request, Illumina will discuss with Company the steps necessary to migrate to successor instruments or modified Components, if any, and use Commercially Reasonable Efforts to assist Company with such transition in accordance with this Agreement.

(c) Other than the changes described in (a) and (b) above, Illumina will continue to sell and provide support for the IVD Hardware and Components in the original form used for development and regulatory submission on the terms set forth herein throughout the Change Period. Illumina makes no guarantee that the IVD Hardware or Components will be manufactured or sold following the Change Period. Unless expressly stated otherwise in this Agreement, including as set forth in (a) and (b) above, Illumina is under no obligation to notify Company of any other changes to existing products or development of new products. Prior to expiration of the Change Period, the Parties will discuss and, upon Company’s request, negotiate in good faith, the

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terms of a potential transition of the affected IVD Test Kit(s) for use with newer IVD Hardware and/or Components.

(d) Company acknowledges that Illumina may make changes to the design, components, manufacturing methods and protocols, usage protocols, and other aspects of any IVD Hardware and/or Components provided by Illumina for Investigational Use Only prior to receiving Regulatory Approval for such IVD Hardware and/or Components, to the extent such changes are required for, or deemed necessary by Illumina for, such Regulatory Approval. In such event Illumina will promptly notify Company of such changes prior to any implementation of those changes. Such changes are not subject to, and are excluded from, the other requirements of this Section 5.02. Company acknowledges that such changes may impact studies already commenced or completed using such IVD Hardware and/or Components. Illumina will make available the data necessary to requesting regulatory bodies to demonstrate that any such changes have been appropriately validated, should a regulatory body request such information.

Article VI.
IVD Hardware and Components Pricing and Purchase Terms; Revenue Share

6.01 IVD Hardware. All IVD Hardware purchased by Company under this Agreement shall be purchased at Illumina’s then-current list price for such instrument at the time Company places an order for such instrument, unless separately negotiated, and the terms of such purchase shall be governed by the Standard Terms. In the event of any conflict between such Standard Terms and conditions and this Agreement, this Agreement shall control. In no event may anything in such Standard Terms be construed as preventing Company from using such IVD Hardware as expressly permitted by this Agreement.

6.02 Components Pricing. The price for Components purchased by Company for use under this Agreement, set forth in Exhibit A, shall [***] for such Components. Each such purchase shall be governed by the Standard Terms. In the event of any conflict between such Standard Terms and this Agreement, this Agreement shall control. In no event may anything in such Standard Terms be construed as preventing Company from using such Components as expressly permitted by this Agreement.

6.03 Revenue Share. As partial consideration for the right to commercialize IVD Test Kits for use with IVD Hardware, Illumina’s development and regulatory support and other activities contemplated by this Agreement, Company shall pay Illumina [***]% of Revenue (such amount referred to as the “ Revenue Share ”) as set forth in Article VII.

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Article VII.
Records and Accounting

7.01 Accounting. During the Term and for 60 days after the close of the calendar quarter in which the Term ends, Company shall furnish to Illumina a written report within 45 days after the close of each calendar quarter (March 31, June 30, September 31 and December 31) (each calendar quarter, a “Period” ) showing on a product-by-product and country-by-country basis (i) the kind and number of IVD Test Kits sold, transferred, or otherwise provided, (ii) the gross amount invoiced for sale of IVD Test Kits, (iii) the detailed calculation of Revenue during the Period, including permitted deductions, (iv) withholding taxes, if any, required by Law to be deducted, (v) the official exchange rates used in determining the Revenue Share earned by Illumina, and (vi) the amount of Revenue Share payable to Illumina. The Revenue Share earned during a Period shall accompany such report.

7.02 Payments. All payments required under this Agreement shall be paid in the United States Dollars to the address applicable under Article XIII of this Agreement or to such other place as Illumina may reasonably designate in writing.

7.03 Records. During the Term and for 3 years thereafter, Company agrees to maintain written records with respect to its operations for such period pursuant to this Agreement in sufficient detail to reasonably enable Illumina or its designated accountants to confirm compliance with the terms of this Agreement and compute the amount of Revenue Share or other payments payable to Illumina. Illumina may audit said records from time to time, on 30 days advance written notice to Company, during normal business hours to the extent necessary to verify the amount of Revenue Share or other payments due hereunder; provided Illumina shall not be entitled to perform more than one audit in any calendar year. Any auditor shall execute a confidentiality agreement satisfactory to Company. A copy of the auditor’s report shall be provided to both Company and Illumina at the same time. Illumina shall pay the costs of said audit unless a cumulative underpayment of greater than 5% due for the Period(s) being audited is present, in which case Company shall reimburse Illumina for the reasonable expenses of the examination. Illumina shall invoice Company for any amount due resulting from such an audit and Company shall pay such invoice no later than 30 days after its receipt.

Article VIII.
[Intentionally omitted]

Article IX.
Intellectual Property

9.01 Development Right. Subject to the terms and conditions of this Agreement, including without limitation payment of Revenue Share, Illumina grants to Company a limited, nonexclusive, non-transferable (except as otherwise provided in Section 14.04), right under the Illumina Intellectual Property Rights solely to use purchased Components and IVD Hardware to develop IVD Test Kits during the Term

solely for use with the IVD Hardware in a Field strictly in accordance with the terms and conditions of the Development Plan, provided that the grant of rights expressly excludes the Excluded Activities.

9.02 Commercialization Right . If and to the extent the Parties expressly agree in a Development Plan that the IVD Test Kit described in such Development Plan will include Components, subject to the terms and conditions of this Agreement, including without limitation payment of Revenue Share, Company’s purchase of Components under this Agreement during the Term will confer upon Company the non-exclusive, non-transferable (except as otherwise provided in Section 14.04), right under the Illumina Intellectual Property Rights to, during the Term:

(a) include such Components (in the form provided by Illumina as specified in the applicable Development Plan) in such IVD Test Kits developed in accordance with the terms and conditions of this Agreement,

(b) make, have made, market, distribute and have distributed, sell and have sold, offer for sale and have offered for sale, import and have imported the IVD Test Kits including such Components for use in the applicable Field in the Territory strictly in accordance with the terms and conditions of this Agreement, including without limitation, the requirement that the IVD Test Kits be labeled for use with the IVD Hardware, and

(c) grant to Company’s Customers to whom the IVD Test Kits described in (a) are sold, transferred or otherwise disposed the right to use such IVD Test Kits in compliance with their intended use, labeling, and all other restrictions on use in this Agreement as an end-user.

The rights granted in this Section 9.02 expressly exclude any and all rights to (i) manufacture or have manufactured Components, (ii) use, have used, sell, have sold, offer for sale, and/or have offered for sale the Components in any form that is not part of or in connection with a complete IVD Test Kit described in (a), except to the extent those activities may be done in connection with replacements or repairs of elements of the IVD Test Kit, or (iii) perform any Excluded Activity.

Section 9.01 and this Section 9.02 alter the effect of the exhaustion of patent rights that would otherwise result if the sale of Components was made without restriction.

9.03 Right of Reference . Subject to the terms and conditions of this Agreement, including without limitation payment of Revenue Share, Illumina hereby grants to Company the right during the Term to permit the FDA (or applicable Regulatory Authority in a country of the Territory designated in the Development Plan) to refer to the Documentation for the IVD Hardware, Custom Software, and Components in support of seeking Regulatory Approval for the applicable IVD Test Kit and Custom Software, and to permit the FDA (or applicable Regulatory Authority in a country of the Territory designated in the Development Plan) to incorporate the information contained in such Documentation into the submission(s) for the IVD Test Kit and Custom Software

by reference or as otherwise required by a Regulatory Authority in a country of the Territory designated in the Development Plan for such IVD Test Kit and Custom Software, during the Term. To the extent required by the FDA (or applicable Regulatory Approval in a country of the Territory designated in the Development Plan) Illumina will prepare and submit a letter of authorization documenting such right.

9.04 Improvements . Except as otherwise set forth in this section, Company hereby grants to Illumina and its Affiliates a nonexclusive, irrevocable, non-transferable (except as provided in Section 14.04), sublicensable, perpetual, worldwide, royalty free, fully paid up license in and to any and all Company owned or controlled Intellectual Property Rights that both (a) were created by or on behalf of Company in connection with the performance of a Development Plan and (b) are directed to any improvement, enhancement, alteration, or modification of IVD Hardware, Component, or Custom Software; such license to develop and commercialize products (including software) and services. Notwithstanding anything to the contrary in this Section 9.04, Illumina and its Affiliates shall have no license (whether express or implied, by estoppel or otherwise ) or any other right, title or interest in any Intellectual Property Rights owned or controlled by Company that (i) existed or were conceived, in whole or in part, on or before the Effective Date, including, without limitation, any Intellectual Property Rights related in any way to nuclease-protection-based library preparation for targeted nucleic acid sequencing, (ii) is or was conceived or developed outside the scope of a Development Plan or this Agreement, (iii) is an improvement, enhancement, alteration, or modification of (i), or (iv) is an improvement, enhancement, alteration, or modification of (ii) except to the extent created by or on behalf of Company in connection with the performance of a Development Plan and directed to IVD Hardware, a Component, or Custom Software.

(a) The rights conferred upon Company under Illumina Intellectual Property Rights are limited to those rights expressly stated in Section 9.01, 9.02, and 9.03 or elsewhere in this Agreement; no other right, title or interest (including any license or sublicense) under any Intellectual Property Rights of Illumina or its Affiliates is or are granted, expressly, by implication, by estoppel or otherwise, under this Agreement. Illumina, on behalf of itself and its Affiliates (and their respective successors and assigns), retains all and does not waive the right to enforce their Intellectual Property Rights, including without limitation, the Illumina Intellectual Property Rights, and bring suit or proceedings against any person, including Company (and its Affiliates, and their respective successors, and assigns) that practices within such Intellectual Property Rights without authorization.

(b) The rights conferred upon Illumina and its Affiliates under Company’s Intellectual Property Rights are limited to those rights expressly stated in Section 9.04; no other right, title or interest under any Intellectual Property Rights of Company or its Affiliates is or are granted, expressly, by implication, by estoppel or otherwise, under this Agreement. Company, on behalf of itself and its Affiliates (and their respective

successors and assigns), retains all right, title and interest in and does not waive the right to enforce their Intellectual Property Rights, including without limitation, the Company Intellectual Property Rights, and/or bring suit or proceedings against any person, including Illumina (and its Affiliates, and their respective successors, and assigns) that practices within such Intellectual Property Rights without authorization.

(c) Company understands that, from and after the Effective Date, (i) actual knowledge by Illumina, Illumina’s Affiliates, or their respective directors, officers, employees, or agents that Company is using Components in any manner or for any purpose outside the scope of the Illumina Intellectual Property Rights and Selected Fields in accordance with Section 9.01, 9.02, and 9.03 or outside of the scope of use permitted under this Agreement, does not (1) waive or otherwise limit any rights that Illumina, Illumina’s Affiliates or their respective successors and assigns, may have as a result of such unauthorized use of the Components, including without limitation, any rights or remedies available under the terms and conditions of this Agreement, or available at Law, (2) grant Company a license or other right to any Intellectual Property Rights of Illumina or Illumina’s Affiliates, whether by implication, estoppel, or otherwise with respect to such unauthorized use of the Components, and (ii) any trade usage, and any course of performance or course of dealing between Illumina and Company, will not be used to interpret the terms and conditions of this Agreement, including without limitation, the scope of the rights granted or conferred under this Agreement.

(d) Company agrees that (i) it may require Other IP to develop and commercialize IVD Test Kits without infringing the Intellectual Property Rights of third parties and (ii) Illumina has no obligation to identify any Other IP that Company may require to develop and commercialize IVD Test Kits. Notwithstanding anything in this Agreement to the contrary, Company assumes all risk associated with not obtaining any required rights to Other IP.

Article X.
Indemnification; Limitation of Liability; Insurance

10.01 Indemnification Obligations.

(a) Illumina shall defend, indemnify and hold harmless Company, and its officers, directors, representatives, employees and successors and assigns (each a “ Company Indemnitee ”), against any and all claims, actions, complaints, demands, suits, proceedings, and causes of action of every kind brought by a third party (“ Claims ”) and related liabilities, damages, fines, penalties, expenses (including reasonable attorney’s fees) and losses of any and every kind (“ Losses ”) to the extent that the Claims and Losses relate to or arise out of:

(i)

any breach of, or inaccuracy in, any representation or warranty made by Illumina in this Agreement, but only to the extent not caused by Illumina’s reasonable reliance on any representation or warranty made by Company;

(ii)

the gross negligence or intentional misconduct of Illumina in performing or failing to perform its obligations under this Agreement; or

(iii)

Illumina’s development of or commercialization of the IVD Hardware or Components;

(iv)

damage to IVD Hardware or other Customer property to the extent caused by a Revealed Defect.

provided that, Illumina will not defend, indemnify, or hold harmless Company from or against any Claims to the extent arising out of (A) use of the IVD Hardware, Components, or Custom Software in a manner not permitted under this Agreement, (B) Company’s breach of this Agreement; or (C) any Claim for which Company is obligated to indemnify Illumina pursuant to (b) below.

In the event that Components are physically incorporated in an IVD Test Kit pursuant to a mutually approved Development Plan (“ Incorporated Components ”), the Parties agree to include in the applicable Development Plan a commercially-reasonable Illumina indemnification obligation for Claims alleging that the Incorporated Components or uses thereof as set forth in Illumina’s product labeling infringe the Intellectual Property Rights of a third party.

Unless expressly stated elsewhere (including (c) below), this Section states Illumina’s entire obligation under this Agreement to indemnify, defend and hold harmless Company and other Company Indemnitees.

(b) Company Indemnity . Company shall defend, indemnify and hold harmless Illumina, its Affiliates, their collaborators and development partners that contributed to the development of the Components, and their respective officers, directors, representatives, employees, successors and assigns (“ Illumina Indemnitee(s) ”), against any and all Claims and related Losses to the extent the Claims and Losses relate to or arise out of:

(i)

personal injury or death proximally caused by the IVD Test Kit, but only to the extent not caused by the Component or IVD Hardware;

(ii)

Company’s sale in a jurisdiction of IVD Test Kit(s) without proper Regulatory Approval in such jurisdiction or other breach of Section 3.06,

(iii)

any breach of, or inaccuracy in, any representation or warranty made by Company in this Agreement, but only to the extent not caused by Company’s reasonable reliance on any representation or warranty made by Illumina;

(iv)

the gross negligence, or intentional misconduct of Company in performing or failing to perform its obligations under this Agreement,

(v)

use, promotion, or commercialization by Company of an IVD Test Kit or Custom Software in a manner not permitted under this Agreement, or

(vi)

Claims alleging that Company’s development of or commercialization of the IVD Test Kit (including Company’s provision of the IVD Test Kit within Company or its Affiliates) infringe the Intellectual Property Rights of a third party, except to the extent such Claim would not have arisen but for the inclusion of Components in, or the use of Custom Software, Components or IVD Hardware for the IVD Test Kit.

provided that, Company will not defend, indemnify, or hold harmless Illumina from or against any Claims to the extent arising out of (A) Illumina’s breach of this Agreement; or (C) any Claim for which Illumina is obligated to indemnify Company pursuant to (a) above.

Unless expressly stated elsewhere (including in (c) below) , this Section states Company’s entire obligation under this Agreement to indemnify, defend and hold harmless Illumina and other Illumina Indemnitees.

(c) Product-related Indemnification . Additionally, each Party will defend, indemnify, and hold harmless the other Party (and any other indemnitees expressly provided in the Standard Terms) for Claims and Losses relating to the purchase, manufacture, and use of IVD Hardware and Components purchased by Company from Illumina under this Agreement if and to the extent, and subject to all terms and conditions, provided in the Standard Terms. For clarity, Illumina’s defense, indemnification, and hold harmless obligations with respect to the Components and IVD Hardware, and Company’s and its Customers’ purchase and use of such products, are limited to those obligations expressly provided in the Standard Terms for such products.

10.02 Indemnity Procedure . The Parties’ indemnification obligations under this Article X are subject to the Party seeking indemnification (i) notifying the other, indemnifying Party promptly in writing of the claim, (ii) giving indemnifying Party exclusive control and authority over the defense of such claim, (iii) not admitting infringement of any Intellectual Property Right without prior written consent of the indemnifying Party, (iv) not entering into any settlement or compromise of any such action without the indemnifying Party’s prior written consent, and (v) providing all reasonable assistance to the indemnifying Party that the indemnifying Party requests and ensuring that its officers, directors, representatives and employees and other indemnitees likewise provide assistance (provided that indemnifying Party reimburses the indemnified Party(ies) for its/their reasonable out-of-pocket expenses incurred in providing such assistance). An indemnifying Party will not enter into or otherwise consent to an adverse judgment or order, or make any admission as to liability or fault that would adversely affect the indemnified party, or settle a dispute without the prior written consent of the indemnified Party, which consent not to be unreasonably withheld, conditioned, or delayed.

10.03 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND TO THE EXTENT PERMITTED BY LAW, NEITHER PARTY MAKES ANY (AND EXPRESSLY DISCLAIMS ALL) REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, EITHER IN FACT OR BY OPERATION OF LAW, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR ARISING FROM COURSE OF PERFORMANCE, DEALING, USAGE OR TRADE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ILLUMINA MAKES NO CLAIM, REPRESENTATION, OR WARRANTY OF ANY KIND AS TO THE UTILITY OF THE COMPONENTS FOR COMPANY’S INTENDED USES.

10.04 Company Liability Cap. EXCEPT FOR: (I) ITS INDEMNIFICATION OBLIGATIONS, (II) ITS WILLFUL MISCONDUCT, (III) ITS REVENUE SHARE OBLIGATIONS, OR (IV) ITS MATERIAL BREACH OF ARTICLE XII OR (V) ITS BINDING COMMITMENTS TO PURCHASE COMPONENTS OR IVD HARDWARE FOR PURPOSES OF THIS AGREEMENT PURSUANT TO ONE OR MORE ISSUED AND ACCEPTED THEN-PENDING PURCHASE ORDERS, EACH OF WHICH SHALL HAVE NO LIMIT, AND TO THE EXTENT PERMITTED BY LAW, COMPANY’S TOTAL AND CUMULATIVE LIABILITY TO ILLUMINA FOR ANY CLAIM BETWEEN THE PARTIES ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, MISREPRESENTATION, BREACH OF STATUTORY DUTY OR OTHERWISE, SHALL IN NO EVENT EXCEED [***].

10.05 Illumina Liability Cap. EXCEPT FOR (I) ITS INDEMNIFICATION OBLIGATIONS, (II) ITS MATERIAL BREACH OF ARTICLE XII, OR (III) ITS WILLFUL MISCONDUCT, WHICH SHALL HAVE NO LIMIT, AND TO THE EXTENT PERMITTED BY LAW, ILLUMINA’S TOTAL AND CUMULATIVE LIABILITY TO COMPANY FOR ANY CLAIM BETWEEN THE PARTIES ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, MISREPRESENTATION, BREACH OF STATUTORY DUTY OR OTHERWISE, SHALL IN NO EVENT EXCEED [***].

10.06 Limited Liability. EXCEPT FOR LIABILITY FOR MATERIAL BREACH OF ARTICLE XII, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING, LOST PROFITS, REGARDLESS OF WHETHER A PARTY HAS BEEN ADVISED OF THE

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POSSIBILITY OF SUCH DAMAGES; provided, however, that this Section 10.06 shall not be construed to limit either party’s indemnification obligations .

10.07 Insurance. Each Party shall obtain and maintain insurance coverage as follows: (i) a policy for liability (including professional and errors & omissions) in the amount of no less than US$[***] per occurrence, and (ii) separately a policy for commercial general liability and public liability insurance in the amount of no less than US$[***], in the case of each of (i) and (ii) to protect the Other Party’s Indemnitees under the indemnification provided hereunder. Upon request, each Party shall provide the other Party appropriate certificates of insurance. Such policies shall provide a waiver of subrogation against Illumina as an additional insured and contain no cross-liability exclusion. For those Losses that a Party has an obligation to defend under Section 10.01 above, that Party’s insurance coverage will be primary over any other potentially applicable insurance. Each Party shall maintain such insurance at all times during the Term and for a period of 3 years thereafter.

Article XI.
Term and Termination

11.01 Term. The term of this Agreement shall begin on the Effective Date, and unless this Agreement is earlier terminated as provided under Section 11.04 below, this Agreement will expire upon the date 10 years after the Effective Date (“ Term ”). Notwithstanding the expiration or any earlier termination of this Agreement other than a termination by Illumina under Section 11.04(a), with regard to any IVD Test Kits that physically incorporate Components pursuant to a mutually agreed Development Plan, the rights granted to Company pursuant to Sections 3.07(b) and 9.02 shall continue through the date on which the last of the Components purchased by Company hereunder is sold and, with respect to the rights granted under Sections 3.07(b) and 9.02 (c), until the IVD Test Kit containing such Component is used by the end user in compliance with the IVD Test Kit’s intended use, labeling, and all other restrictions on use in this Agreement. Further, notwithstanding the expiration or any earlier termination of this Agreement other than a termination by Illumina under Section 11.04(a), the rights granted to Company pursuant to Section 3.07(b) shall continue, subject to Company’s payment of the Revenue Share, for so long as Company commercializes one or more IVD Test Kits that was developed during the Term or pursuant to the First Development Plan and that do not physically incorporate Components. Company acknowledges that Illumina shall have no continuing performance obligations vis a vis IVD Hardware, Components or Custom Software upon the expiration or earlier termination of this Agreement.

11.02 [Intentionally omitted]

11.03 Termination of a Development Plan . Company reserves the right to terminate an individual Development Plan at any time by providing Illumina with thirty (30) calendar days’ prior written notice to that effect. In such event, during such thirty

*** CONFIDENTIAL TREATMENT REQUESTED

(30) day period, the Parties will agree upon and conduct an orderly wind down of any ongoing activities being performed under the relevant Development Plan. The termination of an individual Development Plan without concomitant termination of the Agreement shall not affect the Parties’ rights and obligations with respect to any other Development Plan (and corresponding IVD Test Kit) that is then pending or that later may be developed pursuant to Article II and this Agreement will otherwise remain in effect excepting the terminated Development Plan.

11.04 Early Termination. Without limiting any other rights of termination expressly provided in this Agreement or under Law, this Agreement may be terminated early as follows:

(a) Breach of Provision. If a Party materially breaches this Agreement and fails to cure such breach within 30 days after receiving written notice of the breach from the other Party, or if a breach is not curable, then the non-breaching Party shall have the right to terminate this Agreement or, as applicable, the Development Plan under which the material breach as occurred, with immediate effect by providing written notice of termination to the other Party. Notwithstanding the foregoing, and without limiting any other right or remedy of Illumina, breach by Company of any term in Article IX under this Agreement, including without limitation, Company’s use of Components outside of the rights in the Fields expressly granted to Company under this Agreement, gives Illumina the right to seek injunctive relief and/or to terminate this Agreement with immediate effect upon written notice. If this Agreement is terminated for Illumina’s uncured material breach, as upheld by a court of competent jurisdiction (including the exhaustion of all timely appeals), in addition to any other right or remedy available to Company under this Agreement or at Law or equity, Illumina must refund, on or before the date thirty days after the effective date of termination, the Initial Fee and any payments made by Company pursuant to Section 2.07 (Additional Payments).

(b) Bankruptcy and Insolvency. A Party may terminate this Agreement, effective immediately upon written notice, if the other Party becomes the subject of a voluntary or involuntary petition in bankruptcy, for winding up of that Party, or any proceeding relating to insolvency, receivership, administrative receivership, administration liquidation or company voluntary arrangement or scheme of arrangement with its creditors that is not dismissed or set aside within 60 days. In the event of any insolvency proceeding commenced by or against Company, Illumina shall be entitled to cancel any Purchase Order then outstanding and not accept any further Purchase Order until bankruptcy or insolvency proceeding is resolved.

(i) Company shall promptly notify Illumina in writing if it undergoes any Change in Control and shall provide Illumina, subject to Article XII, with the name of any parties to the transaction. Illumina shall have 30 days after receipt of notice of the consummation of the Change in Control, to deliver written notice to Company or

its successor in interest terminating the Agreement due to the subject Change of Control. Failure of Illumina to timely deliver notice of termination shall be deemed a waiver of Illumina’s right to terminate the Agreement with regard to the subject Change of Control. Illumina agrees that it will not exercise of its right of termination unless (A) the Change of Control adversely affects litigation or enforcement of Illumina Intellectual Property Rights, or (B) the other party to the Change in Control transaction is a competitor of Illumina or its Affiliates in the [***] market.

(ii) Termination pursuant to this Section 11.04(c) shall become effective on the date that is 30 days after written notice of termination by Illumina, unless any Development Plans have been entered into and not completed as of the date of such notice, in which case, unless earlier terminated pursuant to other provisions of this Section 11.04, termination shall become effective on the earlier of: (A) the date that is one year after written notice of termination by Illumina; or (B) HTG’s termination of such Development Plans, or the commercial launch or abandonment by HTG of the IVD Test Kits that are the subject of such Development Plans. During such period Illumina will be under no obligation to negotiate or enter into any new Development Plans.

(iii) “Change in Control” means a change of: (A) more than fifty percent of the outstanding voting securities of Company or of all the equity holders of Company that, alone or with other equity holders, owns, directly or indirectly, more than fifty percent of the equity interest of that equity holder; (B) the power or right to designate a majority of the directors of Company or of the equity holders of Company that, alone or with other equity holders, have the power to designate, directly or indirectly, a majority of the directors of Company; (C) the power to direct or cause the direction of the management or policies of Company or of any entity that, alone or with others, has the power directly or indirectly, to direct or to cause the direction of the management or policies of Company, or (D) any sale or transfer of all or substantially all of the assets of the Company and/or any of its subsidiaries in any single transaction or a series of related transactions. For purposes of applying the preceding sentence, the change will be measured from the Effective Date.

(d) Termination for Convenience . Company may terminate this Agreement for its convenience with 90 days prior written notice to Illumina.

11.05 Right to Cease Delivery. In addition to any other remedies available to Illumina under this Agreement or at Law, Illumina reserves the right to cease shipping Components to Company immediately if (1) Company uses the Components outside the scope of rights granted in Section 9.01, 9.02, and 9.03 or as otherwise conferred to Company in accordance with this Agreement, (2) materially breaches any Company representation, warranty, covenant, or payment obligation made hereunder and fails to

*** CONFIDENTIAL TREATMENT REQUESTED

timely cure that material breach under Section 11.04(a), or (3) any Regulatory Authority prevents Illumina from manufacturing or supplying the Components; or prevents the sale of IVD Test Kits.

11.06 Survival of Provisions. All provisions that by their nature should survive expiration or earlier termination of this Agreement shall so survive, including, without limitation, all payment obligations, Articles I, VII (for the periods specified therein), X, XII, XIII and XIV, Sections 3.07(b) (to the extent set forth in Section 11.01 and unless the Agreement is terminated by Illumina pursuant to Section 11.04(a)), 5.01 (last sentence only), 6.03 (to the extent amounts are due for prior sales and to the extent that any IVD Test Kits are sold after termination or expiration), 9.02 (to the extent set forth in Section 11.01 and unless the Agreement is terminated by Illumina pursuant to Section 11.04(a), 9.04, and 9.05. Termination or expiration of this Agreement shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration nor preclude either Party from pursuing all rights and remedies it may have hereunder or at Law or in equity with respect to any breach of this Agreement, nor prejudice either Party’s right to obtain performance of any obligation.

Article XII.
Protection of Confidential Information

12.01 Confidentiality. The Parties acknowledge that a Party (the “Recipient Party” ) may have access to Confidential Information of the other Party (the “Disclosing Party” ) in connection with this Agreement. In order to be protected as Confidential Information, information must be disclosed with a confidential or other similar proprietary legend and in the case of orally or visually disclosed information, the Disclosing Party shall notify the Recipient Party of its confidential nature at the time of disclosure and provide a written summary that is marked with a confidential or other similar proprietary legend to the Recipient Party within 30 days (email acceptable). During the Term and for a period of 5 years after the expiration or earlier termination of this Agreement, (i) the Recipient Party shall hold the Disclosing Party’s Confidential Information in confidence using at least the degree of care that is used by the Recipient Party with respect to its own Confidential Information, but no less than reasonable care; provided that, the Recipient Party may disclose the Confidential Information of the Disclosing Party in furtherance of or in exercising its rights and fulfilling its obligations under this Agreement to its employees, contractors, officers, directors, representatives, and those of its Affiliates, under written confidentiality and restricted use terms or undertakings consistent with this Agreement; and (ii) the Recipient Party shall not use the Disclosing Party’s Confidential Information for any purpose other than exercising its rights and fulfilling its obligations under this Agreement. The Confidential Information shall at all times remain the property of the Disclosing Party. The Recipient Party shall, upon written request of the Disclosing Party, return to the Disclosing Party or destroy the Confidential Information of the Disclosing Party. Notwithstanding the foregoing, the Recipient Party may maintain one copy of the Disclosing Party’s Confidential

Information to be retained by the Recipient Party’s Legal Department for archival purposes only.

12.02 Exceptions. Notwithstanding any provision contained in this Agreement to the contrary, neither Party shall be required to maintain in confidence or be restricted in its use of any of the following: (a) information that, at the time of disclosure to the Recipient Party, is in the public domain through no breach of this Agreement or breach of another obligation of confidentiality owed to the Disclosing Party or its Affiliates by the Receiving Party; (b) information that, after disclosure hereunder, becomes part of the public domain by publication or otherwise, except by breach of this Agreement or breach of another obligation of confidentiality owed to the Disclosing Party or its Affiliate by the Receiving Party; (c) information that was in the Recipient Party’s or its Affiliate’s possession at the time of disclosure hereunder by the Disclosing Party unless subject to an obligation of confidentiality or restricted use owed to the Disclosing Party or its Affiliate; (d) information that is independently developed by or for the Recipient Party or its Affiliates without use of or reliance on Confidential Information of the Disclosing Party; or (e) information that the Recipient Party receives from a third party where such third party was under no obligation of confidentiality to the Disclosing Party or its Affiliate with respect to such information. The occurrence of (a), (b), (c), (d) or (e) above shall not be deemed to grant to either Party any license or other right, express or implied, to any portion of the information or other proprietary rights of the other Party relating thereto. Notwithstanding the exceptions of this Section 12.02, any compilation of otherwise public information in a form not publicly known shall be considered Confidential Information.

12.03 Disclosures Required by Law. The Recipient Party may disclose Confidential Information of the Disclosing Party or terms and conditions of this Agreement as required by court order, operation of law, or government regulation, including in connection with SEC or listing agency filings or submissions to regulatory authorities with respect to the Components, IVD Hardware or the IVD Test Kits; provided that, the Recipient Party promptly notifies the Disclosing Party of the specifics of such requirement prior to the actual disclosure, or promptly thereafter if prior disclosure is impractical under the circumstances, uses diligent and reasonable efforts to limit the scope of such disclosure or obtain confidential treatment of the Confidential Information if available, and allows the Disclosing Party to participate in the process undertaken to protect the confidentiality of the Disclosing Party’s Confidential Information including, without limitation, cooperating with the Disclosing Party in its efforts to permit the Receiving Party to comply with the requirements of such order, law, or regulation in a manner that discloses the least amount necessary, if any, of the Confidential Information of the Disclosing Party.

12.04 Injunctive Relief. Each Party acknowledges that any use or disclosure of the other Party’s Confidential Information other than in accordance with this Agreement may cause irreparable damage to the other Party. Therefore, in the event of any such use or disclosure or threatened use or threatened disclosure of the Confidential Information of

either Party hereto, the non-breaching Party shall be entitled, in addition to all other rights and remedies available at Law, to seek injunctive relief against the breach or threatened breach of any obligations under this Article XII.

12.05 Disclosure of Agreement. Except as expressly provided otherwise in this Agreement, neither Party may disclose this Agreement, the terms and conditions of this Agreement, including any financial terms thereof, and the subject matter of this Agreement to any third party without the prior written consent of the other Party, which consent shall not be unreasonably withheld. Notwithstanding anything in this Agreement to the contrary, Company acknowledges and agrees that Illumina and its Affiliates, as healthcare companies, may, if required by applicable Law, disclose this Agreement, its terms, its subject matter, including financial terms (including without limitation, Illumina’s compliance with Sunshine Act).

Article XIII.
Notices

13.01 Notices. All notices required or permitted under this Agreement shall be in writing, in English, and shall be deemed received only when (a) delivered personally; (b) 5 business days after having been sent by registered or certified mail, return receipt requested, postage prepaid (or 10 business days for international mail); or (c) 1 business day after deposit with a commercial express courier specifying next day delivery or, for international courier packages, 2 business days after deposit with a commercial express courier specifying 2-day delivery, with written verification of receipt. All notices shall be sent to the following or any other address designated by a Party using the procedures set forth in Section 13.02:


If to Illumina:	If to Company:
Illumina, Inc. 5200 Illumina Way San Diego, CA 92122 Attn: Vice President, Corporate and Venture Development	HTG Molecular Diagnostics, Inc. 3430 E Global Loop Tucson, AZ 85706 Attention: Chief Executive Officer
With a copy to: Illumina, Inc. 5200 Illumina Way San Diego, CA 92122 Attn: General Counsel

13.02 Either Party may give written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such Party at such changed address.

Article XIV.
Miscellaneous

14.01 Mutual Representation and Warranties. Each Party represents, warrants, and covenants that (a) it has the right and authority to enter into this Agreement without violating the terms of any other agreement; and (b) the person(s) signing this Agreement on its behalf has the right and authority to bind Company to the terms and conditions of this Agreement. Each Party represents and warrants that neither it nor any of its employees involved in its performance under this Agreement has ever been debarred by a Regulatory Authority, including the FDA pursuant to Section 21 USC 335a. Each Party covenants that if, during the Term, it or any of its employees becomes so debarred or subject to a proceeding that could subject that Party or that employee to such debarment, that Party will promptly notify the other Party in writing thereof.

14.02 Publicity; Use of Names or Trademarks . Each Party shall obtain the prior written consent of the other Party on all press releases or other public announcements relating to this Agreement, including its existence or its terms, provided that a Party is not required to obtain prior written consent of the other Party for press releases or public disclosures that repeat information that has been previously publicly disclosed. Company and Illumina intend to announce their supply relationship in a press release and each agrees it will undertake good faith efforts to reach mutual agreement on the text for release within 30 days after the Effective Date. Neither Party shall use the name or trademarks of the other Party without the express prior written consent of the other Party.

14.03 Non-Exclusive Relationship. Each Party acknowledges and agrees that during the Term or thereafter nothing in this Agreement (except the obligation of Company to exclusively purchase Components and IVD Hardware from Illumina or its authorized distributors or resellers as set forth in Article VI) shall create any form of exclusive relationship between the Parties with respect to the subject matter of this Agreement, or prevent either Party from: (i) entering into competing business relationships with one or more third parties for the research, development and/or commercialization of any other product or service that might compete with any IVD Test Kit in any respect and/or (ii) conducting research, development and/or commercialization with respect to any product in any manner whatsoever outside the scope of this Agreement, including product that might compete with any IVD Test Kit, but in either case neither Party shall have the right to use the other Party’s Confidential Information and/or Intellectual Property in such activities. Without limiting the generality of the foregoing, notwithstanding anything in this Agreement to the contrary, Company is free to independently develop, use, or commercialize nucleic acid detection assays (including nuclease-protection-based, nucleic acid sequencing assays) involving any or all of the targets in an IVD Test Kit and/or in a Selected Field or otherwise for any purpose (whether alone or in combination with any other product or service) and in collaboration with any third party (“Independent Development”); provided that, such Independent

Development is expressly excluded from all rights granted to Company by this Agreement and all obligations of Illumina under this Agreement.

14.04 Assignment. Neither Party shall assign or transfer this Agreement or any rights or obligations under this Agreement, without the prior written consent of the non-assigning Party; provided that, subject to Illumina’s right to terminate the Agreement set forth in Section 11.04(c), Company may assign or transfer this Agreement in connection with a Change of Control without Illumina’s consent, and Illumina may assign or transfer this Agreement without Company’s consent pursuant to a transfer of all or substantially all of its business or assets, whether by merger, sale of assets, sale of stock or share capital, or otherwise. Any assignment or transfer of this Agreement made in contravention of the terms hereof shall be null and void. Subject to the foregoing, this Agreement shall be binding on and inure to the benefit of the Parties’ respective successors and permitted assigns.

14.05 Legal Compliance. Nothing in this Agreement is intended, or should be interpreted, to prevent either Party from complying with, or to require a Party to violate, any and all applicable Laws. Should competent legal counsel advising either Party reasonably conclude that any portion of this Agreement is or may be in violation of a change in a Law made after the Effective Date, or if any such change or proposed change would materially alter the amount or method of compensating Illumina for Components purchased by, or services performed for, Company, or would materially increase the cost of either Party’s performance hereunder, the Parties agree to negotiate in good faith written modifications to this Agreement as may be necessary to establish compliance with such changes and/or to reflect applicable changes in compensation necessitated by such legal changes, with any mutually agreed upon modifications added to this Agreement by written amendment in accordance with Section 14.10 of this Agreement.

14.06 Independent Parties. Each Party hereby acknowledges that the Parties shall be independent contractors. Nothing in this Agreement shall be construed to constitute Company or Illumina as a partner, joint venturer, agent or other representative of the other. Each is an independent entity retaining complete control over and complete responsibility for its own operations and employees. Nothing in this Agreement shall be construed to grant either Party any right or authority to assume or create any obligation on behalf of or in the name of the other; or to accept summons or legal process for the other; or to bind the other in any manner whatsoever.

14.07 Governing Law; Jurisdiction. This Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation shall be governed and construed in accordance with the laws of the State of California, U.S.A., without regard to provisions on the conflicts of laws. The Parties agree that the United Nations Convention on Contracts for the International Sale of goods shall not apply to this Agreement.

14.08 Severability. The terms and conditions stated herein are declared to be severable. If any paragraph, provision, or clause in this Agreement shall be found or be held to be invalid or unenforceable in any jurisdiction in which this Agreement is being performed, the remainder of this Agreement shall be valid and enforceable and the Parties shall use good faith to negotiate a substitute, valid and enforceable provision which most nearly effects the Parties’ intent in entering into this Agreement.

14.09 No Waiver; Rights and Remedies. The failure or delay of either Party to exercise any right or remedy provided herein or to require any performance of any term of this Agreement shall not be construed as a waiver, and no single or partial exercise of any right or remedy provided herein, or the waiver by either Party of any breach of this Agreement shall not prevent a subsequent exercise or enforcement of, or be deemed a waiver of any subsequent breach of, the same or any other term of this Agreement. Except as expressly provided in this Agreement, the rights and remedies of each Party under this Agreement are cumulative and not exclusive of any rights or remedies provided by Law.

14.10 Entire Agreement; Amendment; Waiver. This Agreement, together with its Exhibits and Development Plans, represents the entire agreement between the Parties regarding the subject matter hereof and supersedes all prior discussions, communications, agreements, and understandings of any kind and nature between the Parties. The Parties acknowledge and agree that by entering into this Agreement, they do not rely on any statement, representation, assurance or warranty of any person or entity other than as expressly set out in the Agreement. Each Party agrees that it shall have no right or remedy (other than for breach of contract) in respect of any statement, representation, assurance or warranty (whether made negligently or innocently) other than as expressly set out in this Agreement. Nothing in this Section 14.10 shall exclude or limit liability for fraud. No amendment to this Agreement (including its Exhibits and Development Plan(s)) will be effective unless in writing and signed by both Parties. No waiver of any right, condition, or breach of this Agreement will be effective unless in writing and signed by the Party who has the right to waive the right, condition or breach and delivered to the other Party.

14.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute but one and the same instrument. This Agreement will become effective when duly executed by each Party hereto. Electronically transmitted signatures shall be deemed original signatures for purposes of this Agreement.

14.12 Illumina Affiliates; Third Party Beneficiaries. Company agrees that Illumina may delegate or subcontract any or all of its rights and obligations under this Agreement to one or more of its Affiliates; provided that Illumina shall be solely responsible to Company for the performance and actions of its delegates or subcontractors. Illumina invoices and other documentation may come from an Illumina

Affiliate and Company shall honor those just as if they came directly from Illumina. There are no third party beneficiaries to this Agreement.

14.13 Cooperation. Illumina and Company agree to execute any instruments reasonably believed by the other Party to be necessary to implement the provisions of this Agreement.

14.14 Costs. Each Party shall bear its own costs and expenses incurred in connection with the negotiation and execution of this Agreement.

14.15 Force Majeure. Neither Party shall be in breach of this Agreement nor liable for any failure or omission to perform or delay in the performance of this Agreement if: (a) the failure or omission arises from any cause beyond the control of the party in question; and (b) steps that could be taken to mitigate or eliminate the cause of the failure or omission were not reasonably foreseeable or were not reasonably available or commercially practicable, and the failure or omission is not caused or exacerbated by the negligence of the non-performing Party. Causes falling within clause (a) above include acts of God, fire, flood, tornado, earthquake, hurricane, lightning, any action taken by government or a regulatory authority, actual or threatened acts of war, terrorism, civil disturbance or insurrection, sabotage, labor disputes, or supply shortages (each an event of “Force Majeure” ). In the event of any such delay the delivery date for performance shall be deferred for a period equal to the time lost by reason of the delay.

14.16 Headings and Certain Rules of Construction. Sections, titles and headings in this Agreement are for convenience only and are not intended to affect the meaning or interpretation hereof. This Agreement has been negotiated in the English language and only the English language version shall control. Any translation of this Agreement into a non-English language is for convenience only. Whenever required by the context, the singular term shall include the plural, the plural term shall include the singular, and the gender of any pronoun shall include all genders. As used in this Agreement except as the context may otherwise require, the words “include”, “includes”, “including”, and “such as” are deemed to be followed by “without limitation”, whether or not they are in fact followed by such words or words of like import, and “will” and “shall” are used synonymously. The terms “hereof,” “herein,” “hereby,” and derivative or similar to refer to this entire Agreement. Except as expressly stated, any reference to “days” shall be to calendar days, and “business day” shall mean all days other than Saturdays, Sundays or a national or local holiday recognized in the United States, and any reference to “calendar month” shall be to the month and not a 30 day period, and any reference to “calendar quarter” shall mean the first 3 calendar months of the year, the 4-6th calendar months of the year, the 7-9th calendar months of the year, and the last 3 calendar months of the year. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall on, or any notice is deemed to be given on a Saturday, Sunday, or national holiday, the Party having such privilege or duty shall have until 5:00 pm PST on the next succeeding business day to exercise such privilege or to discharge such duty or the Party giving notice shall be deemed to have given notice on

the next succeeding business day. It is further agreed that no usage of trade or other regular practice between the Parties hereto shall be used to alter the terms and conditions of this Agreement. Ambiguities, if any, in this Agreement shall not be construed against any particular Party, irrespective of which Party may be deemed to have authored the ambiguous provision.

14.17 Export. Company agrees that the Components, or any related technology provided under this Agreement, may be subject to restrictions and controls imposed by the United States Export Administration Act and the regulations thereunder (or the regulations and laws of another country). Company agrees not to export or re-export the Components, or any related technology into any country in violation of such controls or any other laws, rules or regulations of any country, state or jurisdiction.

IN WITNESS WHEREOF, effective as of the Effective Date, each of the Parties has executed this Agreement by its duly authorized officer or representative.

Illumina, Inc.

By: /s/ Jeffery S. Eidel

Name: Jeffery S. Eidel

Title: VP, Corporate & Business Development

Date: June 2, 2017

HTG Molecular Diagnostics, Inc.

By:       /s/ Timothy B. Johnson
Name:  Timothy B. Johnson
Title:   Chief Executive Officer

Date:  May 31, 2017

Exhibit A

COMPONENTS AND PRICING

Consumables:

IUO consumables, not for resale, for use in development and investigational use of IVD Test Kit(s) (as set forth in a Development Plan) :

IUO MiSeqDx “Universal” v3 600-cycle reagent kits including SBS reagent cartridges and flow cells, made available as provided for in the Development Plan

Current price $[***] each kit

[***]

IVD cleared consumables, not for resale (unless otherwise specified in Development Plan), for use in development and investigational use of IVD Test Kit(s) (as set forth in a Development Plan) :

IVD-cleared MiSeqDx reagent kits (same features as IUO kits above)

Sold to Company at [***]

*** CONFIDENTIAL TREATMENT REQUESTED

exhibit B

IVD Hardware AND PRICing


Catalog #	Description	Current List Price
DX-410-100x	MiSeqDx	$[***]
SV-421-1001	Service Contract MiSeqDx	$[***]

Service contracts are per year (first year of Basic service is included in instrument sale)


[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]

*** CONFIDENTIAL TREATMENT REQUESTED

Exhibit 10.4

First Amendment to

Master Assay Development, Commercialization and Manufacturing Agreement

First Amendment to Master Assay Development, Commercialization and Manufacturing Agreement (“Amendment”), dated June 14, 2017, is by and between HTG Molecular Diagnostics, Inc., a corporation organized under the laws of the State of Delaware, U.S., with a place of business at 3430 E. Global Loop, Tucson, AZ 85706 and QIAGEN Manchester Limited, a corporation organized under the laws of the United Kingdom, with a place of business at Skelton House, Lloyd Street North, Manchester, UK.

RECITALS

WHEREAS, the parties entered into that certain Master Assay Development, Commercialization and Manufacturing Agreement, dated November 16, 2016 (the “Agreement”), and the parties now desire to modify their understanding(s) and amend the Agreement.

NOW, THEREFORE, based upon the above premises, and in consideration of the mutual covenants and conditions contained in the Agreement and herein, the parties agree as follows:

1. A new Section 13.3.2.3 is hereby added after Section 13.3.2.2 as follows:

13.3.2.3 Notwithstanding anything in this Section 13.3.2 to the contrary, in the event of a Change of Control, neither Party shall have the right to terminate Statement of Work No. One, dated June 14, 2017 (“SOW One”), or this Agreement to the extent it relates to SOW One.

2. Except as modified above, the Agreement as originally stated shall remain in full force and effect.

3. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. Facsimile or other electronically transmitted signatures s hall be deemed original signatures.

IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed by a duly authorized representative.

HTG MOLECULAR DIAGNOSTICS, INC.

By: /s/ Timothy B. Johnson

Timothy B. Johnson

President and Chief Executive Officer

QIAGEN MANCHESTER LIMITED

By: /s/ Douglas Liu

Douglas Liu

SVP Global Operations

Page 1 of 1

Exhibit 10.5

***Text Omitted and Filed Separately with

The Securities and Exchange Commission.

Confidential Treatment Requested Under

17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.

CONFIDENTIAL

Statement of Work No. One

THIS STATEMENT OF WORK NO. ONE (this “SOW”) is made and entered into as of June 14, 2017 (the “SOW Effective Date”) by and between HTG Molecular Diagnostics, Inc. (“HTG”) and QIAGEN Manchester Limited (“QIAGEN”). This SOW is made a part of, and shall be governed by, the terms and conditions of the Master Assay Development, Commercialization and Manufacturing Agreement (the “MSA”) executed between the Parties dated as of November 16, 2016. In the event of a conflict between the terms and conditions of this SOW and those of the MSA, the MSA shall govern unless otherwise expressly provided herein. Capitalized terms shall be defined as in the MSA, unless otherwise defined herein.

Term

1.1.

The term of this SOW shall commence as of the SOW Effective Date and shall expire once all activities, milestones, and deliverables outlined herein have been completed by the respective responsible Party and all payments from QIAGEN to HTG, including any required profit share, has been delivered, unless this earlier terminated in accordance with the MSA, as it may be amended from time to time.

2.	Scope of Work

2.1.

This SOW covers the performance by each Party of its respective Development activities in support of development of the PDP Assay that is the subject of the Sponsor Project Agreement, identified as the Companion Diagnostic Initial Research Agreement, dated May 23, 2017, between QIAGEN and the pharmaceutical company referenced therein. (“PHARMA”). The Parties expect and intend Development activities for the relevant PDP Assay to be the subject of more than one work plan under the Sponsor Project Agreement and a corresponding number of statements of work under the MSA. Statements of work related to the PDP Assay other than this SOW are referred to, individually, as a “Subsequent SOW.” This SOW represents the activities required by both Parties to enable the retrospective testing in [***] of PHARMA’s phase III clinical samples from the clinical trial identified in the Sponsor Project Agreement. The actual retrospective testing of PHARMA’s clinical samples shall be covered in a separate statement of work under the MSA.

2.2.

This SOW shall have two phases with the following objectives:

2.2.1.

Phase 1a: Release of [***] Assay CE/IVD (the “CE/IVD Assay”) as an IUO (defined below) assay (referred to as the “IUO Assay”) for future use (pursuant to a Subsequent SOW) in retrospective testing of PHARMA’s phase III clinical samples in [***].

Page 1 of 6

***Confidential Treatment Requested

CONFIDENTIAL

2.2.2.

Phase 1b: Establishment of a clinical testing site in [***] for the retrospective testing of PHARMA’s phase III clinical samples.

2.3.

Development Activities . In furtherance of the foregoing Development objectives, the Parties agree that the Steering Committee shall mutually determine Development activities, including milestones, deliverables and estimated milestone completion dates, for each respective Party, after which such Development activities may not be modified except with written approval of the affected Party. Pursuant to timelines mutually determined by the Steering Committee, each Party shall use commercially reasonable efforts to complete its respective Development obligations in a time- and cost-efficient manner and otherwise in conformance with this SOW and Section 3 of the MSA.

2.3.1.

As provided in Section 3.7 of the MSA, each Party’s Project Lead shall keep the other Party, and (if applicable) PHARMA, updated and consult with such other Party on a reasonably regular basis with respect to all the Development work being conducted by such Party. Without limiting the generality of the foregoing, the responsible Party shall, to the extent reasonably feasible:

2.3.1.1.

Invite a reasonable number of representatives of the other Party to attend any formal design reviews (“FDR”) that occur as part of the responsible Party’s Development activities under this SOW.

2.3.1.2.

Make final or near-final “Deliverables” (as determined by the Steering Committee as provided in Section 3.3.1) available to the other Party for review; provided that such other Party’s review shall not delay the corresponding Development milestone or other obligation of the responsible Party related to such Deliverable.

2.3.1.3.

Subject to the responsible Party’s independent professional judgment in accordance with the applicable provisions of this SOW (as provided in Section 3.4 of the MSA), the responsible Party agrees to consider, in good faith, comments or requests timely received from the non‑responsible Party regarding Deliverables or FDR-related topics.

3.	Compensation Provisions (including Transfer Price calculation)

3.1.

Development Services

3.1.1.

QIAGEN shall pay HTG for the Development work performed by HTG and its subcontractors on a monthly basis as follows:

3.1.1.1.

Direct Employee Costs

3.1.1.1.1.

Direct employee costs will be tracked on a daily basis by project. The average wage used for each employee will be based on a resource classification

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based on their skills used in the project, as oppo sed to actual rates specific to every individual who performs these functions.

3.1.1.1.2.

The total wage rate will include the direct wage costs discussed above, plus a payroll burden rate. The payroll burden rate will include the expense for payroll taxes, vacation, accrued bonus, group insurance (representing workers’ compensation insurance, health insurance and life and disability insurance), stock compensation and payroll service fees. The payroll burden rate will be calculated as HTG’s average, excluding the executive management team.

3.1.1.1.3.

Rates will be recalculated every six months in June and December (with the first recalculation to occur in December 2017) and utilized for the following six-month period. HTG shall promptly communicate and provide evidence of any rate changes in writing to QIAGEN.

3.1.1.1.4.

HTG shall provide QIAGEN with reasonable documentary substantiation in support of its rate calculations upon request.

3.1.1.2.

Material and Other Direct Expenses

3.1.1.2.1.

Material and other direct costs include all directly incurred expenses associated with the Development. These expenses are expected to include materials used internally or provided by HTG to subcontractors (both HTG product inventory and supplies purchased from third parties), direct travel required for the Development, and any other mutually approved direct expenses.

3.1.2.

Administrative Service Rate

3.1.2.1.1.

Direct employee costs (as provided in Section 3.1.1.1), material, and other direct expenses (as provided in Section 3.1.1.2), capital purchases (as provided in Section 3.1.3), and subcontractor expenses (as provided in Section 3.1.4) will be increased by [***] to reflect administrative services associated with the management and administration of the program.

3.1.3.

Capital Purchases

3.1.3.1.

Capital purchases required, and to be used exclusively for, this Development must be approved by QIAGEN in writing, and such expense will be included in HTG’s invoices to QIAGEN as a separate line item; [***]. This does not include any capital purchases made prior to the start of the Development. At the end of the Development, any remaining value attributable to capital equipment purchased for the Development shall be credited back to the Net Profit share, [***].

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3.1.4.

Subcontractors

3.1.4.1.

Any subcontractor expenses must be approved by QIAGEN to the extent such expense exceeds the estimated Project Cost amounts. Materials provided to a third-party subcontractor, such as HTG assay kits or technology, for their consumption in the Development will be billed as provided to the subcontractor at cost, subject to Section 3.1.2.

3.2.

Monthly Development Service Invoicing Process

3.2.1.

Invoices for all Development costs outlined above will be submitted by HTG to QIAGEN on a monthly basis containing the purchase order number provided by QIAGEN, and will be due within [***] days from the date of receipt of invoice by QIAGEN. Payment of these invoices will occur regardless of whether QIAGEN has collected payments from or invoiced PHARMA. In no event will QIAGEN make any pre-payments for services or deliverables.

3.3.

Profit Sharing

3.3.1.

Each Party acknowledges that it has received and approved the estimated Project Costs of the other Party. Such approved estimated Project Costs shall not be modified unless the Parties confer in good faith to determine the desirability of such modification, and no modification, change or amendment to approved estimated Project Costs will be effective until revised estimated Project Costs are received and approved by both Parties.

3.3.2.

In the event that actual Development costs are expected to exceed the estimated Project Costs by [***], the Party expecting to incur cost overages will communicate that as soon as possible (in HTG’s case, prior to invoicing QIAGEN), and, where possible, prior to incurring the overages, to allow for discussion among Steering Committee members. Where overages are identified, the Parties shall work in good faith to agree to a reasonable reimbursement solution based upon the facts and circumstances that have led to the overage, and agreement should be made in writing within one month of the overage being identified. No amounts in excess of [***] of the estimated Project Costs determined pursuant to Section 3.3.1 should be included in Development Net Profit calculations without agreement by both Parties.

3.3.3.

Project profit sharing calculations under this SOW will be completed within 30 days of the end of this SOW. Upon receipt of the final monthly R&D Service Invoice from HTG for this SOW, QIAGEN will prepare an initial calculation of the profit sharing for which HTG and QIAGEN will [***] of Net Profits resulting from successful completion

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of each milestone throughout the term of this statement of work. The support for this calculation will include documentary evidence of the costs incurred/included by both QIAGEN and HTG, including copies of invoices received from third parties and subcontractors; timesheets and support for wage rate calculations . The calculation will be prepared and completed within 15 days of approval of the final milestone of this SOW to allow the parties to meet and rev iew applicable books of account, where appropriate, to take into account any adjustments from the review of the documentary evidence and agree the net profits and net revenues for any development milestones completed through the end of the SOW by the 20th day after SOW end. Upon agreement by both parties on the profit sharing amount, HTG will issue an invoice to QIAGEN containing the relevant purchase order number provided by QIAGEN for HTG’s portion of the profit sharing amount. QIAGEN shall distribute the invoiced amount within 30 days of invoice receipt.

3.3.4.

In the event that HTG fails to meet the deadlines set forth in this SOW or if PHARMA rejects any deliverable based upon quality issues attributed to HTG’s work under this SOW, QIAGEN shall be entitled to withhold future profit sharing payments until any Project Delay or quality issues have been resolved.

3.4.

All payments made to HTG under this statement of work will be invoiced and paid in US Dollars.

4.	Clinical Supply Manufacturing Provisions

4.1.

The terms and conditions related to the manufacturing and commercialization of the PDP Assay shall be negotiated by the parties in good faith as part of a second and related SOW.

5.	Intellectual Property and Licenses; Technology Transfer

5.1.

HTG hereby grants to QIAGEN an irrevocable, fully paid-up, royalty-free, perpetual, non-exclusive, world-wide license to all data, methods, compositions, and articles that are generated, conceived of, or conceived of and reduced to practice by HTG pursuant to this SOW solely to permit QIAGEN to sublicense such rights, pursuant to the Sponsor Project Agreement, to PHARMA, PHARMA’s Affiliates, PHARMA’s Collaboration Partner (as defined in the Sponsor Project Agreement), and Affiliates of PHARMA’s Collaboration Partner, such sublicense being for the sole purpose of research and development of BIOTECH Agents. “BIOTECH Agents” means small or large molecules that are developed or sold by PHARMA, its Affiliates, the Collaboration Partner, or the Collaboration Partner’s Affiliates.

5.2.

In the event that HTG and QIAGEN are unable to resolve a delay in the Development caused by HTG, HTG shall fully cooperate with QIAGEN upon request to execute a technology transfer and transition to a third party designated by QIAGEN to the extent necessary for QIAGEN or its designee to complete HTG’s Development obligations under this SOW. Such technology transfer shall include a limited, fully paid-up, royalty-free, non-exclusive, world-wide, sub-licensable license to all HTG IP solely for the purpose and

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o nly to the extent necessary for QIAGEN to complete HTG’s Development obligations under this SOW. The license granted pursuant to this Section 5.2 shall expire upon expiration or earlier termination by QIAGEN of this SOW.

6.	Project Suspension and Termination

6.1.

This SOW may be terminated as specified in the MSA, as it may be amended from time to time.

IN WITNESS WHEREOF, HTG and QIAGEN have executed this SOW by their respective officers hereunto duly authorized as of the SOW Effective Date.


HTG MOLECULAR DIAGNOSTICS		QIAGEN MANCHESTER LIMITED


By:	/s/ Timothy B. Johnson	By:	/s/ Douglas Liu

Name:	Timothy B. Johnson	Name:	Douglas Liu

Title:	President, Chief Executive Officer	Title:	SVP Global Operations

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Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy B. Johnson, certify that:

1.	I have reviewed this Form 10-Q of HTG Molecular Diagnostics, Inc.

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

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

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2017

By:

/s/ Timothy B. Johnson

Timothy B. Johnson

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Shaun D. McMeans, certify that:

1.	I have reviewed this Form 10-Q of HTG Molecular Diagnostics, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

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

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2017	By:	/s/ Shaun D. McMeans
		Shaun D. McMeans
		Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of HTG Molecular Diagnostics, Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2017	By:	/s/ Timothy B. Johnson
		Timothy B. Johnson
		President and Chief Executive Officer
		(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2017	By:	/s/ Shaun D. McMeans
		Shaun D. McMeans
		Chief Financial Officer
		(Principal Financial and Accounting Officer)