UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

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

For the fiscal year ended December 31, ~~2017~~2018

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

For the transition period from to

Commission File Number: 000-54748

ICAGEN, INC.

(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in ~~its~~Its ~~charter~~Charter)

Delaware		20-0982060
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
4222 Emperor Blvd., Suite 350 Durham, North Carolina		27703
(Address of Principal Executive Offices)		(Zip Code)

4222 Emperor Blvd., Suite 350

Durham, North Carolina 27703

(Address of principal executive offices) (Zip Code)

(919) 941- 5206

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:		Name of each exchange on which registered
(Title of Class)		None

Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the issuer: (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 website, if any,~~ every ~~interactive data~~Interactive ~~file~~Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (section 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of ~~issuer~~registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated ~~file~~filer, a non-accelerated ~~file~~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. ~~(Check one):~~

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 the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, ~~2017~~2018, was approximately $2214,~~375~~539,~~875~~347 based on $3.50, the estimated per share price at which the registrant’s ~~common~~securities ~~stock~~were ~~was~~ last issued and sold, which was ~~January 7~~August 27, ~~2015~~2018. The registrant has provided this information as of ~~January~~August 727, ~~2015~~2018 because its common stock was not publicly traded as of the last business day of its most recent completed second quarter.

As of April 1312, ~~2018~~2019, the issuer had 6,393,107 shares of common stock outstanding.

Documents incorporated by reference: None

FORM 10-K

TABLE OF CONTENTS

		Page
	PART I.	1
Item 1.	Business	1
Item 1A.	Risk Factors	911
Item 1B.	Unresolved Staff Comments	2225
Item 2.	Properties	2225
Item 3.	Legal Proceedings	2225
Item 4.	Mine Safety Disclosures	2225
	PART II.	2326
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2326
Item 6.	Selected Financial Data	2327
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2327
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3540
Item 8.	Financial Statements and Supplementary Data	3640
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	3741
Item 9A.	Controls and Procedures	3741
Item 9B.	Other Information	3741
	PART III.	3842
Item 10.	Directors, Executive Officers and Corporate Governance	3842
Item 11.	Executive Compensation	4246
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	4751
Item 13.	Certain Relationships and Related Transactions, and Director Independence	4853
Item 14.	Principal Accountant Fees and Services	5156
	PART IV.	5257
Item 15.	Exhibits and Financial Statement Schedules	5257
Item 16	Form 10-K Summary	54
Item 16.	Form 10-K Summary	60
SIGNATURES		5561

PART I

Special Note Regarding Forward-Looking Statements

Many of the matters discussed within this Annual Report on Form 10-K (“Annual Report”) contain forward-looking statements within the meaning of Section ~~21E~~27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on our current expectations and projections about future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include the risks noted under Part 1. “Business,” Part 1A “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere. We do not undertake any obligation to update any forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Icagen,” refer to Icagen, Inc. and its subsidiaries.

You should refer to Item 1A. “Risk Factors” ~~section~~ of this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant ~~uncertainties~~ uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements.

Item 1. Business

Company Overview

~~We are~~Icagen ~~engaged~~is ina ~~the advancement of early~~ drug discovery. ~~Our~~company ~~business model is divided into three sources of revenue: our integrated~~with ~~drug~~a ~~discovery~~focus ~~services~~in ~~that~~Neuroscience ~~we have been providing to third parties since our inception; partnerships~~ and ~~collaborations~~Rare ~~with third~~Disease. ~~parties~~The ~~that~~Icagen ~~should~~platform ~~allow~~is usunique toas ~~receive~~it ~~revenue~~integrates ~~for~~our ~~services~~current ~~provided~~state asof ~~well~~the asart ~~future~~drug ~~milestone~~discovery engine ~~and~~along ~~royalty~~with ~~payments~~an ~~and potential~~artificial ~~licensing~~intelligence ~~fees~~(AI) ~~and~~computational ~~other~~platform ~~related~~that ~~fees~~enables ~~paid~~an ~~for~~accelerated ~~the~~path ~~licensing~~to ofdrug ~~our technology~~discovery.

~~For the~~Our ~~past~~team ~~two~~is ~~years,~~comprised ~~a significant portion~~ of ~~our revenue has been derived from our operations as a partner research organization~~pharmaceutical ~~providing~~and ~~integrated~~biotechnology ~~drug~~leadership ~~discovery services~~ with ~~unique~~extensive ~~expertise~~industry inknowledge ~~the field of ion channel, transporter, neuroscience, muscle biology~~ and ~~rare~~experience ~~disease~~with ~~targets~~a ~~while~~successful ~~also~~track ~~covering~~record ~~many other classes~~ of ~~drug~~moving ~~discovery targets and therapeutic areas. Our customers~~molecules ~~are~~through ~~pharmaceutical and biotechnology companies to whom we offer our industry~~pre-~~leading~~clinical ~~scientific expertise~~ and ~~technologies to aid in their determination of which molecules to advance into late stage preclinical studies and ultimately~~ clinical ~~trials~~development. ~~The core~~Our ofscientific ~~our~~team ~~offering~~ is ~~the~~derived ~~discovery~~from oftwo ~~pre-clinical~~key ~~drug~~acquisitions ~~candidates (PDC’s), which are lead molecules (Leads) that are selected to enter into in-vivo studies during the pre-clinical phase~~ of drug discovery. ~~We offer a full complement of pre-clinical~~experts ~~drug~~in ~~discovery~~Neuroscience ~~services which include; assay development technologies~~ (~~including~~the ~~high~~“Pfizer ~~throughput fluorescence, manual and automated electrophysiology and radiotracer flux assays~~Acquisition”), ~~cell line generation, high-throughput~~ and ~~ultra-high-throughput~~Rare ~~screening,~~Disease ~~medicinal chemistry, computational chemistry and custom assay services to our customers. Our capabilities also include molecular biology and~~ (the ~~use~~“Sanofi ~~of complex functional assays, electrophysiology, bioanalytics and pharmacology~~Acquisition”). ~~We believe that this integrated set of capabilities enhances our ability to help our customers identify drug candidates.~~

~~More~~Our ~~recently,~~business wemodel ~~have~~is ~~begun~~focused ~~to focus~~ on ~~partnership~~research collaborations and ~~collaboration~~partnerships ~~opportunities~~ with ~~third~~large ~~parties,~~ pharmaceutical and webiotechnology ~~are~~companies ~~currently~~and infoundations ~~active~~who ~~negotiations~~we ~~regarding~~partner ~~our~~with ~~first~~to ~~such~~support the ~~collaboration.~~discovery ~~This~~and ~~collaboration~~development isof ~~expected~~innovative topharmaceuticals. ~~provide~~These ~~us with~~revenue-generating anpartnerships ~~opportunity~~provide tocurrent ~~derive~~funding ~~revenue~~while our ~~not~~pipeline ~~only~~of ~~from~~drug ~~our~~candidates ~~standard~~provides ~~fees~~the ~~for~~additional ~~integrated~~potential ~~early~~of ~~discovery~~significant ~~services~~long-term ~~but~~upside ~~also~~through ~~from future~~ milestone and royalty payments. ~~revenue~~The ~~from~~development ~~product candidates that may be developed~~ and ~~commercialized~~commercialization ~~with~~expense ~~our aid. We have developed in house a portfolio~~ of ~~multiple~~our partnered assets ~~targeting~~are ~~different~~funded ~~indications~~by ~~that~~our ~~we believe would be ideal candidates for partnership opportunities~~partners.

~~Lastly, we~~In ~~are~~May ~~regularly~~2018, ~~pursuing~~we ~~opportunities~~announced ~~for the licensing of~~ our ~~proprietary~~first ~~XRPro technology, our legacy technology, which has~~such ~~unique~~collaboration ~~capabilities~~with in the ~~transporter~~Cystic ~~target~~Fibrosis ~~class.~~Foundation ~~For~~to ~~any~~discover ~~licensing~~therapies ~~transactions~~to ~~that~~treat wecystic ~~may~~fibrosis ~~engage~~and in December 2018, we ~~anticipate receiving~~announced anour ~~up-front~~second ~~license~~such ~~fee,~~collaboration aswith ~~well~~F. asHoffmann-La ~~fees~~Roche ~~for~~Ltd ~~the equipment we provide~~ and ~~our~~Hoffmann-La ~~services~~Roche inInc. ~~aiding~~(collectively, ~~the~~“Roche”) ~~licensee~~to ~~with~~discover therapies ~~the~~for ~~use~~certain ~~of the~~neurological ~~technology~~diseases.

~~We utilize~~Cystic aFibrosis ~~target~~Foundation class approach to drug discovery where we leverage our deep expertise in specific areas to more rapidly move drug discovery projects forward. Whereas traditional drug discovery tends to take a more linear approach to compound advancement, our depth of both technical assets, including our XRPro technology, and area experts allows us to use more parallel approaches to aid in eliminating problematic molecules early and identifying high quality leads in the drug discovery process. This saves time, money and increases the probability of success in human clinical studies. We believe that our deep understanding of the ion channel genome, neuroscience, muscle biology, and rare disease targets, in particular, and our ability to apply this knowledge in a target class approach to drug discovery facilitates our identification of small molecule drug candidates with novel mechanisms of action and enhanced selectivity and specificity profiles. Moreover, because our drug discovery and development process screens for potential side effects at an earlier stage than some alternative approaches, we believe that this process enables us to identify small molecule drug candidates that may have a reduced risk of clinical failure and may shorten clinical development timelines.Collaboration

~~We currently~~In ~~operate~~May ~~out~~2018, ofwe announced ~~two~~that ~~sites,~~we ~~one~~had inreceived ~~Durham,~~an ~~North~~award ~~Carolina~~of ~~and~~up ~~the~~to ~~other~~$11 inmillion ~~Tucson,~~from ~~Arizona (~~the ~~“Tucson~~Cystic ~~Facility”). The~~Fibrosis ~~teams~~Foundation infor ~~North~~a ~~Carolina~~project ~~and~~focused ~~Arizona~~on ~~have extensive experience over~~ the ~~last 20 plus years performing early drug~~ discovery ~~within~~of ~~Pfizer,~~therapeutics ~~Inc.~~to ~~(“Pfizer”)~~treat ~~and~~patients ~~Sanofi~~with UScystic ~~Inc.~~fibrosis (~~“Sanofi”~~CF), ~~respectively,~~caused ~~delivering~~by ~~Leads~~nonsense ~~from~~mutations. ~~the pre-clinical~~Nonsense ~~stage~~mutations toin the ~~clinical~~Cystic ~~stage~~Fibrosis Transmembrane ofConductance ~~drug~~Regulator ~~discovery. At the North Carolina site~~ (“~~Icagen NC~~CFTR”), ~~which~~gene weresult ~~began to operate~~ in ~~July 2015, we have a leading biology expertise focused on ion channels which are important targets in Neuroscience. The North Carolina site also houses~~ the ~~XRpro®~~premature ~~technology.~~termination ~~The~~of ~~XRPro~~protein ~~technology~~synthesis ~~is an x-ray fluorescence technology that delivers ion channel screening, transporter screening, ion channel kinetics~~ and ~~custom screening services to our customers to detect and quantitatively analyze~~ the formation ~~x-ray signature~~ of ~~each element with an atomic number greater than 12. More specifically~~truncated, ~~our capabilities in North Carolina include a focus on ion channels and transporters, HTS and Lead optimization, ion channel profiling, assay development and x~~non-~~ray fluorescence-based~~functional ~~assays~~CFTR. AtPatients ~~the~~with ~~Arizona~~these ~~site,~~mutations ~~which we acquired~~ in ~~July~~both ~~2016,~~copies weof ~~have~~their ~~leading~~CFTR ~~biology~~genes ~~expertise~~currently ~~and~~have ~~platform~~no ~~capabilities~~therapies inthat ~~rare~~treat ~~diseases,~~the ~~muscle~~underlying ~~biology~~cause ~~and~~of ~~integrated~~their ~~drug discovery~~disease. The ~~Arizona~~aim ~~site~~of ~~provides~~this ~~capacity~~program inis ~~cell~~to ~~models, human~~provide ~~biomarkers,~~these ~~muscle~~patients ~~biology~~with ~~expertise~~a ~~and stem cells-based assays. In addition, the Arizona site provides compound management~~transformative ~~services,~~therapeutic ~~HTS~~that ~~and~~will ~~Hit~~markedly ~~identification,~~improve intheir ~~vitro~~quality ~~pharmacology,~~of ~~medicinal~~life ~~chemistry, computational chemistry~~ and ~~ADME~~lifespan. The ~~Arizona facility~~award ~~also~~is ~~features~~to ~~high~~support ~~volume~~an ~~biology~~integrated, ~~with~~multi-year adrug discovery ~~flexible~~initiative. ~~robotic~~Our ~~infrastructure~~initial ~~capable~~proposal ofis ~~performing~~to ~~high~~screen ~~throughput~~approximately ~~screening in~~2 ~~ultra~~million ~~high~~compounds ~~1536~~as ~~format,~~well ~~enhancing our depth of expertise~~ as aleverage ~~specialized~~our ~~pharmaceutical services company. This enables us~~state-of-the-art toin ~~offer~~silico ~~a broad range of integrated~~ drug discovery ~~services~~platform into ainterrogate ~~growing~~an ~~market.~~additional ~~The~~ten ~~extensive~~million ~~integrated~~virtual ~~drug~~structures ~~discovery~~for ~~platform and~~molecules ~~technologies~~that atsuppress ~~the~~nonsense mutations. ~~Arizona~~Through ~~site~~these ~~enable~~efforts, uswe intend to ~~utilize~~discover ~~our biology expertise in both the North Carolina~~ and ~~Arizona~~evolve ~~sites~~families ~~to accelerate~~of ~~the~~molecules ~~drug~~that ~~discovery~~are ~~and~~suitable ~~identify~~for ~~quality~~clinical ~~leads faster~~development.

Roche Collaboration

On December 4, 2018, we entered into a license and collaboration agreement with Roche to develop and commercialize small molecule ion channel modulators for the treatment of neurological disorders. The program incorporates our platform for ion channel targets in the body and is directed at a specific novel ion channel target expressed in neurons. Under the terms of the license and collaboration agreement, Roche paid us an upfront payment for program exclusivity and research funding. In addition, we are eligible to potentially receive development and commercial milestone payments of up to $274 million and royalty payments if a drug is commercialized. We will be responsible for all preclinical activities up to lead optimization with both us and Roche applying resources to identify candidates for entry into late stage preclinical and Investigational New Drug (“IND”) enabling studies. Thereafter, Roche will be responsible for the further development and commercialization of the programs.

Operating Sites & Expertise

We currently operate out of two sites, one in Durham, North Carolina (“Icagen NC”) and the other in Tucson, Arizona (the “Tucson Facility”). The teams in North Carolina and Arizona have extensive experience over the last 20 plus years performing drug discovery within Pfizer, Inc. (“Pfizer”) and Sanofi US Inc. (“Sanofi”), respectively, advancing molecules through pre-clinical development with numerous molecules entering clinical development. At Icagen NC, which we began to operate in July 2015, we have a leading biology expertise focused on ion channels which are important targets in neuroscience. The North Carolina site also houses the XRpro® technology. The XRPro technology is an x-ray fluorescence technology that delivers transporter screening to detect and quantitatively analyze the x-ray signature of elements with an atomic number greater than 12. More specifically, our capabilities in North Carolina include a focus on ion channels and transporters, High Throughput Screening (“HTS”) and lead optimization, ion channels, assay development and x-ray fluorescence-based assays.

At the Tucson Facility, which we acquired in July 2016, we have leading biology expertise and platform capabilities in Rare Diseases, in silico & computational applications and integrated drug discovery. The Tucson Facility provides capacity in cell models, human biomarkers, and primary human cell and stem cell-based assays. In addition, the Tucson Facility provides compound management services, HTS and Hit identification, in vitro pharmacology, medicinal chemistry, computational chemistry and Absorption, Distribution, Metabolism and Excretion (“ADME”). The facility also features high volume biology with a flexible robotic infrastructure capable of performing high throughput screening in ultra-high 1536 format, enhancing our depth of expertise running programs in a highly specialized, efficient and cost-effective manner. This enables Icagen to offer a broad range of integrated drug discovery services in a growing market. The extensive integrated drug discovery platform and technologies at the Tucson Facility enable us to utilize our biology expertise in both the North Carolina and Arizona sites to accelerate drug discovery for challenging, but innovative programs and identify quality leads faster.

~~Subsequent to our acquisition of certain assets of~~ Pfizer and Sanofi, our customer base has expanded and a significant portion of our revenue has been derived from several commercial customers. For the year ended December 31, 2017, 56.2% of our revenue was derived from services sales, 42.4% was derived from deferred subsidy revenue and 1.4% was generated from Government revenue. For the year ended December 31, 2016, 59.5% (2015 - 84%) of our revenue was derived from services sales; 36.7% was derived from subsidies (2015 0%) and the remaining 3.8% was generated from Government revenues (2015 - 16%). Prior to our acquisition of certain assets from Pfizer and Sanofi, substantially all of our revenue was derived from government grants related to services provided by our XRpro technology.Acquisition

On ToJuly ~~date~~1, 2015, pursuant to the asset purchase agreement that we ~~have~~executed ~~been~~with ~~granted~~Pfizer ~~twenty-one~~Research ~~grants~~Inc ~~and~~(formerly ~~contracts~~Icagen, ~~from~~Inc.), ~~United~~an ~~States~~indirect ~~governmental~~subsidiary ~~agencies;~~of Pfizer (“Icagen NC”) (the “Pfizer APA”), we acquired certain assets of ~~which~~Icagen ~~nine~~NC ~~were~~(including ~~granted~~certain ~~from~~cell lines, office equipment, servers, biology instruments, benchtops and the ~~Department~~Icagen name), assumed certain liabilities of ~~Defense~~Icagen NC and ~~twelve~~agreed ~~were~~to ~~granted~~continue the ~~from~~employment ~~the~~of ~~National~~several ~~Institutes~~employees of ~~Health~~Icagen NC for at least two years. OfWe agreed to pay: (i) an upfront cash purchase price of $500,000, in four equal installments of which the final installment of $125,000 was paid on March 1, 2016; (ii) a cash payment of $500,000 on the second anniversary of the closing provided that prior to such date the Master Scientific Services Agreement ~~contracts~~with Pfizer (“MSSA”) has generated at least $4,000,000 ~~twenty~~in ~~have~~revenue; ~~been~~this ~~completed~~milestone ~~and~~was wenever ~~received~~met and the payment to Pfizer was forfeited; and (iii) beginning in ~~full~~2017, ~~for~~a ~~all~~quarterly ~~twenty~~earn ~~completed~~out ~~contracts.~~payment ~~There~~(the is“Earn ~~one~~Out ~~contract~~Payment”) of 10% of ~~from~~revenue earned during the ~~National~~quarter ~~Institutes~~up to a maximum aggregate payment of ~~Health~~$10,000,000. ~~under~~On ~~which~~July 15, 2016, the Pfizer APA was amended to provide that we ~~performed~~are ~~services~~required ~~during~~to pay Pfizer, commencing May 2017, minimum quarterly payments of $50,000 each for the ~~year~~period May ~~ended~~2017 to December 31, ~~2017,~~2018 ~~this~~(with ~~contract was~~deferral allowed for the difference between $~~600~~250,000 and ~~has~~the ~~been~~quarterly ~~fully~~amount ~~invoiced~~paid as(the “Deferred Amount”), interest on the Deferred Amount and a lump sum payment of ~~December~~the cumulative Deferred Amount is due on March 31, ~~2017.~~2019 and ~~The~~thereafter ~~NIH~~a ~~invited~~minimum uspayment toof ~~submit~~$250,000 each quarter up to a ~~Phase~~maximum IIof ~~SBIR~~$10,000,000. ~~application~~Pursuant to the terms of the amendment ~~for~~to the ~~completed~~agreement, we also agreed that we will not and we will cause Icagen-T not to, (A) run assays or perform other contract research ofservices, ~~which~~in each case, that we ~~are~~could ~~awaiting~~reasonably provide by utilizing assets we acquired pursuant to the ~~outcome~~Pfizer APA, other than services performed or to be performed by Icagen-T for Sanofi or its affiliates under the MSSA; or (B) perform or engage in ion channel screening.

We also entered into a MSSA with Pfizer, the execution of which was a condition to closing under the Pfizer APA. In accordance with the terms of the MSSA, we agreed to perform ion channel screening and other contract research for Pfizer, including but not limited to, on demand assay development, modification and optimization, compound screening, ion channel screening, reagent and cell line generation, and biology platform development. The MSSA and Pfizer APA provided that Pfizer would guarantee revenue to us totaling at least $1,000,000 for each of the first two 12-month periods following the closing on a “take or pay” basis, all of which was paid with the last payment received in July 2017.

~~Strategy~~Sanofi Acquisition

~~Our~~On July 15, 2016, Icagen-T, our wholly ~~goal~~owned issubsidiary consummated the transactions with Sanofi contemplated by the Asset Purchase Agreement, dated June 27, 2016 (the “Sanofi Asset Purchase Agreement”), pursuant to ~~become~~which aIcagen-T ~~leader~~acquired incertain assets of Sanofi that include the ~~discovery~~(i) the Tucson Facility, ~~development~~known as the Tucson Research Center, a two story laboratory and ~~commercialization~~office building with approximately 113,950 square feet of ~~drugs~~space located in the ~~early~~Town ~~phase~~ of ~~drug~~Oro ~~discovery~~Valley, ~~that address~~Pima ~~disease~~County, ~~areas~~Arizona, ~~with~~and ~~significant~~the ~~unmet~~land ~~medical~~on ~~need~~which the Tucson Facility is built; and ~~commercial~~(ii) ~~potential~~certain machinery and equipment located at the Tucson Facility. WeThe ~~intend~~cash topurchase ~~diversify~~price ~~our~~under ~~business~~the ~~and~~Sanofi ~~increase~~Asset Purchase ~~awareness~~Agreement ~~about~~was ~~our~~$1.00. ~~company~~Icagen-T ~~through~~assumed certain liabilities, was obligated to continue the ~~execution~~employment of ~~our~~46 ~~strategy,~~employees ~~key~~at ~~elements~~the Facility for at least two years from consummation of ~~which~~the ~~are~~acquisition asand ~~follows:~~ is obligated to maintain the Sanofi chemical libraries that remains at the Facility and continues to be owned by Sanofi.

●Upon ~~Maximize~~the ~~and~~closing ~~Strengthen~~of the Sanofi Asset Purchase Agreement, Icagen-T and ~~expand~~Sanofi ~~our~~entered ~~core~~into ~~drug~~a ~~discovery~~Master ~~technologies~~Services ~~and~~Agreement ~~development~~(the ~~capabilities~~“MSA”). ~~All~~The ofMSA ~~our~~contains ~~drug~~terms ~~candidates~~requiring that ~~and~~Icagen-T perform certain contract research ~~programs~~for ~~have~~Sanofi, ~~resulted~~including, ~~from~~but ~~our~~not ~~core~~limited ~~drug~~to, ~~discovery~~compound ~~technologies~~testing services. WePursuant to ~~have~~the ~~steadily~~terms ~~built~~of ~~these~~the ~~technologies~~MSA, ~~which~~Sanofi ~~span~~agreed to make payments (the ~~key~~“MSA ~~disciplines~~Payments”) to Icagen-T in consideration of ~~biology,~~Icagen-T’s provision ~~chemistry~~of ~~and~~services ~~pharmacology,~~(including maintenance of the chemical libraries) in the aggregate amount of $32 million over a ~~number~~five year period of ~~years.~~which We$27,500,000 ~~intend~~has tobeen ~~continue~~paid to ~~invest~~date inand ~~these~~a ~~core~~further ~~technologies,~~$4.5 asmillion ~~the~~is ~~key~~expected to ~~our~~be ~~future~~paid ~~research~~over ~~programs~~the ~~and~~next ~~drug~~18 ~~candidates~~months. WeThe MSA Payments are ~~focusing~~to abe ~~significant~~credited ~~portion~~against ofall ~~our~~direct ~~business~~service ~~efforts~~costs onfor ~~increasing~~which ~~our~~Icagen-T ~~customers~~performs ~~that~~services, ~~utilize~~and ~~our~~in ~~scientific~~the ~~expertise~~event ~~and~~the ~~technologies~~MSA Payments toexceed ~~aid~~the indirect ~~their~~service ~~determination~~costs, a maximum aggregate credit of ~~which~~$2 ~~molecules~~million towill ~~advance~~be carried forward to ~~into~~subsequent ~~late~~years during ~~stage~~the ~~preclinical~~term ~~and~~of ~~clinical~~the ~~trials~~MSA.

●Upon ~~Establish~~the ~~strategic~~closing ~~alliances~~of ~~with~~the ~~leading~~Sanofi ~~pharmaceutical~~Asset ~~and~~Purchase Agreement, ~~biotechnology~~Icagen-T ~~companies.~~executed Wea ~~plan~~Deed toof ~~selectively~~Trust ~~enter~~providing ~~into~~Sanofi ~~new~~with ~~strategic~~a ~~alliances~~five ~~with~~year, ~~leading~~$5 ~~pharmaceutical~~million ~~and~~lien ~~biotechnology~~on ~~companies~~the toTucson ~~assist~~Facility, ussecuring performance inof ~~advancing~~Icagen-T’s ~~our~~obligations ~~drug~~under ~~discovery~~the MSA and ~~development~~the ~~programs~~Sanofi Asset Purchase Agreement. WeThe ~~expect~~lien ~~that~~is ~~these~~subject ~~alliances~~to ~~will~~termination on ~~provide~~the usfive ~~with~~year ~~access~~anniversary toof the ~~therapeutic~~closing ~~area~~or ~~expertise~~upon ~~and~~the ~~research,~~payment ~~development~~by ~~and~~Icagen-T ~~commercialization~~of ~~resources~~$5 ofmillion ~~our~~to ~~collaborators~~Sanofi. asThe ~~well~~parties ashave ~~augment~~also ~~our~~agreed to ~~financial~~a ~~resources.~~Special WeWarranty ~~expect~~Deed ~~that~~with ina ~~some~~Right of ~~these~~Reverter ~~alliances~~(“Deed weof Sale”) that will ~~seek~~revert toin ~~maintain~~Sanofi all rights in the ~~development~~Tucson Facility ofin ~~drug~~the ~~candidates~~event that Icagen-T sells the Tucson Facility at any time within the next five years and upon certain other events related to the ~~commercialization~~leasing of ~~drugs~~space asat ~~part~~the Tucson Facility. The reversion rights of ~~our~~Sanofi ~~effort~~under tothe ~~build~~Deed ~~our~~of ~~internal~~Sale ~~clinical~~will ~~development~~terminate ~~and~~after five ~~sales~~years ~~and~~or ~~marketing~~upon ~~capabilities~~a cash payment of $5 million to extinguish the lien created by the Deed of Trust.

●The ~~Build~~MSA contains certain affirmative and negative ~~advance~~covenants ~~our~~that ~~product~~Icagen-T ~~candidate~~is ~~pipeline~~required to meet as well as certain maintenance covenants. ~~Through~~The ~~our~~affirmative ~~ion~~covenants ~~channel~~include: (i) ~~drug~~maintenance ~~discovery~~of separate books and ~~development~~records ~~programs,~~from weits ~~have~~affiliates; ~~created~~(ii) maintenance of a ~~pipeline~~separate board of ~~drug~~directors ~~candidates~~from its affiliates; (iii) maintenance of its own bank accounts, invoices and checks; (iv) that ~~address~~it ~~diseases~~conduct ~~with~~business ~~significant~~in ~~unmet~~its ~~medical~~own ~~need~~name; (v) that it pay liabilities from its own bank account; (vi) segregation of its assets and ~~commercial~~liabilities ~~potential~~from ~~across~~other aentities; ~~range~~(vii) an allocation of ~~therapeutic~~any ~~areas~~overhead expenses that are shared with affiliated entities through intercompany agreements; and (viii) observing corporate formalities. WeThe ~~plan~~negative covenants include a prohibition on: (a) dividends other than up to ~~aggressively~~a ~~pursue~~maximum of $3.5 million during the first ~~development~~two ~~and~~years ~~commercialization~~of the term; (b) the guaranty of ~~these~~debts ~~drug~~of ~~candidates.~~its Weaffiliates; ~~believe~~(c) ~~that~~the pledge of any of its assets for the ~~breadth~~benefit of any ~~our~~affiliate; ~~capabilities~~(d) liens or borrowings unless done in ~~ion~~furtherance ~~channel~~of ~~drug~~the ~~discovery~~Facility; ~~technology~~(e) acquisitions or sale of assets outside of the ordinary course of business; and ~~rare~~(f) ~~diseases~~amendments to organizational documents. In accordance with the terms of the maintenance covenants Icagen-T will ~~enable~~be usrequired: (A) to ~~continue~~maintain a daily average cash balance held in all of its accounts for the prior five days of at least $575,000; (B) to ~~identify~~maintain ~~and~~minimum ~~develop~~current ~~additional~~ratio ~~drug~~(as ~~candidates~~defined onin anthe ~~efficient~~MSA) ~~and~~of ~~rapid~~1.05; ~~basis~~(C) to maintain a minimum net worth of $1.5 Inmillion ~~addition~~and (D) not to ~~developing~~run ~~drug~~assays ~~candidates~~or ~~internally~~perform other contract research services, wein ~~continue~~each tocase, ~~evaluate~~that ~~opportunities~~Icagen-T or its affiliates could reasonably provide at the Tucson Facility, at any site other than the Tucson Facility. Icagen-T is also obligated to fulfill certain reporting requirements specified in the MSA. At any time after the second anniversary of the effective date of the MSA that Icagen-~~license~~T ~~promising~~provides ~~compounds~~an independent third party valuation certified by the National Association of Certified Evaluators and ~~technologies~~Analysts that concludes that: (x) Icagen-T’s assets are greater than its liabilities at fair value (or fair market value); (y) Icagen-T has sufficient capital to operate its business; and (z) Icagen-T has the ability to pay its debts as they mature, then: (1) all affirmative covenants and negative covenants shall terminate; (2) all reporting obligations shall terminate; and (3) all future MSA Payments and the associated Payment credit mechanism will be converted into a take or pay arrangement.

● Enter into licensing relationships for our XRPro Technology. We are regularly pursuing opportunities for the licensing of our proprietary XRPro technology, our legacy technology, which has unique capabilities in the transporter target class. For any licensing transactions that we may engage in, we anticipate receiving an up-front license fee, as well as fees for the equipment we provide and our services in aiding the licensee with the use of the technology.

Company History

The Company, formerly known as XRpro Sciences and Caldera, was founded in 2003 at the request of the then director of Los Alamos National Laboratory (“LANL”) for the purpose of commercializing the use of x-ray fluorescence to measure the chemical composition of pharmaceuticals. In March 2015, we effected a 1-for -2 reverse stock split of our common stock. In July 2015, we expanded our services and capabilities and entered into an asset purchase agreement with Icagen, Inc., an indirect subsidiary of Pfizer (“Icagen NC”), whereby certain assets were acquired from Icagen NC, including the name Icagen. We moved our headquarters to Research Triangle Park, Durham, North Carolina, where the Pfizer subsidiary’s operations were conducted and on August 28, 2015 changed our name to Icagen, Inc.

Icagen NC was founded in 1992 as a start-up biotech to discover, develop and commercialize small molecules targeting ion channels. Icagen NC sent its first molecule into the clinic for sickle cell anemia in 1999. Over the years Icagen NC also provided access to its innovative discovery platform. In 2007, Icagen NC entered into a collaborative agreement with Pfizer to identify novel compounds targeting voltage-gated sodium channels for the treatment of pain. Due to the success of the programs, Icagen NC was acquired in 2011 by Pfizer. Pfizer integrated Icagen NC into Neusentis which was a biotech-like unit within Pfizer combining research in pain, sensory disorders, and regenerative medicine for the next 4 years. In an effort to move to a more variable (outsourced) R&D model Pfizer in July 2015 divested Icagen NC to us and we re-launched the Icagen NC team and capabilities under the Icagen name.

Since the Icagen NC spinout from Pfizer, we have experienced accelerated growth and market acceptance as a leader in the area of ion channel and transporter targets with major large pharma clients and biotechs. We then began to look for ways to leverage that success and did so in July 2016 with the newly acquired Icagen Tucson business from Sanofi which added a complete integrated drug discovery capability beyond ion channels and transporters covering most classes of drug discovery targets.

~~The Tucson~~XRPro Research Center, a two-story laboratory and office building with approximately 113,950 square feet of space located in the Town of Oro Valley, Pima County, Arizona (the “Facility”), which we acquired from Sanofi in July 2016, enhances our depth of expertise as a specialized pharmaceutical services company, enabling us to offer a broad range of integrated drug discovery services in a growing market. The Facility provides capacity in cell models, human biomarkers, muscle biology expertise and stem cells-based assays. In addition, the site provides compound management services, HTS and Hit identification, in vitro pharmacology, medicinal chemistry, computational chemistry and ADME, as well as high volume biology with a flexible robotic infrastructure capable of performing high throughput screening in ultra high 1536 format.Technology

~~Corporate~~Prior to our acquisition of the Icagen ~~Information~~assets, substantially all of our revenue was derived from government grants related to the use of our XRPro technology. To date, we have received aggregate grant funding of $10,456,000 from twenty-one grants and contracts from United States governmental agencies; of which nine were granted from the Department of Defense and twelve were granted from the National Institutes of Health. Of such contracts, all have been completed and we received payment in full for all completed contracts.

~~We were~~Our ~~incorporated~~XRpro® intechnology quantifies drug/protein interactions without the ~~State~~need ofto ~~Delaware~~modify onthe ~~November~~drug, 12protein, ~~2003~~or ~~under~~cell, ~~the~~or ~~name~~use ~~Caldera~~expensive ~~Pharmaceuticals,~~reagents. ~~Inc~~We apply this technology to assay a variety of cellular processes and enzymatic functions. OnCellular ~~December~~processes 4include ion channel and transporter function, ~~2014~~which we ~~changed~~assay ~~our~~to ~~name~~determine towhether ~~XRpro~~a ~~Sciences,~~drug ~~Inc.~~is safe and oneffective ~~August~~as ~~28,~~modeled ~~2015~~by certain cellular processes, ~~after~~which are typically specified by our ~~acquisition~~customers. Many oftechnologies ~~certain~~require ~~assets~~that expensive reagents (substances that are added to a system in order to bring about a chemical reaction or is added to see if a reaction occurs) or “labels” be used to measure the properties of ~~Icagen,~~drug ~~Inc~~candidates during the drug discovery process. These reagents are expensive, wetoxic, subject to regulatory oversight and ~~changed~~can ~~our~~introduce ~~name~~experimental toerrors. ~~Icagen,~~Label-free ~~Inc~~technologies are particularly sought by the pharmaceutical industry because it is believed that they provide superior data at lower cost. Our ~~principal~~technology ~~executive~~measures ~~offices~~directly ~~are~~or ~~located~~indirectly atmultiple ~~4222~~parameters ~~Emperor~~for both ~~Blvd.~~drugs and proteins, ~~Suite~~including ~~350~~chemical ~~Durham~~and biochemical binding and functional effects. This allows, ~~North~~for ~~Carolina~~example, the ability ~~27703~~to ~~our~~measure ~~telephone~~multiple ~~number~~interactions isbetween ~~(919)~~a ~~941-5206~~single drug and multiple proteins in a single measurement.

~~Discussions with~~Our ~~respect~~high tothroughput ~~our~~XRpro® ~~operations included herein include the operations of our operating subsidiary, Icagen Corp (formerly known~~technology asallows ~~XRpro~~us ~~Corp),~~to ~~formed~~perform onassays ~~July~~that ~~10,~~were ~~2010~~previously ~~and~~unavailable ~~Icagen-T,~~or ~~Inc,~~unacceptably ~~formed~~expensive onwhen ~~June~~performed ~~16,~~using ~~2016,~~other atechnologies in ~~subsidiary~~specific ~~formed~~cases. toAdvantages ~~acquire the assets~~ of ~~Sanofi’s~~XRpro® ~~ultra~~include ~~high-throughput~~the ~~biology,~~ability ~~screening~~to ~~and~~perform ~~chemistry~~measurements ~~capabilities and research facility~~ in ~~Oro~~challenging ~~Valley~~matrices, ~~Arizona. We~~such ~~have~~as ~~two other subsidiaries~~serum, ~~XRpro Sciences Inc., formed on December 10, 2015~~ and ~~Caldera~~the ~~Discovery~~ability ~~Inc.,~~to ~~formed~~conduct onassays ~~March~~of ~~26, 2015,~~non-electrogenic ~~which have always been dormant~~transporters.

Recent Developments

We have offered on a best efforts basis up to a maximum of forty (40) units and a minimum of ten (10) units, at a purchase price of $100,000 per unit (the “Offering’), each unit consisting of 28,571 shares of our Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”) and a seven year warrant (the “Warrants”) to acquire 28,571 shares of our common stock, par value, $0.001 per share, at an exercise price of $3.50 per share. On April 4, 2018, we closed the first tranche of the Offering and entered into a securities purchase agreement (the “Purchase Agreements”) with one accredited investor that is a trust of which a member of our Board of Directors if the trustee, pursuant to which we offered and sold an aggregate of twenty (20) Units. The sale of the twenty (20) Units resulted in gross offering proceeds of $2,000,000. See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information with respect to the Offering.

Strategy

Our goal is to become a leader in the discovery of drugs in the early phase of drug discovery that address disease areas with significant unmet medical need and commercial potential. We intend to diversify our business and increase awareness about our company through the execution of our strategy, key elements of which are as follows:

●

Artificial Intelligence (“AI”) in drug discovery will indelibly impact the way drugs are discovered, designed, created, distributed, and used. AI will drive more combination products, higher quality, and more personalization across the industry. At its core, the power of AI for pharma lies in its ability to mine and analyze enormous sets of raw data, such as those generated through R&D – an area in life sciences with the most to gain in these nascent stages of AI adoption. AI stands to bring a stronger degree of certainty in the clinical stage by enabling a more thorough understanding of biological and disease complexities that would, in turn, allow a more targeted approach at the onset, thus increasing the likelihood of clinical success and decreasing the associated risks. As the volume of data collected increases, so too does the potential of AI to have a transformative impact on the industry.

●

Maximize and strengthen and expand our core drug discovery technologies and development capabilities. All of our research programs have resulted from our core drug discovery technologies. We have steadily built these technologies, which span the key disciplines of biology, chemistry, computational chemistry and pharmacology, over a number of years. We intend to continue to invest in these core technologies, as the key to our future research programs and drug candidate identification. We are focusing a significant portion of our business efforts on increasing our partnerships that utilize our scientific expertise and technologies to aid in their determination of which molecules to advance into late stage preclinical and clinical trials. This couples our depth of expertise with that of our partner which we believe increases our probability of success.

●

Grow our strategic alliances with leading pharmaceutical and biotechnology companies. We plan to selectively enter into new additional strategic alliances with leading pharmaceutical and biotechnology companies to assist us in advancing our drug discovery and development programs. We expect that these alliances will provide us with access to the therapeutic area expertise and research, development and commercialization resources of our collaborators as well as augment our financial resources. We expect that in some of these alliances we will seek to maintain rights in the development of drug candidates and the commercialization of drugs as part of our effort to build our internal clinical development and sales and marketing capabilities.

●

Build and advance our product candidate pipeline. Through our ion channel drug discovery and development programs, we have created a pipeline of drug candidates that address diseases with significant unmet medical need and commercial potential across a range of therapeutic areas. We plan to aggressively pursue the development and commercialization of these drug candidates. We believe that the breadth of our capabilities in ion channel drug discovery technology and rare diseases will enable us to continue to identify and develop additional drug candidates on an efficient and rapid basis. In addition to developing drug candidates internally, we continue to evaluate opportunities to in-license promising compounds and technologies.

●

Enter into licensing relationships for our XRPro Technology. We are pursuing opportunities for the licensing of our proprietary XRPro technology, our legacy technology, which has unique capabilities in the transporter target class. For any licensing transactions that we may engage in, we anticipate receiving an up-front license fee, as well as fees for reagents we provide and our services in aiding the licensee with the use of the technology.

Our Strengths

We have established ourselves as one of the leaders in the early stage drug discovery market. Below are our strengths that we believe will enable us to capture a significant portion of the early stage drug discovery market:

●

Ability to Offer A Wide Range of Integrated Capabilities. Our capabilities span the key stages of early drug discovery and development up to IND. We have a leading biology expertise focused on ion channels which are important targets in neuroscience. Our capabilities in Icagen NC include a focus on ion channels and transporters, HTS and Lead optimization, ion channel profiling, assay development and x-ray fluorescence-based assays. At the Tucson Facility, we have leading biology expertise and platform capabilities in rare diseases and integrated drug discovery. Our Tucson Facility is also home to our in silico drug discovery platform applying both deep learning and AI-based approaches to advance our programs.

●

Strong Alliances and Partnerships. Our partners include several of the top 20 pharmaceutical companies, biotechnology and mid-sized pharmaceutical companies along with academic institutions and foundations.

●

Industry Trend Towards Outsourcing Innovation. During the last decade, many of the large pharmaceutical companies have downsized their research and development, leading to an increased need and willingness to outsource early drug discovery activities. As an indicator of this trend, Grand View Research (June 2018 report) estimates that the global drug discovery outsourcing market size is expected to reach $4.44 billion by 2025, with half of the drug discovery processes anticipated to be outsourced, thereby increasing the number of collaborations among drug discovery partners and key pharmaceuticals players⁽¹⁾. The report further states that lead identification and candidate optimization is slated for impressive growth. The urgent need to identify potential drug candidates for various chronic diseases is anticipated to fuel growth for outsourcing of early drug discovery activities, such as those that we provide. Grand View Research in its November 2017 report estimates that the global preclinical outsource market is anticipated to reach $6.6 billion in revenues in 2025 and it attributes the growing demand for quality partners to the number of complex drugs entering preclinical trials and growing pressure to curb research and development expenses⁽²⁾.

●

Highly Experienced Team. Our team is derived from two key acquisitions of drug discovery experts in neuroscience, the Pfizer Acquisition, and rare disease, the Sanofi Acquisition. The teams at Icagen NC and the Tucson Facility have extensive experience over the last 20 plus years performing early drug discovery within Pfizer and Sanofi respectively, delivering Leads from the pre-clinical stage to the clinical candidate. Our team has a deep internal knowledge base in neuroscience and rare diseases that enables us to more rapidly move drug discovery projects forward.

●

Novel Asset Portfolio That Can Be Used for Partnership/ Collaboration Opportunities. We have developed in house a portfolio of assets targeting different indications that we believe would be ideal candidates for partnership opportunities. In May 2018, we announced our first such collaboration with the Cystic Fibrosis Foundation to discover therapies to treat cystic fibrosis and in December 2018, we announced our second such collaboration with Roche to discover therapies for certain neurological diseases.

●

Large Markets for Our Focus Research Areas. We have ongoing alliances and partnerships with pharmaceutical and biotechnology companies, foundations and academic institutions in many areas of neurological and rare diseases. These disease areas present markets with huge unmet medical needs and opportunities of significant revenue. According to the World Health Organization approximately 14.0% of the global population is expected to suffer from some form of central nervous system disorder by 2020 and that number is expected to remain fairly constant through 2030⁽³⁾. A rapidly increasing geriatric population base results in increased levels of incidence of central nervous system disorders. Central nervous system disorders are one of the three main therapeutic areas worldwide and are expected to reach $128.9 billion according to a Grand View Research July 2017 report⁽⁴⁾. In addition, the rare disease market is also expanding and Grand View Research in its report published in June 2017 estimated that the global cystic fibrosis therapeutics market size was $3.56 billion in 2016⁽⁵⁾. According to the data published by Cystic Fibrosis Foundation, the incidence of these hereditary disorders is constantly growing; in the U.S., in 2017, there were 29,887 patients as compared to the 27,607 patients in 2012⁽⁶⁾.

(1)	Grand View Research, Drug Discovery Outsourcing Market worth $4.4 Billion by 2025, Report June 2018.
(2)	Grand View Research Pre-clinical CRO Market Size worth $6.6 Billion by 2025/CAGR 8.3% Report, November 2017.
(3)	World Health Organization, Neurological Disorders: public health challenges Report.
(4)	Grand View Research, CNS Therapeutics Market worth $128.9 Billion by 2025/CAGR 5.9%, July 2017.
(5)	Grand View research, Cystic Fibrosis (CF) Therapeutics Market Analysis by Drug class (Pancreatic Enzyme Supplements, Mucolytics, Bronchodilators, CTFR Modulators), By Route of Administration, By Region and Segment Forecasts, 2018-2025, June 2017.
(6)	Cystic Fibrosis Foundation, Annual Data Report 2017: Cystic Fibrosis Foundation Patient registry, August 2017.

Industry Overview

Pharmaceutical research and development organizations are under pressure to deliver differentiated products while holding spending flat. During the last decade, many of the large pharmaceutical companies have downsized their research and development, leading to an increased need and willingness to outsource early drug discovery activities. Thus, to invest their R&D budget more efficiently, the pharmaceutical industry has been increasing the segment of the budget dedicated for outsourcing and partnering. This leads to increased flexibility to address the changing landscape in the discovery world and to reduce significantly the fixed costs for headcounts. In addition, this allows rapid access to specific know-how instead of building up know-how internally which is time and resource intensive. For the foreseeable future, outsourcing is expected to increase even further as a proportion of R&D spending, including significant investment in the early part of the discovery phase. Meanwhile, big pharma’s well-known innovation gap, including the absence of promising preclinical leads in their pipelines, has been further increased. Therefore, we believe we are evolving at an opportune time as a leading drug discovery company, offering outsource services to support the growing need of the pharmaceutical industry while in parallel generating proprietary leads for innovative therapies for diseases with a high unmet medical need.

Source and Availability of Raw Materials

In general, most of the materials we use for our research operation are readily available from multiple suppliers including specialty chemicals for certain types of assays. We do, however, conduct high throughput electrophysiology experiments on specific pieces of equipment from multiple vendors. In these cases, the consumables (i.e. chips or plates) are manufactured and sold by the same vendors ~~vendor, Bruker Nano GmbH,~~ who ~~manufactures~~ manufacture the equipment. Should these vendors fail to deliver the consumables in a timely manner this could adversely affect our assay services operation.

Research and Development

For the years ended December 31, ~~2017~~2018 and ~~2016~~2017, we spent approximately $32,~~328~~187,~~843~~190 and $13,~~200~~328,~~223~~843, on research and development salaries. For more information regarding our research and development expenses, please see “Critical Accounting Policies” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Intellectual Property

Patents and Trade Secrets

Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

We are maintaining and building our patent portfolio by filing new patent applications and prosecuting existing applications. In total, we hold approximately 75 patents, both U.S. and foreign, and approximately 10 pending patent applications, both U.S. and foreign, all related to our X-ray fluorescence-based technologies. As shown below, these patents and patent applications are spread across roughly 9 technology families.

~~Our patent estate as of April 13, 2018 is summarized below:~~8

Our patent estate as of April 11, 2019 is summarized below:

●

Method for Detecting Binding Events Using Micro X-Ray Fluorescence Spectrometry, which includes an issued U.S. patent that is expected to expire in about 2021;

●

Flow Method and Apparatus for Screening Chemicals Using Micro X-Ray Fluorescence, which includes issued patents in the U.S., Europe, Japan and Singapore, such patents are expected to expire in 2022;

●

Method and Apparatus for Detecting Chemical Binding, which includes about 10 issued patents in the U.S., Europe, Japan and Singapore; such patents are expected to expire in 2023;

● Drug Development and Manufacturing, which includes an issued U.S. patent that is expected to expire in ~~about~~ 2021;

● Advanced Drug Development and Manufacturing, which includes about 20 issued foreign patents, in Europe, Japan, and Hong Kong, expected to expire in ~~about~~ 2026, and a pending application in the U.S. which, if issued, is expected to expire between 2021-2026;

● Well Plate/Apparatus for Preparing Samples for Measurement by X-Ray Fluorescence Spectrometry, which includes issued over 15 issued patents in the U.S. Europe, and Japan, which are expected to expire in ~~about~~ 2028, and a pending application in the U.S., which, if issued, is also expected to expire in 2028;

● Method and Apparatus for Measuring Protein Post Translational Modification, which includes a patent issued in Japan, which is expected to expire in ~~about~~ 2028 and pending applications in U.S. and Japan, which, if issued, are also expected to expire in ~~about~~ 2028;

● Method and Apparatus for Measuring Analyte Transport Across Barriers, which includes 3 issued U.S. patents and issued patents in China and Hong Kong, which are expected to expire in ~~about~~ 2030/2031, and pending applications in U.S., Europe, and China, which, if issued, are also expected to expire in ~~about~~ 2030; and

●

Method for Analysis Using X-Ray Fluorescence, which includes 4 issued U.S. patents, which is expected to expire in 2031, and a pending U.S. patent application which, if issued, is expected to expire in 2031.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications or those patent applications that we license will result in the issuance of any patents. Our issued patents and those that may issue in the future, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products. In addition, our competitors may independently develop similar technologies or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these competitors.

We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and other contractors, as well as physical security of our premises and our information technology systems. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face competition from many different sources and organizational sizes, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions. Many of the major multi-national contract research organizations offer some similar assay services to those we provide. These include companies with operations in the US, China, Europe and Asia. ~~None of these companies, however, are exclusively focused and dedicated to ion channel services.~~ There are also a small number of private companies of similar size to us that provide ion channel-related services. In addition, we also compete in the pre-clinical drug discovery space with in-house groups of pharmaceutical and biotechnology companies as well as universities.

Many of our competitors have significantly greater financial resources and expertise in research and development. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity will be reduced or eliminated if our competitors develop screening services that are more effective, faster or are less expensive than any products that we may develop. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, as well as customers.

Government and Environmental Regulation and Laws

We currently operate two laboratories, one in our principal headquarters in Durham, North Carolina and the other in our facility located in Tucson, Arizona. Our laboratory services are subject to various regulatory requirements and our standard operating procedures are written in accordance with appropriate regulations and guidelines for operations.

There are certain licensing and regulations under federal, state and local laws relating to hazard communication and employee right-to- know regulations, our use and handling and disposal of bio-medical specimens and hazardous waste. In addition, there are regulations related to ensuring the health and safety of laboratory employees. Our laboratories are subject to applicable laws and regulations as appropriate from the Nuclear Regulatory Commission, Environmental Protection Agency, the Department of Transportation, and the National Fire Protection Agency and the Resource Conservation and Recovery Act. In addition, the Nuclear Regulatory Commission has rules and regulations regarding the use of x-ray devices and radioactive materials. To the best of our knowledge we are currently in compliance in all material respects with such laws and continual endeavors to maintain compliance. Lack of compliance with such laws could subject us to denial of the right to conduct business, fines, criminal penalties and other enforcement actions.

The Occupational Safety and Health Administration have also established extensive requirements relating to workplace safety for healthcare employers whose workers may be exposed to blood-borne pathogens. Our employees receive initial and periodic training focusing on lab safety including blood-borne pathogens.

The use of controlled substances in testing for drugs with a potential for abuse is regulated in the United States by the U.S. Drug Enforcement Administration. Our laboratories have all necessary licenses from the U.S. Drug Enforcement Administration for the use of controlled substances.

The United States has addressed the disclosure of confidential personal data with increased regulation. In the United States, various federal and state laws address the security and privacy of health and other personal information. We will continue to monitor our compliance with applicable regulations.

The regulations of the U.S. Department of Transportation, the U.S. Public Health Service and the U.S. Postal Service apply to the surface and air transportation of laboratory specimens. Our laboratory also must comply with the applicable International Air Transport Association regulations, which govern international shipments of laboratory specimens.

Company History

Our company, formerly known as XRpro Sciences and Caldera, was founded in 2003 at the request of the then director of Los Alamos National Laboratory (“LANL”) for the purpose of commercializing the use of x-ray fluorescence to measure the chemical composition of pharmaceuticals. In March 2015, we effected a 1-for -2 reverse stock split of our common stock. In July 2015, we expanded our services and capabilities and entered into an asset purchase agreement with Pfizer Research (NC), an indirect subsidiary of Pfizer (“Pfizer Research”), whereby certain assets were acquired from Pfizer Research, including the name Icagen. We moved our headquarters to Research Triangle Park, Durham, North Carolina, where the Pfizer subsidiary’s operations were conducted and on August 28, 2015 changed our name to Icagen, Inc.

Pfizer Research was founded in 1992 as a start-up biotech to discover, develop and commercialize small molecules targeting ion channels. Pfizer Research sent its first molecule into the clinic for sickle cell anemia in 1999. Over the years Pfizer Research also provided access to its innovative discovery platform. In 2007, Pfizer Research entered into a collaborative agreement with Pfizer to identify novel compounds targeting voltage-gated sodium channels for the treatment of pain. Due to the success of the programs, Pfizer Research was acquired in 2011 by Pfizer. Pfizer integrated Pfizer Research into Neusentis, which was a biotech-like unit within Pfizer combining research in pain, sensory disorders, and regenerative medicine for the next 4 years. In an effort to move to a more variable (outsourced) R&D model, Pfizer in July 2015 divested Pfizer Research to us and we re-launched the Pfizer Research team and capabilities under the Icagen name.

Since the Pfizer Research spinout from Pfizer, we have experienced accelerated growth and market acceptance as a leader in the area of ion channel and transporter targets with major large pharma clients and biotech companies. We then began to look for ways to leverage that success and did so in July 2016 with the newly acquired Icagen Tucson business from Sanofi which added a complete integrated drug discovery capability beyond ion channels and transporters covering most classes of drug discovery targets.

The Tucson Research Center, a two-story laboratory and office building with approximately 113,950 square feet of space located in the Town of Oro Valley, Pima County, Arizona (the “Tucson Facility”), which we acquired from Sanofi in July 2016, enhances our depth of expertise as a specialized pharmaceutical services company, enabling us to offer a broad range of integrated drug discovery services in a growing market. The Tucson Facility provides capacity in cell models, human biomarkers and stem cells-based assays. In addition, the site provides compound management services, HTS and Hit identification, in vitro pharmacology, medicinal chemistry, computational chemistry and ADME, as well as high volume biology with a flexible robotic infrastructure capable of performing high throughput screening in ultra-high 1536 format.

Corporate Information

We were incorporated in the State of Delaware on November 12, 2003 under the name Caldera Pharmaceuticals, Inc. On December 4, 2014 we changed our name to XRpro Sciences, Inc. and on August 28, 2015, after our acquisition of certain assets of Pfizer Research, we changed our name to Icagen, Inc. Our principal executive offices are located at 4222 Emperor Blvd., Suite 350, Durham, North Carolina 27703, our telephone number is (919) 941-5206.

Discussions with respect to our operations included herein include the operations of our operating subsidiary, Icagen Corp (formerly known as XRpro Corp), formed on July 10, 2010 and Icagen-T, Inc, formed on June 16, 2016, a subsidiary formed to acquire the assets of Sanofi’s ultra-high-throughput biology, screening and chemistry capabilities and research facility in Oro Valley, Arizona. We have two other subsidiaries, XRpro Sciences Inc., formed on December 10, 2015 and Caldera Discovery Inc., formed on March 26, 2015, which have always been dormant.

Additional information about our company is contained at our website, www.icagen.com. Information contained on our website is not incorporated by reference into, and does not form any part of, this Annual Report on Form 10-K. We have included our website address as a factual reference and do not intend it to be an active link to our website. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through the investor relations page of our internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The following Corporate Governance documents are also posted on our website: Code of Conduct, Code of Ethics for Financial Management and the Charters for the Audit Committee, Compensation Committee and Nominations Committee of the Board of Directors.

Employees

As of the date of ~~April~~this ~~13,~~Annual ~~2018~~Report on Form 10-K, we employed ~~seventy-two~~ 68 employees, of which 66 are full time employees. A significant number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical product companies. None of our employees are covered by collective bargaining agreements, and management considers relations with our employees to be good.

Available Information

Additional information about Icagen is contained at our website, www.icagen.com. Information on our website is not incorporated by reference into and does not form ant part of this Annual Report. We have included our website address as a factual reference and do not intend it to be an active link to our website. We make available on our website, www.icagen.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, all of which are available free of charge through the investor relations page of our internet website as soon as reasonably practicable after those reports are filed with the SEC. The following Corporate Governance documents are also posted on our website: Code of Business Conduct and Ethics and the Charters for the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of the Board of Directors. Our phone number is (919) 433-5206 and our facsimile number is (919) 941- 0813.

Item 1A. Risk Factors

Investing in our ~~securities~~common stock involves a high degree of risk. In addition to the risks related to our business set forth in this Annual Report on Form 10-K and the other information included and incorporated by reference in this Annual Report on Form 10-K, you should carefully consider the risks described below before purchasing our ~~securities~~ common stock. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations.

We have a history of losses and there can be no assurance that we will generate or sustain positive earnings.

For the ~~year~~years ended December 31, 2018 and 2017, we had a net loss of $(613,~~110~~039,~~434~~313) and ~~for the year ended December 31, 2016 we had a net loss of $~~(5$6,~~504~~110,~~412~~434), respectively. The only year that we we had net income was the year ended December 31, 2014 when we received proceeds from the settlement of ~~litigation~~the ~~with~~Los ~~LANS.~~Alamos National Security, LLC matter. We cannot be certain that our business strategy will ever be successful. During the years ended December 31, 2017 and 2018, we did not generate sufficient cash from ongoing operations to pay our expenses and required additional debt and equity funding in addition to revenue generated from operations to pay our expenses. Future revenues and profits, if any, will depend upon ~~various~~ various factors, including the success, if any, of our expansion plans and our services to biotechnical and pharmaceutical customers, successful development and commercialization of product candidates, marketability of our technology, instruments and services, our ability to maintain favorable relations with manufacturers and customers, and general economic conditions. There is no assurance that we can operate profitably or that we will successfully implement our plans. There can be no assurance that we will ever generate positive earnings.

A significant portion of our net revenue has been generated from services provided to ~~five~~a limited number of our customers.

~~The termination of our relationship with either Pfizer and Sanofi would adversely affect our business.~~ For the year ended December 31, ~~2017~~2018, we derived ~~56.2~~100% of our ~~revenue~~ revenues from commercial ~~contracts~~revenues ~~(of which 78.8% of our services revenue was~~ for services provided to ~~five large~~ pharmaceutical ~~customers~~ and ~~one~~ biotech ~~company);~~customers, ~~42.4%~~ of ~~our~~which ~~revenue was from subsidy revenue and the remaining 1~~83.4% was derived from ~~government~~seven ~~contracts~~customers. For the year ended December 31, ~~2016,~~2017 we derived 5956.52% of our ~~revenues~~revenue from commercial ~~contracts~~revenues (of which 7978.48% of our ~~revenue~~ commercial revenues was for services provided to ~~three~~five large pharmaceutical customers and one biotech company); 3642.74% of our revenue was from subsidy revenue and the remaining 3 1.84% was derived from government ~~contracts~~grants. Prior to the acquisition of certain of the assets of ~~Icagen~~a NCsubsidiary of Pfizer we derived substantially ~~all~~ all of our revenue from services we performed for two governmental agencies. Our business model which now concentrates on ~~commercial~~ commercial customers is relatively new and there can be no assurance that we will be able to increase the revenue derived from commercial customers to a significant amount. ~~As of the date hereof we have completed all contracts with the National Institutes of Health (“NIH”).~~ Our ~~Sanofi~~master ~~MSA provided that Sanofi make payments to Icagen-T of $8.75 million over the next forty-two (42) months in consideration of Icagen-T providing~~ services toagreement ~~Sanofi, so long as Icagen-T complies~~ with ~~the covenants set forth in the~~ Sanofi ~~MSA. Our MSA with Pfizer which terminated in July 2017~~ guaranteed $~~1,000,000 of revenue to us for the twelve-month period ended June 30, 2017. Our MSA with Sanofi guaranteed $~~32 million over a five-year period of which: ~~(i)~~ $~~23.25~~27,500,000 ~~million~~ has been received~~; ii)~~ and a further $~~2.75~~4,500,000 ~~million~~ is expected to be paid in ~~2018;~~the ~~(iii)~~next ~~$3 million is expected to be paid over twelve months from July~~18 ~~2018 to June 2019; (iv) $2 million is expected to be paid over twelve~~ months ~~from July 2019 to June 2020; and (v) $1 million is expected to be paid over twelve months from July 2020 to June 2021~~, ~~all~~ subject to us meeting certain terms and conditions. There can be no assurance that we will attract a sufficient number of other pharmaceutical companies to provide our services to or that Pfizer, ~~will~~Sanofi and our other customers will continue to use our services or that Sanofi will increase the scope of the services required. We do not have enough information regarding our new business model to assess its success.

~~During the past two years, a significant portion of our net revenue has been generated from services to be provided to Sanofi.~~11

The termination of our relationship with Sanofi would adversely affect our business. Our Sanofi MSA required Sanofi to make significant payments to us during the last two years in consideration of Icagen-T providing services to Sanofi, so long as Icagen-T complies with the covenants set forth in the Sanofi MSA. The Sanofi MSA requires that Sanofi make payments to us of an aggregate $8,750,000 over the next three and a half years. Inasmuch as prior to the acquisition of the Tucson Facility, the Tucson Facility was used solely to service Sanofi and had no third-party customers, Sanofi continues to be a significant customer of Icagen-T. We cannot guarantee when, or if ever, our dependence upon Sanofi as a major customer at the Tucson Facility will end. There can be no assurance that we will attract a sufficient number of other pharmaceutical companies to provide our services to or that Sanofi will increase the scope of the services required. We do not have enough information regarding our new business model to assess its success.

Our business is dependent upon our ability to attract new commercial customers.

Our future success is dependent upon us attracting new commercial customers and increasing the services that we provide to existing customers, including Sanofi and Pfizer. The $1,000,000 guaranteed payment that we were to receive from Pfizer under the Pfizer MSA terminated on June 30, 2017. The payments that we are to receive from Sanofi under the terms of the Sanofi MSA are subject to termination in the event that we do not comply with certain covenants contained in the Sanofi MSA that are unrelated to our performance of services under the Sanofi MSA. In addition, the guaranteed payments from Sanofi in this year and years three through five of the Sanofi MSA are significantly less than those to be paid in year one and will not be sufficient to cover the costs of the operations at the Tucson Facility. We do not have enough information regarding our new business model which concentrates on commercial customers to assess its success. Our future success is dependent upon us attracting new customers and increasing the services that we provide to existing customers, including Sanofi and Pfizer. There can be no assurance that we will be able to attract new commercial customers or increase the services that we provide to existing customers, including Pfizer and Sanofi.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern.

Although we have generated revenue, our operating losses, negative cash flows from operations and limited alternative sources of revenue raise substantial doubt about our ability to continue as a going concern. During the ~~year~~years ended December 31, ~~2017~~2018, and ~~the~~2017 ~~years ended December 31, 2016,~~ we did not generate enough revenue from operations to sustain our operations. We will be required to increase our revenue from customers and/or obtain additional financing in order to pay existing contractual obligations (which include ~~the guaranteed payments to employees and~~ amounts required to maintain the ~~facility in~~ Tucson Facility and the amounts owed under ~~the~~ ~~convertible~~our ~~notes that we issued to GPB Debt Holdings II, LLC in May 2017, the “Convertible Notes”~~loans) and to continue to cover operating losses and working capital needs. We cannot assure you that our revenue generated from operations or any future funds we raise will be sufficient to support our continued operations.

The audit report of RBSM LLP for the fiscal year ended December 31, ~~2017~~2018 contained a paragraph that emphasizes the substantial doubt as to our continuance as a going concern. If we cannot raise adequate capital on acceptable terms, we will need to revise our ~~business~~ business plans.

IfWe wewill ~~cannot~~need ~~establish~~to ~~profitable~~generate ~~operations,~~significant werevenue ~~will~~or ~~need to~~ raise additional capital to fully implement our business plan and to meet our ~~current~~ existing obligations, which may not be available on commercially reasonable terms, or at all, and which may dilute your investment.

We incurred a net loss of $(613,~~110~~039,~~434~~313) for the year ended December 31, ~~2017,~~2018 and a net loss of $(56,~~504~~110,~~412~~434) for the year ended December 31, ~~2016~~2017. Achieving and sustaining profitability will require us to increase our revenues and manage our product, operating and administrative expenses. We cannot guarantee that we will be successful in achieving profitability. Pursuant to the terms of ~~the~~our ~~Pfizer~~asset ~~APA~~purchase agreement with Pfizer, as amended July 15, 2016 (the Pfizer APA), we are required to pay Pfizer, commencing May 2017, minimum quarterly payments of $50,000 each for the period ~~May~~January 2017 to ~~March~~ December 31, ~~2019~~2018, including interest on the difference between the unpaid deferred purchase consideration and the $50,000, a lump sum of unpaid deferred purchase consideration due for the period January 1, 2017 to December 31, 2018, the deferred portion of the quarterly payments from ~~March~~January 2017 until December 31, 2018 on March 31, 2019 and thereafter a minimum payment of $250,000 each quarter up to a maximum of $10,000,000. Pursuant to the terms of ~~the~~our asset ~~Sanofi~~purchase ~~APA,~~agreement ~~Icagen-T~~with ~~agreed~~Sanofi to(the ~~retain~~Sanofi 46APA), ~~employees~~our ~~at an~~subsidiary, ~~estimated remaining cost to~~ Icagen-T ~~of $4~~,~~459,000~~ ~~and~~agreed to maintain and pay the maintenance costs of the Sanofi chemical libraries that remain at the Tucson Facility. We are also required to make significant payments under the terms of ~~the~~our ~~Convertible~~outstanding ~~Notes~~term loans. If we are unable to generate sufficient revenues to pay our expenses and our existing sources of cash and cash flows are otherwise insufficient to fund our activities, we will need to raise additional funds to continue our operations at their current level and in order to fully implement our business plan. We do not have any commitments in place for additional funds. If needed, additional funds may not be available on favorable terms, or at all. As of the date hereof, we expect that our current cash and revenues generated from services, our private placement financings will provide us with enough funds to continue our operations at our current level for the next ~~four~~six months. Unless we raise additional funds or increase revenues , we will be forced to curtail our operations and limit our marketing expenditures. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities, such as senior secured notes, may have rights, preferences and privileges senior to those of our existing stockholders. If we are unsuccessful in achieving profitability and we cannot obtain additional funds on commercially reasonable terms or at all, we may be required to curtail significantly or cease our operations significantly, it could result in the loss of all of your investment in our stock.

WeDuring ~~have~~the ~~claims~~past ~~against~~three usyears, ~~that~~a ~~may~~significant ~~result~~portion inof ~~material~~our ~~adverse~~net ~~outcomes~~revenue at our Tucson Facility has been generated from services provided to Sanofi.

~~On April~~Our ~~22,~~failure ~~2014,~~to ~~Dentons’~~increase USour ~~LLP~~customer ~~(Dentons)~~base and ~~filed~~the aservices ~~complaint~~we ~~against~~provide usat ~~seeking~~the toTucson ~~confess~~Facility awill ~~judgment~~adversely inaffect ~~the~~our ~~amount of $3,050,000~~business.~~00 based~~ ~~upon~~Our aSanofi ~~settlement~~Master ~~agreement~~Services weAgreement ~~entered~~(Sanofi MSA) ~~into~~required ~~with~~Sanofi ~~Dentons,~~to ~~dated~~make ~~July~~significant 5,payments ~~2013.~~to Inus ~~May~~during ~~2017,~~the wenext ~~entered~~two ~~into~~and a ~~settlement agreement~~half ~~with~~years ~~Dentons~~in ~~that~~consideration ~~requires~~of ~~that~~Icagen-T weproviding services ~~pay~~to ~~Dentons~~Sanofi, anso ~~aggregate~~long ofas ~~$1,400,000~~Icagen-T ~~over~~complies awith ~~fourteen~~the ~~(14)~~covenants ~~month~~set ~~period~~forth ofin ~~which $1,200,000~~the ~~has~~Sanofi ~~been~~MSA. ~~paid~~The toSanofi ~~date.~~MSA Inrequires ~~addition,~~that Sanofi tomake ~~secure~~payments ~~its~~to ~~obligations~~us ~~under~~of ~~the~~an ~~agreement~~aggregate $4,500,000 weover ~~executed~~the ~~and~~next ~~delivered~~two toand ~~Dentons~~ a ~~Confession~~half ofyears. ~~Judgment~~Inasmuch ~~Affidavit~~as inprior ~~Support~~to ofthe ~~Confession~~ acquisition of ~~Judgment in~~ the ~~amount~~Tucson ~~of $3~~Facility,~~891,549.32,~~ ~~representing~~ the ~~amount of~~Tucson ~~the~~Facility ~~Judgment~~was ~~had~~used ~~obtained~~solely ~~plus~~to ~~the~~service ~~costs~~Sanofi ~~of suit~~ and ~~interest~~had ~~accrued~~no ~~through~~third-party ~~May 15~~customers, ~~2017.~~Sanofi ~~The Confession of Judgment is not~~continues to be ~~filed~~a ~~unless~~significant wecustomer ~~default~~of onIcagen-T. ~~our~~We ~~obligations~~cannot ~~under~~guarantee ~~the~~when, ~~agreement~~or ~~and~~if ~~the~~ever, ~~Confession~~our ofdependence ~~Judgment~~upon ~~will~~Sanofi beas ~~returned~~a tomajor ~~us upon~~customer ~~payment~~at inthe ~~full~~Tucson ~~under~~Facility ~~the~~will ~~agreement~~end. IfThere ~~the~~can ~~Confession~~be ofno ~~Judgment~~assurance ~~were~~that towe bewill ~~enforced~~attract ~~against~~a ~~Icagen,~~sufficient ~~Inc.~~number byof ~~Dentons~~other itpharmaceutical ~~could~~companies ~~result~~to ~~in,~~provide ~~among other things,~~ our ~~cash~~services ~~balances~~to ~~being~~or ~~depleted~~that ~~and/or~~Sanofi ~~extinguished,~~will orincrease the ~~seizure~~scope of ~~assets,~~the ~~which~~services ~~would~~required. ~~have material~~We ~~adverse~~do ~~effect~~not onhave usenough ~~and~~information regarding our ~~ability~~new tobusiness ~~continue~~model to ~~operate~~assess ~~our~~its ~~business~~success.

1012

WeOur ~~depend~~business ~~significantly~~is ondependent upon our ~~relationship~~ability ~~with~~to ~~our~~attract ~~two~~new ~~third~~commercial ~~party collaborators~~customers.

~~A termination~~Our orfuture ~~expiration~~success ofis ~~our~~dependent ~~current~~upon ~~collaboration~~us attracting ~~with~~new ~~Sanofi~~commercial orcustomers ~~any~~and ~~potential~~increasing ~~future~~the ~~collaborations~~services ~~would~~that ~~adversely affect~~we usprovide ~~financially~~to ~~and~~existing ~~could~~customers, ~~harm~~including ~~our~~Sanofi ~~business~~and ~~reputation~~Pfizer. The ~~Pfizer~~$1,000,000 ~~MSA~~annual ~~provided~~guaranteed payment that we ~~will~~received ~~perform~~from ~~ion~~Pfizer ~~channel screening~~under ~~and~~the ~~other~~Pfizer ~~contract~~MSA ~~research~~terminated ~~for~~on ~~Pfizer~~June ~~Inc~~30, 2017. ~~Pfizer~~The ~~Inc.~~payments that ~~guaranteed~~we ~~revenue~~are ofto ~~$1,000,000~~receive ~~for~~from ~~each~~Sanofi ofunder the ~~first~~terms ~~two years~~ of the ~~agreement~~Sanofi ~~(which~~MSA ~~two-year~~are ~~period~~subject ~~ended~~to ~~July~~termination ~~2017),~~in ~~which~~the ~~represented~~event athat ~~substantial~~we ~~portion~~do ofnot ~~our~~comply with ~~revenue~~certain ~~for~~covenants contained in the ~~year~~Sanofi ~~ended~~MSA ~~December~~that ~~31,~~are ~~2016~~unrelated to our performance of services under the Sanofi MSA. ~~The~~In addition, the guaranteed payments from Sanofi ~~MSA~~over ~~provides~~the ~~that~~next ~~Icagen-T~~two ~~will~~and ~~perform~~a ~~services~~half ~~for~~years ~~Sanofi~~are atsignificantly ~~our~~less ~~Tucson~~than ~~Facility~~those ~~for~~paid in the first ~~next~~two ~~three~~and a half years ~~for payments~~and ~~from~~will ~~Sanofi~~not be sufficient to ~~Icagen-T~~cover the costs of $8the operations at the Tucson Facility.75 ~~million,~~We sodo ~~long~~not ashave enough ~~Icagen-T~~information ~~complies~~regarding ~~with~~our ~~the~~new ~~covenants~~business ~~set~~model ~~forth~~which inconcentrates ~~the~~on ~~Sanofi~~collaborations/partnerships and commercial customers ~~MSA~~to assess our success. Our ~~collaboration~~future ~~with~~success ~~Pfizer~~is dependent upon us attracting new customers and/ orincreasing the services that we provide to existing customers, including Sanofi orand ~~future~~Pfizer. ~~collaborations~~There wecan ~~may~~be ~~enter~~no ~~into~~assurance ~~may~~that ~~not~~we will be ~~scientifically~~able orto attract new commercial customers ~~commercially~~or ~~successful~~increase the services that we provide to existing customers, including Pfizer and Sanofi.

~~Collaborations~~We ~~with~~depend ~~pharmaceutical~~significantly ~~companies~~on ~~and other third parties often are terminated or allowed to expire by the other party. A termination or expiration of~~ our ~~current~~relationship ~~collaboration~~ with ~~Pfizer, Sanofi or any potential future collaborations would adversely affect us financially and could harm~~ our ~~business~~third ~~reputation~~party collaborators.

A termination or expiration of our current collaboration with Sanofi and the Cystic Fibrosis Foundation and Roche or any potential future collaborations would adversely affect us financially and could harm our business reputation. The Sanofi MSA provides that Icagen-T will perform services for Sanofi at our Tucson Facility for the next two and half years for payments from Sanofi to Icagen-T of $4.5 million, so long as Icagen-T complies with the covenants set forth in the Sanofi MSA. Our collaboration with Sanofi and the Cystic Fibrosis Foundation and Roche or future collaborations we may enter into may not be scientifically or commercially successful.

Collaborations with pharmaceutical companies and other third parties often are terminated or allowed to expire by the other party. A termination or expiration of our current collaboration with Sanofi and the Cystic Fibrosis Foundation, Roche or any potential future collaborations would adversely affect us financially and could harm our business reputation.

If we do not comply with certain of the covenants under the Sanofi MSA, Sanofi has the right to terminate the Sanofi MSA and foreclose on its lien on the Tucson Facility.

The Sanofi MSA has several affirmative and negative covenants as well as certain maintenance covenants with which Icagen-T must comply. Under the Sanofi MSA, the failure to comply with the maintenance covenants and certain responsibilities with respect to maintenance of the chemical libraries results in the automatic termination of the Sanofi MSA which would result in termination of the ~~subsidy~~MSA Payments ~~payments~~ to us as well as the right of Sanofi to exercise its rights under the Deed of Trust and foreclose on its $5,000,000 lien on the Tucson Facility.

Our business is difficult to evaluate because we have recently changed our business model to offering a full complement of screening services to the broader pharmaceutical sector. There can be no guarantee that we will be able to effectively integrate the Icagen and Sanofi business.

Since our acquisition of the ~~Icagen~~Pfizer NC Research assets, we have shifted our business model from offering only our XRpro screening services to governmental agencies as we did in the past tooffering ~~now offer~~ a full complement of screening services to the broader pharmaceutical sector. With the addition of the assets acquired from Sanofi, we now offer ultra -high-throughput biology, screening and chemical capabilities. We have also entered into partnerships/collaborations that require estimates of capital and personnel required to perform under the partnerships/collaborations. There is a risk that we will be unable to successfully conduct our business orunder ~~be able to successfully integrate the assets acquired with~~ our ~~management~~new ~~and structure~~model. Our estimates of capital, personnel and equipment required for our expanded business model are based on the experience of management and businesses they are familiar with. We are subject to the risks such as our ability to implement our business plan, market acceptance of our services, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, competition from better funded and experienced companies, and uncertainty of our ability to generate revenues. There is no assurance that our activities will be successful or will result in any revenues or profit, and the likelihood of our success must be considered in light of the stage of our development. Even if we generate revenue, there can be no assurance that we will be profitable. In addition, no assurance can be given that we will be able to consummate our business strategy and plans, as described herein, or that financial, technological, market, or other limitations may force us to modify, alter, significantly delay, or significantly impede the implementation of such plans. We have insufficient results for investors to use to identify historical trends or even to make quarter to quarter comparisons of our operating results. You should consider our prospects in light of the risk, expenses and difficulties we will encounter as an early stage company. Our revenue and income potential is unproven and our business model is continually evolving. We are subject to the risks inherent to the operation of a new business enterprise, and cannot assure you that we will be able to successfully address these risks.

To date we have ~~not~~ established ~~any~~only two partnerships/collaborations orand ~~collaborations~~there oris ~~entered~~no ~~into~~assurance ~~any~~that ~~licenses~~we ~~for~~will ~~our~~receive ~~technology~~development and commercial milestone payments or royalty payments from such partnerships/collaborations.

Although we expect to generate significant future revenue from partnerships and collaborations as well as license revenue for the use of our technology, to date, we have not derived ~~any~~significant revenue from such sources and have only entered into two such partnership/ collaborations. To date, our sole source of revenue has been our provision of services~~. We~~ ~~are~~and ~~currently~~the inupfront ~~active~~payments ~~negotiations~~received ~~with~~from aour ~~collaborator~~partnerships/collaborations. To ~~that~~date ifwe ~~consummated~~have ~~will~~entered ~~provide~~into ustwo ~~with~~partnerships/ ancollaborations ~~opportunity to receive revenue~~ for ~~providing~~which ~~early~~we ~~drug~~have ~~discovery~~an ~~services~~opportunity asto ~~well~~receive asdevelopment ~~clinical~~and commercial milestone payments and/or royalty payments.; ~~However~~however, ~~there can~~any besuch nopayments, ~~assurance~~if ~~that~~received, ~~a collaboration~~ will not be ~~entered~~received ~~into~~for ormany ifyears ~~entered~~and ~~into~~are dependent ~~that~~upon the ~~milestones~~successful ~~will~~commercialization of a drug candidate for which there can be ~~met~~no ~~and~~assurance. Therefore, there can be no assurance that we will ever receive the milestone payments or royalty payments from such partnerships/collaborations.

Our Chairman of the Board and other members of our Board beneficially owns a substantial portion of our outstanding common stock and Series C Preferred Stock resulting in ownership by him of a significant percentage of our voting power, which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our company.

The concentration of ownership of our stock could discourage or prevent a potential takeover of our company that might otherwise result in an investor receiving a premium over the market price for his shares. Our Chairman of the Board owns 164,284 shares of our common stock, 685,704 shares of the Series C Preferred Stock, which shares have the right to 2,057,112 votes and exercisable options, representing beneficial ownership of 16.9% of our outstanding shares of common stock and 25.3% of our voting power. In addition, the holders of the Series C Preferred Stock have the right to elect one director to our Board of Directors and have certain consent rights. In addition, the directors as a group beneficially own 2,671,662 shares of our common stock, 757,132 shares of the Series C Preferred Stock, which shares have the right to 2,271,396 votes and exercisable warrants and options, representing beneficial ownership of 32.0% of our outstanding shares of common stock and 34.0% of our voting power. Accordingly, our Chairman of the Board alone and our Board members together would have significant influence over the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares of our securities, you may have no effective voice in the management of our company. Such significant influence over control of our company may adversely affect the price of our common stock. Our Chairman of the Board as well as our board of directors may be able to significantly influence matters requiring approval by our stockholders, including the election of directors, as well as mergers or other business combinations which require the vote of a majority of our outstanding shares. Such significant influence may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

We may not be able to utilize our tax net operating loss carry-forwards to offset future taxable income.

At December 31, ~~2017~~2018 we had approximately $2028,~~624~~041,000 in tax net operating loss carry-forwards available to offset future taxable income, thereby potentially reducing our future tax expense/liabilities. However, these tax net operating loss carry-forwards may be limited in accordance with IRC Section 382 following a more than 50 percentage point change in ownership, in aggregate during any three -year look-back period. This potential limitation on our ability to use our tax net operating loss carry-forwards to offset future taxable income could result in increased tax expense/liabilities and decreased net earnings. These loss carry-forwards expire through 2034 if unused.

We must expend a significant amount of time and resources to develop new products, and if these products do not achieve commercial acceptance, our operating results may suffer.

We expect to spend a significant amount of time and resources to develop new products, the molecules we own, new products and refine existing products and have spent significant time and money developing our XRpro® instruments. We commenced development of our XRpro® instruments in the year 2006 and since then have developed four enhanced versions of our original instrument; each enhancement was developed over an approximate two-year period of time. We ~~enhance our XRpro® instruments on a regular basis, including recent improvements to the throughput capabilities of the instrument, increasing production efficiency.~~ We may also be required to make modifications or enhancements at the request of our customers. Our expense for research and development salaries for the year ended December 31, ~~2017~~2018 was $32,~~328~~187,~~843~~ 190 and for the year ended December 31, ~~2016~~2017 was $13,~~200~~328,~~223~~843, most of which was used to develop assays for commercial applications. In light of the long product development cycles inherent in our industry, any developmental expenditure will typically be made well in advance of the prospect of deriving revenues from the sale of new ~~products~~services. Our ability to commercially introduce and successfully market new products will be subject to a wide variety of challenges during this development cycle that could delay introduction of these products. In addition, since our potential customers are not expected to be obligated by long-term contracts to purchase our ~~products~~services, our anticipated ~~product~~ services orders may not materialize, or orders that do materialize may be canceled. As a result, if we do not achieve market acceptance of ~~new~~services ~~products~~we provide, our operating results will suffer. Our ~~products~~services may also be priced higher than ~~competitive~~our ~~products~~competitors, which may impair commercial acceptance. We cannot predict whether new ~~products~~services that we expect to introduce will achieve commercial acceptance.

~~Our~~If ~~Chairman~~we ofdeliver ~~the~~services ~~Board~~with ~~beneficially~~defects, ~~owns a substantial portion of~~ our ~~outstanding~~credibility ~~common~~will ~~stock~~be harmed and asthe ~~well~~sales ~~as a significant percentage of our voting power, which may limit your ability~~ and ~~the~~market ~~ability~~acceptance of our ~~other~~services ~~stockholders,~~will ~~whether acting alone or together, to propose or direct the management or overall direction of our company~~decrease.

~~The~~Our ~~concentration~~services ofare ~~ownership~~complex ofand ~~our~~may ~~stock~~at ~~could discourage or prevent a potential~~times ~~takeover~~contain oferrors, ~~our~~defects ~~company~~and ~~that~~bugs ~~might~~when ~~otherwise~~introduced. ~~result~~If in ~~an investor receiving a premium over~~ the ~~market price for his shares. Our Chairman of the Board owns 164~~future,~~284~~ ~~shares~~we ofdeliver ~~our~~services ~~common~~with ~~stock~~errors, ~~571,428~~defects ~~shares~~or ~~of the Series C Preferred Stock~~bugs, ~~which~~our ~~shares have~~credibility and the ~~right~~market toacceptance ~~1,714,284 votes~~ and ~~exercisable~~sales ~~options, representing beneficial ownership~~ of ~~13.3% of~~ our ~~outstanding~~services ~~shares~~would ~~of common~~be ~~stock and 23~~harmed.2% ~~of our voting power. In addition~~Further, ~~the~~if ~~holders of the Series C Preferred Stock have the right to elect one director to~~ our ~~Board~~services ofcontain ~~Directors and have certain consent rights. In addition~~errors, ~~the~~defects ~~directors~~or ~~as a group beneficially own 2~~bugs,~~586,240~~ ~~shares~~we ofmay ~~our~~be ~~common~~required ~~stock, 571,428 shares of the Series C Preferred Stock, which shares have the right~~ to ~~1,714,284~~expend votes and exercisable warrants and options, representing beneficial ownership of 31.6% of our outstanding shares of common stock and 31% of our voting power. Accordingly, our Chairman of the Board and our Board members alone and together with our directors would have significant ~~influence~~capital ~~over the election of our directors~~ and ~~the~~resources ~~approval~~to ofalleviate ~~actions~~such ~~for which the approval of our stockholders is required~~problems. IfDefects ~~you~~could ~~acquire~~also ~~shares~~lead ofto ~~our~~product ~~securities, you may have no effective voice in the management of our company. Such significant~~liability ~~influence~~as ~~over~~a ~~control~~result of ~~our~~product ~~company~~liability ~~may~~lawsuits ~~adversely~~against ~~affect~~us ~~the~~or ~~price~~against of our ~~common stock~~customers. ~~Our~~We ~~Chairman of the Board as well as our board of directors~~ may beagree ~~able~~ to ~~significantly~~indemnify ~~influence matters requiring approval by~~ our ~~stockholders,~~customers ~~including~~in ~~the election~~some ofcircumstances ~~directors,~~against asliability ~~well~~arising asfrom ~~mergers~~defects orin ~~other business combinations which require the vote of a majority of~~ our ~~outstanding shares~~services. ~~Such~~ ~~significant~~In ~~influence may also make it difficult for our stockholders to receive a premium for their shares of our common stock in~~ the event weof ~~merge with~~ a ~~third~~successful ~~party~~product orliability ~~enter~~claim, ~~into different transactions which require stockholder approval. These~~we ~~provisions~~ could ~~also limit the price that investors might~~ be ~~willing~~obligated to pay insignificant ~~the future for shares of our common stock~~damages.

~~If we deliver products or services with defects, our credibility will be harmed and the sales and market acceptance of our products will decrease.~~14

Our products and services are complex and may at times contain errors, defects and bugs when introduced. If in the future, we deliver products or services with errors, defects or bugs, our credibility and the market acceptance and sales of our products would be harmed. Further, if our products or services contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such problems. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We may agree to indemnify our customers in some circumstances against liability arising from defects in our products or services. In the event of a successful product liability claim, we could be obligated to pay significant damages.

Most of our potential customers are from the pharmaceutical and biotechnology sector and are subject to risks faced by those industries.

We expect to derive a significant portion of our future revenues from sales to customers in the pharmaceutical and biotechnology sector, which includes governments and private companies. We expect a substantial part of our future revenue to be derived from pharmaceutical companies~~, including Pfizer, GSK and Sanofi~~. As a result, we will be subject to risks and uncertainties that affect the pharmaceutical and biotechnology industries, such as availability of capital and reduction and delays in research and development expenditures by companies in these industries, pricing pressures as third-party payers continue challenging the pricing of medical products and services, government regulation, and the uncertainty resulting from technological change.

In addition, our future revenues may be adversely affected by the ongoing consolidation in the pharmaceutical and biotechnology industries, as well as decisions of pharmaceutical companies to conduct the services we provide in house, which would reduce the number of our potential customers. Furthermore, we cannot assure you that the pharmaceutical and biotechnology companies that may be our customers will not develop their own competing products or capabilities, or choose our competitors’ technology instead of our technology.

Many of our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our ~~products and~~ services.

We operate in a highly competitive industry and face competition from companies that design, manufacture and market instruments for use in the life sciences research industry, from genomic, pharmaceutical, biotechnology and diagnostic companies and from academic and research institutions and government or other publicly-funded agencies, both in the United States and elsewhere. We may not be able to compete effectively with all of these competitors. Many of these companies and institutions have greater financial, engineering, manufacturing, marketing and customer support resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of ~~products~~services, which could impair sales of our ~~products~~services. Moreover, there has been significant merger and acquisition activity among our competitors and potential competitors. These transactions by our competitors and potential competitors may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs. Many of our potential customers are large companies that require global support and service, which may be easier for our larger competitors to provide. Many of the large pharmaceuticals companies have the financial resources to conduct the services we provide internally.

We believe that competition within the markets we serve is primarily driven by the need for innovative products that address the needs of customers. We attempt to counter competition by seeking to develop new ~~products~~services and provide quality, cost-effective ~~products and~~ services that meet customers’ needs. We cannot assure you, however, that we will be able to successfully develop new ~~products~~ services or that our existing or new ~~products and~~ services will adequately meet our potential customers’ needs.

Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and frequent new product and service introductions characterize the markets for our ~~products~~services. To remain competitive, we may be required to develop new ~~products~~ services and periodically enhance our existing services ~~products~~ in a timely manner. We may face increased competition as new companies enter the market with new technologies that compete with our ~~products and future products, and our~~ services and future services. We cannot assure you that one or more of our competitors will not succeed in developing or marketing technologies products or services that are more effective or commercially attractive than our ~~products or future products, or our~~ services or future services, or that would render our technologies ~~and products~~ obsolete or uneconomical. Our future success will depend in large part on our ability to to maintain a competitive position with respect to our current and future technologies, which we may not be able to do. In addition, delays in the ~~launch of our new products or the~~ provision of our services may result in loss of market share due to our customers’ purchases of competitors’ ~~products or~~ services during any delay.

We are dependent upon ~~one~~equipment ~~vendor~~ manufacturers for consumables.

The consumables (i.e., chips or plates) used in our equipment upon which we conduct high throughput electrophysiology experiments are manufactured and sold by the same vendor who manufactures the equipment. Although we believe other vendors could provide these consumables, we have no assurance as to timing or price. Should this vendor fail to deliver the consumables in a timely manner this could adversely affect our assay services operations.

We depend on our key personnel, the loss of whom would impair our ability to compete.

We are highly dependent on the employment services of key management, engineering and scientific staff. The loss of the service of any of these persons could seriously harm our ~~product~~service ~~development~~offerings and commercialization efforts. In addition, research, ~~product~~ scientific and biological development and commercialization will require additional skilled personnel in areas such as chemistry and biology, and software and electronic engineering and recruitment and retention of personnel, particularly for employees with technical expertise, is uncertain. If we are unable to hire, train and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced. Since our facilities are located in two specific cities, it may be difficult for us to attract employees in the cities in which our facilities are located. The inability to retain and hire qualified personnel could also hinder the planned expansion of our business and may result in us relocating some or all of our operations.

We ~~have initiated and~~ may in the future need to initiate lawsuits to protect or enforce our patents and other proprietary rights, which would be expensive and, if we lose, may cause us to lose some of our intellectual property rights, which would reduce our ability to compete in the market.

Our success will depend in part upon protecting our technology from infringement, misappropriation, duplication and discovery, and avoiding infringement and misappropriation of third party rights. We intend to rely, in part, on a combination of patent and contract law to protect our technology in the United States and abroad.

The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:

●

the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;

●

the claims of any patents which are issued may not provide meaningful protection;

●

we may not be able to develop additional proprietary technologies that are patentable;

●

the patents licensed or issued to us or our customers may not provide a competitive advantage;

●

other companies may challenge patents licensed or issued to us or our customers;

●

patents issued to other companies may harm our ability to do business;

●

other companies may independently develop similar or alternative technologies or duplicate our technologies; and

●

other companies may design around the technologies we have licensed or developed.

There can be no assurance that any of our patent applications or licensed patent applications will issue or that any patents that may issue will be valid and enforceable. We may not be successful in securing or maintaining proprietary patent protection for our products and technologies that we develop or license. In addition, our competitors may develop products similar to ours using methods and technologies that are beyond the scope of our intellectual property protection, which could reduce our anticipated sales. While some of our ~~products~~technologies have proprietary patent protection, a challenge to these patents can subject us to expensive litigation. Litigation concerning patents, other forms of intellectual property, and proprietary technology is becoming more widespread and can be protracted and expensive and distract management and other personnel from performing their duties.

We also rely upon trade secrets, unpatented proprietary know-how, and continuing technological innovation to develop a competitive position. If these measures do not protect our rights, third parties could use our technology, and our ability to compete in the market would be reduced. In addition, employees, consultants and others who participate in the development of our ~~products~~technologies may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries and our trade secrets may become known through other means not currently foreseen by us. We cannot assure you that others will not independently develop substantially equivalent proprietary technology and techniques or otherwise gain access to our trade secrets and technology, or that we can adequately protect our trade secrets and technology.

There can be no assurance that third parties will not assert infringement or other claims against us with respect to rights to any of our products. Litigation to protect and defend the rights to our licensed technology or to determine the validity of any third-party claims could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is determined in our favor. If we determine that additional rights are necessary for the development of our product(s) and further determine that a license to additional third-party rights is needed, there can be no assurance that we can obtain a license from the relevant party or parties on commercially reasonable terms, if at all. We could be sued for infringing patents or other intellectual property that purportedly cover products and/or methods of using such products held by persons other than us. Litigation arising from an alleged infringement could result in removal from the market, or a substantial delay in, or prevention of, the introduction of our products, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Additionally, in order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings. Litigation may be necessary to:

●

assert claims of infringement;

●

enforce our patents;

●

protect our trade secrets or know-how; or

●

determine the enforceability, scope and validity of the proprietary rights of others.

Lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. They would put our licensed patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. We may also provoke third parties to assert claims against us. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain. If initiated, we cannot assure you that we would prevail in any of these suits or that the damages or other remedies awarded, if any, would be commercially valuable. During the course of these suits, there could be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors were to perceive any of these results to be negative, our stock price could decline.

We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.

We could be the subject of complaints or litigation from customers alleging product quality or operational concerns. Litigation or adverse publicity resulting from these allegations could materially and adversely affect our business, regardless of whether the allegations are valid or whether we are liable. We currently do not have product liability insurance coverage, and even if there was such coverage, there would be no assurance that such coverage would be sufficient to properly protect us. Further, claims of this type, whether substantiated or not, may divert our financial and management resources from revenue generating activities and the business operation.

We are subject to the risks of doing business internationally.

We currently offer our services to companies located outside of the United States, and therefore our business is subject to risks associated with doing business internationally, including:

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trade restrictions and changes in tariffs;

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the impact of business cycles and downturns in economies outside of the United States;

● unexpected changes in regulatory requirements that may limit our ability to export our ~~products~~services or sell into particular jurisdictions;

●

import and export license requirements and restrictions;

● difficulties in maintaining effective communications with ~~employees and~~ customers due to distance, language and cultural barriers;

●

disruptions in international transport or delivery;

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difficulties in protecting our intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States;

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difficulties in enforcing agreements through non-U.S. legal systems;

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longer payment cycles and difficulties in collecting receivables; and

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potentially adverse tax consequences.

If any of these risks materialize, our international sales could decrease and our foreign operations could suffer.

We may acquire other businesses or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.

As part of our business strategy, we may pursue acquisitions of businesses and assets. To date we have made two acquisitions, the acquisition of certain of the assets of ~~Icagen~~Pfizer NCResearch and the acquisition of the Tucson Facility from Sanofi. We also may pursue strategic alliances and joint ventures that leverage our technology and industry experience to expand our offerings or other capabilities. Though certain company personnel have business development and corporate transaction experience, including with licensing, and acquisitions, and strategic partnering, as a company we have limited experience with forming strategic alliances and joint ventures. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume known liabilities as well as unknown or contingent liabilities. Any future acquisitions also could result in us incurring significant debt or contingent liabilities as we did in the past, significant write-offs or ~~the~~ the incurrence of debt ~~and contingent liabilities~~, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. Integration of an acquired company also may disrupt ongoing operations and require management resources that would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a material negative effect on our results of operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any acquisition, technology license, strategic alliance or joint venture.

To finance any acquisitions or joint ventures, we may choose to issue shares of our ~~Common~~common ~~Stock~~stock as consideration, which would dilute the ownership of our stockholders. If the price of our ~~Common~~common ~~Stock~~stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.

The issuance of shares of common stock upon conversion of the Series C Preferred Stock would dilute the ownership of such holders and may adversely affect the market price of our common stock.

The conversion of the Series C Preferred Stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon conversion of the Series C Preferred Stock could adversely affect prevailing market prices of our common stock. Sales by such holders of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.

The holders of shares of the Series C Preferred Stock may exercise significant influence over us.

The holders of the Series C Preferred Stock will own approximately 15% of our shares of common stock on a fully diluted as-converted basis based on the number of shares of common stock outstanding as of the date hereof and have the right to votes or 31% of our outstanding voting securities.

In addition, under the terms of the Certificate of Designation that governs the Series C Preferred Stock, the Series C Preferred Stock generally ranks, with respect to liquidation, dividends and redemption, senior to other securities and, so long as any shares of Series C Preferred Stock remain outstanding, the approval of the holders of 75% of the Series C Preferred Stock outstanding at the time of approval is required in order for us to, among other things, (i) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend the Certificate of Designation; (ii) amend our Articles of Incorporation or bylaws in any manner that adversely affects any powers, preferences or rights of the Series C Preferred Stock; (iii) authorize or create any series or class of stock ranking as to redemption, distribution of assets upon a Liquidation Event (as defined in the Certificate of Designation) or dividends senior to, or otherwise pari passu with, the Series C Preferred Stock; (iv) declare or make any dividends other than dividend payments on the Series C Preferred Stock or other distributions payable solely in common stock; (v) authorize any increase in the number of shares of Series C Preferred Stock or issue any additional shares of Series C Preferred Stock; or (vi) enter into any agreement with respect to any of the foregoing.

The holders of Series C Preferred Stock will have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders.

Upon our liquidation, dissolution or winding up, the holders of the Series C Preferred Stock will be entitled to receive out of our assets, in preference to the holders of the common stock and any junior preferred stock, an amount per share equal to the greater of (i) the sum of the Accreted Value (as defined in the Certificate of Designation) plus an amount equal to all accrued or declared and unpaid dividends on the Series C Preferred Stock that have not previously been added to the Accrued Value, or (ii) the amount that such shares would have been entitled to receive if they had converted into common stock immediately prior to such liquidation, dissolution or winding up. In addition, upon consummation of a specified change of control transaction, each holder of Series C Preferred Stock will be entitled to have us redeem the Series C Preferred Stock at a price specified in the Certificate of Designation. These provisions may make it more costly for a potential acquirer to engage in a business combination transaction with us. Provisions that have the effect of discouraging, delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. If there are insufficient assets to pay in full such amounts, then the available assets will be ratably distributed to the holders of the Series C Preferred Stock in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common stock. The holders of Series C Preferred Stock also have a preferential right to receive cumulative dividends on the Accreted Value of each share of Series C Preferred Stock at an initial rate of 2% per annum, compounded quarterly.

In addition, the holders of the Series C Preferred Stock also have certain voting and conversion rights.

Our obligations to the holders of Series C Preferred Stock could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. These preferential rights could also result in divergent interests between the holders of shares of the Series C Preferred Stock and holders of our common stock.

It is difficult for us to determine the number of shares of common stock that we will be required to issue upon conversion of the Preferred Stock and exercise of our outstanding Warrants issued with the Preferred Stock.

Since the conversion price of our Preferred Stock issued in the March 2018 financing and the exercise price of the Purchaser Warrants issued in the March 2018 financing is subject to reduction if we issue certain future securities at prices that are lower than the conversion price of the Preferred Stock or exercise price of the Purchaser Warrants, we cannot at this time determine the number of shares of common stock that we will be required to issue upon conversion of the Preferred Stock or exercise of the Purchaser Warrants.

Our failure to fulfill all of our registration requirements may cause us to suffer damages, which may be very costly.

Pursuant to the terms of the registration rights agreement that we entered into with investors in our recent private placement offering, we are required to file a registration statement with respect to securities issued to them within a certain time period and maintain the effectiveness of such registration statement. The failure to do so could result in the payment of damages by us. There can be no assurance as to when this registration statement will be declared effective or that we will be able to maintain the effectiveness of any registration statement, and therefore there can be no assurance that we will not incur damages with respect to such agreements.

RISKS RELATED TO OUR DEBT OBLIGATIONS

The failure to comply with the terms of the ~~Convertible~~Term ~~Notes~~Loans and Credit Agreements could result in a default under the terms of the notes and, if uncured, it could potentially result in action against our pledged assets.

In ~~the~~our ~~May~~August ~~2017~~2018 debt financing, we ~~issued~~received aadvances ~~note~~ in the aggregate principal amount of $27,~~000~~250,000 (the “~~Company~~Icagen ~~Note~~Term Loan”) ~~together~~pursuant ~~with~~to a Credit ~~purchase~~Agreement ~~warrant~~that we entered into with the banks and other financial institutions from time to ~~purchase~~time ~~initially~~party thereto, as uplenders (collectively, the “Icagen Lenders”) and Perceptive Credit Holdings II, LP, a Delaware limited partnership (“Perceptive”), as administrative agent for the Icagen Lenders (the “Icagen Credit Agreement) and issued a warrant to ~~857~~purchase 723,~~143~~550 shares of our common stock (the “Purchaser Warrants”), and Icagen-T received ~~issued~~advances ~~a convertible note~~ in the aggregate principal amount of $8,000,000 (the “Icagen-T ~~Note~~Term Loan, collectively with the Icagen Term Loan, the “Term Loans”) pursuant to a Credit Agreement with the Lenders and Perceptive as administrative agent (the “Icagen-T Credit Agreement, together with the Icagen Credit Agreement, the “Credit Agreements”), which ~~Convertible~~Term ~~Notes~~Loans are secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions. The ~~Convertible~~Term ~~Notes~~ Loans require us and Icagen-T, respectively, among other things, to maintain the security interest, make monthly installment payments, and meet various negative and affirmative covenants. IfIn addition, on August 13, 2018, we issued our 10% Subordinated Promissory Note in the aggregate principal amount of $500,000 due on the earlier of: (x) the date that is twelve (12) months after its issue date or (y) our receipt of the proceeds of funding from our next collaboration/partnership (the “10% Subordinated Promissory Notes”), of which notes in the principal amount of $300,000 remain outstanding and are subordinated in certain respects to the Term Loans. If we or Icagen-T fails to comply with the terms of the ~~Convertible~~Term ~~Notes~~ Loans and/or the related agreements, the senior note holder could declare a note default and if the default were to remain uncured, the secured creditor would have the right to proceed against any or all of the collateral securing their ~~Convertible~~Term ~~Note~~Loans, subject to the first priority of our secured creditors. Any action by our secured or unsecured creditors to proceed against our assets would likely have a serious disruptive effect on our business operations. If we fail to comply with the terms of the Subordinated Notes, the note holder could declare a note default and if the default were to remain uncured, the creditor would have the right to proceed against us, subject to the first priority of our secured creditors.

1718

Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash to service our debt depends on many factors beyond our control.

Our ability to make payments on and to refinance our debt, to fund planned capital expenditures and to maintain sufficient working capital depends on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or from other sources in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. If our cash flow and capital resources are insufficient to allow us to make scheduled payments on our debt, we may need seek additional capital or restructure or refinance all or a portion of our debt on or before the maturity thereof, any of which could have a material adverse effect on our business, financial condition or results of operations. We cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms or at all, or that the terms of that debt will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service obligations. If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely affect our financial condition and the value of our outstanding debt. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. There can be no assurance that we will be able to obtain any financing when needed.

Our substantial leverage may impair our financial condition and prevent us from fulfilling our obligations under the notes.

We have a substantial amount of indebtedness. As of December 31, ~~2017~~2018, ~~our~~principal ~~total~~ debt owed under ~~outstanding~~the ~~notes~~Term Loans and 10% Subordinated Promissory Notes was $1015.155 million (disclosed as $12.96 million net of debt discount of $2.59 million). Our substantial leverage could have important consequences to investors, including:

● making it more difficult for us to satisfy our obligations with respect to the ~~Convertible~~Term ~~Notes~~Loans and other debt;

●

increasing our vulnerability to general adverse economic and industry conditions by making it more difficult for us to react quickly to changing conditions;

●

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and other general corporate requirements;

●

requiring a substantial portion of our cash flow from operations for the payment of interest on our indebtedness and reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate requirements;

●

limiting our flexibility in planning for, or reacting to, changes in our business, and the industry in which we operate; and

●

placing us at a competitive disadvantage compared with our competitors that have less indebtedness.

Covenant restrictions under our indebtedness may limit our ability to operate our business.

The ~~Convertible~~Term ~~Notes~~Loans contain, and our future indebtedness agreements may contain covenants that ~~may~~ restrict our ability to finance future operations or capital needs or to engage in other business activities. The ~~Convertible~~Term ~~Notes~~Loans restrict our ability and the ability of our restricted subsidiaries to:

● incur, assume or guarantee additional Indebtedness (as defined in the ~~Convertible~~Term ~~Notes~~Loans);

●

repurchase capital stock;

●

make other restricted payments including, without limitation, paying dividends and making investments;

●

create liens;

●

sell or otherwise dispose of assets, including capital stock of subsidiaries;

●

enter into agreements that restrict dividends from subsidiaries;

●

enter into mergers or consolidations; and

●

enter into transactions with affiliates

A breach of any of these covenants would result in a default under our Convertible Notes. If an event of default under our Convertible Notes occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If we were unable to pay such amounts, the lenders could proceed against the collateral pledged to them. We have pledged our inventory, accounts receivable, cash, securities, other general intangibles and the capital stock of certain subsidiaries to the lenders. In addition, Icagen-T has pledged all of its assets, including the Facility, subject to the Sanofi lien. In such an event, we cannot assure you that we would have sufficient assets to pay amounts due on the Convertible Notes.

It may be difficult to realize the value of the collateral securing the Convertible Notes.

The collateral securing the Convertible Notes is subject to any and all exceptions, defects, encumbrances, liens and other imperfections as may be accepted by the collateral agent for the notes and any other creditors that also have the benefit of liens on the collateral securing the Convertible Notes from time to time, whether on or after the date the Convertible Notes are issued. The existence of any such exceptions, defects, encumbrances, liens or other imperfections could adversely affect the value of the collateral securing the notes as well as the ability of the collateral agent to realize or foreclose on such collateral.

No appraisals of any collateral were prepared in connection with the Convertible Notes and appraisals relied upon were not currently obtained. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers. By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. Although we believe that the fair market value of the collateral exceeds the principal amount of the indebtedness secured thereby and the prior lien thereon, we cannot assure you that the fair market value of the collateral exceeds the principal amount of the indebtedness secured thereby and the prior lien thereon. The value of the assets pledged as collateral for the notes could be impaired in the future as a result of changing economic conditions, our failure to implement our business strategy, competition or other future trends.

It is difficult for us to determine the number of shares of common stock that we will be required to issue upon conversion of the Convertible Notes, and exercise of our outstanding Warrants.

Since the conversion price of our Convertible Notes issued in the May 2017 debt financing and the exercise price of the Purchaser Warrants issued in the May 2017 debt financing is subject to reduction if we issue certain future securities at prices that are lower than the conversion price of the Convertible Notes or exercise price of the Purchaser Warrants, we cannot at this time determine the number of shares of common stock that we will be required to issue upon conversion of the Convertible Notes or exercise of the Purchaser Warrants.

We may not be able to make the redemption payments required by the Convertible Notes.

Upon a Fundamental Transaction (as defined in the Convertible Notes) or an Event of Default, we are required to offer to repurchase all outstanding Convertible Notes at various prices. The source of funds for that purchase of Convertible Notes will be our available cash or cash generated from our subsidiaries’ operations or other potential sources, including borrowings, sales of assets or sales of equity. We cannot assure you that sufficient funds from such sources will be available at the time of any Fundamental Transaction or Event of Default to make required repurchases of Convertible Notes tendered. If the holders of the Convertible Notes exercise their right to require us to repurchase all of the notes upon a Fundamental Transaction, the financial effect of this repurchase could cause a default under our other indebtedness, even if the Fundamental Transaction itself would not cause a default. Accordingly, it is possible that we will not have sufficient funds at the time of a Fundamental Transaction or Event of Default to make the required repurchase of the Convertible Notes.

Conversion of our outstanding Convertible Notes and exercise of the outstanding warrants will dilute the ownership interest of existing stockholders.

Any issuance by us of our common stock upon conversion of the outstanding Convertible Notes or exercise of the outstanding warrants will dilute the equity ownership interest of existing stockholders, including holders who have received shares of our common stock upon prior conversion of Convertible Notes or exercise of Purchaser Warrants. Additionally, the Convertible Notes and Purchaser Warrants include anti-dilution and “make whole” premium provisions that, if triggered, would result in an increase in the number of shares of our common stock issuable upon conversion of the Convertible Notes or exercise of the warrants. Conversion of Convertible Notes or exercise of warrants in circumstances where these provisions have operated could have a significantly greater dilutive effect.

Our failure to fulfill all of our registration requirements may cause us to suffer liquidated damages, which may be very costly.

In addition, the Credit Agreements also contain covenants requiring us and our subsidiaries to maintain cash and cash equivalents held in one or more accounts subject to the first priority perfected security interests of the lenders under the Credit Agreements of not less than (a) $1,000,000 following the closing date until March 31, 2019, and (b) $1,500,000 at all times thereafter. The Credit Agreements also provide for specified quarterly minimum consolidated net revenue covenants of us and our subsidiaries for the trailing twelve month period ended on each such calculation date during the term of the Credit Agreements. In addition, the Credit Agreement also provides that it is an event of default if certain key persons (Richie Cunningham and Timothy Tyson) do not remain in certain positions with our company. A breach of any of these covenants would result in a default under our Term Loans. If an event of default under our Credit Agreements occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If we were unable to pay such amounts, the lenders could proceed against the collateral pledged to them. We have pledged our inventory, accounts receivable, cash, securities, other general intangibles and the capital stock of certain subsidiaries to the lenders. In addition, Icagen-T has pledged all of its assets, including the facility located in Tucson, subject to the Sanofi lien. In such an event, we cannot assure you that we would have sufficient assets to pay amounts due on the Term Loans.

It may be difficult to realize the value of the collateral securing the Term Loans.

The collateral securing the Term Loans is subject to any and all exceptions, defects, encumbrances, liens and other imperfections as may be accepted by the collateral agent for the notes and any other creditors that also have the benefit of liens on the collateral securing the Term Loans from time to time, whether on or after the date the Term Loans are issued. The existence of any such exceptions, defects, encumbrances, liens or other imperfections could adversely affect the value of the collateral securing the notes as well as the ability of the collateral agent to realize or foreclose on such collateral.

No appraisals of any collateral were prepared in connection with the Term Loans and appraisals relied upon were not currently obtained. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers. By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. Although we believe that the fair market value of the collateral exceeds the principal amount of the indebtedness secured thereby and the prior lien thereon, we cannot assure you that the fair market value of the collateral exceeds the principal amount of the indebtedness secured thereby and the prior lien thereon. The value of the assets pledged as collateral for the notes could be impaired in the future as a result of changing economic conditions, our failure to implement our business strategy, competition or other future trends.

Our failure to fulfill all of our registration requirements may cause us to suffer liquidated damages, which may be very costly.

Pursuant to the terms of the registration rights agreement that we entered into in connection with the Term Loans as well as our prior convertible note financing, we are required to file a registration statement with respect to securities issued to the Lenders upon their request within a certain time period and maintain the effectiveness of such registration statement. The failure to do so could result in the payment of damages by us. There can be no assurance as to when this registration statement will be declared effective or that we will be able to maintain the effectiveness of any registration statement, and therefore there can be no assurance that we will not incur damages with respect to such agreements.

RISKS ASSOCIATED WITH INVESTING IN OUR COMMON STOCK

~~Our~~The ~~financial~~issuance ~~statements~~of ~~may~~shares ~~not~~of becommon ~~comparable~~stock toupon ~~companies~~conversion ~~that~~of ~~comply~~the ~~with~~Series ~~public~~C ~~company~~Preferred ~~effective~~Stock ~~dates~~and existing warrants would dilute the ownership of such holders and may adversely affect the market price of our common stock.

WeThe ~~have~~conversion ~~elected~~of the Series C Preferred Stock to ~~use~~common stock would dilute the ~~extended~~ownership ~~transition~~interest ~~period~~of ~~for~~existing ~~complying~~holders ~~with~~of ~~new~~our orcommon stock, ~~revised~~and ~~accounting~~any ~~standards~~sales ~~under~~in ~~Section~~the ~~102(b)(2)~~ public market of the ~~Jobs~~common ~~Act,~~stock ~~that~~issuable ~~allows~~upon usconversion toof ~~delay~~ the ~~adoption~~Series ofC ~~new~~Preferred orStock ~~revised~~could ~~accounting~~adversely affect ~~standards~~prevailing ~~that~~market ~~have~~prices ~~different~~of ~~effective~~our ~~dates for~~common ~~public~~stock. ~~and~~Currently, ~~private~~we ~~companies~~have ~~until~~799,989 ~~those~~shares ~~standards~~of ~~apply~~Series C Preferred Stock outstanding that convert to ~~private~~799,989 ~~companies~~shares of common stock. AsSales by such holders of a ~~result~~substantial number of ~~this~~shares ~~election,~~of our ~~financial statements~~common ~~may~~stock ~~not~~in the bepublic ~~comparable~~market, toor ~~companies~~the perception that ~~comply~~such ~~with~~sales ~~public~~might ~~company~~occur, ~~effective~~could ~~dates~~have a material adverse effect on the price of our common stock.

The holders of shares of the Series C Preferred Stock may exercise significant influence over us.

The holders of the Series C Preferred Stock will own approximately 11% of our shares of common stock on a fully diluted as-converted basis based on the number of shares of common stock outstanding as of the date hereof and have the right to votes equal to 27% of our outstanding voting securities.

In addition, under the terms of the Certificate of Designation that governs the Series C Preferred Stock, the Series C Preferred Stock generally ranks, with respect to liquidation, dividends and redemption, senior to other securities and, so long as any shares of Series C Preferred Stock remain outstanding, the approval of the holders of 75% of the Series C Preferred Stock outstanding at the time of approval is required in order for us to, among other things, (i) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend the Certificate of Designation; (ii) amend our Articles of Incorporation or bylaws in any manner that adversely affects any powers, preferences or rights of the Series C Preferred Stock; (iii) authorize or create any series or class of stock ranking as to redemption, distribution of assets upon a Liquidation Event (as defined in the Certificate of Designation) or dividends senior to, or otherwise pari passu with, the Series C Preferred Stock; (iv) declare or make any dividends other than dividend payments on the Series C Preferred Stock or other distributions payable solely in common stock; (v) authorize any increase in the number of shares of Series C Preferred Stock or issue any additional shares of Series C Preferred Stock; or (vi) enter into any agreement with respect to any of the foregoing.

The holders of Series C Preferred Stock will have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders.

Upon our liquidation, dissolution or winding up, the holders of the Series C Preferred Stock will be entitled to receive out of our assets, in preference to the holders of the common stock and any junior preferred stock, an amount per share equal to the greater of (i) the sum of the Accreted Value (as defined in the Certificate of Designation) plus an amount equal to all accrued or declared and unpaid dividends on the Series C Preferred Stock that have not previously been added to the Accreted Value, or (ii) the amount that such shares would have been entitled to receive if they had converted into common stock immediately prior to such liquidation, dissolution or winding up. In addition, upon consummation of a specified change of control transaction, each holder of Series C Preferred Stock will be entitled to have us redeem the Series C Preferred Stock at a price specified in the Certificate of Designation. These provisions may make it more costly for a potential acquirer to engage in a business combination transaction with us. Provisions that have the effect of discouraging, delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. If there are insufficient assets to pay in full such amounts, then the available assets will be ratably distributed to the holders of the Series C Preferred Stock in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common stock. The holders of Series C Preferred Stock also have a preferential right to receive cumulative dividends on the Accreted Value of each share of Series C Preferred Stock at an initial rate of 12% per annum, compounded quarterly.

In addition, the holders of the Series C Preferred Stock also have certain voting and conversion rights.

It is difficult for us to determine the number of shares of common stock that we will be required to issue upon conversion of the Series C Preferred Stock and exercise of our outstanding warrants issued with the Series C Preferred Stock.

Since the conversion price of our Series C Preferred Stock and the exercise price of many of our outstanding warrants issued are subject to reduction if we issue certain future securities at prices that are lower than the conversion price of the Series C Preferred Stock or exercise price of the warrants, we cannot at this time determine the number of shares of common stock that we will be required to issue upon conversion of the Series C Preferred Stock or exercise of the warrants.

Our failure to fulfill all of our registration requirements may cause us to suffer damages, which may be very costly.

Pursuant to the terms of the registration rights agreement that we entered into with investors in our recent private placement offerings, we are required to file a registration statement with respect to securities issued to them within a certain time period and maintain the effectiveness of such registration statement. The failure to do so could result in the payment of damages by us. There can be no assurance as to when this registration statement will be declared effective or that we will be able to maintain the effectiveness of any registration statement, and therefore there can be no assurance that we will not incur damages with respect to such agreements.

As a result of our being a public company, we are subject to additional reporting and corporate governance requirements that require additional management time, resources and expense.

We are obligated to file with the ~~SEC~~Securities and Exchange Commission annual and quarterly information and other reports that are specified in the ~~Securities~~ Exchange ~~Act~~ ~~of 1934, as amended (the “Exchange~~ Act”). We are also subject to other reporting and corporate governance requirements under the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder, all of which impose significant compliance and reporting obligations upon us. The costs of preparing and filing annual and quarterly reports and other information with the ~~SEC~~Securities and Exchange Commission has and will continue to cause our expenses to be higher than they would be if we were a privately-held company.

Our internal controls over financial reporting are not effective which could have a significant and adverse effect on our business and reputation.

We have identified a material weakness in our internal controls and can’t provide assurances that the weakness will be effectively remediated. As a public reporting company, we are in a continuing process of developing, establishing, and maintaining internal controls and procedures that allow our management to report on, and when applicable our independent registered public accounting firm to attest to, our internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002. Our management is required to report on our internal controls over financial reporting under Section 404. If we fail to achieve and maintain the adequacy of our internal controls, we would not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Our management has determined that the adequacy of our internal controls is not effective and is therefore unable to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, that must be performed may reveal other material weaknesses or that the material weaknesses described above have not been fully remediated. If we do not remediate any material weaknesses identified, or if other material weaknesses are identified or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated or could subsequently require restatement, we could receive an adverse opinion regarding our internal controls over financial reporting from our independent registered public accounting firm and we could be subject to investigations or sanctions by regulatory authorities, which would require additional financial and management resources, and the market price of our stock could decline.

Future sales of our common stock and other securities by our existing shareholders after a public market is established could cause our stock price to decline.

We currently have 6,393,107 shares of our common stock outstanding and ~~571~~799,~~428~~989 shares of the Series C Preferred Stock outstanding that are currently convertible into ~~571~~799,~~428~~989 shares of our common stock. All of the common shares are eligible for resale under Rule 144 and the shares issuable upon conversion of the Series C Preferred Stock ~~will~~are be eligible for resale under Rule 144 ~~six (6) months after their issuance date~~; however, 792,762 shares of common stock and ~~571~~799,~~428~~989 shares currently issuable upon conversion of the Series C Preferred Stock are held by affiliates and are subject to certain volume limitations and secondly, Rule 144 requires that the shares be sold in “broker’s transactions” which is not possible before a public market for the common stock is established. If our shareholders were to sell substantial amounts of our common stock in the public market at the same time, the market price of the common stock could decrease significantly due to an imbalance in the supply and demand of our common stock. Even if they do not actually sell the stock, the perception in the public market that our shareholders might sell significant shares of the common stock could also depress the market price of the common stock.

A decline in the future publicly traded price of the shares of common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities and may cause you to lose part or all of your investment in our shares of common stock.

We do not expect to pay dividends on our common stock in the foreseeable future.

We do not expect to pay dividends on our common stock for the foreseeable future, and we may never pay dividends. In addition, the covenants contained in the ~~Convertible~~Term ~~Notes~~Loans prohibit the payment of any dividends. Consequently, the only opportunity for common ~~stockholders~~ stockholders to achieve a return on their investment may be if a trading market develops and common stockholders are able to sell their shares for a profit or if our business is sold at a price that enables ~~Common~~common stockholders to recognize a profit. We currently ~~intend~~ intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash ~~dividends~~ dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business. At the present time, there is no trading market for our shares. Therefore, holders of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.

2022

Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing suit against an officer or director.

Our certificate of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director or officer, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director or officer for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director or officer.

We are responsible for the indemnification of our officers and directors.

Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our certificate of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.

Our common stock is not currently traded on any market and there can be no assurance that an active trading market for the common stock will ever be established

The common stock is not currently traded on any market and therefore no public market for our common stock exists. In addition, no assurance can be given that an active trading market for the common stock will ever be established. Even if a public market for our common stock is established on a securities exchange, we cannot predict the extent to which investors’ interests will lead to an active trading market for our common stock or whether the market price of our common stock will be volatile or exceed the price paid by investors for the common stock or the exercise price of our warrants outstanding. If an active trading market does not develop, investors will continue to have difficulty selling any of our common stock. There may be limited market activity in our stock and we are likely to be too small to attract the interest of many brokerage firms and analysts. If we trade on Over-The-Counter (“OTC ”) markets, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including ~~mutual~~ mutual funds as well as individual investors, follow a policy of not investing in OTC stocks and certain major brokerage firms ~~restrict~~ restrict their brokers from recommending OTC stocks because they are considered speculative, volatile, thinly traded and the market ~~price~~ price of the common stock may not accurately reflect the underlying value of our company. The market price of our common stock ~~could~~ could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us or competitors, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

We may seek to raise additional funds in the future, which may be dilutive to stockholders or impose operational restrictions.

If our revenue from operations together with the proceeds of our recent debt financing ~~and this offering~~ are not sufficient to cover our operating expenses, we will need to raise additional capital. If we raise additional capital through the issuance of equity or of debt securities, the percentage ownership of our current stockholders will be reduced. We may also enter into strategic transactions, issue equity as part of license issue fees to our licensors, compensate consultants or settle outstanding payables using equity that may be dilutive. Our stockholders may experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock.

The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

The ~~SEC~~Securities and Exchange Commission has adopted regulations which generally define a “penny stock” to be any equity security that has a market price, as therein defined, of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. Additionally, if the equity security is not registered or authorized on a national securities exchange that makes certain reports available, the equity security may also constitute a “penny stock.” If our common stock becomes traded on a securities market or exchange, as long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker- dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include: (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) boiler room practices ~~involving~~ involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.

We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock.

If a trading market develops for our common stock, itwe will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. However, security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock, which may adversely affect the market price of our common stock. If equity research analysts do provide research coverage of our common stock, the price of our common stock could decline if one or more of these analysts downgrade our common stock or if they issue other unfavorable commentary about us or our business. If one or more of these analysts’ ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult.

We have adopted, and may in the future adopt, certain measures that may have the effect of delaying, deferring or preventing a takeover or other change in control of our Company that a holder of our common stock might not consider in its best interest. Our certificate of incorporation and bylaws contain provisions which may have anti-takeover effects. These include the authority to issue blank check preferred stock, and providing that vacancies on the board of directors may be filled by the existing directors then in office, although less than a quorum.

In addition, we are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The operation of Section 203 may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.

Item 1B. Unresolved Staff Comments

~~None~~Not applicable.

Item 2. Properties

Durham, North Carolina

~~The Company~~ We entered into an asset purchase agreement with ~~Icagen,~~Pfizer ~~Inc.~~Research, aan indirect subsidiary of Pfizer, Inc., whereby certain assets were acquired from ~~Icagen,~~Pfizer ~~Inc~~Research., ~~the~~The agreement included the sub-letting of premises located at Research Triangle Park, Durham, North Carolina with annual calendar year escalations of 3.5%. The lease terminates on April 30, 2019. The rental expense for the years ~~year~~ ended December 31, 2018 and 2017 amounted to $200,404 and $198,820, respectively. We believe that we have adequate space for our anticipated needs.

Tucson, Arizona

~~The~~We ~~Company~~ entered into an Asset Purchase Agreement with Sanofi US Services, Inc., pursuant to which Icagen-T, aour wholly owned subsidiary ~~of the Company~~, acquired certain assets of Sanofi that include the Tucson Research Center, a two-story laboratory and office building with approximately 113,950 square feet of space located in the Town of Oro Valley, Pima County, Arizona and the land on which the Facility is built. We believe that we have adequate space for our anticipated needs.

Upon the closing of the Sanofi Asset Purchase Agreement, ~~on July 15, 2016,~~ Icagen-T executed a Deed of Trust providing Sanofi with a five year, $5 million lien on the Tucson Facility, securing performance of Icagen-T’s obligations under the MSA and the Sanofi Asset Purchase Agreement. The lien is subject to termination on the five year anniversary of the closing or upon the payment by Icagen-T of $5 million to Sanofi. The parties have also agreed to a Special Warranty Deed with a Right of Reverter (“Deed of Sale”) that will ~~revest~~revert into Sanofi all rights in the Tucson Facility in the event that Icagen-T sells the Tucson Facility at any time within the next five years and upon certain other events related to the leasing of space at the Tucson Facility. The reversion rights of Sanofi under the Deed of Sale will terminate after five years asor ~~well as~~ upon payment of ~~the~~ $5 million to extinguish the lien created by the Deed of Trust.

Item 3. Legal Proceedings

Dentons Dispute

On May 11, 2017, ~~the~~we ~~Company~~ entered into a Settlement and Release Agreement (the “2017 Settlement Agreement”) with Dentons US LLP (“Dentons”) relating to disputes arising between them under a Settlement and Release Agreement, dated July 5, 2013 (the “2013 Settlement Agreement”), a judgment thereafter obtained by Dentons on May 7, 2014 in the Circuit Court of Cook County, Illinois Lawsuit based upon the 2013 Settlement in the amount of $3,050,000, and a lawsuit filed by the Company in San Francisco Superior Court in or about April 2014 against Dentons. In connection with the 2017 Settlement Agreement, ~~the~~we ~~Company has~~ agreed to pay Dentons the sum of $1,400,000 over a fourteen month period, of which ~~$1,200,000~~was ~~has been~~ paid toin ~~date~~full. In addition, to secure ~~its~~our obligations under the Agreement, ~~the~~we ~~Company~~ executed and delivered to Dentons a Confession of Judgment Affidavit in Support of Confession of Judgment in the amount of $3,891,549~~.32~~, representing the amount of the Judgment Dentons had obtained plus the costs of suit and interest accrued through May 15, 2017. The Confession of Judgment iswas ~~not to be filed unless the Company defaults on its obligations under the Agreement and it will be~~ returned to ~~the~~us ~~Company~~unfiled upon our payment in full ~~under~~or the ~~Agreement~~$1,400,000. The Agreement included mutual releases of claims each party had against the other and the parties also agreed to dismiss the litigation between them with prejudice; ~~provided, that Dentons’ obligations commence after it has received $500,000 of the payments from the Company described above.~~

Item 4. Mine Safety Disclosures

Not applicable.

2225

PART II

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

Our common stock is not currently trading on any established market ~~and neither is the Series C Preferred Stock~~.

As of April 1311, ~~2018~~2019, there were ~~266~~260 holders of our common stock and 04 holders of our Preferred Stock.

Dividend Policy

We have never paid any cash dividends on our common stock to date, and do not anticipate paying such cash dividends in the foreseeable future. Whether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Delaware corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.

Equity Compensation Plan Information

See “Item 11 – —Executive Compensation” for equity compensation plan information.

Recent Sales of Unregistered Securities

We did not sell any equity securities during the fiscal year ended December 31, ~~2017~~2018 in transactions that were not registered under the Securities Act, other than as ~~disclosed above or as~~ previously disclosed in our filings with the Securities and Exchange Commission.

Issuer Purchases of Equity Securities

There were no issuer purchases of equity securities during the fiscal year ended December 31, ~~2017~~2018.

Performance Graph and Purchases of Equity Securities

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

Item 6. Selected Financial Data

~~Not~~The ~~applicable~~Company ~~because~~is ~~we are~~ a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

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

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those expressed, implied or anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.

Cautionary Note Regarding Forward-Looking Statements

This report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. Statements that are not historical facts are forward-looking statements. Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “sustain”, “on track”, “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward- looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.

Overview and Financial Condition

WeIcagen ~~are engaged in the advancement of early drug discovery. Our business model~~ is ~~divided~~a ~~into three sources of revenue: our integrated~~ drug discovery ~~services~~company ~~that we have~~with ~~been~~a ~~providing~~focus toin ~~third~~Neuroscience ~~parties since our inception; partnerships~~ and ~~collaborations~~Rare ~~with~~Disease. ~~third~~The ~~parties~~Icagen ~~that~~platform ~~should~~is ~~allow~~unique usas ~~to receive~~it ~~revenue~~integrates ~~for~~our ~~services~~current ~~provided~~state asof ~~well~~the asart ~~future~~drug ~~milestone~~discovery engine ~~and~~along ~~royalty~~with ~~payments~~an ~~and~~artificial ~~potential~~intelligence ~~licensing~~(AI) ~~fees~~computational ~~and~~platform ~~other~~that ~~related fees~~enables ~~paid~~an ~~for~~accelerated ~~the~~path ~~licensing~~to ofdrug ~~our technology~~discovery.

~~For~~Our ~~the~~business ~~past~~model ~~two~~is ~~years,~~focused aon ~~significant portion of our revenue has been derived from our operations as a partner~~ research ~~organization providing integrated drug discovery services~~ ~~with~~collaborations ~~unique expertise in the field of ion channel, transporter, neuroscience, muscle biology~~ and ~~rare~~partnerships ~~disease~~with ~~targets~~large ~~while also covering many other classes of drug discovery targets and therapeutic areas. Our customers are~~ pharmaceutical and biotechnology companies toand ~~whom~~foundations who we ~~offer~~partner ~~our~~with ~~industry-leading~~to ~~scientific~~support the ~~expertise~~discovery and ~~technologies~~development ~~to aid in their determination~~ of ~~which~~innovative ~~molecules to~~pharmaceuticals. ~~advance~~These ~~into~~revenue-generating ~~late~~partnerships ~~stage~~provide ~~preclinical~~current ~~studies~~funding ~~and ultimately clinical trials. The core of~~ while our ~~offering~~co-owned ispipeline ~~the discovery~~ of ~~pre-clinical~~ drug candidates ~~(PDC’s),~~provides ~~which are lead molecules (Leads) that are selected to enter into in-vivo studies during~~ the ~~pre-clinical phase~~potential of ~~drug~~additional ~~discovery.~~significant ~~We offer a full complement of pre~~long-~~clinical~~term ~~drug~~upside ~~discovery~~through ~~services~~milestone ~~which include; assay development technologies (including high throughput fluorescence, manual~~ and ~~automated electrophysiology and radiotracer flux assays), cell line generation,~~ ~~high-throughput~~royalty ~~and~~payments ~~ultra-high-throughput~~in ~~screening,~~new ~~medicinal chemistry, computational chemistry and custom assay services to our customers~~partnerships. ~~Our~~The ~~capabilities~~development ~~also include molecular biology~~ and ~~the~~commercialization ~~use~~expense of ~~complex~~these ~~functional~~assets ~~assays,~~is ~~electrophysiology,~~being ~~bioanalytics~~partially funded ~~and~~by ~~pharmacology. We believe that this integrated set of capabilities enhances~~ our ~~ability to help our customers identify drug candidates~~partners.

~~More~~For ~~recently,~~the wepast ~~have~~three ~~begun~~years, toa ~~focus~~significant onportion ~~partnership~~of ~~and~~our ~~collaboration~~revenue ~~opportunities~~has been derived from our operations as a partner research organization providing integrated drug discovery services with ~~third~~unique ~~parties~~expertise in the field of ion channel, transporter, neuroscience and werare disease targets while also covering many other classes of drug discovery targets and therapeutic areas. Our customers are ~~currently~~pharmaceutical inand ~~active~~biotechnology ~~negotiations~~companies to ~~regarding~~whom we offer our ~~first~~industry-leading scientific expertise and technologies to aid in their determination of which molecules to ~~such~~advance ~~collaboration~~into late stage preclinical studies and ultimately clinical trials. ~~This~~The ~~collaboration~~core of our offering is ~~expected~~the todiscovery ~~provide~~of uspre-clinical drug ~~with~~candidates an(PDC’s), ~~opportunity~~which are lead molecules (Leads) that are selected to ~~derive~~enter ~~revenue~~into ~~not~~in-vivo ~~only~~studies ~~from~~during ~~our~~the ~~standard~~pre-clinical ~~fees~~phase ~~for~~of ~~integrated~~drug ~~early~~discovery. We offer a full complement of pre-clinical drug discovery services ~~but~~which ~~also~~include; ~~from~~assay ~~future~~development ~~milestone~~technologies (including high throughput fluorescence, manual and ~~royalty~~automated ~~revenue~~electrophysiology ~~from~~and ~~product~~radiotracer ~~candidates~~flux ~~that~~assays), ~~may~~cell line generation, behigh-throughput ~~developed~~and ultra-high-throughput screening, medicinal chemistry, computational chemistry and ~~commercialized~~custom ~~with~~assay services to our ~~aid~~customers. WeOur ~~have~~capabilities ~~developed~~also ininclude ~~house~~molecular abiology ~~portfolio~~and the use of ~~nine~~complex ~~assets~~functional ~~targeting~~assays, ~~different~~electrophysiology, ~~indications~~bioanalytics ~~that~~and wepharmacology. We believe ~~would~~that bethis ~~ideal~~integrated ~~candidates~~set ~~for~~of ~~partnership~~capabilities ~~opportunities~~enhances our ability to help our customers identify drug candidates.

Since inception, we have financed our operations primarily through private sales of our securities, settlement of legal matters. We expect to continue to seek to obtain our required capital through the private sale of securities and revenue derived for the services we provide.27

More recently, we have begun to focus on partnership and collaboration opportunities with third parties, and we have entered into two such collaborations that provide us with an opportunity to derive revenue not only from our standard fees for integrated early discovery services but also from future milestone and royalty revenue from product candidates that may be developed and commercialized with our aid. We have developed in house a portfolio of assets targeting different indications that we believe would be ideal candidates for partnership opportunities.

Since inception, we have financed our operations primarily through private sales of our securities, settlement of legal matters and revenue we generate from the services we provide and upfront payments received from collaborations. We expect to continue to seek to obtain our required capital through the private sale of securities and revenue derived from the services we provide.

Subsequent to our acquisition of certain assets from Pfizer and Sanofi, a substantial portion of our revenue has been derived from our operations as a partner research organization from two commercial customers. We have also entered into Master Services Agreements (“MSA”) with other various pharmaceutical companies where we have agreed to perform certain services for them.

For the year ended December 31, ~~2017~~2018, ~~56.2%~~ 100% of our revenue was derived from ~~services~~commercial ~~sales, 42~~revenues.4% ~~was derived from deferred subsidy revenue and 1.4% was generated from Government revenue.~~ For the year ended December 31, ~~2016~~2017, 5956.52% ~~(2015 – 84%)~~ of our revenue was derived from ~~commercial~~ ~~services;~~commercial 36revenues, 42.74% was derived from ~~subsidies~~deferred ~~(2015~~subsidy –revenue ~~0%)~~ and ~~the remaining 3~~1.84% was generated from Government ~~revenues (2015 – 16%)~~revenue. Despite generating funds from commercial customers and ~~government grants~~collaborations/partnerships, we continue to experience losses and during 2018 raised money from the issuance of our Series C Preferred Stock, our Term Loans and our Subordinated Notes in order to fund our operations. We ~~believe~~ believe that our existing cash and cash equivalents, including the $25,000,000 up front fee that we received from Roche and the $2,800,000 that we raised from our recent sale of shares of Series C Preferred Stock, ~~and~~the ~~warrants~~$500,000 that we raised from the sale of our Subordinated Notes and the $15,250,000 that we raised from the sale of the Term Loans, of which $10,200,000 was used to repay ~~purchase~~our ~~common~~convertible ~~stock~~debt, will not be sufficient to meet our anticipated cash needs for the next four months. We will need to generate additional revenue from operations and/or obtain additional financing to pursue our business strategy, to respond to new competitive pressures or to take advantage of opportunities that may arise. These factors raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, ~~2017~~ 2018 with respect to this uncertainty. To meet our financing needs, we are considering multiple alternatives, including, but not limited to, additional equity financings, debt financings and/or funding from partnerships or collaborations. There can be no assurance that we will be able to complete any such transactions on acceptable terms or otherwise.

24Prior to our acquisition of the Icagen assets, substantially all of our revenue was derived from government grants related to the use of our XRpro technology. To date, we had been granted twenty-one grants and contracts from United States governmental agencies; of which nine were granted from the Department of Defense and twelve were granted from the National Institutes of Health. All grants and contracts have been completed and paid for in full.

~~Prior~~As a toresult ~~our acquisition~~ of the ~~Icagen assets,~~agreements ~~substantially~~that ~~all~~we ofentered ~~our~~into ~~revenue~~with ~~was~~Pfizer ~~derived~~Research ~~from~~we ~~government~~have ~~grants~~incurred ~~related~~significant toobligations including the ~~use~~obligation: (i) make additional payments in terms of ~~our~~the ~~XRpro~~Asset ~~technology.~~Purchase Toand ~~date~~Collaboration Agreement that we entered into on June 26, 2015 wewith ~~have~~Pfizer ~~been~~including ~~granted~~beginning ~~twenty-one~~in ~~grants~~2017, ~~and~~a ~~contracts~~quarterly ~~from~~earn ~~United~~out ~~States~~payment ~~governmental~~(the ~~agencies;~~“Earn ofOut ~~which~~Payment”) ~~nine~~of ~~were~~10% ~~granted~~of ~~from~~revenue earned during the ~~Department~~quarter, with a minimum payment of ~~Defense~~$250,000 ~~and~~per ~~twelve~~quarter, ~~were~~up ~~granted~~to ~~from~~a ~~the~~maximum ~~National~~aggregate ~~Institutes~~payment of ~~Health.~~$10,000,000, Of such ~~contracts~~minimum being reduced to $50,000 ~~twenty~~for ~~have~~the ~~been~~quarters ~~completed and~~ending weMarch ~~received~~2017 ~~payment~~to inDecember ~~full~~2018 ~~for~~and ~~all~~the ~~twenty~~difference ~~completed~~between ~~contracts.~~$250,000 ~~There~~or isthe ~~one~~quarterly amount ~~contract~~paid ~~from~~and the ~~National~~actual ~~Institutes~~calculation of ~~Health~~deferred purchase consideration at 10% of gross revenue per quarter is being deferred ~~under~~and ~~which~~paid weas ~~performed~~one ~~services~~lump ~~during~~sum with the ~~year~~payment being made for the quarter ended ~~December~~March 31, ~~2017~~2019, ~~this~~bearing ~~contract~~interest ~~was~~at ~~for~~12.5% ~~$600~~per annum,~~000~~ which ~~and~~interest ~~has~~is ~~been~~payable ~~fully~~quarterly; ~~invoiced as~~(iii) make minimum lease payments in terms of ~~December~~a ~~31,~~sub-lease ~~2017.~~agreement ~~The~~entered ~~NIH~~into ~~invited~~with usPfizer for tothe ~~submit~~period aJuly ~~Phase~~l, II2015 ~~SBIR~~to ~~application~~April ~~for~~30, ~~the~~2019 ~~completed~~with ~~contract~~annual escalations of ~~which~~3.5%, weestimated ~~are~~to ~~awaiting the~~be ~~outcome~~$66,950.

As a result of the agreements that we entered into with Pfizer and Sanofi, we have incurred significant obligations including the obligation ; (i) to continue to retain certain employees at our Icagen-T facility until July 15, 2018, which we estimate will require additional compensation of $4,459,000 at our Icagen-T facility; (ii) make additional payments in terms of the Asset Purchase and Collaboration Agreement that we entered into on June 26, 2015 with Pfizer including beginning in 2017, a quarterly earn out payment (the “Earn Out Payment”) of 10% of revenue earned during the quarter, with a minimum payment of $250,000 per quarter, up to a maximum aggregate payment of $10,000,000, such minimum being reduced to $50,000 for the quarters ending March 2017 to December 2018 and the difference between $250,000 or the quarterly amount paid and the actual calculation of deferred purchase consideration at 10% of gross revenue per quarter is being deferred and paid as one lump sum with the payment being made the quarter ended March 31, 2019, bearing interest at 12.5% per annum, which interest is payable quarterly; (iii) make minimum lease payments in terms of a sub-lease agreement entered into with Pfizer for the period July l, 2015 to April 30, 2019 with annual escalations of 3.5%, estimated to be $260,256.

We also have incurred obligations in connection with our litigations that resulted in significant payments by us during the year ended December 31, 2017. In terms of a Mutual Release and Assignment Agreement that we entered into with American Milling LP, we agreed to pay American Milling $800,000 of which $83,334 remains to be paid at December 31, 2017. In addition, we reached a Settlement and Release Agreement with Dentons pursuant to which we agreed to pay Dentons the sum of $1,400,000 over a period of fourteen months, of which $1,200,000 has been paid to date.

Discussions with respect to our operations included herein include the operations of our operating subsidiaries, Icagen Corp and Icagen-T, Inc. We have another two subsidiary companies, Caldera Discovery Inc. and XRpro Sciences Inc., which have always been dormant.

~~Results of Operations for the year ended December 31, 2017 and the year ended December 31, 2016~~28

Results of Operations for the year ended December 31, 2018 and the year ended December 31, 2017

Revenues

For the year ended December 31, ~~2017~~2018, we had revenues totaling $2213,~~656~~583,~~610 ($12~~218,~~735,867~~ all of which was from commercial ~~revenue,~~revenues ~~$ 9,600,000 was from subsidy revenue~~ and ~~$320,743 was from government grants), and~~ for the year ended December 31, ~~2016~~2017, we had revenues ~~totaling~~ totaling $1122,~~995~~656,~~377~~610 ($712,~~139~~735,~~394~~867 of which was from commercial revenue, $49,~~400~~600,000 was from subsidy revenue and $~~455~~320,~~983~~743 was from ~~government~~ government grants), ana ~~increase~~decrease of $109,~~661~~073,~~233~~392 or 8840.90%. The ~~increase~~decrease in revenue is due to ana ~~increase~~decrease in ~~commercial~~deferred ~~revenues~~subsidy of $59,~~596~~600,~~473;~~000, there was no deferred subsidy revenue ofduring $5the year ended December 31,~~200~~ 2018,~~000;~~ ~~and~~ a decrease in government ~~revenue~~grants of $~~135~~320,~~240. In the prior year~~743, ~~commercial revenues~~there ~~were~~was ~~$7,139,394~~no ~~(representing~~government ~~59.5%~~grant ofrevenue ~~our~~during ~~revenue);~~the ~~deferred~~year ~~subsidy~~ended ~~revenue~~December of31, $42018,~~400,000~~ ~~(representing~~offset ~~36.7%~~by ofan ~~our~~increase ~~revenue) and~~in ~~government~~commercial revenues ~~were~~of $~~455~~847,~~983,~~351 or ~~(representing 3~~6.87% ~~of our revenue)~~. The ~~increase~~ decrease in revenue over the prior year is primarily attributable to the following; i) ~~work~~cessation ~~performed~~of ~~for Sanofi under~~ the ~~MSA~~subsidy revenue ~~agreement~~received ~~that~~from weSanofi ~~entered~~initially ~~into~~to ~~with~~support ~~them upon~~ the ~~acquisition of certain assets and personnel at the~~ Tucson Facility, ~~amounting to~~in ~~$6,900,000~~the prior year; ii) ~~deferred~~the ~~subsidy~~completion ~~revenue from Sanofi~~ of ~~$9,600,000 recognized during~~ the ~~current~~remaining ~~period~~National Institutes toof ~~support~~Health ~~our~~government ~~operations and~~grant ~~maintain~~work ~~the~~during ~~facility~~2017; ~~and~~offset ~~employees~~by ~~and~~ iii) ~~commercial~~an increase in revenue ~~generated~~at ~~from~~both our ~~North~~Tucson ~~Carolina~~and ~~site~~North ~~increased by $1,114,254~~Carolina ~~over the prior year~~sites, orincluding byrevenues ~~31.2%.~~received Wefrom ~~continue~~our toCFF ~~increase~~collaboration ~~our~~agreement ~~customer~~which ~~base~~offset ~~during~~ the ~~current~~declining ~~year.~~revenues ~~Commercial revenue includes revenue~~ from 36Sanofi. ~~(2016~~The –upfront payment ~~32)~~received ~~customers,~~from ~~including~~Roche ~~four~~will ~~large~~be ~~pharma~~recognized ~~customers.~~as ~~The Government contract~~ revenue ~~was~~over ~~derived from~~a ~~one~~period ~~government~~of ~~contract~~time ~~which~~commencing ~~has~~in ~~terminated~~January ~~at December 31, 2017~~2019.

We continue to market our services to several pharmaceutical and biotechnology companies. We believe that we now have a comprehensive product offering and substantial credibility to offer a full range of products including the advantages and value propositions of the XRpro® technology. While we are optimistic about our prospects, there can be no assurance about whether or when our products will generate sufficient revenues with adequate margins in order for us to be profitable.

Cost of goods sold

Cost of goods sold totaled $119,~~175~~910,~~692~~ 569 and $611,~~371~~175,~~873~~692 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, ana ~~increase~~decrease of $41,~~803~~265,~~819~~ 123 or 7511.43%. Cost of goods sold is primarily comprised of direct expenses related to providing our services to our customers. These direct expenses include salary expenses directly related to our statements of work and research contracts including those of our scientific personnel expenses, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts.

● The salary expense included in cost of sales for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively was $65,~~880~~791,~~513~~963 and $46,~~558~~880,~~598~~513, ana ~~increase~~decrease of $21,~~321~~088,~~915~~550 or 5015.98%. This is primarily due to a reduction in the ~~inclusion~~number of ~~the~~personnel ~~Tucson~~at ~~site~~our ~~for~~Tucson facility, a ~~full~~reduction ~~year~~in ~~during~~bonus ~~the~~accruals ~~current~~and ~~year,~~ the ~~site~~number ~~was~~of ~~acquired~~personnel working on ~~July~~Sanofi 15projects, ~~2016~~partially offset by new business, including the Cystic Fibrosis collaboration agreement. For additional information regarding salary expense reference is made to the discussion of total salary expense in selling, general and administrative expenses below.

● The laboratory supplies and direct materials included in cost of sales for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively was $3,~~303~~334,~~311~~984 and $13,~~119~~303,~~379~~311, an increase of $231,~~183,932~~673 or ~~195.~~1.0%, the slight increase is ~~primarily~~ due to the ~~inclusion~~nature of the ~~Tucson~~work ~~site~~performed ~~for~~requiring ~~the~~more ~~full~~expensive ~~year~~seal ~~and~~chips anpartially ~~increase~~offset inby ~~laboratory~~more ~~supply~~effective ~~expense~~cost atcontrol ~~our~~over ~~Durham~~general ~~site based on the type of activity being performed at that site~~consumables.

● Outside contractors’ cost included in cost of sales for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, amounted to $~~991~~783,~~868~~622 and $~~693~~991,~~297~~868, ana ~~increase~~decrease of $~~298~~208,~~571~~246 or 4321.10% is due to, ~~(i)~~the ~~third~~reduction ~~party~~in ~~laboratory equipment maintenance contracts for~~ the ~~Tucson~~cost ~~Facility and (ii) costs~~ of ~~four~~ outside laboratory ~~personnel~~maintenance atcontracts, ~~the~~primarily ~~North~~at ~~Carolina~~our ~~\facility~~Tucson ~~who perform laboratory services for us on an ongoing basis~~Facility.

Gross profit

Gross profit was $113,~~480~~672,~~918~~649 and $511,~~623~~480,~~504~~918 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, ana ~~increase~~decrease of $57,~~857~~808,~~414~~269, or ~~104~~68.20%. The ~~increase~~decrease in gross profit is primarily due to the ~~increase~~cessation inof the ~~commercial~~Sanofi ~~revenue~~subsidy atwhich ~~the~~amounted ~~Tucson~~to ~~facility~~$9,600,000 ~~and~~in the ~~inclusion~~prior ofyear, ~~this~~after ~~facility~~factoring ~~for~~in the ~~full~~ ~~fiscal~~reduction ~~year~~of ~~during~~ the ~~current~~subsidy ~~year~~revenue, the ~~increase~~gross inprofit ~~commercial~~increased ~~revenues~~by at$1,791,731, ~~our~~primarily ~~North~~due ~~Carolina~~to ~~facility~~reduced ~~and~~labor ~~the~~costs ~~substantial~~and ~~deferred~~a reduction ~~subsidy~~in ~~revenue~~outside ~~generated~~contractors bycosts, as discussed above and slightly more profitable business conducted during the ~~Tucson~~current ~~facility~~year.

Selling, general and administrative expenses

Selling, general and administrative expenses totaled $1310,~~936~~309,~~542~~471 and $813,~~079~~936,~~663~~542 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, ana ~~increase~~decrease of $53,~~856~~627,~~879~~071 or 72 26.50%. ~~The increase is primarily due to the added expenses of the Tucson Facility for a full year in 2017 as opposed to the half year in 2016.~~

The major expenses making up selling, general and administrative expenses included the following:

	Year ended December 31,				Increase/			Percentage
	2017		2016		(decrease)			change
	2018		2017		(decrease)			change
Marketing and selling expenses	$	~~412~~69,~~122~~865	$	~~256~~412,~~078~~122	$	~~156~~(342,~~044~~257	)		60(83.90	)%
Payroll expense		41,~~228~~906,~~651~~406		24,~~567~~228,~~039~~651		1(2,~~661~~322,~~612~~245	)		64(54.79	)%
Research and development salaries		32,~~328~~187,~~843~~190		13,~~200~~328,~~223~~843		2(1,~~128~~141,~~620~~653	)		~~177~~(34.43	)%
Directors fees		220,000		220,000		-			-	%
Stock option compensation charge		~~645~~1,~~756~~515,824		~~512~~645,~~791~~756		~~132~~870,~~965~~068			25134.97	%
Legal fees		~~787~~349,~~685~~372		~~762~~787,~~977~~685		24(438,~~708~~313	)		3(55.26	)%
Consulting fees		~~551~~514,~~138~~446		~~397~~551,~~469~~138		~~153~~(36,~~669~~692	)		38(6.7	)%
Professional fees		~~109~~122,~~707~~008		77109,~~500~~707		3212,~~207~~301			4111.62	%
Facilities expense		2,~~662~~409,~~019~~687		12,~~313~~662,~~267~~019		1(252,~~348,752~~332	)		~~102~~(9.75	)%
Travel expenditure		~~310~~172,~~464~~230		~~228~~310,~~512~~464		81(138,~~952~~234	)		35(44.95	)%
Capital raising fee		~~76,000~~-		6876,~~700~~000		7(76,~~300~~000	)		10(100.60	)%
Other		604,157		475,107		129,050			27.2	%
Other expenses		842,443		604,157		238,286			39.4	%
	$	1310,~~936~~309,~~542~~471	$	813,~~079~~936,~~663~~542	$	5(3,~~856~~627,~~879~~071	)		72(26.50	)%

The ~~increase~~decrease in marketing expenditure over the prior period is primarily due toa ~~the~~change ~~employment~~in ofstrategy anwith ~~outside~~less ~~marketing~~reliance ~~company~~placed toon ~~assist in~~developing ~~our~~a ~~messaging~~comprehensive toContract ~~clients~~Research ~~and~~Organization to(“CRO”) ~~develop~~business amodel, therefore less marketing ~~strategy.~~effort ~~This~~was ~~has~~required during ~~been~~the ~~discontinued~~current ~~and~~year. In the prior year, we ~~expect~~had employed an outside marketing ~~costs~~company to assist in messaging to our potential ~~decrease~~customers ~~substantially~~and developing a marketing strategy.

Total salary expenses are allocated to the various expense categories detailed below depending on the level of activity of our employees on ~~government~~our ~~and~~ commercial projects, internal research and development expenses and administrative activities. An increase in activity on projects will result in an increase in salary expense charged to cost of ~~sales~~goods sold with a corresponding decrease in salary expense charged to selling, general and administrative expenses. A comparison of salary expenses is presented below.

Total salary expenditure for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively is included in the following expense categories:

	Year ended December 31,				Increase/			Percentage
	2017		2016		(decrease)			change
	2018		2017		(decrease)			change
Cost of sales	$	6,880,513	$	4,558,598	$	2,321,915			50.9	%
Cost of goods sold	$	5,791,963	$	6,880,513	$	(1,088,550	)		(15.8	)%
Selling, general and administrative expenses		41,~~228~~906,~~651~~406		24,~~567~~228,~~039~~651		1(2,~~661~~322,~~612~~245	)		64(54.79	)%
Research and development salaries		32,~~328~~187,~~843~~190		13,~~200~~328,~~223~~843		2(1,~~128~~141,~~620~~653	)		~~177~~(34.43	)%
	$	149,~~438~~885,~~007~~559	$	814,~~325~~438,~~860~~007	$	6(4,~~112~~552,~~147~~448	)		73(31.45	)%

The ~~increase~~ decrease in total salary expenditure for the year ended December 31, ~~2017~~2018 of $64,~~112~~552,~~417~~448 or 7331.45% is primarily due to the ~~acquisition~~ restructure of ~~the~~our ~~assets~~operations ~~and~~with ~~employees~~the termination of ~~the~~our ~~Tucson~~business ~~Facility~~development onteam ~~July~~due ~~15,~~to ~~2016.~~the Anchange ~~additional~~on 46our ~~employees,~~market ~~included~~focus infrom ~~the~~CRO ~~2017~~to ~~results for~~early astage ~~fully~~drug ~~year,~~discovery in the ~~employment~~prior of year, a VPrestructure of ~~Business~~our ~~Development~~management onteam ~~March 1, 2016~~ and the ~~employment~~streamlining of aoperations ~~Chief~~at ~~Business~~our ~~Development Officer~~Tucson insite. ~~August~~We ~~2016~~also asreduced ~~well~~our asbonus ~~the~~accrual related ~~employment~~to ofthe an2017 ~~additional~~and ~~two~~2018 ~~business~~fiscal ~~development~~years ~~heads~~to ~~during~~reflect the ~~first~~actual ~~half~~bonus ~~of 2017~~liability.

27The payroll expense charged to Selling, general and administrative expenses for the year ended December 31, 2018 decreased by $2,322,245. This decrease is primarily due to the termination of the business development team in the prior year and the restructure of our management team at our Tucson site, together with a reduction in the overall bonus accrual for management.

The payroll expense charged to Selling, general and administrative expenses for the year ended December 31, 2017 increased by $1,661,612. This increase is primarily due to the acquisition of the additional 7 administrative employees with the Tucson Facility, the employment of a VP of business development on March 1, 2016, a Chief Business Development Officer on August 22, 2016 and an additional two business development heads during the first half of 2017.30

The research and development salaries ~~increased~~ decreased by $21,~~128~~141,~~620~~653 primarily due to anthe ~~average~~streamlining of 17operations ~~employees working on internal research projects~~ at our Tucson facility. ~~The~~by ~~level~~the ofreduction ~~research~~in ~~undertaken~~staff isnumbers ~~dependent~~and ~~upon~~ the level ~~commercial~~of ~~opportunities~~scientific ~~that~~activity ~~are available~~ at both our Tucson Facility and ~~North~~our ~~Carolina~~Icagen NC sites. Atwith ~~times~~new ~~when~~customers ~~we have more commercial activities, we have less employees available to research~~ and ~~development and therefore~~ the ~~research~~Cystic ~~and~~Fibrosis ~~development expenses are lower~~Foundation.

~~The stock~~Directors’ ~~option~~cash ~~compensation~~fees ~~charge~~remained ~~increased by $132,965. The charge for each period is dependent upon~~ the ~~number~~same ofas ~~options issued, any new options issued,~~ the ~~value~~prior ~~of the options and the vesting schedule of these options, during the current~~ year, ~~options were~~ ~~issued~~with tono ~~certain~~increase ~~key~~in ~~members~~directors’ ofheadcount ~~management at both the Tucson~~ and ~~North~~with ~~Carolina~~approved ~~facilities,~~fees ~~the~~retained ~~increased~~at ~~compensation~~prior ~~expense from~~year ~~these grants were offset by options previously granted which became fully vested and fully amortized~~levels.

~~Legal fees~~The ~~increased~~stock option compensation charge increased by $24870,~~078~~068. ~~over~~The ~~the~~charge ~~prior~~for ~~year.~~each ~~The~~period ~~slight~~is ~~increase~~dependent isupon ~~made~~the upnumber of aoptions ~~net~~granted, ~~reduction~~any innew ~~litigation~~options ~~related~~issued, ~~expenditure~~the value of the options and the vesting schedule of ~~$349~~these options. During the current year,~~356~~ 1,005,000 ~~offset~~options byto anpurchase ~~increase~~shares inof ~~general~~common ~~corporate~~stock were ~~expenditure~~issued ofto ~~$329~~our directors,~~514~~ ~~primarily~~executive ~~related~~officers toand ~~the~~consultants. ~~GPB~~These ~~debt~~options ~~funding~~resulted asin ~~fully described~~an increased expense in the ~~notes~~current year toas approximately 287,500 of these options vested immediately with the ~~financial~~balance ~~statements~~vesting over a period of twelve to thirty six months.

~~The increase~~Legal ~~in consulting~~ fees ofdecreased by $~~153~~438,~~669~~313 over the prior year. The decrease is primarily due to ~~outside~~legal ~~consultants~~expenditure ~~assisting~~incurred ~~with~~on the ~~negotiation~~2017 ofGPB aconvertible ~~research~~debt ~~project~~funding due to the complexity of the legal documentation and ~~additional~~a ~~administrative~~current ~~consulting~~year ~~undertaken~~reversal of legal fees recorded as due to Dentons on the settlement of all liabilities owing to them.

~~Professional fees~~The ~~increased~~decrease byin consulting fees of $3236,~~207,~~692 is primarily due to anthe ~~increase~~reduction in ~~payroll~~technical ~~related~~consulting ~~fees~~expenses ~~based~~incurred onat ~~the~~our ~~number~~Tucson ofFacility ~~employees~~where wean ~~have~~outside ~~and the~~consultant ~~benefits~~assisted ~~provided~~us ~~and~~with athe ~~slight~~Cystic ~~increase~~Fibrosis incollaboration ~~audit~~agreement, ~~expense~~offset ~~consistent~~by ~~with~~an ~~the~~ increase in ~~the~~administrative ~~size~~consulting ofexpenses ~~the~~at ~~Group~~corporate financial controller level.

~~Facilities expense~~Professional fees increased by $112,~~348~~301,~~752 over the prior year,~~ primarily due to ~~the following movements; (i)~~ an increase in ~~cleaning~~payroll ~~and janitorial~~related ~~expenses~~fees ofbased ~~$120,049~~on ~~due to~~ the ~~inclusion~~outsourcing of ~~the~~several ~~Tucson~~payroll ~~facility~~functions ~~for a full year during the current period; (ii) an increase~~ in ~~facilities~~order ~~repairs and maintenance expenditure of $464,787, primarily due~~ to ~~repairs and maintenance contracts entered~~improve ~~into at~~ the ~~Tucson~~quality ~~Facility; (iii) an increase in Security services expenditure at our Tucson Facility~~ of ~~$212,821;~~service ~~(iv)~~delivered ~~an increase in utilities expenditure of $307,87 consisting primarily of electricity charges in Tucson~~ to ~~maintain~~our ~~the approximately 113,000 square foot Tucson Facility, all of these expenses are primarily due to operating the facility for a full year as compared to half a year in the prior year~~employees.

~~Travel expenditure~~Facilities ~~increased~~expense decreased by $81252,~~952~~332 over the prior year, primarily due to ~~increased~~the ~~travel~~following ~~incurred~~movements; by(i) ~~the~~a ~~business~~decrease ~~development~~in ~~teams,~~cleaning ~~the~~and ~~employment~~janitorial expenses of an$131,664 ~~additional~~due to ~~two~~a ~~business~~restructure ~~development~~in ~~heads~~our ~~and~~agreement with our building maintenance contractor at the ~~travel~~Tucson Facility; (ii) a decrease in utility expense by $54,944, primarily due to reductions at our Tucson Facility due to better negotiated tariffs ; (iii) a decrease in Security services expenditure ~~related~~of $46,594 due to ~~the~~a ~~additional~~restructure of our security costs at our Tucson Facility and; (iv) a reduction in site repairs and ~~management~~maintenance ~~thereof~~expenditure at our Tucson Facility of $19,130 due to the cancellation and streamlining of certain maintenance contacts.

Travel expenditure decreased by $138,234 due to the termination of our business development team during the prior year.

Capital raising fees of $76,000 related to the GBP debt were expensed in the prior year.

Other expenses represent various insignificant individually insignificant expenses.

Depreciation and Amortization

We recognized depreciation expenses of $1,~~736~~486,~~628~~919 and $~~530~~1,~~898~~736,628 for the years ended December 31, ~~2017~~2018 and ~~2016~~ 2017, respectively, ana ~~increase~~decrease of $1249,~~205,730~~709 or ~~227~~14.14%, which is primarily due to ~~our~~a ~~Tucson~~reduction ~~Facility having to renew software licensing~~ in ~~December 2016, with~~ the ~~bulk~~amount of ~~the~~laboratory ~~expenditure~~software ~~carried~~licensed byduring ~~Sanofi in~~ the ~~prior~~current year. Software licenses are generally for a one year period and are amortized over the term of the license agreement. The balance of the depreciation expense is primarily made up of depreciation of our laboratory equipment and software licensing, which makes up the majority of our capital assets.

Amortization expense was $~~224~~378,~~984~~148 and $224,984 for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, an increase of $153,164 or 68.1%. The increase is due to the amortization of cell lines purchased at our Tucson Facility in the prior year. The remaining amortization charge relates primarily to the intangibles acquired at our ~~North~~Icagen ~~Carolina~~NC site.

Other income

Other income iswas $15,779 and $502,494 for the year ended December 31, 2018 and 2017, respectively, a decrease of $486,715 or 96.9%, primarily made up of the ~~reversal~~prior year reversal of deferred purchase consideration initially due on the acquisition of ~~the~~Icagen ~~North Carolina facility~~NC, due to our customer not meeting certain revenue milestones.

Gain on extinguishment of debt

Gain on debt extinguishment was $495,783 and $0 for the year ended December 31, 2018 and 2017, respectively. The gain arose on the extinguishment of the GPB convertible debt on August 31, 2018 and represents the unamortized debt discount, the derivative liability related to the convertible debt conversion feature and expenses directly related to the debt extinguishment.

Other Expense

Other expense ~~totaled~~was $~~262~~562,~~966~~ 524 and $1262,~~535,875~~ 966 for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, aan ~~decrease~~increase of $1299,~~272,909~~558 or 82113.9%. Other expense in the current period represents ~~expected~~ severance costs toof be$572,524 ~~paid~~incurred onin the ~~reduction~~restructure of our ~~business~~management ~~development~~and ~~team~~the bystreamlining ~~four~~of ~~heads to~~operations ~~refocus~~at our Tucson ~~business~~Facility ~~strategy.~~and In the ~~prior~~release ~~year~~of a $10,000 ~~other~~legal ~~expense~~settlement ~~included~~accrual ~~estimated~~no ~~net~~longer ~~legal~~required. ~~settlement~~In ~~costs~~the ~~with~~prior ~~respect to~~year, ~~the~~other ~~Dentons~~expense ~~dispute~~represented severance ~~and~~costs on the ~~net~~reduction ~~legal~~of ~~settlement~~our ~~costs~~business ~~with~~development ~~respect~~team toby ~~the~~four ~~Eisenschenk matter~~heads.

2831

Interest expense

Interest expense totaled $23,~~282~~190,~~046~~730 and $~~755~~2,~~067~~282,046 for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively. The interest expense is primarily made up of the following; (i) Imputed interest cost of $~~308~~299,~~252~~075 and $~~497~~308,~~643~~252 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, a decrease of $~~189~~9,~~391~~177 or 383.10%, ~~this~~the isimputed ~~primarily~~interest was adjusted in the prior year due to the reassessment of the length of time to repay the Pfizer deferred purchase consideration based on our future revenue projections and minimum payments we are required to make; (ii) amortization of debt discount of $1,~~110~~229,~~424~~ 994 and $~~244~~1,~~463~~110,424 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, an increase of $~~865~~119,~~961~~570 or ~~354~~10.28%, ~~primarily~~The ~~due~~debt todiscount represents the amortization of the valuation of the current year warrants issued in connection with our term loans, the debt issue costs associated with the current year term loans, the valuation of the conversion feature of the prior year Convertible Notes and the prior year warrants issued in connection with the Convertible Notes ~~raise~~ ~~using a Black Scholes valuation model,~~ which is amortized over the term of the ~~note~~term loan and Convertible Notes. The valuation of ~~this~~the discount on the term loan amounted to $2,753,009 on a principal balance of $15,250,000 and the discount on the convertible note in the prior year amounted to $4,918,277 on a principal balance of $10,000,000; (iii) interest expense of $~~846~~1,~~799~~660,722 and $12859,~~961~~760 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, an ~~increaser~~increase of $~~834~~800,~~779~~962, this increase is primarily due to ~~the~~us ~~13%~~borrowing ~~coupon~~$10,000,000 onin ~~the~~May ~~Convertible~~2017 ~~Notes,~~and ~~amounting~~replacing that borrowing with toa $~~812~~15,~~500~~250,000 ~~during~~facility on August 31, 2018, the interest expense was incurred for four and a half months longer in the current year and the quantum of the borrowing increased by $5,250,000. The coupon of the borrowing decreased slightly from 13% per annum to 9.75% plus one month Libor, which average is approximately 0.8% lower than the 13% on the convertible debt; and (iv) other of $~~3,609~~ 939 and $03,610 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, this consists primarily on foreign exchange ~~movement~~ movements on purchases and sales to foreign suppliers and customers.

Derivative liability movement

Derivative liability movement was $(1,295,732) and $349,313 for the year ended December 31, 2018 and 2017, respectively, an increase of $1,645,045. The debit during the current year represents the mark to market of the derivative liability raised on the warrants issued to the term loan holders, the GBP warrants and the Series C Preferred stock warrants, all with variable pricing options and the beneficial conversion feature of the convertible debt whilst it was still outstanding.

Net loss

Net loss ~~totaled~~was $613,~~110~~039,~~434~~313 and $56,~~504~~110,~~412~~434 for the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively. The increase in the net loss is primarily due to ~~increased expenses resulting from~~ the ~~operation~~reduction ofin subsidy ~~the~~revenue ~~Tucson~~and ~~Facility~~government ~~and~~contract revenue, an increase in ~~financing~~interest ~~costs~~expense ~~offset~~and byderivative aliability ~~once~~movements, ~~off~~offset by a reduction in ~~deferred purchase~~overall ~~consideration~~selling, ~~during~~general ~~the~~and ~~current~~administrative ~~year~~expenses, all discussed in detail above.

Recent Financing

On April 4, 2018, we closed the first tranche of our best efforts offering of preferred stock and warrants for a maximum of forty (40) units and entered into a Securities Purchase Agreement with a trust of which one member of our Board of Directors is the trustee, pursuant to which we issued to the Purchaser twenty (20) units, at a purchase price of $100,000 per unit, each unit consisting of approximately 28,571 shares of our Series C Convertible Preferred Stock, and a seven year Warrant to acquire approximately 28,571 shares of our common stock, at an exercise price of $3.50 per share. An aggregate of 571,428 shares of Series C Preferred Stock and a warrant to purchase an aggregate of 571,428 shares of common stock were sold at the initial closing. The gross cash proceeds to us from the sale of the twenty (20) units was $2,000,000.

The Series C Preferred Stock ranks senior to the shares of our common stock and any other class or series of stock issued by us with respect to dividend rights, redemption rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of our affairs. Holders of Series C Preferred Stock will be entitled to a cumulative dividend at the rate of 12.0% per annum, as set forth in the Certificate of Designation of Powers, Preferences and Rights of Series C Convertible Preferred Stock classifying the Series C Preferred Stock (the “Certificate of Designation”). The Series C Preferred Stock is convertible at the option of the holders at any time into such number of shares of common stock as shall be equal to $3.50 plus any accrued and unpaid dividends on such share of Series C Preferred Stock (the “Accreted Value”) divided by the conversion price, which initially shall be $3.50 per share, subject to certain customary anti-dilution adjustments. In addition, the Series C Preferred Stock automatically converts into shares of our common stock based upon the then effective conversion price upon the (i) closing of a sale of shares of common stock to the public in a Qualifying Public Offering (as defined below) or a reverse merger into a publicly reporting company that has its common stock listed or quoted and traded on a Trading Market (as such term is defined in the Certificate of Designation) or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least seventy-five percent (75%) of the outstanding shares of Series C Preferred Stock (the “Requisite Holders”). A “Qualifying Public Offering” is defined as the first firm commitment underwritten public offering by us on or following the initial issuance date of the Series C Preferred Stock in which shares of common stock are sold for our account solely for cash to the public resulting in proceeds to it and/or our subsidiary, Icagen-T, Inc. of no less than $8,000,000 (after deduction only of underwriter discounts and commissions) and where the shares of common stock registered under the Securities Act, and sold in such public offering are simultaneously listed and commence trading on a Trading Market (as such term is defined in the Certificate of Designation).

Each holder of Series C Preferred Stock shall have the right to cast the number of votes equal to three times the number of shares into which the Series C Preferred Stock is convertible and the Series C holders as a group, shall have the right to elect one director on our Board of Directors. The Company cannot take the following actions without the approval of the Requisite Holders and the consent of our Board of Directors, including the Series C Preferred Stock director: (i) liquidate, dissolve or wind up our business, (ii) amend our Certificate of Incorporation or Bylaws, (iii) create any new class of stock unless it ranks junior to the Series C Preferred Stock with respect to dividends and liquidation, (iv) amend or alter any class of stock pari passu with the Series C Preferred Stock to make it senior with respect to dividends and liquidation, (v) purchase or redeem any other shares of our stock, or (vi) increase the size of our Board of Directors.

Upon the occurrence of a Cash Liquidity Event (as defined below), the holders of the Series C Preferred Stock can require us to redeem their shares of Series C Preferred Stock for a price per share equal to $5.25, subject to adjustments. In addition, we have the right to redeem the shares of Series C Preferred at any time for a price per share equal to $5.25 subject to adjustments. A “Cash Liquidity Event” is defined as the closing of any sale, lease or licensing transaction relating to a single asset or multiple assets other than in our ordinary course of business, including, but not limited to a sale of a building, sale of biological assets or other upfront payments, resulting in aggregate gross proceeds received by us at closing or closings in a transaction or transactions during any twelve (12) month period in excess of $40,000,000.

As part of the Units, we issued the Warrant to the Purchaser to purchase shares of our common stock at an initial exercise price of $3.50 per share (subject to applicable adjustments). The Warrants expire seven (7) years after the issuance date.

In addition, subject to limited exceptions, a holder of the Warrant will not have the right to exercise any portion of the Warrant if such holder, together with its affiliates, would beneficially own in excess of the Beneficial Ownership Limitation (as defined in the Warrant). A holder of the Warrant may adjust the Beneficial Ownership Limitation upon not less than sixty one (61) days’ prior notice to us, provided that such Beneficial Ownership Limitation in no event shall exceed 9.99%.

The Warrant also contains certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization and issuances of securities at prices below the conversion price or similar transactions.

If, at the time a holder exercises its Warrant, there is no effective registration statement registering for an issuance of the shares underlying the Warrant to the holder, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in the Warrant. If we fail to timely deliver the shares underlying the Warrant, it will be subject to certain buy-in provisions.

The Warrant also provides that we will not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity (as defined in the Warrant) assumes in writing all of our obligations under the Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) pursuant to written agreements in form and substance satisfactory to the Purchaser, including agreements to deliver to the Purchaser in exchange for the Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrant; (ii) we or the Successor Entity (as the case may be) agrees at our election or the Successor Entity (as the case may be) to purchase the Warrant from the Purchaser by paying to the Purchaser cash in an amount equal to the Black Scholes Value (as defined in the Warrant); or (iii) a Purchaser, at its election, requires us or the Successor Entity (as the case may be) to purchase the Warrant from the Purchaser by paying to the Purchaser cash in an amount equal to the Black Scholes Value.

Pursuant to the terms of the Purchase Agreement, we granted to the holders of the Series C Preferred Stock certain demand registration and piggyback registration rights, subject to certain rights of our lender.

Liquidity and Capital Resources

We have a history of ~~annual~~operating losses ~~from~~and ~~operations~~net losses since inception and we have primarily funded our operations through sales of our unregistered equity securities and cash flows generated from government contracts and grants, settlement of lawsuits and more recently from ~~commercial~~debt ~~customers~~funding, ~~subsidy~~commercial customers ~~income~~ and ~~the settlement~~subsidy ~~of a lawsuit~~income. WeAlthough, we are generating ~~substantially~~revenue ~~all of our revenues~~ from commercial customers, ~~and in the past from subsidy revenue, however,~~ we continue to experience losses and may ~~will~~ need to raise additional funds in the future to meet our working capital requirements~~, despite~~. ~~the~~To ~~outcome~~date, ~~of settlement agreements~~ we have ~~entered~~never ~~into,~~generated ~~our~~sufficient cash ~~lawsuits~~from ~~could~~operations ~~have~~to apay ~~significant impact on~~ our ~~financial position~~operating expenses. We ~~believe~~have ~~that~~received ~~our~~$27,500,000 ~~existing~~from ~~cash~~Sanofi and ~~cash~~despite ~~equivalents~~the ~~will~~$4,500,000 ~~not~~we beexpect to ~~sufficient~~derive tofrom ~~meet~~Icagen-T ~~our~~for ~~anticipated~~services ~~cash~~provided ~~needs~~to ~~for~~ Sanofi over the next ~~twelve~~eighteen months~~. To date~~, we ~~have~~expect ~~never~~our ~~generated~~expenses ~~sufficient~~to ~~cash~~increase ~~from~~as our operations toexpand ~~pay~~and our ~~operating~~ expenses. Tomay ~~date, we~~continue ~~have~~to ~~received~~exceed ~~$23~~such revenue.5 ~~million~~During ~~from~~ the ~~MSA~~year ~~with~~ended ~~Sanofi~~December ~~from~~31, ~~services~~2018, ~~provided~~we byraised ~~Icagen-T~~an ~~for Sanofi and operating expense contributions~~additional ~~paid~~$2,800,000 bythrough ~~Sanofi.~~the ~~The~~issuance ~~remaining~~of ~~amount~~shares of ~~$8.5~~our ~~million~~Series weC ~~expect~~Preferred tostock, ~~receive~~an ~~from~~additional $500,000 through the ~~Sanofi~~issuance ~~MSA~~of isBridge Notes ~~not~~and ~~sufficient~~a tofurther ~~cover~~$15,250,000 ~~the~~in ~~operating expenses~~Term Loans of ~~the~~which ~~Tucson~~$10,200,000 ~~Facility.~~was Inutilized ~~addition,~~to wesettle ~~expect~~convertible ~~our~~debt ~~expenses~~outstanding. toAs ~~increase~~of asDecember 31, ~~our~~2018, ~~operations~~despite ~~expand~~out ~~and~~fund ~~our~~raising ~~expenses~~efforts ~~may continue~~mentioned toin ~~exceed~~the ~~such~~preceding ~~revenue.~~sentence, Wewe ~~will~~had ~~need~~not togenerated ~~generate~~sufficient additional revenue from operations ~~and/or obtain additional financing~~ to pursue our business strategy, to respond to new competitive pressures or to take advantage of opportunities that may arise. These factors ~~raise~~raised substantial doubt about our ability to continue as a going concern. As a result, our independent ~~registered~~ registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, ~~2017~~2018 with respect to this uncertainty. ToWe anticipate that our current cash and cash equivalents, including cash derived from the Series C Preferred Stock issued, the term loans and the bridge notes will not be sufficient to meet our ~~financing~~operating needs for at least the next four months without additional revenue derived from operations or collaborations. If we should require additional capital, we ~~are~~may ~~considering~~consider multiple alternatives, including, but not limited to, additional equity financings, debt financings and/or funding from partnerships or collaborations. There can be no assurance that we will be able to complete any such transactions on acceptable terms or otherwise.

OnAs ~~April~~of 12December 31, ~~2017~~2018, we ~~sold~~had cash tototaling ~~three (3) investors~~$4,119,058, ~~which~~other ~~included~~current ~~two~~assets ~~members~~totaling of$2,224,774 ~~our~~and ~~Board~~total assets of ~~Directors~~$15,615,587. ~~pursuant~~We tohad ~~the~~total current ~~2017~~liabilities ~~Purchase~~of ~~Agreement~~$10,938,402 ~~150~~and ~~Units~~a atnet aworking ~~price~~ capital deficit of $104,~~000~~594,570. ~~per~~Total ~~unit~~liabilities ~~consisting~~were $34,973,296 including net deferred purchase consideration of a$8,581,739. ~~2017~~The ~~note~~deferred inpurchase ~~the~~consideration ~~principal~~includes ~~amount~~a net present value discount of $101,~~000~~118,261 ~~and~~(made up of a ~~2017~~gross ~~Bridge~~present ~~Warrant~~value todiscount ~~acquire~~of 1$2,~~500~~468,700 ~~shares~~less imputed interest movements of $1,350,439), the gross amount still due in terms of ~~our~~the ~~common~~acquisition ~~stock~~agreement with Pfizer, ~~par~~Inc., ~~value~~is $9,700,000 after the payment of $~~0.001~~300,000 ~~per~~to ~~share~~date, atbased anon ~~exercise~~a ~~price~~potential earn out charge of ~~$3.50~~the ~~per~~greater ~~share.~~of ~~The~~(i) ~~aggregate~~10% of gross ~~cash~~revenues ~~proceeds~~commencing toin usJanuary ~~from~~2017 ~~the~~per ~~sale~~quarter ofand ~~the~~(ii) ~~150~~$250,000 ~~Units~~per ~~was~~quarter, up to a maximum of $110,~~500~~000,000 of which amounts in excess of $50,000 can ~~these~~be ~~notes~~deferred ~~were~~and ~~repaid~~$200,000 ~~during~~was ~~May~~deferred for the quarters ended March 31, 2017 through to, ~~together~~December ~~with~~31, 2018. The deferred amount bears interest ~~thereon~~at a rate of 12.5% per annum. Our stockholders’ deficit amounted to $19,357,709.

On May 15, 2017, we and Icagen-T entered into a Securities Purchase Agreement with an institutional investor, pursuant to which (i) we issued to the investor the Company Note for cash proceeds of $1,920,000 after an original issue discount of 4% or $80,000, before deal related expenses; and (ii) Icagen-T issued to the investor the Icagen-T Note for cash proceeds of $7,680,000 after an original issue discount of 4% or $320,000, before deal related expenses. The Company Note and the Icagen-T Note are convertible into shares of common stock at a conversion price of $3.50 per share. On May 15, 2017, we also issued to the purchaser of the Convertible Notes, a warrant to purchase 857,143 shares of our common stock, which warrant was amended on April 13, 2018 in order to correct a typographical error in the definition of “Maximum Percentage” to make the beneficial ownership limitation in the warrant consistent with the beneficial ownership limitation in the Convertible Notes.32

WeShould we ~~used~~not ~~the~~achieve ~~proceeds~~our ~~from~~forecasted ~~the~~operating ~~Company Note to repay the $1~~results,~~500,000 aggregate~~ ~~principal~~or ~~amount~~should ofstrategic ~~the~~opportunities 8%present ~~bridge~~themselves ~~notes~~such ~~issued~~that inadditional ~~April 2017 and all accrued but unpaid interest thereon and the $500,000~~financial ~~owed~~resources bywould uspresent ~~pursuant~~attractive toinvesting ~~the~~opportunities ~~terms~~for ~~of the Dentons’ settlement agreement~~us, ~~and~~we ~~Icagen-T~~may ~~has~~decide ~~used~~in ~~and intends to continue to use~~ the ~~net~~future ~~proceeds from the purchase price paid~~ to ~~Icagen-T~~issue ~~for~~debt ~~general~~or ~~corporate~~sell ~~and~~our ~~working capital purposes of Icagen-T,~~equity ~~provided,~~securities ~~however,~~in ~~proceeds~~order ~~are not~~ to beraise ~~used~~additional ~~for~~cash. ~~(a)~~We ~~the~~cannot ~~repayment~~provide of any ~~Indebtedness~~assurances ~~other than Permitted Indebtedness (~~as ~~defined~~ into ~~the~~whether ~~Convertible~~we ~~Notes),~~will ~~(b)~~be ~~the~~able ~~redemption~~to orsecure ~~repurchase of~~ any ~~securities of ours~~additional financing, ~~Icagen-T and our Subsidiaries,~~ or ~~(c) except for~~ the ~~payments~~terms ~~pursuant to the Settlement Agreement with Dentons, the settlement~~ of any ~~outstanding litigation; provided, further, Icagen-T will not use any of~~ such ~~proceeds~~financing intransaction ~~violation~~if ofone ~~its~~were ~~arrangements~~to ~~with Sanofi US Services, Inc~~occur.

302018 and 2017 Financings

On April 4, 2018, we closed the first tranche of our best efforts offering of preferred stock and warrants and entered into a Securities Purchase Agreement with a trust of which one member of our Board of Directors is the trustee, pursuant to which we issued to the Purchaser twenty (20) units, at a purchase price of $100,000 per unit. An aggregate of 571,428 shares of Series C Preferred Stock ~~and a warrant to purchase an aggregate of 571,428 shares of common stock were sold at the initial closing. The gross cash proceeds to us from the sale of the twenty (20) units was $2,000,000.~~ Financings

~~As of December 31, 2017, we had cash totaling~~From ~~$2,763,596,~~April ~~other current assets totaling $2~~4,~~027,147~~ ~~and~~2018 ~~total~~through ~~assets~~August ~~of $14~~27,~~638,554.~~ ~~We had total current liabilities of $4~~2018,~~971,100 and~~ awe ~~net~~closed ~~working~~four ~~capital~~tranches ~~deficit~~ of ~~$180,537,~~our best ~~which~~efforts ~~includes~~offering ~~deferred revenue~~ of ~~$219,828~~preferred ~~primarily~~stock ~~received~~and ~~from~~warrants pursuant ~~Sanofi,~~to which ~~will~~ ~~have~~we noissued ~~impact~~to oninvestors ~~cash~~an ~~flow.~~aggregate ~~After~~of ~~eliminating~~28 ~~these~~units ~~items,~~ (the ~~working~~“Series ~~capital~~C ~~is $39~~Units”),~~471.~~ ~~Total~~at ~~liabilities~~a ~~were $23,305,818, including deferred~~ purchase ~~consideration~~price of $8100,~~439~~000 per unit,~~122.~~ ~~The~~each ~~deferred~~unit ~~purchase~~consisting ~~consideration includes a net present value discount~~ of $1approximately 28,~~417,336~~571 ~~(made~~shares up of aour ~~gross~~Series ~~present~~C ~~value~~Convertible ~~discount~~Preferred ~~of $2~~Stock,~~468,700~~ ~~less~~and ~~imputed~~a ~~interest~~seven ~~expense~~year ~~of $~~warrant (~~1,051,364)),~~ the ~~gross amount~~“Series ~~still~~C ~~due~~Warrant”) into ~~terms~~acquire ofapproximately ~~the acquisition agreement is $9~~28,~~850,000~~571 ~~after~~shares ~~the~~of ~~payment~~our ofcommon ~~$150~~stock,~~000~~ ~~during~~at ~~the~~an ~~current~~exercise ~~period~~price ~~based~~of $3.50 onper ashare. ~~potential~~An ~~earn~~aggregate ~~out charge~~ of ~~the~~799,989 ~~greater~~shares of ~~(i)10%~~Series ofC ~~gross~~Preferred ~~revenues~~Stock ~~commencing in January 2017 per quarter~~ and ~~(ii)~~Series ~~$250,000 per~~C ~~quarter,~~Warrants up to apurchase ~~maximum~~an aggregate of ~~$10~~799,~~000,000~~989 shares of ~~which~~common ~~amounts~~stock inwere ~~excess~~sold ofat ~~$50,000 can be deferred and $200,000 was deferred for~~ the ~~quarters~~four ~~ended June 30, 2017 and September 30, 2017~~closings. The ~~deferred~~gross ~~amount~~cash ~~bears~~proceeds ~~interest~~to atus afrom ~~rate~~the sale of ~~12.5%~~the ~~per~~Series ~~annum.~~C ~~Our stockholders’~~Units ~~deficit~~was ~~amounted to~~ approximately $82,~~667~~800,~~264~~000.

~~Should~~The Series weC ~~not~~Preferred ~~achieve~~Stock ranks senior to the shares of our ~~forecasted~~common ~~operating~~stock ~~results~~and any other class or ~~should~~series ~~strategic~~of stock issued by us with ~~opportunities~~respect ~~present~~to ~~themselves~~dividend ~~such~~rights, ~~that~~redemption ~~additional~~rights ~~financial~~and ~~resources~~rights ~~would~~on ~~present~~the ~~attractive~~distribution ~~investing~~of ~~opportunities~~assets ~~for~~on any voluntary or involuntary liquidation, usdissolution or winding up of our affairs. Holders of Series C Preferred Stock are entitled to a cumulative dividend at the rate of 12.0% per annum, weas ~~may~~set ~~decide~~forth in the ~~future~~Certificate toof ~~issue~~Designation ~~debt~~of orPowers, ~~sell~~Preferences ~~our~~and ~~equity~~Rights ~~securities~~of inSeries ~~order~~C toConvertible Preferred ~~raise~~Stock ~~additional~~classifying ~~cash~~the Series C Preferred Stock (the “Certificate of Designation”). WeThe ~~cannot~~Series ~~provide~~C Preferred Stock is convertible at the option of the holders at any ~~assurances~~time into such number of shares of common stock as shall be equal to $3.50 ~~whether~~plus weany ~~will~~accrued and unpaid dividends on such share of Series C Preferred Stock (the “Accreted Value”) divided by the conversion price, which initially shall be ~~able~~$3.50 per share, subject to ~~secure~~certain ~~any~~customary ~~additional~~anti-dilution ~~financing~~adjustments. In addition, orthe Series C Preferred Stock automatically converts into shares of our common stock based upon the ~~terms~~then effective conversion price upon the (i) closing of ~~any~~a sale of shares of common stock to the public in a Qualifying Public Offering (as defined below) or a reverse merger into a publicly reporting company that has its common stock listed or quoted and traded on a Trading Market (as such ~~financing~~term ~~transaction~~is defined in the Certificate of Designation) or (ii) the date and time, or the occurrence of an event, specified ifby ~~one~~vote ~~were~~or written consent of the holders of at least seventy-five percent (75%) of the outstanding shares of Series C Preferred Stock (the “Requisite Holders”). A “Qualifying Public Offering” is defined as the first firm commitment underwritten public offering by us on or following the initial issuance date of the Series C Preferred Stock in which shares of common stock are sold for our account solely for cash to ~~occur~~the public resulting in proceeds to it and/or our subsidiary, Icagen-T, Inc. of no less than $8,000,000 (after deduction only of underwriter discounts and commissions) and where the shares of common stock registered under the Securities Act, and sold in such public offering are simultaneously listed and commence trading on a Trading Market (as such term is defined in the Certificate of Designation).

~~The~~Each ~~Los~~holder ~~Alamos~~of ~~county~~Series ~~loan~~C ~~was~~Preferred ~~repaid~~Stock has the right to cast the number of votes equal to three times the number of shares into which the Series C Preferred Stock is convertible and the holders of Series C Preferred Stock as a group, have the right to elect one director on ~~June~~our 30Board of Directors. We cannot take the following actions without the approval of the Requisite Holders and the consent of our Board of Directors, ~~2016~~including the Series C Preferred Stock director: (i) liquidate, dissolve or wind up our business, (ii) amend our Certificate of Incorporation or Bylaws, (iii) create any new class of stock unless it ranks junior to the Series C Preferred Stock with respect to dividends and liquidation, (iv) amend or alter any class of stock pari passu with the Series C Preferred Stock to make it senior with respect to dividends and liquidation, (v) purchase or redeem any other shares of our stock, or (vi) increase the size of our Board of Directors.

	Year ended December 31,						Increase/			Percentage
	2017			2016			(decrease)			change
Net cash (used in) provided by operating activities	$	(9,998,561	)	$	4,367,547			(14,366,108	)		(328.9	)%
Net cash used in investing activities		(1,523,429	)		(1,986,014	)		462,585			(23.3	)%
Net cash provided by financing activities		9,346,638			290,627			9,056,011			3,116.0	%
Net (decrease) increase in cash and cash equivalents	$	(2,175,352	)	$	2,672,160		$	(4,847,512	)		(181.4	)%

In the event of our liquidation, dissolution or winding-up, holders of the Series C Preferred Stock are entitled to a preference on liquidation equal to $5.25 per share of Series C Preferred Stock plus all accrued and unpaid dividends. Upon the occurrence of a Cash Liquidity Event (as defined below), the holders of the Series C Preferred Stock can require us to redeem their shares of Series C Preferred Stock for a price per share equal to $5.25, subject to adjustments. In addition, we have the right to redeem the shares of Series C Preferred at any time for a price per share equal to $5.25 subject to adjustments. A “Cash Liquidity Event” is defined as the closing of any sale, lease or licensing transaction relating to a single asset or multiple assets other than in our ordinary course of business, including, but not limited to a sale of a building, sale of biological assets or other upfront payments, resulting in aggregate gross proceeds received by us at closing or closings in a transaction or transactions during any twelve (12) month period in excess of $40,000,000.

~~Net~~The ~~cash~~Series ~~(used~~C ~~in)~~Warrants ~~provided~~have byan ~~operating~~initial ~~activities~~exercise ~~was~~price ~~$(9,998,561)~~of ~~and~~ $~~4,367,547~~3.50 ~~for~~per ~~the~~share ~~year~~(subject ~~ended~~to ~~December~~applicable ~~31, 2017 and 2016, respectively~~adjustments). The ~~decrease~~Series inC ~~cash~~Warrants expire ~~provided~~seven by(7) ~~operating~~years ~~activities~~after ~~was primarily due to~~ the ~~following:~~issuance date.

	Year ended December 31,						Increase/			Percentage
	2017			2016			(decrease)			change
Net loss	$	(6,110,434	)	$	(5,504,413	)		(606,021	)		11.0	%
Adjustments for non-cash items		3,183,350			3,490,849			(307,499	)		(8.8	)%
Changes in operating assets and liabilities		(7,071,477	)		6,381,111			(13,452,588	)		(210.8	)%
Net cash (used in) provided by operating activities	$	(9,998,561	)	$	4,367,547		$	(14,366,108	)		(328.9	)%

~~The~~In ~~increase~~addition, insubject ~~net~~to ~~loss~~limited isexceptions, ~~discussed~~a ~~under~~holder ~~net~~of ~~loss~~the inSeries C Warrants will not have the ~~results~~right ofto ~~operations~~exercise ~~for~~any portion of the ~~year~~Series ~~ended~~C ~~December~~Warrant 31if such holder, ~~2017~~together ~~and~~with ~~2016~~its affiliates, ~~respectively and~~would ~~includes~~beneficially anown ~~increase~~ in ~~revenues,~~excess ~~cost~~ of ~~goods~~the ~~sold~~Beneficial ~~and~~Ownership Limitation an(as ~~increase~~defined in ~~operating~~the ~~expenses~~Series ~~offset~~C byWarrant). A holder of the ~~subsidy~~Series ~~revenues~~C Warrant may adjust the Beneficial Ownership Limitation ~~received~~upon not less than sixty one (61) days’ prior notice to us, provided that such Beneficial Ownership Limitation in no event shall exceed 9.99%.

The ~~change~~Series inC ~~adjustments~~Warrants ~~for~~also ~~non-cash~~contain ofcertain ~~$307,499~~anti-dilution isprovisions ~~primarily~~that ~~due~~apply toin ~~the~~connection ~~legal~~with ~~settlement~~any ~~accrual~~stock ~~of $1~~split,~~535,875~~ instock ~~the~~dividend, stock ~~prior year~~combination, ~~offset~~recapitalization byand ~~the~~issuances ~~movement~~of insecurities ~~depreciation~~at ~~expense~~prices ofbelow ~~$1,205,730~~the ~~over~~conversion ~~the~~price ~~prior~~or ~~year~~similar transactions.

~~The~~If, ~~change~~at inthe ~~operating~~time ~~assets~~a ~~and~~holder ~~liabilities~~exercises ofits ~~$13,452,588~~Series ~~included~~C i)Warrant, ~~the~~there ~~net~~is ~~movement~~no ineffective ~~the~~registration ~~subsidy~~statement ~~received~~registering byfor ~~Sanofi~~an issuance of ~~$11,200,000, primarily~~the ~~due~~shares tounderlying the ~~amortization~~Series ofC ~~the~~Warrant ~~remaining~~to ~~subsidy~~the ~~received~~holder, then in ~~the~~lieu ~~prior~~of ~~year;~~making ~~ii)~~ the ~~increase~~cash inpayment ~~deferred~~otherwise ~~revenue~~contemplated ofto ~~$1,009,114;~~be ~~iii)~~made ~~the~~to ~~decrease~~us inupon ~~the~~such ~~movements~~exercise in payment of ~~accounts~~the ~~payable~~aggregate ofexercise $1price,~~018,007,~~ ~~primarily~~the ~~due~~holder tomay ~~the~~elect ~~cash~~instead ~~settlement~~to ofreceive ~~legal~~upon such ~~settlement~~exercise ~~liabilities~~(either ~~and~~in ~~iv)~~whole ~~the~~or ~~decrease~~ in part) the ~~movements~~net number of ~~prepaid~~shares ~~expenses~~ of ~~$364,071,~~common ~~primarily~~stock ~~due~~determined according to ~~the~~a ~~receipt~~formula ofset forth in ~~funds~~the ~~from~~Series ~~Sanofi~~C Warrant. If we fail to ~~cover~~timely ~~certain~~deliver ~~agreed~~the shares underlying the Series C Warrant, it will be subject to ~~expenses~~certain buy-in provisions.

~~Net~~The ~~cash~~Series ~~used~~C Warrant also provides that we will not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity (as defined in ~~investing~~the ~~activities~~Series ~~decreased~~C byWarrant) ~~$462~~assumes in writing all of our obligations under the Series C Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement pursuant to which the Series C Units were sold) pursuant to written agreements in form and substance satisfactory to the holders,~~585~~ ~~primarily~~including ~~due~~agreements to deliver to the in exchange for the Series C Warrants a ~~decrease~~security onof the ~~capital~~Successor ~~expenditure~~Entity ~~spend~~evidenced onby a written instrument substantially similar in form and substance to ~~licenses~~the ~~during~~Series C Warrant; (ii) we or the ~~current~~Successor ~~year~~Entity (as the case may be) agrees at our election or the Successor Entity (as the case may be) to purchase the Series C Warrant from the holders by paying to the holders cash in an amount equal to the Black Scholes Value (as defined in the Series C Warrant); or (iii) a holder, at its election, requires us or the Successor Entity (as the case may be) to purchase the Series C Warrant from the holder by paying to the holder cash in an amount equal to the Black Scholes Value.

31Pursuant to the terms of the Purchase Agreement pursuant to which the Series C Units were sold, we granted to the holders of the Series C Preferred Stock certain demand registration and piggyback registration rights, subject to certain rights of our lender.

~~Net~~Subordinated ~~cash~~Note provided by financing activities increased by $9,056,011, primarily due to; i) the proceeds realized on the convertible debt issuance of $9,600,000; and ii) the net movement in other loans of $(543,989) over the prior period.Financings

In addition, on August 13, 2018, we issued our 10% Subordinated Promissory Notes in the aggregate principal amount of $500,000 due on the earlier of: (x) the date that is twelve (12) months after its issue date or (y) our receipt of the proceeds of funding from our next collaboration/partnership. We also issued to the holders of the 10% Subordinated Promissory Notes five year warrants to purchase 1,500 shares of our common stock for each $10,000 principal amount invested at an exercise price of $3.50 per share (the “Subordinated Note Warrants”). The 10% Subordinated Note Warrants also contains certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transaction. An aggregate of $500,000 in principal amount of 10% Subordinate Promissory Notes and Subordinated Note Warrants to purchase an aggregate of 75,000 shares of common stock were sold at the closing. The gross cash proceeds to us from the sale of the fifty (50) units was $500,000. 10% Subordinated Promissory Notes in the principal amount of $200,000 were repaid when we received the upfront payment from the Roche collaboration and 10% Subordinated Promissory Notes in the principal amount of $300,000 currently remain outstanding and are subordinated in certain respects to the Term Loans

Term Loans

In our August 2018 debt financing with Perceptive, we received advances in the aggregate principal amount of $7,250,000 from the Icagen Term Loan and issued a warrant to purchase 723,550 shares of our common stock (the “Purchaser Warrants”), and Icagen-T received advances in the aggregate principal amount of $8,000,000 from the Icagen-T Term Loan. The Term Loans are secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions. The Term Loans require us and Icagen-T, respectively, among other things, to maintain the security interest, make monthly interest payments of approximately $160,000, make monthly installment payments of $152,500 after August 31, 2020 and meet various negative and affirmative covenants. If we or Icagen-T fails to comply with the terms of the Term Loans and/or the related agreements, the senior note holder could declare a note default and if the default were to remain uncured, the secured creditor would have the right to proceed against any or all of the collateral securing their Term Loans, subject to the first priority of our secured creditors. Any action by our secured or unsecured creditors to proceed against our assets would likely have a serious disruptive effect on our business operations.

The Term Loans contain, and our future indebtedness agreements may contain covenants that restrict our ability to finance future operations or capital needs or to engage in other business activities. The Term Loans restrict our ability and the ability of our restricted subsidiaries to:

●

incur, assume or guarantee additional Indebtedness (as defined in the Term Loans);

●

repurchase capital stock;

●

make other restricted payments including, without limitation, paying dividends and making investments;

●

create liens;

●

sell or otherwise dispose of assets, including capital stock of subsidiaries;

●

enter into agreements that restrict dividends from subsidiaries;

●

enter into mergers or consolidations; and

●

enter into transactions with affiliates

In connection with the entry into the Credit Agreements, on August 31, 2018, we issued to Perceptive a warrant (the “Perceptive Warrant”) to purchase 723,550 shares of our common stock exercisable for a period of seven years at a per-share exercise price of $3.50, subject to certain adjustments as specified in the Perceptive Warrant for customary anti-dilution adjustments and price protection. Upon any exercise of the Perceptive Warrant, the exercise price is payable in cash or, at Perceptive’s option, by withholding a number of shares of common stock then issuable upon exercise of the Perceptive Warrant with an aggregate fair market value equal to the aggregate exercise price.

We also granted Perceptive and GPB customary demand and piggy-back registration rights with respect to the shares of common stock issuable upon exercise of the Perceptive Warrant and the GPB Warrant. At any time commencing nine months following the closing of a Qualifying PO (as defined in the Perceptive Warrant) if we are not qualified to register securities under the Securities Act, pursuant to a registration statement on Form S-3 (or any successor form), then upon the request of the holder(s) of at least 51% of the Perceptive Warrants and/or shares of common stock issuable thereunder (the “Majority Holders”), we are obligated, among other things, to (i) file a registration statement on Form S-1 with the SEC within 90 days following the date on which the request is given for purposes of registering the shares of common stock issuable upon exercise of the Perceptive Warrants, (ii) use our commercially reasonable efforts to have the registration statement declared effective by the SEC as soon as practicable after filing, subject to any cut backs requested by the SEC, and (iii) maintain the registration until all registrable securities may be sold pursuant to Rule 144 under the Securities Act, without restriction as to volume.

GPB Securities Purchase Agreement, Notes and Warrant

On May 15, 2017, we and Icagen-T entered into a Securities Purchase Agreement (the “GPB Securities Purchase Agreement”) with GPB Debt Holdings II, LLC (“GPB”), pursuant to which (i) we issued to GPB for an aggregate purchase price payable in cash to us of $1,920,000, before reimbursement of expenses: (a) a Senior Secured Convertible Note in the aggregate principal amount of $2,000,000 (the “Parent Note”), which Parent Note was convertible into shares of our common stock at a conversion price of $3.50 per share and secured by a lien on all of our assets and the assets of our subsidiaries other than Icagen-T, and (b) a warrant to purchase initially up to 857,143 shares of our common stock (the “GPB Warrant”) in accordance with the terms of the GPB Warrant; and (ii) Icagen-T issued to GPB for an aggregate purchase price payable in cash to Icagen-T of $7,680,000, before reimbursement of expenses, a Senior Secured Convertible Note of Icagen-T (the “Icagen-T Note” and together with the Parent Note, the “Notes”), in the aggregate principal amount of $8,000,000, which Icagen-T Note was convertible into shares of our common stock at a conversion price of $3.50 per share and secured by a lien on all of our assets, the assets of Icagen-T and the assets of our other subsidiaries. Each Note was issued with a four (4%) percent original issue discount. The Notes had a maturity date of May 15, 2020 and bore interest at a rate equal to 13% per annum. The Notes provided for prepayment upon payment of a specified prepayment penalty. During the years ended December 31, 2018 and 2017, we paid $1,494,997 and $812,500 in interest payment under the Notes. In August 2018 we used $10,308,333 from the proceeds of the Term Loans to repay in full all amounts outstanding under the Convertible Notes, including interest thereon of $108,333.

We also issued the GPB Warrant to GPB at an initial exercise price of $3.50 per share (subject to applicable adjustments). The GPB Warrant expires on May 15, 2022. The GPB Warrant contains certain beneficial ownership limitations on exercise and also contains certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization and issuances of securities at prices below the conversion price or similar transactions. If, at the time a holder exercises its GPB Warrant, there is no effective registration statement registering available for an issuance of the shares underlying the GPB Warrant to the holder, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in the GPB Warrant. If we fail to timely deliver the shares underlying the GPB Warrant, we will be subject to certain buy-in provisions. The GPB Warrant also provides that we will not enter into or be party to a Fundamental Transaction (as defined in the GPB Warrant) unless certain conditions specified therein are met. In addition, on August 31, 2018, the GPB Warrant was amended to provide to GPB piggyback registration rights upon the same terms as the Perceptive Warrant.

Cash Flows

An analysis of our cash flows from operating, investing and financing activities for the year ended December 31, 2018 and 2017 is provided below.

	Year Ended December 31,						Increase/			Percentage
	2018			2017			(decrease)			change

Net cash used in operating activities	$	(4,199,706	)	$	(9,998,561	)	$	5,798,855			(58.0	)%

Net cash used in investing activities		(1,439,011	)		(1,523,429	)		84,418			(5.5	)%

Net cash provided by financing activities		6,994,179			9,346,638			(2,352,459	)		(25.2	)%

Net increase (decrease) in cash and cash equivalents	$	1,355,462		$	(2,175,352	)	$	3,530,814			(162.3	)%

Net cash used in operating activities was $(4,199,706) and $(9,998,561) for the year ended December 31, 2018 and 2017, respectively. The decrease in cash provided by operating activities was primarily due to the following:

	Year Ended December 31,						Increase/			Percentage
	2018			2017			(decrease)			change

Net loss	$	(13,039,313	)	$	(6,110,434	)	$	(6,929,879	)		113.4	%

Adjustments for non-cash items		5,709,909			3,183,350			2,526,559			79.4	%

Changes in operating assets and liabilities		3,129,698			(7,071,477	)		10,201,175			(144.3	)%

Net cash used in operating activities	$	(4,199,706	)	$	(9,998,561	)	$	5,798,855			(58.0	)%

The increase in net loss is discussed under net loss in the results of operations for the year ended December 31, 2018 and 2017, respectively and includes a decrease in subsidy revenues received of $9,600,000.

The change in adjustments for non-cash items of $2,526,559 is primarily due to; i) an increase in derivative liability movements of $1,645,045 due to the mark-to market adjustments made in each period; ii) the increase in stock based compensation charge of $870,068 primarily due to the number of options issued during the current year; iii) the increase in the amortization of debt discount of $437,023; and (iv) reversal of $500,000 of deferred purchase consideration in the prior year; offset by (v) the gain realized on debt extinguishment of $495,783 in the current year.

The change in operating assets and liabilities of $10,201,175 included i) the net movement in the deferred subsidy of $5,600,000, due to the amortization of the remaining subsidy received in the prior year; ii) an advanced payment on collaboration of $5,000,000 ; iii) an increase in accounts payable movements of $490,703; offset by (iv) a decrease in other payables and accruals of $1,198,698, primarily due to the reduction in bonus accruals during the current year.

Net cash used in investing activities decreased by $84,418 primarily due to a slight increase in capital expenditure offset by the reduction in cell lines purchased during the prior year.

Net cash provided by financing activities decreased by $2,352,459, primarily due to; i) the net decrease of $4,350,000 in funds raised from term loans in the current year and the repayment of convertible loans in the current year and raising of net cash proceeds on convertible loans in the prior year; ii) the $207,000 payment of penalties and legal fees incurred on the early settlement of the convertible loans; iii) the payment of capital raising fees on the term loans of $1,006,944; iv) the proceeds received from Series C Preferred Stock of $2,800,000; v) the net proceeds received of $500,000 on bridge loans and the repayment of $200,000 during the current year; and vi) the reduction in asset financing repayments of $269,251 over the prior year due to the full repayment of the Nanion Syncropatch asset financing liability during March 2018.

Capital Expenditures

Our current plan is to ~~improve~~purchase ~~the~~equipment and ~~efficiency~~software ofto ~~our~~ensure ~~laboratory~~that ~~operations~~the byTucson ~~employing~~Facility ~~additional~~and ~~scientific~~the ~~personnel~~Icagen ~~and~~NC ~~equipment to~~Facility ~~further~~function ~~automate~~efficiently ~~the~~and ~~processes~~that ~~required~~we inare ~~our~~able ~~assay~~to ~~workflows~~support the tocommercialization ~~meet~~efforts ~~our~~of ~~customer~~the ~~requirements~~Company. We doanticipate ~~not~~that ~~have~~we awould ~~significant equipment~~need ~~budget~~to ~~for~~spend ~~the~~an ~~2018~~additional ~~year~~$1,200,000 ~~however this is dependent~~ on ~~the~~necessary ~~volume~~software and ofapproximately ~~orders~~$800,000 weon ~~receive~~equipment ~~from~~over ~~commercial customers and~~ the ~~laboratory~~next ~~throughput~~twelve ~~linked to those orders~~months.

Other Commitments

As a result of the agreements that we entered into with Pfizer we are obligated; (i) make additional payments in terms of the Asset Purchase and Collaboration Agreement that we entered into on June 26, 2015 with Pfizer including beginning in 2017, a quarterly earn out payment (the “Earn Out Payment”) of 10% of revenue earned during the quarter, with a minimum payment of $250,000 per quarter, up to a maximum aggregate payment of $10,000,000, such minimum being reduced to $50,000 for the quarters ending March 2017 to December 2018 and the difference between $250,000 or the quarterly amount paid and the actual calculation of deferred purchase consideration at 10% of gross revenue per quarter is being deferred and paid as one lump sum with the payment being made the quarter ended March 31, 2019, bearing interest at 12.5% per annum, which interest is payable quarterly; (ii) make minimum lease payments in terms of a sub-lease agreement entered into with Pfizer for the period July l, 2015 to April 30, 2019 with annual escalations of 3.5%, estimated to be $66,750, for the remainder of the lease period.

Future annual minimum payments required under operating lease obligations as of December 31, 2018, are as follows:

	Amount

2019	$	81,250
2020		-
Total	$	81,250

Critical Accounting Policies

Estimates

The preparation of these consolidated financial statements in accordance with United States Generally Accepted Accounting Practices (“US GAAP”) requires usthat towe make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts and recovery of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, the valuation of certain assets and intangibles acquired from ~~Icagen~~Pfizer, Inc. and assumptions used in assessing impairment of long-term assets ~~and the assumptions used in determining percentage of completion on our long-term contracts~~.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against and by us or un-asserted claims that may result in such proceedings, our management evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Revenue recognition

~~Revenue sources~~Our ~~consist~~revenue ofrecognition ~~commercial~~policy ~~contracts,~~is ~~deferred~~consistent with ~~subsidy~~the ~~revenue,~~requirements ~~deferred~~of ~~revenue~~Financial ~~and~~Accounting ~~government~~Standards ~~grants~~Board ~~and~~(“FASB”) ~~contracts~~Accounting Standards Codification (“ASC”) 606, Revenue.

We have analyzed our revenue transactions pursuant to ASC 606, Revenue, and it has no material impact as a result of the transition from ASC 605 to 606. Our revenues are recognized when control of the promised services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. We derive our revenues from the sale of our services, as defined below. We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our revenue transactions:

i.	identify the contract with a customer;
ii.	identify the performance obligations in the contract;
iii.	determine the transaction price;
iv.	allocate the transaction price to performance obligations in the contract; and
v.	recognize revenue as the performance obligation is satisfied.

Revenue sources consist of commercial revenues, deferred subsidy revenue, deferred revenue, multi-element collaboration agreements and government grants and contracts.

Commercial revenues

We enter into fixed fee commercial development contracts that are associated with the delivery of feasible research on drug candidates and the development of drug candidates. Revenue under such contracts is generally recognized upon delivery or as the development is performed.

~~We received~~2) ~~certain~~Deferred ~~deferred~~ subsidy revenue which was utilized to support our operations, maintain the Tucson Facility that we operate and continue the employment of certain employees to provide, if needed, resources to certain of our customers. This deferred subsidy revenue was amortized over a straight-line basis to match the expected expenses to be incurred over the period July 15, 2016 to December 31, 2017.

~~We received~~In ~~and~~the ~~will~~prior ~~receive~~year, we had received certain deferred subsidy revenue which was utilized to support our operations, maintain the facilities that we operate in ~~advance~~and continue the employment of ~~services~~certain ~~delivered~~employees to provide, if needed, resources to certain of our customers. This deferred subsidy revenue iswas ~~deferred~~amortized ~~and~~over ~~only~~a ~~recognized~~straight-line ~~when services~~basis ~~have~~to ~~been~~match ~~performed~~the inexpected ~~terms~~expenses ofto ~~Master~~be ~~Services~~incurred ~~Agreements~~over ~~entered~~the ~~into~~period ~~with~~July ~~customers~~15, ~~together~~2016 ~~with their associated~~to ~~Statements~~December of31, ~~Work~~2017.

323) Deferred revenue

We ~~account~~ ~~for~~received ~~our~~and ~~long-term~~will ~~Firm~~receive certain ~~Fixed~~revenue ~~Price~~in ~~Government~~advance ~~contracts~~of ~~and~~services ~~grants~~delivered. ~~associated~~This ~~with~~revenue ~~the~~is ~~delivery~~deferred ofand ~~research~~only onrecognized ~~drug~~when ~~candidates and~~services ~~the~~have ~~development~~been ofperformed in ~~drug~~terms ~~candidates~~of ~~using~~master ~~the~~services ~~percentage-of-completion~~agreements ~~accounting~~entered ~~method.~~into ~~Under~~with ~~this method~~customers, ~~revenue~~together iswith ~~recognized based~~their onassociated ~~the~~Statements ~~extent~~ of ~~progress towards completion of the long-term contract~~Work.

~~We generally~~4) ~~use the cost~~Multi-~~to-cost~~element ~~measure~~collaboration of progress for all our long-term contracts, unless we believe another measure will produce a more reliable result. We believe that the cost-to-cost measure is the best and most reliable performance indicator of progress on our long-term contracts as all our contract estimates are based on costs that we expect to incur in performing our long-term contracts and we have not experienced any significant variations on estimated to actual costs to date. Under the cost-to-cost measure of progress, the extent of progress towards completion is based on the ratio of costs incurred-to-date to the total estimated costs at the completion of the long-term contract. Revenues, including estimated fees or profits are recorded as costs are incurred.agreements

~~When estimates~~We ofhave ~~total~~entered ~~costs~~into tomultiple-element collaboration becontracts ~~incurred~~with oncustomers aand ~~contract~~have ~~exceed~~determined ~~total~~that ~~estimates~~the ofdifferent revenue togenerating beelements ~~earned,~~embodied ain ~~provision~~these ~~for the entire~~contracts ~~loss~~are onseparable ~~the~~and ~~contract~~there is ~~recorded~~sufficient inevidence of the ~~period~~fair ~~the~~value ~~loss~~of iseach ~~determined~~element to account for these contract elements separately. These contracts elements include:

Upfront payments

We receive upfront revenue payments, generally upon closing a collaboration agreement, these revenues are recognized over the expected initial contact timeline as outlined in the collaboration agreement.

ii.

Full Time Equivalent (“FTE”) based research payments

We receive ongoing revenue for FTE based time spent on the collaboration projects, this revenue is recognized as the services are rendered.

iii.

Development event payments

Revenue contingent upon the achievement of certain agreed upon development events is recognized in the period that the development event is achieved. The achievement of a development event is when our collaboration partner agrees that the requirements stipulated in the agreement have been met.

iv.

Sales based events

Revenue based on the achievement of certain calendar year net sales is recognized in the period that the sales achieved by our collaboration partner reach the thresholds as laid out in the agreement.

Royalties earned

Royalties are earned at varying percentages of net product sales for certain periods as defined in our collaboration agreements, these royalties are recognized as revenue in the period in which a royalty report is received from our collaboration partners.

Research and Development

The remuneration of our research and development staff, materials used in internal research and development activities, and payments made to third parties in connection with collaborative research and development arrangements, are all expensed as incurred. Where we make a payment to a third party to acquire the right to use a product formula which has received regulatory approval, the payment is accounted for as the acquisition of a license or patent and is capitalized as an intangible asset and amortized over the shorter of the license period or the patent life.

Share-Based Compensation

ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as as expense over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations ~~for the year ended December 31, 2017 and 2016~~ is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market conditions.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with nonemployees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.38

~~Contingencies~~We account for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with nonemployees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Intangible assets

Certain of our intangible assets are subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.

(a1) Cell lines

Cell lines acquired by us are reported at acquisition value less any impairment. The useful life of cell lines is estimated to be indefinite.

332) Discovery platform

(b) Discovery platform

The discovery platform acquired by us is reported at acquisition value less accumulated amortization and any impairment. The estimated useful life of the discovery platforms acquired is estimated to be ten years.

(c3) Trademarks and trade names

The Trademarks and trade names acquired by us is reported at acquisition value less any impairments. The estimated useful life of trademarks and trade names is estimated to be indefinite.

(d4) Patents

Patents acquired by us are reported at acquisition value less accumulated amortization and impairments. The estimated useful life of patents is twenty years, the general useful life of patents.

(e5) Assembled workforce

Assembled workforce acquired by us is reported at acquisition value less amortization and impairments. The estimated useful life of the assembled workforce is ten years.

(f6) Amortization

Amortization is reported in the consolidated statement of operations on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is indefinite. Amortizable intangible assets are amortized from the date that they are available for use.

Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

	Leasehold improvements	5 Years
	Laboratory equipment	7 Years
	Furniture and fixtures	10 Years
	Computer equipment	3 Years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. ~~There was no impairment as of December 31, 2017.~~

~~Recent accounting pronouncements~~39

~~For~~Derivative ~~discussion of recently issued and adopted accounting pronouncements, please see Note 2 to the consolidated financial statements included herein.~~liabilities

~~Off Balance~~We ~~Sheet~~have ~~Arrangements~~derivative financial instruments.

~~None~~ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

~~Contractual~~The accounting treatment of ~~Obligations~~derivative financial instruments requires that we record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. We reassess the classification of our derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

AsThe aBlack-Scholes ~~result~~option ofvaluation ~~the~~model ~~agreements~~was ~~that~~used ~~we entered into with Pfizer and Sanofi, we are obligated; (i)~~ to ~~continue to retain certain employees at its Icagen-T facility until July 15, 2018, which we~~ estimate ~~will~~the ~~require~~fair ~~additional~~value ~~compensation~~ of ~~$4,459,000 at~~ the ~~Tucson~~conversion ~~Facility;~~options. ~~(ii)~~The ~~make~~model ~~additional~~includes ~~payments in terms of the~~subjective ~~Asset~~input ~~Purchase~~assumptions ~~and Collaboration Agreement~~ that wecan ~~entered~~materially ~~into~~affect onthe ~~June~~fair ~~26,~~value ~~2015~~estimates. ~~with~~The ~~Pfizer~~expected ~~including~~volatility ~~beginning~~is inestimated ~~2017,~~based aon ~~quarterly earn out payment (~~the ~~“Earn~~most recent ~~Out~~historical ~~Payment”)~~period of ~~10% of revenue earned during the quarter~~time, ~~with a minimum payment~~ of ~~$250,000 per~~other ~~quarter,~~comparative ~~up to a maximum aggregate payment of $10~~securities,~~000,000,~~ ~~such~~equal ~~minimum being reduced~~ to ~~$50,000 for~~ the ~~quarters~~weighted ~~ending~~average ~~March 2017~~life ~~to December 2018 and the difference between $250,000 or the quarterly amount paid and the actual calculation~~ of ~~deferred purchase consideration at 10% of gross revenue per quarter is being deferred and paid as one lump sum with~~ the ~~payment being made the quarter ended March 31, 2019, bearing interest at 12~~options.5% per annum, which interest is payable quarterly; (iii) make minimum lease payments in terms of a sub-lease agreement entered into with Pfizer for the period July l, 2015 to April 30, 2019 with annual escalations of 3.5%, estimated to be $260,256.

34Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument using effective interest method.

InRecently ~~terms~~Issued ofAccounting a Mutual Release and Assignment Agreement entered into between American Milling LP and the Company, the Company agreed to pay American Milling $800,000 of which $83,334 remains to be paid at December 31, 2017.Pronouncements

WeThe recent ~~reached~~Accounting aPronouncements ~~Settlement~~are ~~and~~fully ~~Release Agreement~~disclosed ~~with~~in ~~Dentons~~note ~~and~~2 ~~has agreed~~ to ~~pay~~our ~~Dentons~~audited ~~the~~consolidated ~~sum~~financial ~~of $1,400,000 over a period of fourteen months of which $1,200,000 has been paid to date~~statements.

OnManagement ~~May~~does ~~15,~~not ~~2017,~~believe ~~we,~~that ~~and~~any ~~our wholly owned~~other ~~subsidiary,~~recently ~~Icagen-T, entered into a Securities Purchase Agreement with an institutional investor (the “Purchaser”), pursuant to which (i) the Company~~ issued tobut ~~the~~not ~~Purchaser~~yet ~~the~~effective ~~Company~~accounting ~~Note which is a three year Senior Secured Convertible Note~~pronouncements, ~~maturing~~ onif ~~May 15~~adopted, ~~2020,~~would ~~bearing~~have ~~interest at the rate of 13% per annum (which interest rate increases to 18% per annum upon the occurrence of~~ an ~~event~~effect of default, as defined in the Note), in the aggregate principal amount of $2,000,000 for cash proceeds of $1,920,000 after an original issue discount of 4% or $80,000, before deal related expenses; and (ii) Icagen-T issued to the Purchaser the Icagen-T note which is a three year Senior Secured Convertible Note, maturing on ~~May 15, 2020, bearing interest at~~ the ~~rate~~accompanying ~~of 13% per annum, in the aggregate principal amount of $8,000,000 for cash proceeds of $7,680,000 after an original~~consolidated ~~issue~~financial ~~discount of 4% or $320,000, before deal related expenses~~statements. ~~The Company Note and the Icagen-T Note are each convertible into shares of common stock at a conversion price of $3.50 per share.~~

~~On June 19, 2017, the Company entered into a four~~Off-~~year employment agreement with Douglas Krafte, Ph.D., pursuant to which Dr. Krafte~~Balance isSheet entitled to an annual base salary of $285,000 and will be eligible for annual discretionary performance bonus payments of up to 35% of his base salary payable in cash, which bonus, if any, will be awarded in the sole and absolute discretion of the Company’s board of directors and the compensation committee of the board of directors. Dr. Krafte continues to be engaged as the Company’s Chief Scientific Officer.Arrangements

ToWe ~~date,~~do ~~we have~~ not ~~generated~~maintain ~~sufficient~~off-balance ~~revenue~~sheet toarrangements, ~~pay~~nor ~~all of these commitments. If we~~ do ~~not increase our revenue,~~ we ~~may~~participate bein ~~required to~~non-exchange ~~raise~~traded ~~additional~~contracts ~~capital~~requiring tofair ~~meet~~value ~~our obligations which could result in dilution to stockholders~~accounting treatment.

Inflation

The effect of inflation on ~~the~~our ~~Company’s~~revenue and operating results was not significant.

Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplemental Data

	~~Page~~	Page
Report of Independent Registered Public Accounting Firm	~~F-1~~	F-1
Consolidated Balance Sheets	~~F-2~~	F-2
Consolidated Statements of Operations	~~F-3~~	F-3
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity	F-4
Consolidated Statements of Changes in Stockholders’ Deficit		F-4
Consolidated Statements of Cash Flows	~~F-5~~	F-5
Notes to Consolidated Financial Statements	~~F-6~~	F-6

3640

805 Third Avenue

New York, NY 10022

212.838-5100

212.838.2676/ Fax

www.rbsmllp.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and ~~Stockholders of Icagen, Inc. and subsidiaries~~stockholders

Icagen, Inc. and subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Icagen, Inc. and subsidiaries (the Company) as of December 31, ~~2017~~2018 and ~~2016~~2017, and the related statements of operations, stockholders’ ~~equity (~~deficit), and cash flows for each of the years in the two year period ended December 31, ~~2017~~2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2018 and ~~2016~~2017, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, ~~2017~~2018, in conformity with accounting principles generally accepted in the United States of America.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated ~~financial~~ financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3 to the consolidated financial statements, the Company has incurred recurring operating losses which has resulted in an accumulated deficit of approximately $~~33.8~~47 million at December 31, ~~2017~~2018. These conditions raise substantial doubt about the Company’s ~~ability~~ ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The ~~consolidated~~ consolidated financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Basis for Opinion

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

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

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

/s/ RBSM LLP ~~We have served as the Company’s auditor since 2013. New York, NY April 17, 2018~~

We have served as the Company’s auditor since 2013.

April 12, 2019

New York, NY

F-1

ICAGEN INC.

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2017			2016
	2018			2017
Assets
Current Assets
Cash	$	24,~~763~~119,~~596~~058		$	42,~~938~~763,~~948~~596
Accounts receivable, net		12,~~739~~051,~~895~~329			1,~~317~~739,~~568~~895
Inventory		7362,~~885~~792			-73,885
Prepaid expenses and other current assets		~~213~~110,~~367~~653			~~467~~213,~~807~~367
Assets held for resale		-			27,000
Total Current Assets		6,343,832			4,790,743
Total Current Assets		4,790,743			6,751,323
Non-Current Assets
Intangibles, net		7,~~427~~048,~~071~~923			7,~~498~~427,~~890~~071
Plant and equipment, net		21,~~181~~982,~~753~~845			2,~~677~~181,~~734~~753
Deposits		~~238~~239,987			238,987
Total Non-Current Assets		9,~~847~~271,~~811~~755			109,~~415~~847,~~611~~811
Total Assets	$	1415,~~638~~615,~~554~~587		$	1714,~~166~~638,~~934~~554
Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts payable	$	1,~~471~~721,~~645~~812		$	1,~~712~~471,~~181~~645
Other payables and accrued expenses		2922,~~332,109~~457			12,~~633~~332,~~801~~109
Legal settlement accrual		~~493,333~~-			1493,~~426,667~~333
Loans payable		139,394			442,109
Deferred revenue		5,090,210			219,828
Accrued interest		108,333			-
Deferred purchase consideration		2,450,000			206,458
Deferred revenue		219,828			614,471
Bridge notes payable		254,641			-
Deferred subsidy		-			5,600,000
Loans payable		49,952			139,394
Deferred purchase consideration		206,458			1,332,800
Accrued interest		224,475			108,333
Total Current Liabilities		4,971,100			12,762,029
Dividends payable		224,855			-
Total Current Liabilities		10,938,402			4,971,100
Non-Current Liabilities
Deferred purchase consideration, net		86,~~232~~131,~~664~~739			78,~~454~~232,~~511~~664
Loans payable		7118,~~296~~861			-71,296
Convertible loans payable		5,861,794			-
Term loan payable, net		12,705,696			-
Legal settlement accrual		-			483,333
Convertible loan payable, net		-			5,861,794
Derivative liability		45,~~168~~178,~~964~~598			-4,168,964
Total Non-Current Liabilities		1824,~~334~~034,~~718~~894			718,~~937~~334,~~844~~718
Total Liabilities		2334,~~305~~973,~~818~~296			2023,~~699~~305,~~873~~818
Commitment and contingencies		-			-
Stockholders’ Deficit
Preferred stock, $0.001 par value, 10,000,000 authorized, 400,000 shares designated as Series A Preferred Stock and unissued, 3,000,000 shares designated as Series B Preferred stock and unissued, 6,600,000 shares undesignated and unissued		-			-
Preferred stock, $0.001 par value, 10,000,000 authorized, 400,000 shares designated as Series A Preferred Stock and unissued, 3,000,000 shares designated as Series B Preferred stock and unissued, 1,142,856 shares designated as Series C Preferred Stock and 5,457,144 undesignated and unissued		-			-
Common stock, $0.001 par value; 50,000,000 shares authorized, 6,720,107 shares issued and 6,393,107 outstanding as of December 31, 2017 and 2016.		6,392			6,392
Series C Preferred Stock, $0.001 par value, 1,142,856 shares authorized, 799,989 and 0 shares issued and outstanding as of December 31, 2018 and 2017, respectively (Liquidation preference $4,199,942)		800			-
Additional paid-in-capital		25,084,252			24,108,143
Common stock, $0.001 par value; 50,000,000 shares authorized, 6,720,107 shares issued and 6,393,107 outstanding as of December 31, 2018 and 2017.		6,392			6,392
Treasury stock, at cost (327,000 shares of common stock at December 31, 2017 and 2016.		(237	)		(237	)
Additional paid-in-capital		27,657,098			25,084,252
Accumulated deficit		(33,757,671	)		(27,647,237	)
Treasury stock, at cost (327,000 shares of common stock as of December 31, 2018 and 2017)		(237	)		(237	)
Total Stockholder’s Deficit		(8,667,264	)		(3,532,939	)
Accumulated deficit		(47,021,762	)		(33,757,671	)
Total Liabilities and Stockholders’ Deficit	$	14,638,554		$	17,166,934
Total Stockholder’s Deficit		(19,357,709	)		(8,667,264	)
Total Liabilities and Stockholders’ Deficit	$	15,615,587		$	14,638,554

~~See~~The accompanying notes toare ~~the~~an integral part of these consolidated financial statements

F-2

ICAGEN, INC.

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF OPERATIONS

	Year ended			Year ended
	December 31,			December 31,
	2017			2016
	2018			2017
Sales	$	22,656,610		$	11,995,377
Revenues	$	13,583,218		$	22,656,610
Cost of sales		11,175,692			6,371,873
Cost of goods sold		9,910,569			11,175,692
Gross profit		113,~~480~~672,~~918~~649			511,~~623~~480,~~504~~918
Operating expenses:
Selling, general and administrative expenses		1310,~~936~~309,~~542~~471			813,~~079~~936,~~663~~542
Depreciation		1,~~736~~486,~~628~~919			~~530~~1,~~898~~736,628
Amortization		~~224~~378,~~984~~148			224,984
Total Operating expenses		1512,~~898~~174,~~154~~538			815,~~835~~898,~~545~~154
Operating loss		(48,~~417~~501,~~236~~889	)		(34,~~212~~417,~~041~~236	)
Other income (expense)
Other income		~~502~~15,~~494~~779			-502,494
Other expense		(262,966	)		(1,535,875	)
Gain on extinguishment of debt		495,783			-
Interest income		7			350
Other expense		(562,524	)		(262,966	)
Interest expense		(2,282,046	)		(755,067	)
Interest income		-			7
Derivative liability movement		349,313			-
Interest expense		(3,190,730	)		(2,282,046	)
Total other expense		(1,693,198	)		(2,290,592	)
Derivative liability movement		(1,295,732	)		349,313
Net loss before income tax		(6,110,434	)		(5,502,633	)
Total other expense		(4,537,424	)		(1,693,198	)
Income tax		-			(1,779	)
Net loss before income tax		(13,039,313	)		(6,110,434	)
Net loss	$	(6,110,434	)	$	(5,504,412	)
Income tax		-			-
Net Loss Per Share - Basic and Diluted	$	(0.96	)	$	(0.85	)
Net loss		(13,039,313	)		(6,110,434	)
Weighted Average Number of Shares Outstanding - Basic and Diluted		6,393,107			6,472,158
Preferred stock dividend		(224,778	)		-
Net loss available to common stock holders	$	(13,264,091	)	$	(6,110,434	)
Net Loss Per Share - Basic and Diluted	$	(2.07	)	$	(0.96	)
Weighted Average Number of Shares Outstanding -Basic and Diluted		6,393,107			6,393,107

~~See~~The accompanying notes toare ~~the~~an integral part of these consolidated financial statements

F-3

ICAGEN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT~~) EQUITY FOR THE PERIOD JANUARY 1, 2016 TO DECEMBER 31, 2017~~

																Total
							Treasury			Additional						Stockholders’
	Common Stock						Stock			Paid-in			Accumulated			Equity
	Shares			Amount			Amount			Capital			Deficit			(deficit)
Balance as of January 1, 2016		6,481,857		$	6,482		$	(237	)	$	23,711,824		$	(22,142,825	)	$	1,575,244
Stock option based compensation		-			-			-			512,791			-			512,791
Common stock returned in legal settlement		(88,750	)		(90	)		-			(310,535	)		-			(310,625	)
Value of preferred stock in legal settlement		-			-			-			(50,400	)		-			(50,400	)
Fair value of bridge note warrants issued		-			-			-			244,463			-			244,463
Net loss		-			-			-			-			(5,504,412	)		(5,504,412	)
Balance as of December 31, 2016		6,393,107			6,392			(237	)		24,108,143			(27,647,237	)		(3,532,939	)
Stock option based compensation		-			-			-			645,756			-			645,756
Fair value of bridge note warrants issued											330,353						330,353
Net loss		-			-			-			-			(6,110,434	)		(6,110,434	)
Balance at December 31, 2017		6,393,107		$	6,392		$	(237	)	$	25,084,252		$	(33,757,671	)	$	(8,667,264	)

FOR THE PERIOD JANUARY 1, 2017 TO DECEMBER 31, 2018

See notes to the consolidated financial statements

	Preferred Stock				Common Stock				Treasury Stock			Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Amount			Capital			Deficit			Deficit

Balance as of January 1, 2017		-	$	-		6,393,107	$	6,392	$	(237	)	$	24,108,143		$	(27,647,237	)	$	(3,532,939	)

Stock option based compensation		-		-		-		-		-			645,756			-			645,756

Fair value of bridge note warrants issued		-		-		-		-		-			330,353			-			330,353

Net loss		-		-		-		-		-			-			(6,110,434	)		(6,110,434	)

Balance as of December 31, 2017		-		-		6,393,107		6,392		(237	)		25,084,252			(33,757,671	)		(8,667,264	)

Stock option based compensation		-		-		-		-		-			1,515,824			-			1,515,824

Series C Preferred stock issued		799,989		800		-		-		-			2,799,200			-			2,800,000

Fair value of bridge note warrants issued		-		-		-		-		-			116,485			-			116,485

Fair value of Series C Preferred warrants issued		-		-		-		-		-			(1,858,663	)		-			(1,858,663	)

Net loss		-		-		-		-		-			-			(13,039,313	)		(13,039,313	)

Series C Preferred Stock dividends		-		-		-		-		-			-			(224,778	)		(224,778	)

Balance as of December 31, 2018		799,989	$	800		6,393,107	$	6,392	$	(237	)	$	27,657,098		$	(47,021,762	)	$	(19,357,709	)

The accompanying notes are an integral part of these consolidated financial statements

F-4

~~INCAGEN~~ICAGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended			Year ended
	December 31,			December 31,
	2017			2016
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(613,~~110~~039,~~434~~313	)	$	(56,~~504~~110,~~412~~434	)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation expense		1,~~736~~486,~~628~~919			~~530~~1,~~898~~736,628
Amortization expense		~~224~~378,~~984~~148			224,984
Stock based compensation charge		~~645~~1,~~756~~515,824			~~512~~645,~~791~~756
Amortization of debt discount		~~792~~1,~~971~~229,994			-1,110,424
Derivative liability movements		(349,313	)		-
Gain on extinguishment of debt		(495,783	)		-
Deferred purchase consideration unearned by vendor		(500,000	)		-
Derivative liability movements		1,295,732			(349,313	)
Imputed interest on acquisition of Icagen assets		295,353			460,922
Deferred purchase consideration unearned by vendor		-			(500,000	)
Loss on disposal of assets held for resale		6,619
Imputed interest on acquisition of Icagen assets		299,075			308,252
Discount on warrants issued		330,353			244,463
Loss on disposal of assets held for resale		-			6,619
Movement in bad debt provision		-			(19,084	)
Increase in legal settlement accrual		-			1,535,875
Changes in operating assets and liabilities
Accounts receivable		(~~422~~311,~~326~~434	)		(~~331~~422,~~314~~326	)
Inventory		~~(73~~11,~~885~~093	)		-(73,885	)
Prepaid expenses and other current assets		~~254~~102,~~439~~714			~~(109~~254,~~632~~439	)
Accounts payable		~~(240~~250,~~536~~167	)		~~777~~(240,~~471~~536	)
Deferred subsidy		~~(5,600,000~~-	)		(5,600,000	)
Deferred revenues		(~~394~~129,~~643~~618	)		~~614~~(394,~~471~~643	)
Other payables and accrued expenses		(594,526	)		(169,887	)
Advanced payment on collaborations		5,000,000			-
CASH USED IN OPERATING ACTIVITIES		(9,998,561	)		4,367,547
Other payables and accrued expenses		(1,793,224	)		(594,526	)
CASH USED IN OPERATING ACTIVITIES		(4,199,706	)		(9,998,561	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of deferred purchase consideration		(150,000	)		(~~125~~150,000	)
Purchase of plant and equipment		(1,~~240~~288,~~646~~011	)		(1,~~647~~240,~~050~~646	)
Investment in deposits		-			(238,987	)
Purchase of intangibles		-			(153,164	)
Purchase of intangibles		(153,164	)		-
Proceeds on assets held for resale		-			20,381
Certificate of deposit refunded		-			25,023
Deposits paid		(1,000	)		-
Proceeds on assets held for resale		20,381			-
NET CASH USED IN INVESTING ACTIVITIES		(1,439,011	)		(1,523,429	)
NET CASH USED IN INVESTING ACTIVITIES		(1,523,429	)		(1,986,014	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible loan		9,600,000			-
Proceeds from term loan payable		15,250,000			-
Proceeds from bridge notes		1,500,000			1,145,000
Proceeds from convertible loan payable		-			9,600,000
Repayment of bridge notes		(1,500,000	)		(1,145,000	)
Repayment of convertible loan payable		(10,000,000	)		-
Repayment of Los Alamos County loan		-			(142,502	)
Proceeds from bridge notes payable		500,000			1,500,000
Proceeds from asset financing		157,766			570,012
Repayment of bridge notes payable		(200,000	)		(1,500,000	)
Repayment of asset financing		(411,128	)		(136,883	)
Capital raising fee		(1,006,944	)		-
NET CASH PROVIDED BY FINANCING ACTIVITIES		9,346,638			290,627
Fees paid on extinguishment of debt		(207,000	)		-
NET (DECREASE) INCREASE IN CASH		(2,175,352	)		2,672,160
Proceeds from Series C Preferred Stock		2,800,000			-
Cash at the beginning of the year		4,938,948			2,266,788
Proceeds from loans payable		-			157,766
CASH AT END OF YEAR	$	2,763,596		$	4,938,948
Repayment of loans payable		(141,877	)		(411,128	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		6,994,179			9,346,638
NET INCREASE (DECREASE) IN CASH		1,355,462			(2,175,352	)
CASH AT BEGINNING OF YEAR		2,763,596			4,938,948
CASH AT END OF YEAR	$	4,119,058		$	2,763,596
CASH PAID FOR INTEREST AND TAXES:
Cash paid for income taxes	$	-		$	~~1,779~~-
Cash paid for interest	$	~~742~~1,~~254~~554,580		$	13742,~~152~~254
NON-CASH INVESTING AND FINANCING ACTIVITIES
Value of Series A Stock redeemed and offset against stockholders’ equity	$	-		$	(183,750	)
Value of warrants issued concurrent with Series C Preferred Stock	$	1,858,663		$	-
Value of warrants issued concurrent with bridge notes	$	330,353		$	203,214
Value of warrants issued concurrent with bridge notes payable	$	116,485		$	330,353
Discount on convertible debt and warrants issued concurrent with debt	$	4,518,278		$	-
Value of warrants issued on term loans payable	$	1,746,065		$	-
Fair value of common stock returned in legal settlement	$	-		$	(310,625	)
Discount on convertible loan payable and warrants issued concurrent with convertible loan payable	$	-		$	4,518,278
Extinguishment of derivative liability and unamortized debt discount on convertible note	$	3,890,826		$	-

~~See~~The accompanying notes toare ~~the~~an integral part of these consolidated financial statements

F-5

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.	GENERAL INFORMATION

Icagen, Inc. (“the Company”, “we”, “us”, “our”) is a Delaware corporation. The principal office is located in Durham, North Carolina. The Company was incorporated in November 2003.

Icagen ~~currently~~ ~~operates~~is as a ~~partner research organization providing integrated~~ drug discovery ~~services~~ company with ~~unique~~a ~~expertise~~focus in ~~the field~~Neuroscience ~~of ion channel, transporter, neuroscience, muscle biology~~ and ~~rare~~Rare ~~disease targets while also covering many other classes of drug discovery targets and therapeutic areas~~Disease. ~~Our~~The ~~customers~~Icagen ~~are~~platform ~~pharmaceutical~~is ~~and~~unique ~~biotechnology~~as ~~companies~~it tointegrates ~~whom we offer~~ our ~~industry-~~current ~~leading~~state ~~scientific expertise and technologies to aid in their determination~~ of ~~which molecules to advance into late stage preclinical studies and ultimately clinical trials. The core of our offering is~~ the ~~discovery~~art ~~of Pre-Clinical Drug Candidates (PDC’s), which are lead molecules (Leads) that are selected to enter into in-vivo studies during the Pre-Clinical Phase of~~ drug discovery. Weengine ~~offer~~along awith ~~full~~an ~~complement~~artificial ofintelligence ~~pre-clinical drug discovery services which include; assay development technologies~~ (~~including high throughput fluorescence, manual and automated electrophysiology and radiotracer flux assays~~AI), ~~cell line generation, high-throughput and ultra-high- throughput screening, medicinal chemistry,~~ computational ~~chemistry~~platform ~~and custom assay services to our customers. Our capabilities also include molecular biology and the use of complex functional assays, electrophysiology, bioanalytics and pharmacology. We believe~~ that ~~this~~enables ~~integrated~~an ~~set~~accelerated ofpath ~~capabilities enhances our ability~~ to ~~help our customers identify~~ drug ~~candidates~~ discovery.

~~Icagen utilizes~~The a target class approach to drug discovery where it leverages its deep expertise in specific areas to more rapidly move drug discovery projects forward. Whereas traditional drug discovery tends to take a more linear approach to compound advancement, the Company’s ~~depth~~team ~~of both technical assets and area experts allows it to use more parallel approaches in eliminating problematic~~is ~~molecules~~comprised ~~early~~of ~~and~~pharmaceutical ~~identifying high quality leads in the drug discovery process. This saves time, money~~ and ~~increases~~biotechnology ~~the~~leadership ~~probability of~~with ~~success~~extensive inindustry ~~human~~knowledge ~~clinical studies. The Company believes that its deep understanding of the ion channel genome, neuroscience, muscle biology,~~ and ~~rare~~experience ~~disease~~with ~~targets, in particular, and its ability to apply this knowledge in~~ a ~~target~~successful ~~class approach to~~track ~~drug~~record ~~discovery facilitates its identification~~ of ~~small~~moving ~~molecule~~molecules ~~drug~~through ~~candidates~~pre-clinical ~~with novel mechanisms of action~~ and ~~enhanced~~clinical ~~selectivity and specificity profiles~~development. ~~Moreover,~~The ~~because the Company~~company’s ~~drug~~scientific ~~discovery~~team ~~and~~is ~~development~~derived ~~process~~from ~~screens for potential side~~two ~~effects~~key atacquisitions anof ~~earlier~~drug ~~stage~~discovery ~~than~~experts ~~some~~in ~~alternative~~Neuroscience ~~approaches,~~ (the ~~Company~~“Pfizer ~~believes~~Acquisition”) ~~that this process enables it to identify small molecule drug candidates that may have a reduced risk of clinical failure~~ and ~~may~~Rare ~~shorten~~Disease ~~clinical~~(the ~~development timelines~~“Sanofi Acquisition”).

The ~~Company~~ ~~operate~~company’s ~~out of two sites, one in Durham, North Carolina and the other in Tucson, Arizona. The teams in both North Carolina~~business ~~and~~model ~~Arizona~~is ~~have~~focused ~~extensive~~on ~~experience~~research ~~over~~collaborations ~~the last 20 plus years performing early drug discovery within Pfizer, Inc. (“Pfizer”)~~ and Sanofi US Inc. (“Sanofi”), respectively, delivering leads from the pre-clinical stage to the clinical stage of drug discovery. We are now leveraging these capabilities to the broader market in the form of services, partnerships ~~and collaborations~~ with large pharmaceutical ~~companies,~~and ~~biotech~~biotechnology companies and foundations. who Atit ~~the~~partners ~~North~~with ~~Carolina site, which we began~~ to ~~operate in~~support ~~July 2015, we have a leading biology expertise focused on ion channels which are important targets in Neuroscience. The North Carolina site also houses~~ the ~~XRpro®~~discovery technology, our legacy technology, which has unique capabilities in the transporter target class. More specifically, our capabilities in North Carolina include a focus on ion channels & transporters, HTS and ~~lead optimization, ion channel profiling, assay~~ development ~~and~~of ~~x-ray~~innovative ~~fluorescence-based assays~~pharmaceuticals. AtThese ~~the~~revenue-generating ~~Arizona site, which we acquired~~partnerships inprovide ~~July~~current ~~2016,~~funding wewhile ~~have~~our ~~leading~~co-owned ~~biology~~pipeline ~~expertise~~of ~~and platform capabilities in rare diseases, muscle biology and integrated~~ drug ~~discovery.~~ ~~The~~candidates ~~Arizona site~~ provides ~~capacity in cell models, human biomarkers, muscle biology expertise and stem cells-based assays. In addition,~~ the ~~Arizona~~potential site provides compound management services, HTS and Hit identification, in vitro pharmacology, medicinal chemistry, computational chemistry and ADME. The Arizona facility also features high volume biology with a flexible robotic infrastructure capable of ~~performing~~additional ~~high~~significant ~~throughput screening in ultra~~long-~~high 1536 format, enhancing our depth of expertise~~term asupside athrough ~~specialized~~milestone ~~pharmaceutical~~and ~~services~~royalty ~~company.~~payments ~~This enables us to offer a broad range of integrated drug discovery services~~ in anew ~~growing market~~partnerships. The ~~extensive~~development ~~integrated drug discovery platform~~ and ~~technologies~~commercialization atexpense ~~the~~of ~~Arizona~~these ~~site enable us to utilize~~assets ~~our~~is ~~biology~~being ~~expertise~~partially infunded ~~both~~by the ~~North~~Company’s ~~Carolina and Arizona sites to accelerate the drug discovery and identify quality leads faster~~partners.

In May 2018, the Company announced our first such collaboration with the Cystic Fibrosis Foundation to discover therapies to treat cystic fibrosis and in December 2018, it announced its second such collaboration with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (collectively, “Roche”) to discover therapies for certain neurological diseases.

The Company currently operates out of two sites, one in Durham, North Carolina (“Icagen NC”) and the other in Tucson, Arizona (the “Tucson Facility”). The teams in North Carolina and Arizona have extensive experience over the last 20 plus years performing drug discovery within Pfizer, Inc. (“Pfizer”) and Sanofi US Inc. (“Sanofi”), respectively, advancing molecules through pre-clinical development with numerous molecules entering clinical development. At Icagen NC, which the Company began to operate in July 2015, it has a leading biology expertise focused on ion channels which are important targets in neuroscience. Icagen NC also houses the XRpro® technology. The XRPro technology is an x-ray fluorescence technology that delivers transporter screening to detect and quantitatively analyze the x-ray signature of elements with an atomic number greater than 12. More specifically, our capabilities in Icagen NC include a focus on ion channels and transporters, HTS and lead optimization, ion channels, assay development and x-ray fluorescence-based assays.

At the Tucson Facility, which the Company acquired in July 2016, it has leading biology expertise and platform capabilities in Rare Diseases, in silico and computational applications and integrated drug discovery. The Tucson Facility provides capacity in cell models, human biomarkers, and primary human cell and stem cell-based assays. In addition, the Tucson Facility provides compound management services, HTS and Hit identification, in vitro pharmacology, medicinal chemistry, computational chemistry and ADME. The Tucson Facility also features high volume biology with a flexible robotic infrastructure capable of performing high throughput screening in ultra-high 1536 format, enhancing our depth of expertise running programs in a highly specialized, efficient and cost-effective manner. This enables the Company to offer a broad range of integrated drug discovery services in a growing market. The extensive integrated drug discovery platform and technologies at the Tucson Facility enable the company to utilize its biology expertise at both Icagen NC and the Tucson Facility to accelerate drug discovery for challenging, but innovative programs and identify quality leads faster.

F-6

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES

Basis of ~~Presentation~~presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

All amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.

Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has at least a majority voting interest. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. The entities included in these consolidated financial statements are as follows:

Icagen, Inc. - Parent Company

Icagen Corp ~~(formerly XRpro Corp.)~~ - Wholly owned subsidiary

Icagen-T, Inc. – wholly owned subsidiary

Caldera Discovery, Inc. - Wholly owned subsidiary

XRpro Sciences, Inc. – Wholly owned subsidiary

Estimates

The preparation of these consolidated financial statements in accordance with US GAAP requires usthe Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. WeThe Company continually evaluate ~~our~~its estimates, including those related to bad debts and recovery of long-lived assets. ~~We base~~The ~~our~~Company bases its estimates on historical experience and on various other assumptions that weit ~~believe~~believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to ~~our~~the ~~reported~~Company’s reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different ~~assumptions~~ assumptions or conditions. WeThe ~~believe~~Company believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, the valuation of certain assets and intangibles acquired from ~~Icagen~~Pfizer, Inc. and assumptions used in assessing impairment of long-term assets ~~and the assumptions used in determining percentage of completion on our long-term contracts~~.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against and by the Company or un-asserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

F-7

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Fair value of financial instruments

The Company adopted the guidance of ~~Accounting Standards Codification (“~~ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

●

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

●

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

●

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, loans payable, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. ~~The~~A ~~Company~~financial ~~did~~asset ~~not~~or ~~identify~~liability's ~~any assets~~classification orwithin ~~liabilities~~the hierarchy is determined based on the lowest level input that ~~are~~is ~~required~~significant to bethe ~~presented~~fair onvalue ~~the~~measurement. ~~balance~~The ~~sheets~~Company has recorded a derivative liability for its convertible notes and warrants which contain variable conversion prices. The derivative liability measured at fair value inusing ~~accordance~~unobservable ~~with~~inputs ~~the~~(Level ~~accounting~~3) ~~guidance~~amounted to $5,178,598 as of December 31, 2018.

ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Reporting by segment

No segmental information is presented as the Company operates in one segment and has changed its focus from Government contract revenue to revenues derived from commercial customers.

Concentrations of credit risk

The Company’s operations are carried out in the USA. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the USA and by the general state of the economy. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

The Company maintains cash with major financial institutions. The Federal Deposit Insurance Corporation (“FDIC”) provides insurance coverage for deposits of corporations, the current limit of coverage is $250,000. As a result of this coverage the Company cash ~~balances~~ balances of $23,~~328~~650,~~049~~565 are not covered by the FDIC as of December 31, ~~2017~~2018.

Concentration of major customers

The Company derives its revenues from commercial pharmaceutical and biotechnology companies as well as from Government research contracts and Government grants.

The commercial revenues are currently from several major pharmaceutical companies and smaller biotechnology and pharmaceutical companies.

The Company derived 8983.4% of its ~~services~~commercial ~~revenue~~revenues from ~~ten~~seven customers during the year ended December 31, ~~2017~~2018. During the year ended December 31, ~~2016~~2017, the Company derived 7989.4% of its ~~services~~commercial ~~revenue~~revenues from ~~three~~ten major customers. The Company continues its attempts to diversify its customer base.

The outstanding Government research ~~contracts~~ ~~are~~contracts in the prior year were from one government agency; the National Institutes of Health. The granting of research contracts from Government agencies is a competitive process and there is no certainty that wethe Company will be awarded future contracts, which may cause ~~our~~its revenue to fluctuate from year to year. Furthermore, Government grants are subject to audits by the granting agency. If such audits were to determine that expenditures of the grant funds did not meet the applicable criteria, these amounts could be subject to retroactive adjustment and refunded to the granting agency. ~~The Company currently does not have any active Government grants.~~

F-8

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Total revenues by customer type are as follows:

	Year ended December 31, 2017		Year ended December 31, 2016
	Year ended December 31, 2018		Year ended December 31, 2017
Government grants	$	~~320,743~~-	$	~~455~~320,~~983~~743
Subsidy revenue		~~9,600,000~~-		49,~~400~~600,000
Services revenue		12,735,867		7,139,394
Commercial revenues		13,583,218		12,735,867
	$	2213,~~656~~583,~~610~~218	$	1122,~~995~~656,~~377~~610

Intangible assets

Certain of ~~our~~the Company’s intangible assets are subject to amortization. WeThe ~~evaluate~~Company evaluates the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to be impaired wethe ~~recognize~~Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.

a1) Cell lines

Cell lines acquired by the Company are reported at acquisition value less any impairment. The useful life of cell lines is estimated to be indefinite.

b2) Discovery platform

The discovery platform acquired by the Company is reported at acquisition value less accumulated amortization and any impairment. The estimated useful life of the discovery platforms acquired is estimated to be ten years.

c3) Trademarks and trade names

The Trademarks and trade names acquired by the Company is reported at acquisition value less any impairments. The estimated useful life of trademarks and trade names is estimated to be indefinite.

d4) Patents

Patents acquired by the Company are reported at acquisition value less accumulated amortization and impairments. The estimated useful life of patents is twenty years, the general useful life of patents.

e5) Assembled workforce

Assembled workforce acquired by the Company is reported at acquisition value less amortization and impairments. The estimated useful life of the assembled workforce is ten years.

f6) Amortization

Plant and equipment

	Leasehold improvements	5 Years
	Laboratory equipment	7 Years
	Furniture and fixtures	10 Years
	Computer equipment	3 Years
	Computer software	License period, generally 1 to 3 years

The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There was no impairment as of December 31, 2018.

F-9

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Plant and equipment

	Leasehold improvements	5 Years
	Laboratory equipment	7 Years
	Furniture and fixtures	10 Years
	Computer equipment	3 Years

Accounts receivable and other receivables

WeThe ~~have~~Company has a policy of reserving for uncollectible accounts based on ~~our~~its best estimate of the amount of probable credit losses in ~~our~~ its existing accounts receivable. As a basis for accurately estimating the likelihood of collection of ~~our~~the Company’s accounts receivable, ~~we consider~~it considers a number of factors when determining reserves for uncollectable accounts. WeThe ~~believe~~Company believes that weit ~~use~~uses a reasonably reliable methodology to estimate the collectability of ~~our~~its accounts receivable. WeThe ~~review~~Company ~~our~~reviews its allowances for doubtful accounts on a regular basis. WeThe Company also ~~consider~~considers whether the historical economic conditions are comparable to current economic conditions. If the financial condition of ~~our~~its customers or other parties that weit ~~have~~has business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The balance of the receivables provision as at December 31, ~~2017~~2018 and ~~2016~~2017 was $0. The amount charged to bad debt provision for the year ended December 31, ~~2017~~ 2018 and ~~2016~~2017 was $0 ~~and $19,084, respectively~~.

Cash and cash equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with ~~two~~one financial ~~institutions~~institution in the USA.

Revenue recognition

~~Revenue sources~~The ~~consist~~Company’s ofrevenue recognition ~~commercial~~policy ~~contracts,~~is ~~deferred~~consistent ~~subsidy~~with ~~revenue,~~the ~~deferred~~requirements ~~revenue~~of ~~and~~FASB ~~government~~ASC ~~grants~~606, ~~and contracts~~Revenue.

WeThe Company has analyzed its ~~enter~~revenue ~~into~~transactions ~~fixed~~pursuant ~~fee~~to ~~commercial~~ASC ~~development~~606, ~~contracts~~Revenue, ~~that~~and ~~are~~it ~~associated~~has ~~with~~no material impact as a result of the ~~delivery~~transition from ASC 605 to ASC 606. The Company’s revenues are recognized when control of ~~feasible~~the ~~research~~promised onservices ~~drug~~are ~~candidates~~transferred to a customer, in an ~~and~~amount that reflects the ~~development~~consideration ofthat ~~drug~~the ~~candidates~~Company expects to receive in exchange for those services. ~~Revenue~~The ~~under~~Company ~~such~~derives its ~~contracts~~revenues isfrom ~~generally~~the ~~recognized~~sale ~~upon~~of ~~delivery~~its orservices, as defined below. The Company applies the ~~development~~following five steps in order to determine isthe ~~performed.~~appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:

~~We received~~i. ~~certain~~identify ~~deferred~~the ~~subsidy~~contract ~~revenue~~with ~~which~~a ~~was~~customer; ~~utilized~~ii. toidentify ~~support our operations, maintain~~ the ~~facilities~~performance ~~that~~obligations ~~we operate~~ in ~~and continue~~ the ~~employment~~contract; ofiii. ~~certain~~determine ~~employees~~the totransaction ~~provide,~~price; ~~if needed, resources to certain of our customers~~iv. ~~This~~allocate ~~deferred subsidy~~the ~~revenue~~transaction ~~was~~price ~~amortized~~to ~~over~~performance aobligations ~~straight-line~~in ~~basis to match~~ the ~~expected~~contract; ~~expenses~~and tov. berecognize ~~incurred~~revenue ~~over~~as the ~~period~~performance ~~July~~obligation ~~15, 2016~~is ~~to December 31, 2017~~satisfied.

~~We received~~Revenue ~~and~~sources ~~will~~consist ~~receive certain revenue in advance~~ of commercial ~~services~~revenues, ~~delivered.~~deferred ~~This~~subsidy revenue, is deferred ~~and~~revenue, ~~only~~multi-element ~~recognized~~collaboration ~~when services~~agreements ~~have~~and ~~been~~government ~~performed in terms of Master Services Agreements entered into with customers, together with their associated~~grants ~~Statements~~and ~~of Work~~contracts.

~~We account~~1) ~~for~~Commercial our long-term Firm Fixed Price Government contracts and grants associated with the delivery of research on drug candidates and the development of drug candidates using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract.revenues

The Company enters into fixed fee commercial development contracts that are associated with the delivery of feasible research on drug candidates and the development of drug candidates. Revenue under these contracts is generally recognized upon delivery or as the development is performed.

Deferred subsidy revenue

In the prior year, the Company had received certain deferred subsidy revenue which was utilized to support its operations, maintain the facilities that it operates in and continue the employment of certain employees to provide, if needed, resources to certain of its customers. This deferred subsidy revenue was amortized over a straight-line basis to match the expected expenses to be incurred over the period July 15, 2016 to December 31, 2017.

Deferred revenue

The Company received and will receive certain revenue in advance of services delivered. This revenue is deferred and only recognized when services have been performed in terms of master services agreements entered into with customers, together with their associated Statements of Work.

F-10

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Revenue recognition (continued)

The Company has entered into multiple-element collaboration contracts with customers and has determined that the different revenue generating elements embodied in these contracts are separable and there is sufficient evidence of the fair value of each element to account for these contract elements separately. These contracts elements include:

Upfront payments

The Company receives upfront revenue payments, generally upon closing a collaboration agreement, these revenues are recognized over the expected initial contract timeline as outlined in the collaboration agreement.

ii.

FTE based research payments

The Company receives ongoing revenue for FTE based time spent on the collaboration projects, this revenue is recognized as the services are rendered.

iii.

Development event payments

Revenue contingent upon the achievement of certain agreed upon development events is recognized in the period that the development event is achieved. The achievement of a development event is when the Company’s collaboration partner agrees that the requirements stipulated in the agreement have been met.

iv.

Sales based events

Revenue based on the achievement of certain calendar year net sales is recognized in the period that the sales achieved by our collaboration partner reach the thresholds as laid out in the agreement.

Royalties earned

Government grants and contracts

The Company generally uses the cost-to-cost measure of progress for all its government contracts, unless it believes another measure will produce a more reliable result. The Company believes that the cost-to-cost measure is the best and most reliable performance indicator of progress on its government contracts as all its contract estimates are based on costs that it expects to incur in performing its government contracts and it has not experienced any significant variations on estimated to actual costs to date. Under the cost-to-cost measure of progress, the extent of progress towards completion is based on the ratio of costs incurred-to-date to the total estimated costs at the completion of the government contract. Revenues, including estimated fees or profits are recorded as costs are incurred.

When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.

Sales and ~~Marketing~~marketing

Sales and marketing expenses are expensed as incurred and is included in ~~Selling~~selling, general and administrative expenses. The Company expects to incur ~~sales~~expenditure on relevant conferences and ~~marketing~~seminars ~~expenses~~and publications in ~~future~~scientific ~~periods~~media, tominimal ~~promote~~sales ~~its~~and ~~services~~marketing expenses were incurred and are expected to ~~drug~~be ~~discovery~~incurred ~~enterprises~~in future periods.

Research and ~~Development~~development

The remuneration of the Company’s research and development staff, materials used in internal research and development activities, and payments made to third parties in connection with collaborative research and development arrangements, are all expensed as incurred. Where the Company makes a payment to a third party to acquire the right to use a product formula which has received regulatory approval, the payment is accounted for as the acquisition of a license or patent and is capitalized as an intangible asset and amortized over the shorter of the license period or the patent life.

The amount expensed for unrecovered research costs, included in ~~Selling~~selling, general and administrative expenses during the year ended December 31, ~~2017~~2018 and ~~2016~~2017 was $32,~~328~~187,~~843~~ 190 and $13,~~200~~328,~~223~~843, respectively.

~~Patent Costs~~Patents

Legal costs in connection with approved patents and patent applications are expensed as incurred and classified as ~~Selling~~selling, general and administrative expense in ~~our~~the Company’s consolidated statements of operations.

Share-Based Compensation

ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the year ended December 31, 2017 and 2016 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market conditions.

Income Taxes

The Company utilizes ASC 740, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, “Income Taxes”. Accounting guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements, under which a company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accordingly, the Company would report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company elects to recognize any interest and penalties, if any, related to unrecognized tax benefits in tax expense.

F-11

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

~~Net income (loss) per~~ Share-based Compensation

ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all stock-based payment transactions in which employee services are acquired. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Stock-based compensation expense recognized in the consolidated statements of operations for the year ended December 31, 2018 and 2017 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have no awards with performance conditions and no awards dependent on market conditions.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of stock-based payment transactions with nonemployees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the stock-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

Income taxes

Net income (loss) per share

Basic net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.

Diluted net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).

Related parties

Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

F-12

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Beneficial conversion feature of convertible notes payable

The Company accounts for convertible notes payable in accordance with guidelines established by the FASB ASC Topic 470-20, “Debt with Conversion and Other Options”. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible note when issued and also records the estimated fair value of any warrants issued with those convertible notes. The beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

The beneficial conversion feature of a convertible note is measured by first allocating a portion of the note’s proceeds to any warrants, if applicable, as a discount on the carrying amount of the convertible on a relative fair value basis. The discounted face value is then used to measure the effective conversion price of the note. The effective conversion price and the market price of the Company’s common stock are used to calculate the intrinsic value of the conversion feature. The intrinsic value is recorded in the financial statements as a debt discount from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to amortization of debt discount on the Company’s consolidated statement of operations.

Derivative ~~Liabilities~~liabilities

The Company has derivative financial instruments as of December 31, ~~2017~~2018.

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

The Black-Scholes option valuation model was used to estimate the fair value of the conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options.

Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument using effective interest method.

Inventory

Inventory consists of consumables utilized in our research activities. These consumable inventories are valued at the lower of cost or net realizable value.

F-12

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements

In ~~January~~ ~~2017~~February 2016, ~~the~~ FASB issued Accounting Standards Update ~~No.~~ (“ASU”) ~~2017-02~~, anNo. ~~amendment to Topic 805~~2016-02, ~~Business~~Leases Combinations. The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (orTopic ~~disposals~~842) of(ASC assets or businesses. The amendments in this Update affect all reporting entities that must determine whether they have acquired or sold a business. The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this Update apply to annual periods beginning after December 15, 2017. The amendments in this Update should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect this guidance to have a material impact on its financial statements.842)

InThe amendments in this update ~~January~~establishes ~~2017,~~a comprehensive new lease accounting model. The new standard: (a) clarifies the ~~FASB~~definition ~~issued~~of ~~ASU~~a ~~2017-04,~~lease; an(b) ~~amendment~~requires a dual approach to ~~Topic~~lease ~~350,~~classification ~~Intangibles~~similar –to ~~Goodwill~~current lease classifications; and ~~Other,~~(c) ancauses ~~entity~~lessees ~~no longer~~to ~~will~~recognize ~~determine~~leases ~~goodwill~~on the ~~impairment~~balance bysheet ~~calculating~~as ~~the~~a ~~implied~~lease ~~fair~~liability ~~value~~with a corresponding right-of-use ~~goodwill~~asset byfor ~~assigning~~leases ~~the~~with ~~fair~~a ~~value~~lease-term of amore than twelve ~~reporting~~months. ~~unit~~The tonew ~~all~~standard ofis ~~its~~effective ~~assets~~for fiscal years and ~~liabilities~~interim asperiods ifbeginning ~~that~~after ~~reporting~~December ~~unit~~15, ~~had~~2018, ~~been~~with ~~acquired~~early inadoption permitted. aA ~~business~~modified ~~combination. Because~~retrospective ~~these~~transition ~~amendments~~approach ~~eliminate~~is ~~Step 3~~required ~~from~~for ~~the~~leases ~~goodwill~~existing ~~impairment~~at, ~~test~~or entered into after, ~~they~~the ~~should~~beginning of ~~reduce~~the earliest comparative period presented in the ~~cost~~financial ~~and~~statements, ~~complexity~~including a number of ~~evaluating~~ ~~goodwill~~optional ~~for~~practical ~~impairment.~~expedients Anthat entities ~~entity~~may ~~should~~elect to apply. In July 2018, the ~~amendments~~FASB inissued ~~this~~ASU ~~Update~~No. on2018-11, aLeases ~~prospective~~(Topic ~~basis.~~842): ~~The~~Targeted Improvements, an update ~~amendments~~which inprovides ~~this~~another ~~Update~~transition ~~are~~method, ~~effective~~the ~~for~~prospective ~~Goodwill~~transition ~~impairment~~method, ~~tests~~which inallows ~~fiscal~~entities ~~years~~to ~~beginning~~initially ~~after~~apply ~~December~~the ~~15,~~new ~~2019.~~lease ~~Early~~standard at the adoption isdate ~~permitted~~and ~~for~~recognize ~~interim~~a orcumulative-effect ~~annual~~adjustment ~~goodwill~~to ~~impairment~~the ~~tests~~opening ~~performed~~balance onof ~~testing~~retained ~~dates~~earnings ~~after~~in ~~January~~the 1,period of ~~2017~~adoption. We ~~are~~The ~~currently~~Company ~~evaluating~~will adopt the ~~effect~~new ~~ASU~~standard ~~2017-04~~on ~~will~~January ~~have~~1, on2019 ~~our~~using ~~consolidated~~the ~~financial~~prospective ~~statements~~transition method. In preparation for adoption of the standard.

In February 2017, the FASB issued ASU 2017-05, an amendment to Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets. The amendments in this Update are required for public business entities and other entities that have goodwill reported in their financial statements, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendments in this Update modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. An entity should apply the amendments in this Update on a prospective basis. The amendments in this Update are effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the effect ASU 2017-05 will have on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715). This Update is being issued primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This Update also includes amendments to the Overview and Background Sections of the FASB Accounting Standards Codification. Under generally accepted accounting principles (GAAP), defined benefit pension cost and postretirement benefit cost (net benefit cost) comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees. Those components are aggregated for reporting in the financial statements. The amendments in this Update apply to all employers, including not-for-profit entities, that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715. The amendments in this Update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this Update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those 3 annual periods. For other entities, the amendments in this Update are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. We are currently evaluating the effect ASU 2017-07 will have on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization of Purchased Callable Debt Securities. The amendments in this Update affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Under current GAAP, premiums and discounts on callable debt securities generally are amortized to the maturity date. The amendments in this Update more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. We are currently evaluating the effect ASU 2017-08 will have on our consolidated financial statements.

F-13

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements (continued)

InThe Company has identified all ~~May~~leases ~~2017,~~and reviewed the ~~FASB~~leases ~~issued~~to ~~Accounting~~determine ~~Standards~~the ~~Update~~impact Noof ASC 842 on its consolidated financial statements. The Company has elected to apply the practical expedient to certain classes of leases, whereby the separation of components of leases into lease and non-lease components is not required and all of the practical expedients to all leases, which include not reassessing (~~“ASU’’~~1) ~~2017-09~~whether any expired or existing contracts are or contain leases, ~~Compensation~~(2) –lease ~~Stock~~classification ~~Compensation~~for any expired or existing leases, anand ~~amendment~~(3) toinitial ~~Topic~~direct ~~718~~costs for any existing leases. ~~The~~Based ~~amendments~~on inthe ~~this~~Company’s ~~Update~~assessment, ~~provide~~the ~~guidance~~Company ~~about~~has ~~which~~concluded ~~changes~~that tothe adoption of the ~~terms~~new orstandard ~~conditions~~will result in the recording of a ~~share~~ right-~~based~~of-use ~~payment~~asset ~~award~~and ~~require~~a anlease ~~entity~~liability toon ~~apply~~the ~~modification~~consolidated ~~accounting~~balance sheet inon ~~Topic~~January ~~718.~~1, 22019. AnWhile ~~entity~~substantially ~~should~~complete, ~~account~~the ~~for~~Company is still in the process of finalizing its evaluation of the ~~effects~~effect of aASC ~~modification~~842 ~~unless~~on ~~all~~its financial statements and disclosures. The Company does not expect the ~~following~~adoption ~~are~~of ~~met:~~ASU 2016-02, as amended, to have a material impact on its consolidated statements of operations or consolidated statements of cash flows.

1.In February ~~The fair value (or calculated value or intrinsic value~~2018, ~~if such an alternative measurement method is used) of~~ the ~~modified~~FASB ~~award~~issued isASU ~~the~~2018-2, ~~same~~Income asStatement- ~~the~~Reporting ~~fair~~Comprehensive ~~value~~Income (orTopic ~~calculated value or intrinsic value~~220), ifReclassification ~~such an alternative measurement method is used)~~ of ~~the~~certain tax ~~original~~effects ~~award~~from ~~immediately~~accumulated ~~before~~other ~~the~~comprehensive ~~original award is modified~~income. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.

2The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ~~The~~Consequently, ~~vesting~~the ~~conditions~~amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the ~~modified~~amendments ~~award~~only ~~are~~relate to the ~~same~~reclassification asof the ~~vesting~~income ~~conditions~~tax effects of the ~~original~~Tax ~~award~~Cuts ~~immediately~~and ~~before~~Jobs Act, the ~~original~~underlying guidance ~~award~~that requires that the effect of a change in tax laws or rates be included in income from continuing operations is ~~modified~~not affected. The amendments in this Update also require certain disclosures about stranded tax effects.

3The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. ~~The~~Early ~~classification~~adoption of the ~~modified~~amendments ~~award~~in asthis anUpdate ~~equity~~is ~~instrument~~permitted, orincluding aadoption ~~liability~~in ~~instrument~~any isinterim period. The amendments in this Update should be applied either in the ~~same~~period asof adoption or retrospectively to each period (or periods) in which the ~~classification~~effect of the ~~original~~change ~~award~~in ~~immediately~~the ~~before~~U.S. federal corporate income tax rate in the ~~original~~Tax ~~award~~Cuts and Jobs Act is ~~modified~~recognized.

~~The~~This ~~current~~ASU ~~disclosure~~was ~~requirements~~applied inretrospectively ~~Topic 718 apply regardless of whether an entity is required~~ to ~~apply modification accounting under~~ the ~~amendments~~consolidated infinancial ~~this~~statements ~~Update.~~and ~~The~~resulted ~~amendments~~ in ~~this~~a ~~Update~~reduction ~~are~~in ~~effective~~the ~~for all entities for annual~~tax ~~periods~~effect ~~beginning~~of ~~after~~net ~~December~~operating ~~15,~~losses ~~2017.~~carried ~~Early adoption is permitted and should be applied prospectively to an award modified on or after the adoption date~~forward. ~~The amendments proposed in this ASU are not expected to have a material impact on our consolidated financial statements.~~

In ~~May~~February ~~2017~~2018, the FASB issued ASU ~~2017~~2018-~~10,~~3 ~~service~~Technical ~~concession~~Corrections ~~arrangements,~~and anImprovements ~~amendment~~ to ~~Topic~~Financial ~~853.~~Instruments ~~Topic~~– ~~853~~Overall ~~provides guidance~~(Sub ~~for~~topic ~~operating~~825-10), ~~entities~~Recognition ~~when~~and ~~they~~Measurement ~~enter~~of ~~into~~Financial aAssets ~~service~~and ~~concession~~Financial ~~arrangement~~Liabilities. ~~with a public-sector grantor who both:~~

1.The amendment ~~Controls~~clarifies orthat ~~has~~an entity measuring an equity security using the ~~ability~~measurement alternative may change its measurement approach to ~~modify~~a orfair ~~approve~~value ~~the~~method ~~services~~in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the ~~operating~~same issuer. Once an entity ~~must~~makes ~~provide~~this ~~with~~election, the ~~infrastructure,~~entity toshould measure ~~whom~~all itfuture ~~must~~purchases ~~provide~~of ~~them,~~identical ~~and~~or atsimilar ~~what~~investments ~~price~~of the same issuer using a fair value method in accordance with Topic 820.

2.The amendment ~~Controls,~~clarifies ~~through~~that ~~ownership,~~the ~~beneficial~~adjustments ~~entitlement,~~made orunder ~~otherwise,~~the ~~any~~measurement ~~residual~~alternative ~~interest~~are inintended to reflect the ~~infrastructure~~fair atvalue of the security ~~end~~as of the ~~term~~date ofthat the ~~arrangement~~observable transaction for a similar security took place.

InThe aamendment ~~service~~clarifies ~~concession~~that ~~arrangement~~remeasuring ~~within~~ the ~~scope~~entire value of ~~Topic~~forward ~~853,~~contracts ~~the operating entity should not account for the infrastructure as a lease or as property, plant,~~ and ~~equipment.~~purchased Anoptions ~~operating~~is ~~entity~~required ~~should~~when ~~refer~~observable ~~to other Topics to account for various aspects~~transactions ofoccur aon ~~service~~the ~~concession~~underlying ~~arrangement.~~equity For example, an operating entity should account for revenue relating to construction, upgrade, or operation services in accordance with Topic 605, Revenue Recognition, or Topic 606, Revenue from Contracts with Customerssecurities.

The ~~amendments~~amendment inclarifies ~~this~~that ~~Update~~when ~~apply to~~ the ~~accounting~~fair byvalue ~~operating~~option ~~entities~~is elected for ~~service~~a ~~concession~~financial ~~arrangements~~liability, ~~within~~ the ~~scope~~guidance ~~of Topic~~in ~~853.~~paragraph ~~These~~825-10-45-5 should ~~updates~~be ~~are~~applied, ~~effective~~regardless ~~when~~of ~~the~~whether ~~Company adopts~~ the ~~updates~~fair tovalue ~~Topic~~option ~~606.~~was ~~The~~elected ~~amendments~~under ~~proposed~~either inSubtopic ~~this~~815-15, ~~ASU~~Derivatives ~~are~~and Hedging—Embedded ~~not~~Derivatives, ~~expected~~or to825-10, ~~have~~Financial ~~an impact on our consolidated financial statements~~Instruments—Overall.

InThe ~~July~~amendments ~~2017,~~clarify ~~the~~that ~~FASB~~for ~~issued~~financial ~~Accounting~~liabilities ~~Standards~~for ~~Update~~which ~~No.~~the ~~(“ASU’’)~~fair ~~2017-11~~value option is elected, ~~Earnings~~the ~~Per~~amount ~~Share~~of ~~(Topic~~change ~~260),~~in fair value ~~Distinguishing~~that ~~Liabilities~~relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from ~~Equity~~the ~~(Topic~~total ~~480)~~change ~~and~~in ~~Derivatives~~fair ~~and~~value ~~Hedging~~of ~~(Topic~~the ~~815)~~financial liability. ~~The~~Then, ~~amendments~~both components of the change in ~~this~~the ~~Update~~fair ~~provide~~value of the liability ~~guidance~~should ~~about:~~be remeasured into the functional currency of the reporting entity using end-of-period spot rates.

1The amendment clarifies that the prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. ~~Accounting~~An insurance entity subject to the guidance in Topic 944, Financial Services—Insurance, should apply a prospective transition method for ~~certain~~Correction or ~~financial~~Improvement ~~instruments~~Summary ~~with~~of ~~down~~Amendments ~~round~~when ~~features~~applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected.

2.The amendments ~~Replacement~~in ofthis ~~the~~Update ~~indefinite~~are ~~deferral~~effective for ~~mandatorily~~fiscal ~~redeemable~~years ~~financial~~beginning ~~instruments~~after ofDecember ~~certain~~15, ~~non-public~~2017, and interim periods within those fiscal years beginning after June 15, 2018. All entities ~~and~~may ~~certain~~early ~~non-controlling~~adopt ~~interests~~these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01.

The amendments in ~~Part I of~~ this ~~Update~~update ~~change~~are ~~the~~not ~~classification~~expected analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to anhave ~~entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As~~ a ~~result,~~material aimpact ~~freestanding~~on ~~equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of~~ the ~~existence~~consolidated ~~of a down round feature. For freestanding equity classified~~ financial ~~instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered~~statements. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260).

F-14

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements (continued)

~~The~~In ~~amendments~~June in2018, ~~Part II of this Update recharacterize~~ the ~~indefinite~~FASB ~~deferral~~issued ofASU ~~certain~~2018-07, ~~provisions~~Compensation—Stock ofCompensation (Topic ~~480~~718) ~~that~~Improvements ~~now~~to ~~are~~Nonemployee ~~presented~~Share-Based asPayment ~~pending content in the Codification, to a scope exception~~Accounting. ~~Those amendments do not have an accounting effect.~~

The amendments in ~~Part~~this IUpdate expand the scope of ~~this~~Topic ~~Update~~718 ~~are~~to ~~effective~~include share-based payment transactions for ~~fiscal~~acquiring ~~years,~~goods and ~~interim~~services from ~~periods~~nonemployees. ~~within~~An ~~those~~entity ~~fiscal~~should ~~years,~~apply ~~beginning~~the ~~after December~~requirements ~~15,~~of ~~2018.~~Topic ~~Early~~718 ~~adoption~~to isnonemployee ~~permitted~~awards except for ~~all~~specific ~~entities,~~guidance ~~including~~on inputs ~~adoption~~to in an ~~interim~~option ~~period.~~pricing Ifmodel anand ~~entity~~the ~~early~~attribution ~~adopts the~~of ~~amendments~~cost in(that anis, ~~interim~~the period, ~~any~~of ~~adjustments~~time ~~should~~over bewhich ~~reflected~~share-based aspayment ofawards vest and the ~~beginning~~pattern of ~~the~~cost ~~fiscal~~recognition ~~year~~over that ~~includes that interim~~ period). The amendments inspecify ~~Part~~that 1Topic of718 ~~this~~applies ~~Update~~to ~~should~~all beshare-based ~~applied~~payment transactions in ~~either~~which ofa ~~the~~grantor ~~following~~acquires ~~ways:~~goods 1.or ~~Retrospectively~~ services to ~~outstanding~~be ~~financial~~used ~~instruments~~or ~~with~~consumed in a ~~down~~grantor’s ~~round~~own ~~feature~~operations by ~~means of a cumulative~~issuing share-~~effect~~based ~~adjustment~~payment toawards. ~~the~~The ~~statement~~amendments ~~of financial~~also ~~position~~clarify asthat ofTopic ~~the~~718 ~~beginning~~does ofnot ~~the~~apply ~~first~~to ~~fiscal~~share-based ~~year~~payments ~~and~~used ~~interim~~to ~~period~~effectively provide (s1) infinancing ~~which~~to the ~~pending~~issuer ~~content~~or ~~that~~(2) ~~links to~~awards ~~this~~granted ~~paragraph~~in isconjunction ~~effective~~with 2.selling ~~Retrospectively~~goods toor ~~outstanding~~services ~~financial~~to ~~instruments~~customers ~~with~~as part of a ~~down~~contract ~~round~~accounted ~~feature~~ for ~~each~~under ~~prior reporting~~Topic ~~period~~606, ~~presented~~Revenue infrom ~~accordance~~Contracts with ~~the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10~~Customers.

The amendments in ~~Part~~this IIUpdate ofare ~~this~~effective ~~Update~~for dopublic ~~not~~business ~~require~~entities ~~any~~for ~~transition~~fiscal ~~guidance~~years ~~because~~beginning ~~those~~after ~~amendments~~December do15, ~~not~~2018, ~~have~~including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an ~~accounting~~entity’s adoption date of Topic ~~effect~~606.

The ~~Company is currently evaluating the~~ impact of this ASU ~~will have~~ on ~~its~~the consolidated financial statements is not expected to be material.

In ~~August~~July ~~2017~~2018, the FASB issued ASU ~~2017~~2018-1211, ~~Derivatives~~Leases ~~and Hedging,~~ (Topic ~~815~~842), Targeted Improvements ~~to accounting for Hedging Activities~~. ~~The amendments in this update provide guidance about:~~

The amendments in this Update ~~better~~provide ~~align~~entities with an ~~entity’s~~additional ~~risk management activities~~ (and ~~financial~~optional) ~~reporting~~transition ~~for~~method ~~hedging relationships through changes~~ to ~~both~~adopt the ~~designation~~new ~~and~~leases ~~measurement~~standard. Under ~~guidance~~this ~~for~~new ~~qualifying~~transition ~~hedging~~method, ~~relationships~~an ~~and~~entity ~~the~~initially ~~presentation~~applies ~~of hedge~~the ~~results.~~new Toleases ~~meet~~standard ~~that~~at ~~objective,~~ the ~~amendments~~adoption ~~expand~~date and ~~refine~~recognizes ~~hedge~~a ~~accounting for both nonfinancial and financial risk~~cumulative-effect ~~components~~adjustment ~~and~~to ~~align~~ the ~~recognition~~opening ~~and~~balance ~~presentation~~ of ~~the~~retained ~~effects~~earnings ofin the ~~hedging~~period ~~instrument~~of ~~and~~adoption ~~the~~consistent ~~hedged~~with ~~item~~preparers’ ~~in the financial statements~~requests.

~~For~~The ~~public business entities, the~~ amendments in this Update ~~are~~provide ~~effective~~lessors ~~for~~with ~~fiscal~~a ~~years~~practical ~~beginning after December 15~~expedient, ~~2018,~~by ~~and interim~~class ~~periods~~of ~~within~~underlying ~~those~~asset, ~~fiscal~~to ~~years.~~not ~~For~~separate ~~all~~non-lease components ~~other~~from ~~entities,~~ the ~~amendments~~associated ~~are~~lease ~~effective~~component ~~for fiscal years beginning after December 15~~and, ~~2019~~instead, ~~and~~to ~~interim~~account ~~periods~~for ~~within~~those ~~fiscal~~components ~~years~~as ~~beginning~~a ~~after~~single ~~December~~component ~~15,~~if ~~2020.~~the ~~Early application is permitted in~~non-lease ~~any~~components ~~interim~~otherwise ~~period~~would ~~after~~be ~~issuance~~accounted offor under the ~~Update.~~new ~~Transition~~revenue ~~Requirements~~guidance ~~For~~(Topic ~~cash~~606) ~~flow~~ and ~~net~~both ~~investment~~of ~~hedges existing at~~ the ~~date~~ offollowing ~~adoption,~~are anmet: ~~entity~~1. ~~should~~The timing ~~apply~~and apattern ~~cumulative-effect~~of ~~adjustment~~transfer ~~related~~of ~~to eliminating~~ the ~~separate~~non-lease ~~measurement~~component(s) ofand ~~ineffectiveness to~~associated ~~accumulated~~lease ~~other~~component ~~comprehensive~~are ~~income~~the ~~with~~same. a2. ~~corresponding~~The ~~adjustment~~lease tocomponent, if ~~the~~accounted ~~opening~~for ~~balance~~separately, ofwould ~~retained~~be ~~earnings~~classified as ~~of the beginning of the fiscal year that~~ an ~~entity~~operating ~~adopts the amendments in this Update~~lease. ~~The amended presentation and disclosure guidance is required only prospectively.~~

The ~~impact~~amendments in this ~~ASU~~Update ~~will~~related ~~have~~to onseparating components of a contract affect the ~~Company’s~~amendments ~~consolidated~~in ~~financial~~Update ~~statements~~2016-02, iswhich ~~expected~~are tonot yet effective but can be ~~immaterial~~early adopted.

~~In September~~The ~~2017,~~Company ~~the~~is ~~FASB~~currently ~~issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606),~~considering ~~Leases~~the ~~(Topic~~impact ~~840~~this ~~and~~ASU ~~Leases~~will ~~(Topic~~have ~~842).~~on ~~The~~its ~~amendments~~consolidated infinancial ~~this update provide guidance about:~~statements.

~~The~~In ~~transition~~August ~~provisions~~2018, inthe ~~ASC~~FASB ~~Topic~~issued ~~606~~ASU ~~require~~2018-13, ~~that~~Fair aValue ~~public~~Measurement ~~business entity and certain other specified entities adopt ASC~~ (Topic ~~606~~ ~~for~~820) ~~annual~~Changes ~~reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required~~ to ~~adopt~~the ~~ASC~~Disclosure ~~Topic~~Requirements ~~606~~ for ~~annual~~Fair ~~reporting periods beginning after December 15, 2018,~~Value ~~and interim reporting periods within annual reporting periods beginning after December 15, 2019~~Measurement.

The ~~transition~~amendments ~~provisions~~ in ~~ASC~~this ~~Topic~~Update ~~842~~modify ~~require~~the ~~that~~disclosure arequirements ~~public~~on ~~business~~fair ~~entity~~value ~~and~~measurements ~~certain~~in ~~other specified entities adopt ASC~~ Topic ~~842~~ ~~for fiscal years beginning after December 15~~820, ~~2018,~~Fair ~~and~~Value ~~interim periods within those fiscal years~~Measurement. ~~FN3 All other entities are required to adopt ASC Topic 842 for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.~~

~~The impact this ASU will have on the Company’s consolidated financial statements is expected to be immaterial.~~Removals

InThe ~~November~~following ~~2017,~~disclosure ~~the~~requirements ~~FASB~~were ~~issued~~removed ~~ASU 2017-14, Income Statement – Reporting Comprehensive Income (Topic220), Revenue Recognition (Topic 605) and Revenue~~ from ~~Contracts with Customers (~~Topic ~~606). The amendments in this update provide guidance about~~820:

~~Certain amendments~~1. ~~made~~The toamount ~~SEC~~of ~~materials~~ and ~~staff~~reasons ~~guidance~~for ~~relating~~transfers tobetween ~~Operating-Differential~~Level ~~subsidiaries,~~1 and ~~amendments~~Level to2 of the ~~wording and~~fair ~~disclosure~~value ~~requirements~~hierarchy 2. The policy for timing of ~~Topic~~transfers ~~605~~between levels 3. The valuation processes for Level 3 fair value measurements 4. For nonpublic entities, ~~Revenue~~the ~~Recognition~~changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.

Modifications

The following disclosure requirements were modified in Topic 820:

	1.	In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
	2.	For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly.
	3.	The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

F-15

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements (continued)

~~In January 2018, the FASB issued ASU 2018-1, Leases (Topic 842), Land Easement practical expedient for Top 842. The amendments in this update provide guidance about:~~Additions

The ~~amendments~~following indisclosure ~~this~~requirements ~~Update permit an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity’s adoption of Topic 842 and that~~ were ~~not~~added ~~previously accounted for as leases under Topic 840. An entity that elects this practical expedient should apply the practical expedient consistently~~ to ~~all~~ ~~of its existing or expired land easements that were not previously accounted for as leases under~~ Topic 840. Once an entity adopts Topic 842, it should apply that Topic prospectively to all new (or modified) land easements to determine whether the arrangement should be accounted for as a lease. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The amendment in this Update clarifies that an entity should determine whether land easements are leases in accordance with Topic 842 before applying the guidance.820:

The impact this ASU will have on the Company’s consolidated financial statements is expected to be immaterial.

	1.	The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period
	2.	The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

In ~~February 2018~~addition, the ~~FASB~~amendments ~~issued~~clarify ~~ASU~~that ~~2018-2,~~materiality ~~Income~~is ~~Statement-~~an ~~Reporting~~appropriate ~~Comprehensive~~consideration ~~Income (Topic 220), Reclassification~~ of ~~certain tax~~entities ~~effects~~and ~~from~~their ~~accumulated~~auditors ~~other~~when ~~comprehensive~~evaluating disclosure ~~income~~requirements.

The amendments in this Update ~~allow~~are aeffective ~~reclassification~~for ~~from~~all ~~accumulated~~entities ~~other~~for ~~comprehensive~~fiscal ~~income~~years, toand ~~retained~~interim periods ~~earnings~~within ~~for~~those ~~stranded tax~~fiscal ~~effects~~years, ~~resulting~~beginning ~~from~~after ~~the~~December ~~Tax~~15, ~~Cuts~~2019. ~~and~~The ~~Jobs~~amendments on ~~Act.~~changes ~~Consequently,~~in ~~the~~unrealized ~~amendments~~gains ~~eliminate~~and losses, the ~~stranded~~range ~~tax~~and ~~effects~~weighted ~~resulting~~average of significant ~~from~~ unobservable ~~the~~inputs ~~Tax~~used ~~Cuts~~to ~~and~~develop ~~Jobs~~Level ~~Act~~3 ~~and~~fair ~~will~~value ~~improve~~measurements, and the 2narrative description ~~usefulness~~ of ~~information~~measurement ~~reported~~uncertainty toshould ~~financial~~be ~~statement~~applied ~~users.~~prospectively ~~However, because~~for only the ~~amendments~~most recent ~~only~~interim ~~relate~~or toannual ~~the~~period ~~reclassification~~presented ofin the ~~income~~initial ~~tax~~fiscal ~~effects~~year of ~~the~~adoption. ~~Tax~~All other ~~Cuts~~amendments ~~and~~should ~~Jobs~~be ~~Act,~~applied ~~the~~retrospectively ~~underlying guidance~~to ~~that~~all ~~requires~~periods ~~that~~presented ~~the~~upon ~~effect~~their effective ofdate. aEarly ~~change~~adoption inis ~~tax~~permitted ~~laws~~upon orissuance ~~rates~~of bethis ~~included~~Update. inAn ~~income~~entity ~~from~~is permitted ~~continuing~~to ~~operations~~early isadopt ~~not affected.~~any ~~The~~removed ~~amendments~~or inmodified disclosures upon issuance of this Update and ~~also~~delay ~~require~~adoption ~~certain~~of the additional disclosures ~~about~~until ~~stranded~~their ~~tax~~effective ~~effects~~date.

The ~~amendments~~impact inof this ~~Update~~ASU ~~are~~on ~~effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of~~ the ~~amendments~~consolidated ~~in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which~~ financial statements ~~have~~is not ~~yet~~expected ~~been~~to ~~issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should~~ be ~~applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U~~material.~~S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.~~

~~The~~In ~~impact~~November ~~this~~2018, ~~ASU will have on~~ the ~~Company’s~~FASB ~~consolidated~~issued ~~financial~~ASU ~~statements~~2018-18, ~~will~~Collaborative beArrangements a(Topic ~~reduction~~808) inClarifying the ~~tax~~Interaction ~~effect~~between ofTopic ~~net~~808 ~~operating~~and ~~losses~~Topic ~~carried forward~~606.

InA ~~February~~collaborative ~~2018~~arrangement, as defined by the ~~FASB~~guidance ~~issued~~in ~~ASU~~Topic ~~2018-3~~808, ~~Technical~~is ~~Corrections~~a ~~and~~contractual ~~Improvements~~arrangement tounder ~~Financial~~which ~~Instruments~~two –or ~~Overall~~more ~~(Sub~~parties ~~topic~~actively ~~825-10),~~participate ~~Recognition~~in a joint operating activity and ~~Measurement~~are ofexposed ~~Financial~~to ~~Assets~~significant risks and ~~Financial~~rewards ~~Liabilities.~~that ~~The~~depend ~~amendments~~on inthe ~~this~~activity’s commercial ~~update~~success. Topic 808 does not provide comprehensive recognition or measurement guidance ~~about:~~for collaborative arrangements, and the accounting for those arrangements is often based on an analogy to other accounting literature or an accounting policy election.

The ~~amendment~~amendments ~~clarifies~~in ~~that~~this anUpdate ~~entity~~provide ~~measuring~~guidance anon ~~equity~~whether ~~security~~certain ~~using~~transactions ~~the~~between ~~measurement~~collaborative ~~alternative~~arrangement ~~may~~participants ~~change its measurement approach~~should tobe aaccounted ~~fair~~for ~~value~~with ~~method~~revenue inunder ~~accordance with~~ Topic ~~820,~~606. ~~Fair~~The ~~Value~~amendments ~~Measurement,~~in ~~through~~this anUpdate ~~irrevocable~~make ~~election~~targeted ~~that~~improvements ~~would apply~~ to ~~that~~generally ~~security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should~~accepted ~~measure~~accounting ~~all~~principles ~~future~~for ~~purchases~~collaborative ofarrangements ~~identical~~as ~~or similar investments of the same issuer using a fair value method in accordance with Topic 820.~~follows:

~~The amendment~~1. ~~clarifies~~Clarify that ~~the~~certain ~~adjustments~~transactions ~~made~~between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the ~~measurement~~collaborative ~~alternative~~arrangement ~~are~~participant ~~intended~~is toa ~~reflect~~customer in the ~~fair~~context ~~value~~of a unit of account. In those situations, all the ~~security~~ asguidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. 2. Add unit-of-account guidance in Topic 808 to align with the ~~date~~guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the ~~observable~~collaborative arrangement or a part of the arrangement is within the scope of Topic 606 3. Require that in a transaction ~~for~~with a ~~similar~~collaborative ~~security~~arrangement ~~took~~participant ~~place~~that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. An entity may not adopt the amendments earlier than its adoption date of Topic 606. The amendments in this Update should be applied retrospectively ~~amendment~~to ~~clarifies~~the ~~that~~date ~~remeasuring~~of initial application of Topic 606. An entity should recognize the ~~entire~~cumulative ~~value~~effect of ~~forward~~initially ~~contracts~~applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and ~~purchased~~the ~~options~~annual period isthat ~~required~~includes ~~when~~the ~~observable~~date ~~transactions~~of the entity’s initial application of Topic 606. An entity may elect to apply the amendments ~~occur~~in onthis Update retrospectively either to all contracts or only to contracts that are not completed at the ~~underlying~~date ~~equity~~of ~~securities~~initial application of Topic 606. An entity should disclose its election.

The ~~amendment~~impact ~~clarifies~~of ~~that~~this ~~when~~ASU on the ~~fair~~consolidated ~~value~~financial ~~option~~statements is ~~elected~~not ~~for~~expected ato ~~financial liability, the guidance in paragraph 825-10- 45-5 should~~ be ~~applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives, or 825- 10, Financial Instruments— Overall~~material.

~~The~~Any ~~amendments~~new ~~clarify~~accounting ~~that~~standards, ~~for~~not ~~financial~~disclosed ~~liabilities for which the fair value option is elected~~above, ~~the amount of change in fair value~~ that ~~relates~~have tobeen ~~the~~issued ~~instrument~~or ~~specific~~proposed ~~credit~~by ~~risk~~FASB ~~should~~that ~~first~~do benot ~~measured~~require inadoption ~~the~~until ~~currency~~a future ofdate ~~denomination~~are ~~when~~not ~~presented~~expected ~~separately from~~to ~~the~~have ~~total~~a ~~change~~material inimpact ~~fair~~on ~~value of~~ the financial ~~liability.~~statements ~~Then,~~upon ~~both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates~~adoption.

F-16

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

~~Recent accounting~~Reclassification ~~pronouncements~~of ~~(continued)~~Prior Year Presentation

~~The amendment~~Certain ~~clarifies~~prior ~~that~~year ~~the~~amounts ~~prospective~~have ~~transition~~been ~~approach~~reclassified for ~~equity~~consistency ~~securities~~with ~~without a readily determinable fair value in~~ the ~~amendments~~current inyear ~~Update 2016-01 is meant only for instances in which the measurement alternative is applied~~presentation. ~~An insurance entity~~ ~~subject~~These toreclassifications ~~the~~had ~~guidance~~no ineffect ~~Topic~~on ~~944, Financial Services— Insurance, should apply a prospective transition method 4 Area for Correction or Improvement Summary of Amendments when applying~~ the ~~amendments~~reported ~~related~~results ~~to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population~~ of ~~equity securities for which the measurement alternative is elected~~operations.

The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01.

The amendments in this update are not expected to have a material impact on the Company’s consolidated financial statements.

In March 2018, the FASB issued ASU 2018-4 Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980), Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin no. 117 and SEC Release No. 33-9273. The amendments in this update provide guidance about:

Certain amendments made to SEC materials and staff guidance relating to Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980).

The amendments in this update are not expected to have a material impact on the Company’s consolidated financial statements.

In March 2018, the FASB issued ASU 2018-5, Income Taxes (Topic 740) Amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118

These amendments affect the wording of SEC paragraphs in the accounting standard codification dealing with Income Taxes (Topic 740).

The amendments in this update are not expected to have a material impact on the Company’s consolidated financial statements.

Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

3.	GOING CONCERN

As shown in the accompanying ~~consolidated~~ consolidated financial statements, the Company incurred a net loss of $(613,~~110~~039,~~434~~313) and $(56,~~504~~110,~~412~~434) during the years ended December 31, ~~2017~~ 2018 and ~~2016~~2017, respectively. As of December 31, ~~2017~~2018, and ~~2016~~2017 the Company had accumulated deficits of $3347,~~757~~021,~~671~~762 and $2733,~~647~~757,~~237~~671, respectively. The Company’s working capital position ~~improved~~has changed from a deficit of $(6180,~~010,706~~357), including deferred revenue ~~and deferred~~ ~~subsidy~~ of $219,828 for the year ended December 31, 2017, ~~and~~to a deficit of $64,~~214~~594,~~471~~570, including deferred revenue of $5,090,210 for the year ended December 31, ~~2016,~~2018. ~~related~~The todeferred ~~the~~revenue ~~Sanofi acquisition~~includes toan upfront payment on a collaboration agreement of $~~(180~~5,~~357)~~000,000. The Company’s working capital is insufficient to meet its short-term cash requirements and fund any future operating losses. These operating losses create an uncertainty about the Company’s ability to continue as a going concern. ~~Our~~The Company’s plan, through the acquisition of the assets of Sanofi and ~~Icagen~~Pfizer Research and the continued promotion of ~~our~~its services to existing and potential customers is to generate sufficient revenues to cover ~~our~~its anticipated expenses. The ~~Company~~factors ~~concluded~~mentioned above raise substantial doubt about our ability to continue as a ~~preferred~~going concern for ~~stock~~the ~~equity~~next ~~raise~~twelve onmonth period from April 412, ~~2018~~2019, ~~raising~~although ~~$2,000,000. Although~~ no assurances can be given as to the Company’s ability to deliver on its revenue plans, or that unforeseen expenses may arise, the management of the Company believes that the revenue to be generated from operations together with additional issuances of equity or other potential financing will provide the necessary funding for the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is economically dependent upon future capital or financing to fund ongoing operations.

F-17

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.	INVENTORY

Inventory represents the value of certain consumables utilized in the Company’s biological screening processes. These consumables are purchased in bulk and expensed as they are utilized.

5.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

	December 31, 2017		December 31, 2016
	December 31, 2018		December 31, 2017
Other receivables - Sanofi	$	-	$	305,867
Prepaid insurance	$	35,723	$	75,774
Prepaid insurance		75,774		51,791
Prepaid maintenance		73,992		129,260
Prepaid maintenance		129,260		80,687
Prepaid rent		-		2,500
Prepaid rent		2,500		21,430
Prepaid subscriptions		938		5,833
Prepaid subscriptions		5,833		7,243
	$	110,653	$	213,367
Other		-		789
	$	213,367	$	467,807

~~In the prior year, the Company entered into a Transitional services Agreement with Sanofi, in terms of which certain expenditure is to be paid by Sanofi~~6. ~~This~~INTANGIBLE ~~expenditure relates to certain software purchases, an environmental insurance policy purchased and certain transitional property taxes.~~ASSETS

6. ASSETS HELD FOR RESALE

The Company closed its Los Alamos and Cambridge sites during the fourth quarter of 2015 and consolidated its operations at the Icagen site in North Carolina. Excess laboratory equipment that was surplus to its requirements were consigned to a company that specializes in selling used laboratory equipment. The expected value the equipment is expected to realize was $27,000, of which $20,381 has been received to date, with some equipment remaining unsold of $6,619 written off during the year ended December 31, 2017.

7. ACQUISITION OF ASSETS OF TUCSON FACILITY

On July 15, 2016, Icagen-T, Inc. consummated the transactions with Sanofi (Sanofi Asset Purchase Agreement), pursuant to which Icagen-T acquired certain assets of Sanofi Tucson Facility, and the land on which the Tucson Facility is built; and (ii) certain machinery and equipment located at the Tucson Facility. The cash purchase price under the Sanofi Asset Purchase Agreement was $1. Icagen-T assumed certain liabilities, offered to continue the employment of up to 46 employees at the Facility for at least two years and maintain the Sanofi chemical libraries that will remain at the Tucson Facility and continue to be owned by Sanofi.

Upon the closing of the Sanofi Asset Purchase Agreement, on July 15, 2016, Icagen-T executed a Deed of Trust providing Sanofi with a five year, $5 million lien on the Tucson Facility, securing performance of Icagen-T’s obligations under the MSA and the Sanofi Asset Purchase Agreement. The lien is subject to termination upon the payment by Icagen-T of $5 million to Sanofi. The parties have also agreed to a Deed of Sale that will revest in Sanofi all rights in the Tucson Facility in the event that Icagen-T sells the Tucson Facility at any time within the next five years and upon certain other events related to the leasing of space at the Tucson Facility. The reversion rights of Sanofi under the Deed of Sale will terminate after five years as well as upon payment of the $5 million to extinguish the lien created by the Deed of Trust.

In terms of the agreement, Icagen-T, our wholly owned subsidiary is required to maintain the following covenants:

● Minimum cash balance of $575,000 over five consecutive days at month end

● A current ratio of 1.05 times

● A net worth of $1,500,000 after adding back a value of $15,000,000 as a deemed property value.

● Certain affirmative covenants confirming we are in compliance with the agreement.

The purchase price allocated to the acquisition of the assets of the Tucson Facility of $1 was allocated to fixed assets in the prior year.

F-18

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. INTANGIBLE ASSETS

Cell lines and discovery platform

The Company has established a core set of technologies for the discovery of drugs that act upon ion channel targets. All of the assets acquired were developed internally and are based upon its ion channel platform and include the following acquired components:

● Extensive cell line and plasmid repositories ● Technologies including HTS, electrophysiology, informatics, in vitro and in vivo ADME, animal efficacy and safety models.

● Technologies including High Throughput screening (HTS), electrophysiology, informatics, in vitro and in vivo ADME, animal efficacy and safety models.

The value placed on these individual components is $5,000,500 for cell lines and $1,450,500 for the discovery platform, no initial value has been ascribed to plasmid repositories due to the commodity nature of these plasmids.

The useful life ascribed to the cell lines is indefinite due to the proprietary nature of these internally generated cell lines and will be tested for impairment on a regular basis and the useful life of the acquired discovery platform is expected to be ten years based on our internal experience on the usefulness of internally generated procedures and protocols used in ion channel drug discovery procedures. The cell lines and discovery platform will be considered for impairment on a regular basis.

F-17

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6.	INTANGIBLE ASSETS (continued)

Trade name and trademarks

In terms of the purchase agreement entered into between the Company and Pfizer Research, the name and all rights to the name of Icagen were assigned to ~~us.~~the Company. The use of this name, which was the original name of the publicly traded company acquired by Pfizer Research in 2011, has ~~significant~~ significant value and is a well-known industry name. The value placed on the trade name and trademarks acquired is $637,500. The useful life of the trade name and trademarks is indefinite and will be tested for impairment on a regular basis.

Assembled workforce

In terms of the purchase agreement entered into between the Company and Pfizer Research, wethe Company agreed to retain the services of the scientific personnel who have extensive knowledge and experience in ion channel research and services. This workforce was originally acquired by Pfizer Research and prior to that had worked for the original Icagen company. The value placed in the assembled workforce acquired is $282,500, the useful life is expected to be ten years based on our estimate of the useful life of current knowledge and the rate of evolution within the industry.

Patents

The patents the Company holds and pending patent applications consist of the following:

● Method for Detecting Binding Events Using Micro X-Ray Fluorescence Spectrometry, which includes an issued U.S. patent that is expected to expire in about 2021; ● Flow Method and Apparatus for Screening Chemicals Using Micro X-Ray Fluorescence, which includes issued patents in the U.S., Europe, Japan and Singapore, such patents are expected to expire in 2022; ● Method and Apparatus for Detecting Chemical Binding, which includes about 10 issued patents in the U.S., Europe, Japan and Singapore; such patents are expected to expire in 2023; ● Drug Development and Manufacturing, which includes an issued U.S. patent that is expected to expire in about 2021; ● Advanced Drug Development and Manufacturing, which includes about 20 issued foreign patents, in Europe, Japan, and Hong Kong, expected to expire in about 2026, and a pending application in the U.S. which, if issued, is expected to expire between 2021-2026; ● Well Plate/Apparatus for Preparing Samples for Measurement by X-Ray Fluorescence Spectrometry, which includes issued over 15 issued patents in the U.S. Europe, and Japan, which are expected to expire in about 2028, and a pending application in the U.S. which, if issued, is also expected to expire in 2028; ● Method and Apparatus for Measuring Protein Post Translational Modification, which includes a patent issued in Japan, which is expected to expire in about 2028 and pending applications in U.S. and Japan, which, if issued, are also expected to expire in about 2028; ● Method and Apparatus for Measuring Analyte Transport Across Barriers, which includes 3 issued U.S. patents and issued patents in China and Hong Kong, which are expected to expire in about 2030/2031, and pending applications in U.S., Europe, and China, which, if issued, are also expected to expire in about 2030; and ● Method for Analysis Using X-Ray Fluorescence, which includes 4 issued U.S. patents, which is expected to expire in 2031, and a pending U.S. patent application which, if issued, is expected to expire in 2031.

●Intangible assets ~~Flow~~consist ~~Method~~of ~~and Apparatus for Screening Chemicals Using Micro X-Ray Fluorescence, which includes issued patents in~~ the ~~U.S., Europe, Japan and Singapore, such patents are expected to expire in 2022;~~following:

● Method and Apparatus for Detecting Chemical Binding, which includes about 10 issued patents in the U.S., Europe, Japan and Singapore; such patents are expected to expire in 2023;

	December 31, 2018							December 31, 2017
	Cost		Amortization and Impairment			Net book value		Net book value
Cell lines	$	5,153,664	$	(153,164	)	$	5,000,500	$	5,153,664
Discovery platform		1,450,500		(507,675	)		942,825		1,087,875
Trade names and trademarks		637,500		-			637,500		637,500
Assembled workforce		282,500		(98,875	)		183,625		211,875
Patents		972,000		(687,527	)		284,473		336,157
	$	8,496,164	$	(1,447,241	)	$	7,048,923	$	7,427,071

~~● Drug Development and Manufacturing, which includes an issued U.S. patent that is expected to expire in about 2021;~~F-18

● Advanced Drug Development and Manufacturing, which includes about 20 issued foreign patents, in Europe, Japan, and Hong Kong, expected to expire in about 2026, and a pending application in the U.S. which, if issued, is expected to expire between 2021-2026;

● Well Plate/Apparatus for Preparing Samples for Measurement by X-Ray Fluorescence Spectrometry, which includes issued over 15 issued patents in the U.S. Europe, and Japan, which are expected to expire in about 2028, and a pending application in the U.S. which, if issued, is also expected to expire in 2028;

● Method and Apparatus for Measuring Protein Post Translational Modification, which includes a patent issued in Japan, which is expected to expire in about 2028 and pending applications in U.S. and Japan, which, if issued, are also expected to expire in about 2028;

F-19

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

86. INTANGIBLE ASSETS (continued)

●The aggregate ~~Method~~amortization ~~and~~expense ~~Apparatus~~charged ~~for~~to ~~Measuring~~operations ~~Analyte~~was ~~Transport Across Barriers~~$378,148 ~~which includes 3 issued U.S. patents~~ and ~~issued patents in China and Hong Kong~~$224,984 ~~which~~for ~~are~~the ~~expected~~year toended ~~expire~~December ~~in about 2030/2031~~31, ~~and~~2018 ~~pending applications in U.S., Europe,~~ and ~~China~~2017, respectively. ~~which,~~The ifamortization ~~issued,~~policies ~~are~~followed ~~also~~by ~~expected~~the toCompany ~~expire~~are described in ~~about~~Note ~~2030; and~~2.

● Method for Analysis Using X-Ray Fluorescence, which includes 4 issued U.S. patents, which is expected to expire in 2031, and a pending U.S. patent application which, if issued, is expected to expire in 2031.

Intangible assets consist of the following:

	December 31, 2017							December 31, 2016
	Cost		Amortization and Impairment			Net book value		Net book value
Cell lines	$	5,153,664	$	-		$	5,153,664	$	5,000,500
Discovery platform		1,450,500		(362,625	)		1,087,875		1,232,925
Trade names and trademarks		637,500		-			637,500		637,500
Assembled workforce		282,500		(70,625	)		211,875		240,125
Patents		972,000		(635,843	)		336,157		387,840
	$	8,496,164	$	(1,069,093	)	$	7,427,071	$	7,498,890

The aggregate amortization expense charged to operations was $224,984 and $224,984 for the year ended December 31, 2017 and 2016, respectively. The amortization policies followed by the Company are described in Note 2.

Amortization expense for future periods is summarized as follows:

	Amount
2018	$	224,984
2019	$	224,984
2019		224,984
2020		224,984
2021		224,984
2022 and thereafter		735,971
2022		224,984
Total	$	1,635,907
2023 and thereafter		510,987
Total	$	1,410,923

97. PLANT AND EQUIPMENT

Plant and equipment consists of the following:

December 31, 2017

December 31, 2016

December 31, 2018

December 31, 2017

Cost

Depreciation and Impairment

Net book value

Laboratory equipment

2,~~449~~630,~~748~~539

(1,~~053~~382,~~131~~271

)

1,~~396~~248,~~617~~268

1,~~613~~396,~~987~~617

Computer software

1997,~~321,788~~637

(~~604~~349,~~928~~059

)

~~716~~648,~~860~~578

1716,~~022,340~~860

Computer equipment

82109,~~170~~385

(3865,~~354~~151

)

4344,~~816~~234

3843,~~768~~816

Leasehold improvements

3875,~~974~~511

(1433,~~514~~746

)

2441,~~460~~765

224,~~639~~460

3,~~892~~813,~~680~~072

(1,~~710~~830,~~927~~227

)

21,~~181~~982,~~753~~845

2,~~677~~181,~~734~~753

The aggregate depreciation charge to operations was $1,~~736~~486,~~628~~919 and $~~530~~1,~~898~~736,628 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively. The depreciation policies followed by the Company are described in Note 2.

~~F-20~~8. OTHER PAYABLES AND ACCRUED EXPENSES

	December 31, 2018		December 31, 2017

Bonus and vacation accrual	$	508,550	$	1,871,488
Payroll liabilities		275,001		44,858
Severance cost accrual		30,541		262,966
Other		108,365		152,797
	$	922,457	$	2,332,109

The Company accrues for bonus accruals in anticipation of making payments based on the achievement of pre-determined goals. Vacation pay unused at the end of the fiscal year is forfeited with no carry over or payments made to employees.

On September 7, 2018, the Company restructured its management team and streamlined operations at its Tucson Facility, thereby reducing head count by a total of nine people. The Company provided severance packages to these employees based on written agreements entered into. The severance costs are amortized over the severance payment period which expired on January 31, 2019.

F-19

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

109. ~~OTHER~~LEGAL ~~PAYABLES~~SETTLEMENT ~~AND ACCRUED EXPENSES~~ACCRUAL

	December 31, 2017		December 31, 2016
Bonus and vacation accrual	$	1,871,488	$	1,125,119
Payroll liabilities		44,858		32,312
Sanofi transitional services expense		-		268,189
Credit card liability		-		35,862
Severance cost accrual		262,966		-
Other		152,797		172,319
	$	2,332,109	$	1,633,801

The Company accrues for vacation pay and bonus accruals in anticipation of making payments based on the achievement of pre- determined goals.

The Company refocused its operations and reduced the number of staff responsible for business development by four people. The Company provided severance packages to these staff members based on agreements entered into and company policy. We will, incur the severance costs over the following nine months.

In the prior year, the company entered into a Transitional services Agreement with Sanofi, in terms of which certain expenditure was paid by Sanofi and recoverable from Icagen-T, these expenses related to normal operating expenditure.

11. LEGAL SETTLEMENT ACCRUAL

The legal settlement liability is disclosed as follows:

	December 31, 2017		December 31, 2016
	December 31, 2018		December 31, 2017
Settlement liability accruals
Dentons dispute	$	~~400,000~~-	$	1,400,000
Eisenschenk matter		~~83,333~~-		~~500~~83,~~000~~333
Other		~~10,000~~-		10,000
		493,333		1,910,000
		-		493,333
Judgement liability		-		-
		493,333		1,910,000
	$	-	$	493,333
Disclosed as follows:
Short-term portion	$	~~493,333~~-	$	1493,~~426,667~~333
Long-term portion		-		483,333
	$	-	$	493,333
	$	493,333	$	1,910,000

In terms of a Mutual Release and Assignment Agreement entered into between American Milling LP and the Company, American Milling is a claimant in the Estate of Sigmund Eisenschenk matter. American Milling agreed to assign all its claims, both past and future against the Estate of Sigmund Eisenschenk to the Company for $800,000, to be paid by the Company in instalments. ofThe ~~which $716,666~~remaining ~~was~~balance ~~paid as~~ of ~~December 31, 2017 and the remaining~~ $83,~~334~~333 was paid on March 30, 2018.

The Company agreed to settle the Dentons dispute by the payment of $1,400,000 over a 14 month period. As of December 31, ~~2017~~2018, the Company had paid $1,000,000, ~~and~~ a further $200,000 was paid on March 15, 2018. ~~The~~and the remaining $200,000 ~~will~~on beJune ~~paid~~30, ~~during the next six months~~2018.

10.

DEFERRED REVENUE

Deferred revenue consists of the following:

Revenue received in advance from customers

Payments received in advance from customers in terms of the MSA agreements entered into with customers, including the MSA agreement entered into with Sanofi on July 15, 2016. Revenue is recognized on a monthly basis upon agreed rates for the number of employees assigned to certain Sanofi projects and is offset against the payments received from Sanofi in terms of the agreed upon payment schedule, the remaining excess payments received is deferred revenue and is expected to be realized within an 18 month period.

Upfront payments from license agreement

The Company entered into a license agreement with F.Hoffmann-La Roche Ltd. (“Roche”), on December 4, 2018, whereby, in terms of the agreement Roche paid the Company an upfront payment of $5,000,000. This upfront payment will be recognized as revenue over the initial contact timeline as outlined in the license agreement.

The license agreement entered into with Roche is a multiple-element license agreement that has different revenue generating elements embodied in the agreement. These revenue generating elements include:

Upfront payments

The Company received an upfront payment of $5,000,000 that will be recognized as revenue over the initial contact timeline as outlined in the license agreement.

ii.

FTE based research payments

The Company receives ongoing revenue for FTE based time spent on the collaboration projects, this revenue is recognized as the services are rendered.

iii.

Development event payments

Revenue contingent upon the achievement of certain agreed upon development events is recognized in the period that the development event is achieved. The achievement of a development event is when the Company’s collaboration partner agrees that the requirements stipulated in the agreement have been met.

iv.

Sales based events

Revenue based on the achievement of certain calendar year net sales is recognized in the period that the sales achieved by our collaboration partner reach the thresholds as laid out in the agreement.

Royalties earned

F-20

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11.

DEFERRED PURCHASE CONSIDERATION

In terms of the Icagen asset purchase agreement entered into with Pfizer Research (NC) on July 1, 2015, the Company has the following deferred purchase price obligations:

The Company is obligated to pay additional purchase price consideration calculated at the greater of (i) 10% (ten percent) of gross revenues per quarter (exclusive of revenue paid by Sanofi to Icagen-T and revenue generated by Icagen-T) and (ii) $250,000 per quarter up to an aggregate maximum of $10,000,000. These earn out payments are payable quarterly, 60 days after the completion of each calendar quarter. There are no indications that the Company will not meet the maximum earn out payment.

The Company amended its agreement with Pfizer Research (NC), Inc. (“the Second Amendment”), whereby the Company, at its option, may defer payment of any amount exceeding $50,000 of the minimum additional purchase price consideration of $250,000 per quarter until December 31, 2018 such that the Company is only required to pay $50,000 per quarter for the quarters ended March 2017 to December 2018. Deferred purchase consideration bears interest at a rate of 12.5% per annum, which interest is payable quarterly. The deferred purchase consideration in terms of this agreement is payable, together with the deferred purchase consideration for the quarter ended March 31, 2019, as one lump sum. The Second Amendment also provides that if there is an Insolvency Event (as such term is defined in the Second Amendment) prior to the time that Pfizer Research (NC), Inc. has received the Maximum Earn Out Payment, then upon such Insolvency Event, the full amount of any Earn Out Shortfall (the difference between the Maximum Earn Out Payment and the amount of all Earn Out Payments paid to date) shall be due and payable without further notice, demand or presentment for payment. The minimum deferred purchase consideration of $50,000 for the quarters ended March 31, 2017 through December 31, 2018 were paid.

The $500,000 deferred purchase consideration due on July 1, 2017, was not earned by Pfizer due to Pfizer not meeting its $4,000,000 revenue target. This liability of $500,000 was reversed to other income during the Year ended December 31, 2017.

Deferred purchase consideration is disclosed as follows:

	December 31, 2018			December 31, 2017
Deferred purchase consideration
Opening balance	$	9,856,458		$	10,500,000
Reversal of unearned purchase consideration		-			(500,000	)
Interest due on deferred purchase consideration		126,576			25,578
Repayment		(228,963	)		(169,120	)
Closing balance		9,754,071			9,856,458

Present value discount on future payments
Opening balance		(1,417,336	)		(1,712,689	)
Imputed interest expense		299,075			300,511
Fair value adjustments		-			(5,158	)
Closing balance		(1,118,261	)		(1,417,336	)

Deferred purchase consideration, net	$	8,635,810		$	8,439,122

Disclosed as follows:
Short-term portion	$	2,450,000		$	206,458
Accrued interest		54,071			-
Long-term portion		6,131,739			8,232,664
Deferred purchase consideration, net	$	8,635,810		$	8,439,122

F-21

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ~~DEFERRED~~INCOME ~~REVENUE~~TAXES

~~Deferred~~The ~~revenue~~income ~~primarily~~tax ~~represents~~provision/ ~~payments~~(benefit) ~~received~~is indifferent ~~advance~~ from ~~Sanofi~~that inwhich ~~terms~~would ofbe ~~the~~obtained ~~MSA~~by ~~agreement~~applying ~~entered~~the ~~into~~statutory ~~with~~Federal ~~them~~income ~~on July~~tax ~~15, 2016. Revenue is recognized on a monthly basis upon agreed rates for the number~~ rate of ~~employees~~21% ~~assigned~~ to ~~certain Sanofi~~income ~~projects~~before ~~and~~income istax ~~offset~~expense. ~~against~~The ~~the~~items ~~payments~~causing ~~received~~this ~~from~~difference ~~Sanofi~~for ~~in terms of~~ the ~~agreed~~years ~~upon~~ended ~~payment~~December ~~schedule~~31, ~~the remaining~~2018 ~~excess payments received is deferred revenue~~ and is2017 ~~expected~~are as ~~to be realized within a 12 month period.~~follows:

13. DEFERRED SUBSIDY

	Year ended December 31, 2018			Year ended December 31, 2017

Income tax benefit at federal rate	$	(2,738,000	)	$	(2,139,000	)
State tax, net of federal benefit		(652,000	)		(305,000	)
Prior year under provision		22,000			(548,000	)
Discount on notes		1,148,000			444,000
Derivative liability movement		(675,000	)		-
Income tax rate change		-			3,672,000
Other		82,000			51,000
		(2,813,000	)		1,175,000
Utilization of net operating loss carry-forwards					-
Valuation allowance		2,813,000			(1,175,000	)
	$	-		$	-

Deferred ~~subsidy~~income ~~revenue~~taxes ~~represented~~reflect athe ~~prepayment~~net ~~received~~tax ~~from~~effect ~~Sanofi~~of totemporary ~~support~~differences ~~our~~between ~~operations, maintain~~ the ~~facilities~~carrying ~~that~~amount weof ~~operate in~~assets and ~~continue~~liabilities ~~the~~for ~~employment~~financial reporting ofpurposes ~~certain~~and ~~employees~~the toamounts ~~provide,~~used iffor ~~needed,~~income ~~resources~~tax ~~to Sanofi~~purposes. ~~This~~Significant ~~deferred~~components ~~subsidy~~of ~~revenue was~~deferred ~~amortized~~tax ~~over~~assets aand ~~straight-line~~liabilities at ~~basis~~December to31, ~~match~~2018 ~~the~~and ~~expected~~2017 ~~expenses~~are toas ~~be incurred over the period July 15, 2016 thru December 31, 2017.~~follows:

14. DEFERRED PURCHASE CONSIDERATION

	December 31,			December 31,
	2018			2017
Deferred tax assets
Accrual to cash adjustments	$	117,000		$	611,000
options based compensation		1,279,000			884,000
Deferred revenue		1,323,000			-
Capital loss		32,500			32,500
Plant and equipment		43,000			173,000
Net operating loss		7,291,000			5,492,000
		10,085,500			7,192,500
Valuation allowance		(9,631,500	)		(6,818,500	)
		454,000			374,000
Deferred tax liabilities
Amortization of intangibles		(454,000	)		(374,000	)
	$	-		$	-

InWe have established a valuation ~~terms~~allowance against our gross deferred tax assets sufficient to bring our net deferred tax assets to zero due to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not that the ~~Icagen~~deferred ~~asset~~tax ~~purchase~~assets ~~agreement~~are not ~~entered~~realizable ~~into~~beyond onour ~~July~~deferred 1tax liabilities due to our historical loss position. The valuation allowance for the year ended December 31, ~~2015~~2018 also increased by $2,813,000 due to the ~~Company~~additional ~~has~~operating losses incurred for the ~~following~~year ~~deferred~~ended ~~purchase~~December ~~price~~31, ~~obligations:~~2018.

●As of ~~commencing~~December ~~May 30~~31, ~~2017~~2018, the ~~Company~~prior isthree ~~obligated~~years toremain ~~pay~~open ~~additional~~for ~~purchase~~examination ~~price~~by ~~consideration calculated at~~ the ~~greater~~federal ofor ~~(i)~~state ~~10%~~regulatory ~~(ten~~agencies ~~percent)~~for purposes of ~~gross revenues per quarter (exclusive of revenue paid by Sanofi to Icagen-T and revenue generated by Icagen-T) and (ii) $250,000 per quarter up to~~ an ~~aggregate~~audit ~~maximum~~for oftax ~~$10,000,000~~purposes. ~~These earn out payments are payable quarterly, 60 days after the completion of each calendar quarter. There are no indications that the Company will not meet the maximum earn out payment.~~

~~The Company~~At ~~amended~~December ~~its agreement with Pfizer Research (NC)~~31, ~~Inc. (the Second Amendment”)~~2018, ~~whereby~~we ~~the~~had ~~Company, at its~~tax ~~option,~~loss ~~may~~carry ~~defer~~forwards ~~payment~~ of ~~any~~approximately ~~amount exceeding~~ $5028,~~000 of the minimum additional purchase price consideration of $250~~041,000 ~~per quarter until March 31, 2019 such that the Company is only required to pay $50,000 per quarter for the quarters ending March 2017 to December 2018~~. ~~Deferred~~These ~~purchase~~net ~~consideration~~operating ~~bears~~loss ~~interest~~carry atforwards aexpire ~~rate of 12.5% per annum, which interest is payable quarterly. The deferred purchase consideration~~ in ~~terms of this agreement is payable~~2037, ~~together with the deferred purchase consideration for the quarter ended March 31, 2019, as one lump sum. The Second Amendment also provides that~~ if ~~there~~ ~~is an Insolvency Event (as such term is defined in the Second Amendment) prior to the time that Pfizer Research (NC), Inc~~unused. has received the Maximum Earn Out Payment, then upon such Insolvency Event, the full amount of any Earn Out Shortfall (the difference between the Maximum Earn Out Payment and the amount of all Earn Out Payments paid to date) shall be due and payable without further notice, demand or presentment for payment. The ~~minimum deferred purchase consideration of $50,000 for~~Company ~~the~~files ~~quarters~~its ~~ended~~tax ~~March~~returns ~~31,~~on ~~2017,~~a ~~June~~cash ~~30, 2017 and September 30, 2017 was paid in June 2017 September 2017 and December 2017~~basis.

~~The~~Pursuant ~~$500,000~~to ~~deferred~~the ~~purchase~~Internal ~~consideration~~Revenue ~~due~~Code onof ~~July~~1986, 1as amended (“IRC”), ~~2017~~§382, ~~was~~our ~~not~~ability ~~earned~~to byuse ~~Pfizer~~net ~~due~~operating toloss ~~Pfizer~~carry ~~not~~forwards to ~~meeting~~offset ~~its~~future ~~$4,000,000 revenue~~taxable ~~target.~~income ~~This~~is ~~liability~~limited ofif ~~$500,000~~we ~~was~~experience ~~reversed~~a ascumulative ~~other~~change ~~income~~in ~~during~~ownership ~~the~~of ~~Year~~more ~~ended~~than ~~December~~50% ~~31,~~within ~~2017~~a three-year period.

F-22

ICAGEN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1412. ~~DEFERRED~~INCOME ~~PURCHASE~~TAXES ~~CONSIDERATION~~ (continued)

~~Deferred~~The ~~purchase~~Tax ~~consideration~~Cuts isand ~~disclosed~~Jobs Act (the “Act”) was signed into law on December 22, 2017 and significantly changes tax law in the United States by, among other items, reducing the federal corporate income tax rate from a maximum of 35% to 21% (effective January 1, 2018). The Act embraces a territorial system for the taxation of future foreign earnings and modifies certain business deductions by, among other changes, repealing the domestic production activities deduction, further limiting the deductibility of certain executive compensation and increasing the limitation on the deductibility of certain meals and entertainment expenses. On the other hand, the Act permits 100% bonus depreciation on assets placed in service through 2022 (with a phase-out period through 2026). The full effects of these changes will be reflected for the first time in the determination of income tax expense for the year ending December 31, 2018. The Company determined that it had no liability as ~~follows:~~of December 31, 2018 for the one-time transition tax on deemed repatriated earnings of foreign subsidiaries imposed by the Act.

	December 31, 2017			December 31, 2016
Deferred purchase consideration
Opening balance	$	10,500,000		$	10,625,000
Reversal of unearned purchase consideration		(500,000	)		-
Interest due on deferred purchase consideration		25,578			-
Repayment		(169,120	)		(125,000	)
Closing balance		9,856,458			10,500,000
Present value discount on future payments
Opening balance		(1,712,689	)		(2,186,510	)
Imputed interest expense		300,511			576,180
Fair value adjustments		(5,158	)		(102,359	)
Closing balance		(1,417,336	)		(1,712,689	)
Deferred purchase consideration, net		8,439,122			8,787,311
Disclosed as follows:
Short-term portion		206,458			1,332,800
Long-term portion		8,232,664			7,454,511
Deferred purchase consideration, net	$	8,439,122		$	8,787,311

The Company will evaluate the impact of the Global Intangible Low-Taxed Income (“GILTI”) provision of the Act, beginning with the year ending December 31, 2018, the year for which it will first apply. The FASB has issued guidance stating that a company may elect to treat the additional taxes due in the United States as a result of GILTI inclusions as current period expenses when incurred or to include such amounts in the company’s determination of deferred taxes. The Company does not have any GILTI tax liability as of December 31, 2018, therefore no election is applicable.

1513. ~~INCOME~~BRIDGE ~~TAXES~~NOTES PAYABLE

~~The~~On ~~income~~April ~~tax~~12, ~~provision/~~2017, the Company sold in a private placement offering (~~benefit)~~the is“Bridge ~~different~~Note ~~from~~Offering”) ~~that~~to three investors, which ~~would~~included betwo ~~obtained~~members byof ~~applying~~the Board of Directors, pursuant to a securities purchase agreement entered into with each investor (the ~~statutory~~“Purchase ~~Federal~~Agreements”), ~~income~~150 ~~tax~~units ~~rate~~at a price of $10,000 per unit (the “Units”) each Unit consisting of ~~35%~~a note (the ’‘Note”) in the principal amount of $10,000 and a five year warrant (the “Bridge Warrants”) to ~~income~~acquire ~~before~~1,500 ~~income~~shares ~~tax~~of ~~expense~~the Company’s common stock, par value, $0.001 per share, at an exercise price of $3.50 per share. The ~~items~~aggregate ~~causing~~gross ~~this~~cash ~~difference~~proceeds ~~for~~to the ~~years~~Company ~~ended~~from ~~December~~the ~~31,~~sale ~~2017~~of ~~and~~the ~~2016~~150 ~~are as~~Units ~~follows:~~was $1,500,000.

	Year ended December 31, 2017			Year ended December 31, 2016
Income tax benefit at federal rate	$	(2,139,000	)	$	(1,926,000	)
State tax, net of federal benefit		(305,0

Filing Compare · Icagen, Inc.