10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

Commission File Number 001-31932     

CATASYS, INC.

(Exact name of registrant as specified in its charter)

Delaware	88-0464853
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2120 Colorado Blvd., Suite 230, Santa Monica, CA 90404

(Address of principal executive offices, including zip code)

(310) 444-4300

(Registrant's telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	CATS	The NASDAQ Capital Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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	☐	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  ☒

As of August 14, 2019, there were 16,546,992 shares of the registrant's common stock, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION			3
	ITEM 1. Financial Statements		3
		Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	3
		Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	4
		Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	5
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)	6
		Notes to Consolidated Financial Statements	7
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		17
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		21
	ITEM 4. Controls and Procedures		21
PART II - OTHER INFORMATION			21
	ITEM 1. Legal Proceedings		21
	ITEM 1A. Risk Factors		21
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		21
	ITEM 3. Defaults Upon Senior Securities		22
	ITEM 4. Mine Safety Disclosures		22
	ITEM 5. Other Information		22
	ITEM 6. Exhibits		22

In this Quarterly Report on Form 10-Q, all references to “Catasys,” “Catasys, Inc.” “we,” “us,” “our” or the “Company” mean Catasys, Inc., wholly-owned subsidiaries and variable interest entities, except where it is made clear that the term means only the parent company. Our common stock, par value $0.0001 per share, is referred to as “common stock.”

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

CATASYS, INC

CONSOLIDATED BALANCE SHEETS

 (in thousands, except share and per share data)

	June 30,			December 31,
	2019			2018
	(Unaudited)
Assets
Current assets:
Cash and restricted cash	$	7,059		$	3,162
Receivables, net		2,576			1,382
Unbilled receivables		1,055			-
Prepaid expenses and other current assets		724			942
Total current assets		11,414			5,486
Long-term assets:
Property and equipment, net of accumulated depreciation of $1,556 and $1,801, respectively		359			263
Restricted cash, long-term		408			408
Right-of-use assets		2,595			-
Debt issuance costs		1,284			-
Deposits and other assets		-			166
Total assets	$	16,060		$	6,323
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term debt	$	1,917		$	-
Accounts payable		1,459			497
Accrued compensation and benefits		1,988			1,537
Deferred revenues		4,033			4,195
Current portion of obligations under operating leases		525			-
Other accrued liabilities		1,953			1,501
Total current liabilities		11,875			7,730
Long-term liabilities:
Long-term debt, net of discount of $365 and $478, respectively	$	13,618		$	7,472
Long-term lease liabilities		1,780			-
Warrant liabilities		842			86
Other long-term liabilities		100			-
Total liabilities		28,215			15,288
Stockholders' deficit:
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $0.0001 par value; 500,000,000 shares authorized; 16,536,992 and 16,185,146 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		2			2
Additional paid-in capital		301,909			296,688
Accumulated deficit		(314,066	)		(305,655	)
Total stockholders' deficit		(12,155	)		(8,965	)
Total liabilities and stockholders' deficit	$	16,060		$	6,323

See notes to consolidated financial statements.

3

CATASYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

(in thousands)	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Revenue	$	7,681		$	3,273		$	14,492		$	5,184
Cost of revenue		4,365			2,941			7,392			5,228
Gross profit (loss)		3,316			332			7,100			(44	)
Operating expenses		8,223			4,477			14,522			8,348
Operating loss		(4,907	)		(4,145	)		(7,422	)		(8,392	)
Other income		8			-			14			40
Interest expense		(471	)		(36	)		(792	)		(37	)
Change in fair value of warrant liability		(120	)		(19	)		(211	)		(29	)
Net loss	$	(5,490	)	$	(4,200	)	$	(8,411	)	$	(8,418	)
Net loss per share, basic and diluted from operations:	$	(0.34	)	$	(0.26	)	$	(0.51	)	$	(0.53	)
Weighted-average shares used to compute basic and diluted net loss per share		16,315			15,913			16,398			15,906

 See notes to consolidated financial statements.

4

CATASYS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(in thousands, except share and per share data)

(unaudited)

					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit
Balance at December 31, 2018		16,185,146	$	2	$	296,688	$	(305,655	)	$	(8,965	)
Reclassification of warrant liability to equity upon adoption of ASU 2017-11		-		-		86		-			86
Warrants issued for services		-		-		43		-			43
Warrant exercised for cash		212,461		-		1,028		-			1,028
Stock option exercised for cash		139,385		-		1,473		-			1,473
Stock compensation expense		-		-		2,591		-			2,591
Net loss		-		-		-		(8,411	)		(8,411	)
Balance at June 30, 2019		16,536,992	$	2	$	301,909	$	(314,066	)		(12,155	)

					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit
Balance at March 31, 2019		16,205,146	$	2	$	297,898	$	(308,576	)	$	(10,676	)
Warrants issued for services		-		-		43		-			43
Warrant exercised for cash		192,461		-		928		-			928
Stock option exercised for cash		139,385		-		1,473		-			1,473
Stock compensation expense		-		-		1,567		-			1,567
Net loss		-		-		-		(5,490	)		(5,490	)
Balance at June 30, 2019		16,536,992	$	2	$	301,909	$	(314,066	)	$	(12,155	)

					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit
Balance at December 31, 2017		15,889,171	$	2	$	294,220		(293,324	)		898
Adoption of accounting standard, ASC 606		-		-		-		1,881			1,881
Balance at January 1, 2018		15,889,171	$	2	$	294,220		(291,443	)		2,779
Common stock issued for outside services		24,000		-		112		-			112
Warrants issued for services		-		-		86		-			86
Warrants issued in connection with A/R facility		-		-		63		-			63
Stock compensation expense		-		-		753		-			753
Net loss		-		-		-		(8,418	)		(8,418	)
Balance at June 30, 2018		15,913,171	$	2	$	295,234		(299,861	)		(4,625	)

					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit
Balance at March 31, 2018		15,913,171	$	2	$	294,746	$	(295,661	)	$	(913	)
Warrants issued in connection with A/R facility		-		-		63		-			63
Stock compensation expense		-		-		425		-			425
Net loss		-		-		-		(4,200	)		(4,200	)
Balance at June 30, 2018		15,913,171		2		295,234		(299,861	)		(4,625	)

See notes to consolidated financial statements.

5

CATASYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Six Months Ended June 30,
	2019			2018
Cash flows used in operating activities
Net loss	$	(8,411	)	$	(8,418	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		72			170
Amortization of debt discount included in interest expense		146			10
Warrant issued for services		-			86
Warrants issued for investor relations		43			-
Loss on disposal of fixed assets		-			68
Deferred rent		(26	)		(25	)
Stock-based compensation expense		2,591			753
Amortization of debt issuance costs		112			-
Change in fair value of warrant liability		211			29
Shares issued for services		-			112
Changes in operating assets and liabilities:
Receivables		(1,194	)		(629	)
Unbilled receivables		(1,055	)		-
Operating leases liability		525			-
Prepaids and other current assets		218			165
Deferred revenue		(162	)		2,379
Accounts payable and other accrued liabilities		975			1,466
Net cash used in operating activities	$	(5,955	)	$	(3,834	)
Cash flows provided by financing activities
Proceeds from secured promissory note	$	-		$	5,000
Proceeds from revolving loan		7,500			-
Proceeds from A/R Facility		1,938			-
Repayment of A/R Facility		(1,938	)		-
Debt issuance costs		(133	)		(324	)
Proceeds from warrant exercise		1,028			-
Proceeds from options exercise		1,473			-
Capital lease obligations		(16	)		(18	)
Net cash provided by financing activities	$	9,852		$	4,658
Net increase in cash and restricted cash	$	3,897		$	824
Cash and restricted cash at beginning of period		3,570			4,779
Cash and restricted cash at end of period	$	7,467		$	5,603
Supplemental disclosure of cash flow information:
Interest paid	$	792		$	37
Non cash financing and investing activities:
Warrant issued in connection with A/R Facility	$	21		$	63
Reclassification of warrant liability to equity upon amendment of the Loan Agreement	$	86		$	-
Warrants issued in connection with revolving loan	$	610		$	-
Property and equipment acquired through capital leases	$	154		$	-

See notes to consolidated financial statements.

6

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1.   Basis of Consolidation and Presentation

We are a AI and technology-enabled healthcare company whose mission is to help improve the health and save the lives of as many people as possible. Our PRE^TM (Predict-Recommend-Engage) platform predicts people whose chronic disease will improve with behavior change, recommends effective care pathways that people are willing to follow, and engages people who aren’t getting the care they need. By combining predictive analytics with human engagement, we deliver improved member health and validated outcomes and savings to healthcare payers. 

Our integrated, technology-enabled OnTrak solution, a critical component of the Catasys PRE platform, is designed to treat members with behavioral conditions that cause or exacerbate chronic medical conditions such as diabetes, hypertension, coronary artery disease, COPD, and congestive heart failure, which result in high medical costs. We have an ability to engage these members, who do not otherwise seek behavioral healthcare, leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance. OnTrak integrates evidence-based psychosocial and medical interventions delivered either in-person or via telehealth, along with care coaching and in-market Community Care Coordinators who address the social and environmental determinants of health, including loneliness.

The accompanying unaudited consolidated financial statements include Catasys, Inc. and its wholly-owned subsidiaries and variable interest entities. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements for Catasys, Inc. and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and instructions to Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.  Interim results are not necessarily indicative of the results that may be expected for the entire fiscal year. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto included in our most recent Annual Report on Form 10-K for the year-ended December 31, 2018, from which the balance sheet, as of December 31, 2018, has been derived. Certain prior period amounts reported in consolidated financial statements and notes have been reclassified to conform to current period presentation.

As of June 30, 2019, cash and restricted cash was $7.5 million and we had a working capital deficit of approximately $461,000. We could continue to incur negative cash flows and operating losses for the next twelve months. Our average cash burn rate is approximately $1.0 million per month, for the six months ended June 30, 2019. We expect our current cash resources to cover expenses through at least the next twelve months, however, delays in cash collections, revenue, or unforeseen expenditures could impact this estimate.

Our ability to fund ongoing operations is dependent on several factors. We aim to increase the number of members that are eligible for our solutions by signing new contracts and identifying more eligible members in existing contracts. Additionally, our funding is dependent upon the success of management’s plan to increase revenue and control expenses. We currently operate our OnTrak solutions in twenty-seven states. We provide services to commercial (employer funded), managed Medicare Advantage, and managed Medicaid and dual eligible (Medicare and Medicaid) populations. We have generated fees from our launched programs and expect to increase enrollment and fees throughout 2019.

Management’s Plans

Historically, we have seen and continue to see net losses, net loss from operations, negative cash flow from operating activities, and historical working capital deficits as we continue through a period of rapid growth. The accompanying financial statements do not reflect any adjustments that might result if we were unable to continue as a going concern. We have alleviated substantial doubt by both entering into contracts for additional revenue-generating health plan customers and expanding our OnTrak program within existing health plan customers. To support this increased demand for services, we invested and will continue to invest in additional headcount needed to support the anticipated growth. Additional management plans include increasing the outreach pool as well as improving our current enrollment rate. We will continue to explore ways to increase margins on both existing and new members.

We have a growing customer base and believe we are able to fully scale our operations to service the contracts and future enrollment providing leverage in these investments that we expect to generate positive cash flow by the end of 2019. We believe we will have enough capital to cover expenses through the foreseeable future and we will continue to monitor liquidity. In the event we add more health plans than budgeted, increase the size of the outreach pool by more than we anticipate, decide to invest in new products or seek out additional growth opportunities, we will seek additional financing.

7

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2.   Accounting Standards and Significant Accounting Policies

Revenue, Deferred Revenue and Performance Obligations

Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (i.e. the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties.

The following table disaggregates our revenue by business line:

	For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2019					2018					2019					2018
(in thousands)	Revenue		Percentage			Revenue		Percentage			Revenue		Percentage			Revenue		Percentage
Commercial	$	4,617		60	%	$	2,145		66	%	$	8,798		61	%	$	3,245		63	%
Government		3,064		40	%		1,128		34	%		5,694		39	%		1,939		37	%
	$	7,681		100	%	$	3,273		100	%	$	14,492		100	%	$	5,184		100	%

Our customer contracts are generally designed to provide cash fees to us on a monthly basis, an upfront case rate, or fee for service based on enrolled members. Our performance obligation is satisfied over time as the OnTrak service is provided continuously throughout the service period. Catasys recognizes revenue evenly over the service period using a time-based measure because we are providing a continuous service to our customers. Contracts with minimum performance guarantees or price concessions include variable consideration and are subject to the revenue constraint. Catasys uses an expected value method to estimate variable consideration for these minimum performance guarantees and price concessions. Additionally, Catasys has constrained revenue for expected price concessions for the three and six months ended June 30, 2019.

Cost of Revenue

Cost of revenue consists primarily of salaries related to our care coaches, outreach specialists and other staff directly involved in member care, healthcare provider claims payments, and fees charged by our third-party administrators for processing these claims. Salaries and fees charged by our third-party administrators for processing claims are expensed when incurred and healthcare provider claims payments are recognized in the period in which an eligible member receives services. We contract with doctors and licensed behavioral healthcare professionals, on a fee-for-service basis. We determine that a member has received services when we receive a claim or in the absence of a claim, by utilizing member data recorded in the OnTrak database within the contracted timeframe, with all required billing elements correctly completed by the service provider. 

Concentration of Credit Risk 

The following table is a summary of concentration of credit risk by customer revenues and accounts receivables:

	Three Months Ended June 30,						Six Months Ended June 30,
Percentage of Revenue	2019			2018			2019			2018
Largest customer		27.0	%		26.7	%		26.5	%		25.0	%
2nd largest customer		25.2	%		29.7	%		25.8	%		26.1	%
3rd largest customer		17.9	%		7.5	%		17.1	%		5.1	%
4th largest customer		12.2	%		10.8	%		11.9	%		15.2	%
Remaining customers		17.7	%		25.3	%		18.7	%		28.6	%
		100.0	%		100.0	%		100.0	%		100.0	%

8

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Percentage of
Accounts Receivable	June 30, 2019			December 31, 2018
Largest customer		53.2	%		41.6	%
2nd largest customer		13.0	%		24.9	%
3rd largest customer		8.7	%		12.8	%
4th largest customer		7.6	%		11.2	%
Remaining customers		17.5	%		9.5	%
		100.0	%		100.0	%

Net loss per share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, preferred stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

Common equivalent shares, consisting of 5,604,451 and 4,571,912 shares for the six months ended June 30, 2019 and 2018, respectively, issuable upon the exercise of stock options and warrants have been excluded from the diluted earnings per share calculation as their effect is anti-dilutive.

Common equivalent shares, that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share are as follows:

	June 30, 2019		June 30, 2018
Warrants to purchase common stock		1,397,720		2,045,248
Options to purchase common stock		4,206,731		2,526,664
Total		5,604,451		4,571,912

Leases

Effective January 1, 2019, we account for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right-of-use asset and lease liability, we elected to combine lease and non-lease components. We exclude short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

We accounted for leases in the prior period financial statements under ASC Topic 840.

Recently Issued or Newly Adopted Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we do not believe that the impact of recently issued standards that are not yet effective will have a material impact on our financial position or results of operations upon adoption.

In August 2018, the FASB issued Accounting Standard Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including, among other changes, the consideration of costs and benefits when evaluating disclosure requirements. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting guidance will have on our financial statements and footnote disclosures.

9

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but no earlier than a company's adoption date of ASC 606. The adoption of this ASU 2018-07 on January 1, 2019 did not have a material impact on our consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). The amendments in this update are intended to simplify the accounting for certain equity linked financial instruments and embedded features with down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings. Under the new guidance, a down round feature will no longer need to be considered when determining whether certain financial instruments or embedded features should be classified as liabilities or equity instruments. That is, a down round feature will no longer preclude equity classification when assessing whether an instrument or embedded feature is indexed to an entity's own stock. In addition, the amendments clarify existing disclosure requirements for equity-classified instruments. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The adoption of this ASU 2017-11 on January 1, 2019 resulted in the reclassification of our warrant liability in amount of $86,000 into additional paid-in capital.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”). The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. We are required to adopt this standard starting in the first quarter of fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). Under this standard, which applies to both lessors and lessees, lessees will be required to recognize all leases (except for short-term leases) as a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and as a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018 and is to be applied at the beginning of the earliest period presented using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. We adopted ASU 2016-02 on January 1, 2019 and recorded right-to-use assets and liabilities for all operating lease obligations with terms of 12 months or greater. Any prior period changes were immaterial and therefore no retrospective adjustments were recorded. 

Note 3. Accounts Receivable

We use the specific identification method for recording the provision for doubtful accounts. There was no allowance for doubtful accounts as of June 30, 2019 and December 31, 2018. 

Note 4. Property and Equipment

Property and equipment consisted of the following as of June 30, 2019 and December 31, 2018:

(in thousands)	June 30, 2019			December 31, 2018
Office furniture and equipment	$	1,915		$	1,746
Leasehold improvement		-			318
Gross property and equipment		1,915			2,064
Less: Accumulated depreciation and amortization		(1,556	)		(1,801	)
Total property and equipment, net	$	359		$	263

Depreciation expense was $34,000 and $72,000 for the three and six months ended June 30, 2019, respectively compared with approximately $85,000 and $170,000 for the same periods in 2018, respectively.

Note 5. Common Stock

In January 2019, there was an exercise of 20,000 warrants at an exercise price of $5.00 per share. We received approximately $100,000 of proceeds and issued 20,000 shares of our common stock.

10

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In April 2019, there was an exercise of 9,479 stock options at an exercise price of $7.50 per share. We received approximately $71,000 of proceeds and issued 9,479 shares of our common stock.

In May 2019, there was an exercise of 172,461 warrants at an exercise price of $4.80 per share. We received approximately $828,000 of proceeds and issued 172,461 shares of our common stock.

In May 2019, there was an exercise of 129,906 stock options at a weighted average exercise price of $10.79 per share. We received approximately $1.4 million of proceeds and issued 129,906 shares of our common stock.

In June 2019, there was an exercise of 20,000 warrants at an exercise price of $5.00 per share. We received approximately $100,000 of proceeds and issued 20,000 shares of our common stock.

Note 6. Stock Compensation

Our 2017 Stock Incentive Plan (the “2017 Plan”), provides for the issuance of up to 2,333,334 shares of our common stock and an additional 243,853 shares of our common stock that are represented by awards granted under our 2010 Stock Incentive Plan (the “2010 Plan”). In August 2018, at our Annual Stockholders Meeting, stockholders approved an amendment to the 2017 Plan, among other things, to provide for an additional 1,400,000 shares to be issued in connection with awards granted thereunder (the “2017 Amended Plan”). In February 2019, we increased the number of shares in the 2017 Plan by 552,884 shares as allowed in the 2017 Plan for annual increases to the number of shares available under the 2017 Plan. Incentive stock options (ISOs) under Section 422A of the Internal Revenue Code and non-qualified options (NSOs) are authorized under the 2017 Amended Plan. We have granted stock options to executive officers, employees, members of our board of directors, and certain outside consultants. The terms and conditions upon which options become exercisable vary among grants; however, option rights expire no later than ten years from the date of grant and employee and Board of Director awards generally vest over three to five years on a straight-line basis. As of June 30, 2019, we had 4,156,731 vested and unvested stock options outstanding issued to Employees and Directors and 50,000 vested and unvested stock options outstanding issued to Non-Employees. There are 183,955 shares reserved for future awards.

Stock compensation expense attributable to operations was $1.6 million and $2.6 million for the three and six months ended June 30, 2019, respectively, compared with approximately $425,000 and $753,000 for the same periods in 2018, respectively.

Stock Options - Employees and Directors

A summary of stock option activity for employees and directors is as follows:

	Number of Shares			Weighted Average Exercise Price
Outstanding as of December 31, 2018		3,761,259		$	9.44
Granted		620,378			10.54
Forfeited		(35,521	)		7.50
Exercised		(139,385	)		10.57
Outstanding as of June 30, 2019		4,206,731		$	9.58
Options vested and expected to vest as of June 30, 2019		4,206,731		$	9.58
Options vested and exercisable as of June 30, 2019		935,077		$	14.59

As of June 30, 2019, there was $9.9 million of total unrecognized compensation cost related to non-vested stock compensation arrangements granted to employees and directors under the 2017 Amended Plan. That cost is expected to be recognized over a weighted-average period of approximately 2.89 years.          

11

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Stock Options and Warrants - Non-Employees

A summary of warrants activity for non-employees is as follows:

	Number of Warrants			Weighted Average Exercise Price
Outstanding as of December 31, 2018		1,608,996		$	4.71
Issued		55,352			11.88
Expired		(54,167	)		12.46
Exercised		(212,461	)		4.84
Outstanding as of June 30, 2019		1,397,720		$	4.68
Warrants exercisable as of June 30, 2019		1,397,720		$	4.68

There were none and 50,000 options issued to non-employees at a weighted average exercise price of $9.93 for the three and six months ended June 30, 2019, respectively, compared with none for the same periods in 2018.

There were 4,167 warrants issued in exchange for services for the three and six months ended June 30, 2019, respectively, compared with none and 24,000 for the same periods in 2018. Generally, the costs associated with shares issued for services are amortized to the related expense on a straight-line basis over the related service periods.

As of June 30, 2019, there was approximately $286,000 of total unrecognized compensation cost related to non-vested stock compensation arrangements granted to non-employees under the 2017 Amended Plan. That cost is expected to be recognized over a weighted-average period of approximately 2.58 years 

Note 7. Leases

The operating lease agreement for our Los Angeles, CA office space expired in April 2019, therefore there are no remaining operating lease right-of-use assets or liabilities associated with this office as of June 30, 2019.

In September 2018, we signed an operating lease for our new corporate headquarters in Santa Monica, CA (“Santa Monica Headquarters”). The lease agreement includes 7,869 square feet for 60 months commencing in July 2019, which is 30 days following date the premises were ready for occupancy. The base rent is approximately $48,000 subject to annual adjustments.

Our lease liability resulted from the lease of our Santa Monica Headquarters which expires in 2024. This lease does not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Our lease includes renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liability and right-of-use asset as we are not reasonably certain to exercise the options. Variable expenses generally represent our share of the landlord’s operating expenses. We do not act as a lessor or have any leases classified as financing leases.

As of June 30, 2019, we have an operating lease liability of approximately $2.3 million and right-of-use asset of approximately $2.6 million, which are included in the consolidated balance sheet.

Quantitative information for the operating lease is as follows: 

	For the Three Months Ended		For the Six Months Ended
(In thousands)	June 30, 2019		June 30, 2019
Operating lease expense	$	93	$	167
Short-term lease rent expense		14		17
Total rent expense	$	107	$	184

	For the Three Months Ended		For the Six Months Ended
(In thousands)	June 30, 2019		June 30, 2019
Operating cash flows from operating leases	$	63	$	163

12

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	June 30, 2019
Weighted-average remaining lease term – operating leases (years)		4.9
Weighted-average discount rate – operating leases		10.15	%

Maturities of the operating lease liabilities are as follows:

(In thousands)	Amount
Remaining six months ended December 31, 2019	$	301
Year ended December 31, 2020		583
Year ended December 31, 2021		604
Year ended December 31, 2022		624
Year ended December 31, 2023		646
Year ended December 31, 2024		273
Total		3,031
Less present value discount		(726	)
Operating lease liabilities	$	2,305

We incurred rent expense of approximately $107,000 and $184,000 for the three and six months ended June 30, 2019, respectively compared with approximately $75,000 and $149,000 for the same periods in 2018, respectively.

Note 8. Debt

In June 2018, we entered into a venture loan and security agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”), which provides for up to $7.5 million in loans to Catasys, including initial loans in the amount of $5.0 million funded upon signing of the Loan Agreement. An additional $2.5 million loan was subject to our achievement of billings of not less than $5.0 million during any three consecutive month period on or prior to November 30, 2018. In August 2018, we incurred the additional $2.5 million loan as a result of our achievement of the trailing three-month billings exceeding $5.0 million on or prior to November 30, 2018. In addition, in June 2018, we entered into a loan and security agreement (the “A/R Facility”) in connection with a $2.5 million receivables financing facility with Corporate Finance, a division of Heritage Bank of Commerce (“Heritage”). The A/R Facility provides for Catasys to borrow up to 85% of our eligible accounts receivable, as defined in the A/R Facility. In February 2019, we borrowed approximately $1.9 million on the A/R Facility during the month. None of the A/R Facility is outstanding as of June 30, 2019.

In March 2019, we entered into an amended and restated venture loan and security agreement (as so amended and restated, the “Amended Loan Agreement”) with Horizon, which provides for up to $15.0 million in loans to us, including initial term loans in the amount of $7.5 million previously funded under the original Loan Agreement entered into in June 2018 and an additional up to $7.5 million loan in three revolving tranches of $2.5 million in availability, subject to our achievement of trailing three month billings exceeding $5.0 million, $7.0 million and $8.0 million, respectively (collectively, the “Billing Requirements”). An initial advance of $2.5 million was funded upon the execution and delivery of the Amended Loan Agreement, subject to repayment if the foregoing $5.0 million threshold is not reached by July 1, 2019.  We concurrently entered into an amendment to the previously disclosed $2.5 million A/R Facility with Heritage intended primarily to reflect the amendment and restatement of the Amended Loan Agreement. We have met all three of the Billing Requirements and as a result have incurred the full $7.5 million under the Amended Loan Agreement.

Repayment of the Revolving Loan is on an interest-only basis through September 30, 2020, followed by monthly payments of principal and accrued interest until maturity on the date which is the earliest of: (a) September 30, 2022, (b) the date of acceleration of such loan, following an event of default (c) or the date of prepayment. Until we receive cash proceeds of $10.0 million from the sale of our equity securities, we are required to maintain reserve cash on deposit for Horizon in an amount equal to our net operating loss for the trailing three-month calendar period, plus all amounts required to repaid in respect of all outstanding indebtedness for the following three months, plus $4.0 million. From and after the receipt of $10.0 million in cash proceeds from the sale of our equity securities, we are required to maintain reserve cash on deposit for Horizon in an amount equal to the net operating loss of our trailing three-month calendar period, plus all amounts required to repaid in respect of all outstanding indebtedness for the following three months.

The Revolving Loan bears interest at a floating coupon rate of the amount by which one-month LIBOR exceeds 2.00% plus 9.75%. After September 30, 2020, upon the earlier of (i) payment in full of the principal balance of the Revolving Loan, (ii) an event of default and demand by Lender of payment in full of the Revolving Loan or (iii) on the Revolving Loan Maturity Date (September 30, 2022), as applicable, we shall pay to Lender a payment equal to the greater of $150,000 or 6% of the outstanding principal balance of the Revolving Loan on August 31, 2020. 

13

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Loan Agreement includes customary affirmative and restrictive covenants, excluding any covenants to attain or maintain certain financial metrics, and also includes customary events of default, including for payment failures, breaches of covenants, change of control and material adverse changes. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% may be applied to the outstanding loan balances, certain minimum revenue based payment guarantees become due and Horizon may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.

A summary of our debt activity is as follows:

	June 30,			December 31,
(in thousands)	2019			2018
Debt
Loans payable:
Horizon term loan	$	7,950		$	7,950
Horizon revolving loan		7,500			-
Horizon debt discount		(365	)		(478	)
Horizon revolving final payment		450			-
Total debt	$	15,535		$	7,472
Current portion of long-term debt	$	1,917		$	-
Long term debt	$	13,618		$	7,472

During the three and six months ended June 30, 2019 we incurred debt related interest expense of approximately $471,000 and $792,000 respectively compared with $36,000 and $37,000 for the same periods in 2018, respectively. Interest expense for the three and six months ended June 30, 2019 included amortization of debt discount of approximately $33,000 and $65,000 related to the A/R Facility and amortization of debt discount of $70,000 and $81,000 related to the Horizon Loan Agreement.

Catasys is in compliance with all debt covenants as of June 30, 2019.

Note 9. Fair Value Measurements 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure fair value. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I) and the lowest priority to unobservable inputs (Level III). The three levels of the fair value hierarchy are described below:

Level Input:	Input Definition:
Level I	Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II	Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III	Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following tables summarize fair value measurements by level as of June 30, 2019 and December 31, 2018, respectively, for assets and liabilities measured at fair value on a recurring basis:

	Balance as of June 30, 2019
(in thousands)	Level I		Level II		Level III		Total
Certificates of deposits (1)	$	408	$	-	$	-	$	408
Total assets	$	408	$	-	$	-	$	408
Warrant liabilities		-	$	-	$	842	$	842
Total liabilities		-	$	-	$	842	$	842

(1)  $408,000 is included in restricted cash, long-term on our balance sheet as of June 30, 2019. 

14

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	Balance as of December 31, 2018
(in thousands)	Level I		Level II		Level III		Total
Letter of credit (2)	$	479	$	-	$	-	$	479
Total assets	$	479	$	-	$	-	$	479
Warrant liabilities		-	$	-	$	86	$	86
Total liabilities		-	$	-	$	86	$	86

(2)  $71,000 is included in cash and restricted cash and $408,000 is included in restricted cash, long term on our balance sheet as of December 31, 2018. 

The following is a rollforward of our warrant liabilities:  

	Level III
	Warrant
(in thousands)	Liabilities
Balance as of December 31, 2018	$	86
Issuance of new warrant liability		631
Change in fair value of warrant liability		211
Reclassification of warrant liability to equity upon adoption of ASU 2017-11		(86	)
Balance as of June 30, 2019	$	842

For the three and six months ended June 30, 2019, we recognized a loss of $120,000 and $211,000, respectively compared with approximately $19,000 and $29,000 for the same periods in 2018, respectively, related to the revaluation of our warrant liabilities.

In March 2019, in connection with our entry into the Amended Loan Agreement, we issued Horizon 40,279 seven-year warrants to purchase an aggregate of $600,000 (depending on the level of availability under the Amended Loan Agreement) at the trailing volume weighted average price (“VWAP”) of our common stock on the NASDAQ Capital Market for the five days preceding the relative dates of grants at a per share exercise price equal to the lower of (i) $9.93 or (ii) the price per share of any securities that may be issued by us in an equity financing during the 18 months following the agreement date.

In May 2019, we met the $7.0 million Billing Requirement under the Amended Loan Agreement and incurred an additional $2.5 million revolving loan. In connection with the additional revolving loan, we issued Horizon 5,561 seven-year warrants to purchase an aggregate of $100,000 (depending on the level of availability under the Loan Agreement) at the trailing VWAP of our common stock on the NASDAQ Capital Market for the five days preceding the relative dates of grants at a per share exercise price equal to the lower of (i) $17.98 or (ii) the price per share of any securities that may be issued by us in an equity financing during the 18 months following the agreement date.

In June 2019, we met the $8.0 million Billing Requirement under the Amended Loan Agreement and incurred the final $2.5 million revolving loan. In connection with the additional revolving loan, we issued Horizon 5,345 seven-year warrants to purchase an aggregate of $100,000 (depending on the level of availability under the Loan Agreement) at the trailing VWAP of our common stock on the NASDAQ Capital Market for the five days preceding the relative dates of grants at a per share exercise price equal to the lower of (i) $18.71 or (ii) the price per share of any securities that may be issued by us in an equity financing during the 18 months following the agreement date (the “Horizon Warrants”).

In no event will we be required to issue more than 19.9% of its currently outstanding common stock pursuant to the Horizon Warrants.

We adopted ASU 2017-11, as of January 1, 2019. However, given the number of variable features, the Horizon Warrants have been classified as a liability at the time of issuance in accordance with ASC 815. We initially valued the Horizon Warrants using a Monte Carlo model and recorded the fair value of the Horizon Warrants as a discount to the debt obligation. As of June 30, 2019, we have met all Billing Requirements under the Amended Loan Agreement and we will continue to mark-to-market the warrants each month using the Black-Scholes model.

15

CATASYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The key assumptions used to value the Horizon Warrants are as follows:

	June 30, 2019
Expected price volatility	98.0%	-	100.2%
Expected term (in years)	6.7	-	7.0
Risk-free interest rate	1.7%	-	2.3%
Dividend yield		0.0%

Note 10. Variable Interest Entities

The amounts and classification of assets and liabilities of the variable interest entities included in our consolidated balance sheets are as follows:

	June 30,		December 31,
(in thousands)	2019		2018
Cash and cash equivalents	$	418	$	45
Accounts receivable		324		94
Prepaid and other current assets		9		29
Total assets	$	751	$	168
Accounts payable	$	8	$	7
Accrued liabilities		40		14
Intercompany payable		710		147
Total liabilities	$	758	$	168

16

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements, including the related notes, and the other financial information included elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this report and our annual report filed on Form 10-K for the year ended December 31, 2018.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for our stock and other matters. Statements in this report that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements, including, without limitation, those relating to the future business prospects, our revenue and income, wherever they occur, are necessarily estimates reflecting the best judgment of our senior management as of the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended December 31, 2018 and other reports we filed with the Securities and Exchange Commission (“SEC”), that may affect the operations, performance, development and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

All references to “Catasys,” “Catasys, Inc.” “we,” “us,” “our” or the “Company” mean Catasys, Inc., wholly-owned subsidiaries and variable interest entities, except where it is made clear that the term means only the parent company.

OVERVIEW

General

We are a AI and technology-enabled healthcare company whose mission is to help improve the health and save the lives of as many people as possible. Our PRE^TM (Predict-Recommend-Engage) platform predicts people whose chronic disease will improve with behavior change, recommends effective care pathways that people are willing to follow, and engages people who aren’t getting the care they need. By combining predictive analytics with human engagement, we deliver improved member health and validated outcomes and savings to healthcare payers. 

Our integrated, technology-enabled OnTrak solution, a critical component of the PRE platform, is designed to treat members with behavioral conditions that cause or exacerbate chronic medical conditions such as diabetes, hypertension, coronary artery disease, COPD, and congestive heart failure, which result in high medical costs. We have an ability to engage these members, who do not otherwise seek behavioral healthcare, leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance. OnTrak integrates evidence-based psychosocial and medical interventions delivered either in-person or via telehealth, along with care coaching and in-market Community Care Coordinators who address the social and environmental determinants of health, including loneliness.

We are contracted to make OnTrak available to members of leading national and regional health plans in 27 states: Alabama, California, Connecticut, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Missouri, Nebraska, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wisconsin.

Recent Developments

In March 2019, we entered into an amended and restated venture loan and security agreement (as so amended and restated, the “Amended Loan Agreement”) with Horizon, which provides for up to $15.0 million in loans to us, including initial term loans in the amount of $7.5 million previously funded under the original Loan Agreement entered into in June 2018 and an additional up to $7.5 million loan in three revolving tranches of $2.5 million in availability, subject to our achievement of trailing three month billings exceeding $5.0 million, $7.0 million and $8.0 million, respectively (collectively, the “Billing Requirements”).  An initial advance of $2.5 million was funded upon the execution and delivery of the Amended Loan Agreement, subject to repayment if the foregoing $5.0 million threshold is not reached by July 1, 2019.  We concurrently entered into an amendment to the previously disclosed $2.5 million A/R Facility with Heritage intended primarily to reflect the amendment and restatement of the Amended Loan Agreement. We have met all three of the Billing Requirements and as a result have incurred the full $7.5 million under the Amended Loan Agreement.

17

In March 2019, in connection with our entry into the Amended Loan Agreement, we issued Horizon 40,279 seven-year warrants to purchase an aggregate of $600,000 (depending on the level of availability under the Amended Loan Agreement) at the trailing volume weighted average price (“VWAP”) of our common stock on the NASDAQ Capital Market for the five days preceding the relative dates of grants at a per share exercise price equal to the lower of (i) $9.93 or (ii) the price per share of any securities that may be issued by us in an equity financing during the 18 months following the agreement date.

In May 2019, we met the $7.0 million Billing Requirement under the Amended Loan Agreement and incurred an additional $2.5 million revolving loan. In connection with the additional revolving loan, we issued Horizon 5,561 seven-year warrants to purchase an aggregate of $100,000 (depending on the level of availability under the Loan Agreement) at the trailing VWAP of our common stock on the NASDAQ Capital Market for the five days preceding the relative dates of grants at a per share exercise price equal to the lower of (i) $17.98 or (ii) the price per share of any securities that may be issued by us in an equity financing during the 18 months following the agreement date.

In June 2019, we met the $8.0 million Billing Requirement under the Amended Loan Agreement and incurred the final $2.5 million revolving loan. In connection with the additional revolving loan, we issued Horizon 5,345 seven-year warrants to purchase an aggregate of $100,000 (depending on the level of availability under the Loan Agreement) at the trailing VWAP of our common stock on the NASDAQ Capital Market for the five days preceding the relative dates of grants at a per share exercise price equal to the lower of (i) $18.71 or (ii) the price per share of any securities that may be issued by us in an equity financing during the 18 months following the agreement date (the “Horizon Warrants”).

RESULTS OF OPERATIONS

The table below and the discussion that follows summarize our results of consolidated operations:

(in thousands)	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Revenue	$	7,681		$	3,273		$	14,492		$	5,184
Cost of revenue		4,365			2,941			7,392			5,228
Gross profit (loss)		3,316			332			7,100			(44	)
Operating expenses		8,223			4,477			14,522			8,348
Operating loss		(4,907	)		(4,145	)		(7,422	)		(8,392	)
Other income		8			-			14			40
Interest expense		(471	)		(36	)		(792	)		(37	)
Change in fair value of warrant liability		(120	)		(19	)		(211	)		(29	)
Net loss	$	(5,490	)	$	(4,200	)	$	(8,411	)	$	(8,418	)

Revenues 

	Three Months Ended June 30,									Six Months Ended June 30,
(In thousands, except percentages)	2019		2018		Change $		Change %			2019		2018		Change $		Change %
Revenue	$	7,681	$	3,273	$	4,408		135	%	$	14,492	$	5,184	$	9,308		180	%

The increase in revenue for the three months ended June 30, 2019 was substantially driven by customer launches and enrollment increases which contributed $3.8 million of the increase in total revenue year over year. The remaining increase was primarily due to $0.6 million of unbilled receivables resulting from estimated variable consideration included in the transaction price.

The increase in revenue for the six months ended June 30, 2019 was substantially driven by customer launches and enrollment increases which contributed $7.8 million of the increase in total revenue year over year. The remaining increase was primarily due to $1.5 million of unbilled receivables resulting from estimated variable consideration included in the transaction price.

18

Cost of Revenue 

	Three Months Ended June 30,									Six Months Ended June 30,
(In thousands, except percentages)	2019		2018		Change $		Change %			2019		2018		Change $		Change %
Cost of Revenue	$	4,365	$	2,941	$	1,424		48	%	$	7,392	$	5,228	$	2,164		41	%

The increase in cost of revenue for the three months ended June 30, 2019 was substantially driven by an increase of $1.1 million in employee compensation-related costs driven by headcount growth related to our care coaches, outreach specialists, community care coordinators and other staff. Additionally, the healthcare provider claims payments to our network of physicians and psychologists and fees charged by our third-party administrators for processing these claims increased by $0.2 million.

The increase in cost of revenue for the six months ended June 30, 2019 was substantially driven by an increase of $1.6 million in employee compensation-related costs driven by headcount growth related to our care coaches, outreach specialists, community care coordinators and other staff. Additionally, the healthcare provider claims payments to our network of physicians and psychologists and fees charged by our third-party administrators for processing these claims increased by $0.4 million.

All of these cost increases are driven by an increasing customer and member base. In addition, we hire staff in preparation for anticipated future customer contracts and corresponding increases in members eligible for OnTrak. The costs for such staff are included in cost of healthcare services during training and ramp-up periods.

Operating Expenses

	Three Months Ended June 30,									Six Months Ended June 30,
(In thousands, except percentages)	2019		2018		Change $		Change %			2019		2018		Change $		Change %
Operating Expenses	$	8,223	$	4,477		3,746		84	%	$	14,522	$	8,348	$	6,174		74	%

The increase in operating expenses for the three months ended June 30, 2019 was substantially driven by an increase of $3.1 million in employee compensation-related costs driven by headcount growth related to our investments in data science, software development, information technology, operations and other staff. Additionally, software licenses and equipment costs increased by $0.5 million.

The increase in operating expenses for the three months ended June 30, 2019 was substantially driven by an increase of $4.8 million in employee compensation-related costs driven by headcount growth related to our investments in data science, software development, information technology, sales, operations and other staff. Additionally, software licenses and equipment costs increased by $0.9 million.

We expect our operating expenses to increase for the foreseeable future as we continue to grow our business but decrease as a percentage of our total revenue over the next several years.

Interest Expense

	Three Months Ended June 30,									Six Months Ended June 30,
(In thousands, except percentages)	2019		2018		Change $		Change %			2019		2018		Change $		Change %
Interest expense	$	471	$	36	$	435		1208	%	$	792	$	37	$	755		2041	%

The increase in interest expense for the three months ended June 30, 2019 reflects incurring the additional two revolving tranches in May 2019 and June 2019.

The increase in interest expense for the six months ended June 30, 2019 reflects entering into the Amended Loan Agreement with Horizon in March 2019 and incurring the additional two revolving tranches in May 2019 and June 2019.

Amortization of debt discount associated with such loan is included in this increase.

19

LIQUIDITY AND CAPITAL RESOURCES

The following table presents a summary of our cash flow activity for the periods set forth below:

	Six Months Ended June 30,
(In thousands)	2019			2018
Net cash used in operating activities	$	(5,955	)	$	(3,834	)
Net cash provided by financing activities	$	9,852		$	4,658
Net increase in cash and restricted cash	$	3,897		$	824

Cash and restricted cash was $7.5 million as of June 30, 2019. As of August 12, 2019, we had a balance of approximately $5.1 million cash on hand. We had working capital deficit of approximately $461,000 as of June 30, 2019. We have incurred significant net losses and negative operating cash flows since our inception. We expect to continue to incur negative cash flows and net losses for the next twelve months.  Our average cash burn rate is approximately $1.0 million per month, for the six months ended June 30, 2019. We expect our current cash resources to cover expenses through at least the next twelve months, however, delays in cash collections, revenue, or unforeseen expenditures could impact this estimate.  

In March 2019, we entered into an amended and restated venture loan and security agreement (as so amended and restated, the “Amended Loan Agreement”) with Horizon, which provides for up to $15.0 million in loans to us, including initial term loans in the amount of $7.5 million previously funded under the original Loan Agreement entered into in June 2018 and an additional up to $7.5 million loan in three revolving tranches of $2.5 million in availability, subject to our achievement of trailing three month billings exceeding $5.0 million, $7.0 million and $8.0 million, respectively (collectively, the “Billing Requirements”).  An initial advance of $2.5 million was funded upon the execution and delivery of the Amended Loan Agreement, subject to repayment if the foregoing $5.0 million threshold is not reached by July 1, 2019.  We concurrently entered into an amendment to the previously disclosed $2.5 million A/R Facility with Heritage intended primarily to reflect the amendment and restatement of the Amended Loan Agreement. We have met all three of the Billing Requirements and as a result have incurred the full $7.5 million under the Amended Loan Agreement.

Our ability to fund our ongoing operations is dependent on increasing the number of members that are eligible for our solutions by signing new contracts, identifying more eligible members in existing contracts, and generating fees from existing and new contracts and the success of management’s plan to increase revenue and continue to control expenses. We currently operate our OnTrak solutions in twenty-seven states. We provide services to commercial (employer funded), managed Medicare Advantage, and managed Medicaid and dual eligible (Medicare and Medicaid) populations. We have generated fees from our launched programs and expect to increase enrollment and fees throughout 2019.

Historically, we have seen and continue to see net losses, net loss from operations, negative cash flow from operating activities, and historical working capital deficits as we continue through a period of rapid growth. The accompanying financial statements do not reflect any adjustments that might result if we were unable to continue as a going concern. We have alleviated substantial doubt by both entering into contracts for additional revenue-generating health plan customers and expanding our OnTrak program within existing health plan customers. To support this increased demand for services, we invested and will continue to invest in additional headcount needed to support the anticipated growth. Additional management plans include increasing the outreach pool as well as improving our current enrollment rate. We will continue to explore ways to increase margins on both existing and new members. 

We have a growing customer base and believe we are able to fully scale our operations to service the contracts and future enrollment providing leverage in these investments that we expect to generate positive cash flow by the end of 2019. We believe we will have enough capital to cover expenses through the foreseeable future and we will continue to monitor liquidity. In the event we add more health plans than budgeted, increase the size of the outreach pool by more than we anticipate, decide to invest in new products or seek out additional growth opportunities, we will seek additional financing.

Operating Activities

For the six months ended June 30, 2019, cash used in operating activities was $6.0 million. The negative cash flows resulted primarily from our net loss of $8.4 million and unbilled receivables of $1.1 million, partially offset by stock-based compensation of $2.6 million. Working capital uses of cash included an increase in accounts receivable of $1.2 million, primarily as a result of the timing of billings and collections.

The increase in cash used in operating activities for the six months ended June 30, 2019 compared to the prior year period was primarily the result of our continued plans to invest in technology and additional headcount needed to support anticipated growth.

Investing Activities

There were no capitalized expenditures for the six months ended June 30, 2019 and June 30, 2018.

20

Financing Activities

Our net cash provided by financing activities was $9.9 million for the six months ended June 30, 2019, compared with net cash provided by financing activities of $4.7 million for the six months ended June 30, 2018. Cash provided by financing activities for the six months ended June 30, 2019 consisted primarily of gross proceeds from the issuance of debt in the amount of $7.5 million, proceeds from options exercise in the amount of $1.5 million, and proceeds from warrant exercise of $1.0 million.

As a result of the above our cash and restricted cash balance as of June 30, 2019 is $7.5 million.

As discussed above, we currently expend cash at a rate of approximately $1.0 million per month, for the six months ended June 30, 2019. We also anticipate cash inflow to increase during 2019 as we continue to service our executed contracts and sign new contracts. We expect our current cash resources to cover our operations through at least the next twelve months; however, delays in cash collections, revenue, or unforeseen expenditures could impact this estimate.

OFF BALANCE SHEET ARRANGEMENTS

During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to the financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

CRITICAL ACCOUNTING ESTIMATES

See Note 2 to the Consolidated Financial Statements.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.     Controls and Procedures

Disclosure Controls

We have evaluated, with the participation of our principal executive officer and our principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2019. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of June 30, 2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the six months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

None.

Item 1A.     Risk Factors

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered securities to report which were sold or issued by Catasys without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. 

21

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures.

Not applicable.

Item 5.     Other Information

None.

Item 6.     Exhibits

Exhibit No.	Description
31.1*	Certification by the Chief Executive Officer, pursuant to Rule 13-a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by the Chief Financial Officer, pursuant to Rule 13-a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification by the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification by the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* filed herewith.

** furnished herewith.

22

SIGNATURES

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

	CATASYS, INC.
Date:   August 14, 2019	By:	/s/ TERREN S. PEIZER
		Terren S. Peizer
		Chief Executive Officer (Principal Executive Officer)
Date:  August 14, 2019	By:	/s/ CHRISTOPHER SHIRLEY
		Christopher Shirley
		Chief Financial Officer (Principal Financial and Accounting Officer)

23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Terren S. Peizer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Catasys, Inc.;

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

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

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

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

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

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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

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

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

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

Date:  August 14, 2019	/s/ TERREN S. PEIZER
	Terren S. Peizer
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Christopher Shirley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Catasys, Inc.;

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

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

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

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

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

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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

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

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

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

Date:  August 14, 2019	/s/ CHRISTOPHER SHIRLEY
	Christopher Shirley
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Catasys, Inc. (the “Company) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report), I, Terren S. Peizer, Chief Executive Officer of Catasys certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Catasys.

/s/ TERREN S. PEIZER	August 14, 2019
Terren S. Peizer	Date
Chief Executive Officer
(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Catasys, Inc. (the “Company) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report), I, Christopher Shirley, Chief Financial Officer of Catasys, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Catasys.

/s/ CHRISTOPHER SHIRLEY	August 14, 2019
Christopher Shirley	Date
Chief Financial Officer
(Principal Financial and Accounting Officer)

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 14, 2019
Document Information [Line Items]
Entity Registrant Name	CATASYS, INC.
Entity Central Index Key	0001136174
Trading Symbol	cats
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		16,546,992
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and restricted cash	$ 7,059	$ 3,162
Receivables, net	2,576	1,382
Unbilled receivables	1,055
Prepaid and other current assets	724	942
Total current assets	11,414	5,486
Long-term assets:
Property and equipment, net of accumulated depreciation of $1,556 and $1,801, respectively	359	263
Restricted cash, long-term	408	408
Right-of-use assets	2,595
Debt issuance costs	1,284
Deposits and other assets		166
Total assets	16,060	6,323
Current liabilities:
Current portion of long-term debt	1,917
Accounts payable	1,459	497
Accrued compensation and benefits	1,988	1,537
Deferred revenues	4,033	4,195
Current portion of obligations under operating leases	525
Other accrued liabilities	1,953	1,501
Total current liabilities	11,875	7,730
Long-term liabilities:
Long-term debt, net of discount of $365 and $478, respectively	13,618	7,472
Long-term lease liabilities	1,780
Warrant liabilities	842	86
Other long-term liabilities	100
Total liabilities	28,215	15,288
Stockholders' deficit:
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; no shares issued and outstanding	0	0
Common stock, $0.0001 par value; 500,000,000 shares authorized; 16,536,992 and 16,185,146 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	2	2
Additional paid-in capital	301,909	296,688
Accumulated deficit	(314,066)	(305,655)
Total stockholders' deficit	(12,155)	(8,965)
Total liabilities and stockholders' deficit	$ 16,060	$ 6,323

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Property and equipment, accumulated dereciation	$ 1,556	$ 1,801
Long term debt, discount	$ 365	$ 478
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (in shares)	50,000,000	50,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	16,536,992	16,185,146
Common stock, shares outstanding (in shares)	16,536,992	16,185,146

XML

Consolidated Statements of Operations (Unaudtied) - USD ($) shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue	$ 7,681,000	$ 3,273,000	$ 14,492,000	$ 5,184,000
Cost of revenue	4,365,000	2,941,000	7,392,000	5,228,000
Gross profit (loss)	3,316,000	332,000	7,100,000	(44,000)
Operating expenses	8,223,000	4,477,000	14,522,000	8,348,000
Operating loss	(4,907,000)	(4,145,000)	(7,422,000)	(8,392,000)
Other income	8,000		14,000	40,000
Interest expense	(471,000)	(36,000)	(792,000)	(37,000)
Change in fair value of warrant liability	(120,000)	(19,000)	(211,000)	(29,000)
Net loss	$ (5,490,000)	$ (4,200,000)	$ (8,411,000)	$ (8,418,000)
Net loss per share, basic and diluted from operations: (in dollars per share)	$ (0.34)	$ (0.26)	$ (0.51)	$ (0.53)
Weighted-average shares used to compute basic and diluted net loss per share (in shares)	16,315	15,913	16,398	15,906

XML

Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2017	15,889,171
Balance at Dec. 31, 2017	$ 2	$ 294,220	$ (293,324)	$ 898
Reclassification of warrant liability to equity upon adoption of ASU 2017-11
Warrants issued for services		86		86
Stock compensation expense		753		753
Net loss			(8,418)	(8,418)
Balance (in shares) at Jun. 30, 2018	15,913,171
Balance at Jun. 30, 2018	$ 2	295,234	(299,861)	(4,625)
Adoption of accounting standard, ASC 606 at Dec. 31, 2017			1,881	1,881
Balance, adjusted at Dec. 31, 2017	$ 2	294,220	(291,443)	2,779
Common stock issued for outside services (in shares)	24,000
Common stock issued for outside services		112		112
Warrants issued in connection with A/R facility		63		63
Balance at Jun. 30, 2018	$ 2	295,234	(299,861)	(4,625)
Balance (in shares) at Mar. 31, 2018	15,913,171
Balance at Mar. 31, 2018	$ 2	294,746	(295,661)	(913)
Stock compensation expense		425		425
Net loss			(4,200)	(4,200)
Balance (in shares) at Jun. 30, 2018	15,913,171
Balance at Jun. 30, 2018	$ 2	295,234	(299,861)	(4,625)
Warrants issued in connection with A/R facility		63		63
Balance at Jun. 30, 2018	$ 2	295,234	(299,861)	$ (4,625)
Balance (in shares) at Dec. 31, 2018	16,185,146			16,185,146
Balance at Dec. 31, 2018	$ 2	296,688	(305,655)	$ (8,965)
Reclassification of warrant liability to equity upon adoption of ASU 2017-11		86		86
Warrants issued for services		43		43
Warrant exercised for cash (in shares)	212,461
Warrant exercised for cash		1,028		1,028
Stock option exercised for cash (in shares)	139,385
Stock option exercised for cash		1,473		1,473
Stock compensation expense		2,591		2,591
Net loss			(8,411)	$ (8,411)
Balance (in shares) at Jun. 30, 2019	16,536,992			16,536,992
Balance at Jun. 30, 2019	$ 2	301,909	(314,066)	$ (12,155)
Balance (in shares) at Mar. 31, 2019	16,205,146
Balance at Mar. 31, 2019	$ 2	297,898	(308,576)	(10,676)
Warrants issued for services		43		43
Warrant exercised for cash (in shares)	192,461
Warrant exercised for cash		928		928
Stock option exercised for cash (in shares)	139,385
Stock option exercised for cash		1,473		1,473
Stock compensation expense		1,567		1,567
Net loss			(5,490)	$ (5,490)
Balance (in shares) at Jun. 30, 2019	16,536,992			16,536,992
Balance at Jun. 30, 2019	$ 2	$ 301,909	$ (314,066)	$ (12,155)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows used in operating activities
Net loss	$ (8,411,000)	$ (8,418,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	72,000	170,000
Amortization of debt discount included in interest expense	146,000	10,000
Warrant issued for services		86,000
Warrants issued for investor relations	43,000
Loss on disposal of fixed assets		68,000
Deferred rent	(26,000)	(25,000)
Stock-based compensation expense	2,591,000	753,000
Amortization of debt issuance costs	112,000
Change in fair value of warrant liability	211,000	29,000
Shares issued for services		112,000
Changes in operating assets and liabilities:
Receivables	(1,194,000)	(629,000)
Unbilled receivables	(1,055,000)
Operating leases liability	525,000
Prepaids and other current assets	218,000	165,000
Deferred revenue	(162,000)	2,379,000
Accounts payable and other accrued liabilities	975,000	1,466,000
Net cash used in operating activities	(5,955,000)	(3,834,000)
Cash flows provided by financing activities
Repayment of A/R Facility	(1,938,000)
Debt issuance costs	(133,000)	(324,000)
Proceeds from warrant exercise	1,028,000
Proceeds from options exercise	1,473,000
Capital lease obligations	(16,000)	(18,000)
Net cash provided by financing activities	9,852,000	4,658,000
Net increase in cash and restricted cash	3,897,000	824,000
Cash and restricted cash at beginning of period	3,570,000	4,779,000
Cash and restricted cash at end of period	7,467,000	5,603,000
Supplemental disclosure of cash flow information:
Interest paid	792,000	37,000
Non cash financing and investing activities:
Warrant issued in connection with A/R Facility	21,000	63,000
Reclassification of warrant liability to equity upon amendment of the Loan Agreement	86,000
Warrants issued in connection with revolving loan	610,000
Property and equipment acquired through capital leases	154,000
Secured Promissory Note [Member]
Cash flows provided by financing activities
Proceeds from long term debt		5,000,000
Revolving Loan [Member]
Cash flows provided by financing activities
Proceeds from long term debt	7,500,000
A/R Facility [Member]
Cash flows provided by financing activities
Proceeds from long term debt	$ 1,938,000

XML

Note 1 - Basis of Consolidation and Presentation

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1.

  Basis of Consolidation and Presentation

We are a AI and technology-enabled healthcare company whose mission is to help improve the health and save the lives of as many people as possible. Our PRE

TM

(Predict-Recommend-Engage) platform predicts people whose chronic disease will improve with behavior change, recommends effective care pathways that people are willing to follow, and engages people who aren’t getting the care they need. By combining predictive analytics with human engagement, we deliver improved member health and validated outcomes and savings to healthcare payers. 

Our integrated, technology-enabled OnTrak solution, a critical component of the Catasys PRE platform, is designed to treat members with behavioral conditions that cause or exacerbate chronic medical conditions such as diabetes, hypertension, coronary artery disease, COPD, and congestive heart failure, which result in high medical costs. We have an ability to engage these members, who do

not

otherwise seek behavioral healthcare, leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance. OnTrak integrates evidence-based psychosocial and medical interventions delivered either in-person or via telehealth, along with care coaching and in-market Community Care Coordinators who address the social and environmental determinants of health, including loneliness.

The accompanying unaudited consolidated financial statements include Catasys, Inc. and its wholly-owned subsidiaries and variable interest entities. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements for Catasys, Inc. and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and instructions to Form

10

-Q and, therefore, do

not

include all disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.  Interim results are

not

necessarily indicative of the results that

may

be expected for the entire fiscal year. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto included in our most recent Annual Report on Form

10

-K for the year-ended

December 31, 2018,

from which the balance sheet, as of

December 31, 2018,

has been derived. Certain prior period amounts reported in consolidated financial statements and notes have been reclassified to conform to current period presentation.

As of

June 30, 2019,

cash and restricted cash was

$7.5

million and we had a working capital deficit of approximately

$461,000.

We could continue to incur negative cash flows and operating losses for the next

twelve

months. Our average cash burn rate is approximately

$1.0

million per month, for the

six

months ended

June 30, 2019.

We expect our current cash resources to cover expenses through at least the next

twelve

months, however, delays in cash collections, revenue, or unforeseen expenditures could impact this estimate.

Our ability to fund ongoing operations is dependent on several factors. We aim to increase the number of members that are eligible for our solutions by signing new contracts and identifying more eligible members in existing contracts. Additionally, our funding is dependent upon the success of management’s plan to increase revenue and control expenses. We currently operate our OnTrak solutions in

twenty-seven

states. We provide services to commercial (employer funded), managed Medicare Advantage, and managed Medicaid and dual eligible (Medicare and Medicaid) populations. We have generated fees from our launched programs and expect to increase enrollment and fees throughout

2019.

Management’s Plans

Historically, we have seen and continue to see net losses, net loss from operations, negative cash flow from operating activities, and historical working capital deficits as we continue through a period of rapid growth. The accompanying financial statements do

not

reflect any adjustments that might result if we were unable to continue as a going concern. We have alleviated substantial doubt by both entering into contracts for additional revenue-generating health plan customers and expanding our OnTrak program within existing health plan customers. To support this increased demand for services, we invested and will continue to invest in additional headcount needed to support the anticipated growth. Additional management plans include increasing the outreach pool as well as improving our current enrollment rate. We will continue to explore ways to increase margins on both existing and new members.

We have a growing customer base and believe we are able to fully scale our operations to service the contracts and future enrollment providing leverage in these investments that we expect to generate positive cash flow by the end of

2019.

We believe we will have enough capital to cover expenses through the foreseeable future and we will continue to monitor liquidity. In the event we add more health plans than budgeted, increase the size of the outreach pool by more than we anticipate, decide to invest in new products or seek out additional growth opportunities, we will seek additional financing.

XML

Note 2 - Accounting Standards and Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note

2.

  

Accounting Standards and

Significant Accounting Policies

Revenue

, Deferred Revenue and Performance Obligations

Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation

may

be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (i.e. the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will

not

occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of

third

parties.

The following table disaggregates our revenue by business line:

	For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2019					2018					2019					2018
(in thousands)	Revenue		Percentage			Revenue		Percentage			Revenue		Percentage			Revenue		Percentage
Commercial	$	4,617		60	%	$	2,145		66	%	$	8,798		61	%	$	3,245		63	%
Government		3,064		40	%		1,128		34	%		5,694		39	%		1,939		37	%
	$	7,681		100	%	$	3,273		100	%	$	14,492		100	%	$	5,184		100	%

Our customer contracts are generally designed to provide cash fees to us on a monthly basis, an upfront case rate, or fee for service based on enrolled members. Our performance obligation is satisfied over time as the OnTrak service is provided continuously throughout the service period. Catasys recognizes revenue evenly over the service period using a time-based measure because we are providing a continuous service to our customers. Contracts with minimum performance guarantees or price concessions include variable consideration and are subject to the revenue constraint. Catasys uses an expected value method to estimate variable consideration for these minimum performance guarantees and price concessions. Additionally, Catasys has constrained revenue for expected price concessions for the

three

and

six

months ended

June 30, 2019.

Cost of

R

evenue

Cost of revenue consists primarily of salaries related to our care coaches, outreach specialists and other staff directly involved in member care, healthcare provider claims payments, and fees charged by our

third

-party administrators for processing these claims. Salaries and fees charged by our

third

-party administrators for processing claims are expensed when incurred and healthcare provider claims payments are recognized in the period in which an eligible member receives services. We contract with doctors and licensed behavioral healthcare professionals, on a fee-for-service basis. We determine that a member has received services when we receive a claim or in the absence of a claim, by utilizing member data recorded in the OnTrak database within the contracted timeframe, with all required billing elements correctly completed by the service provider. 

Concentration of Credit Risk 

The following table is a summary of concentration of credit risk by customer revenues and accounts receivables:

	Three Months Ended June 30,						Six Months Ended June 30,
Percentage of Revenue	2019			2018			2019			2018
Largest customer		27.0	%		26.7	%		26.5	%		25.0	%
2nd largest customer		25.2	%		29.7	%		25.8	%		26.1	%
3rd largest customer		17.9	%		7.5	%		17.1	%		5.1	%
4th largest customer		12.2	%		10.8	%		11.9	%		15.2	%
Remaining customers		17.7	%		25.3	%		18.7	%		28.6	%
		100.0	%		100.0	%		100.0	%		100.0	%

Percentage of
Accounts Receivable	June 30, 2019			December 31, 2018
Largest customer		53.2	%		41.6	%
2nd largest customer		13.0	%		24.9	%
3rd largest customer		8.7	%		12.8	%
4th largest customer		7.6	%		11.2	%
Remaining customers		17.5	%		9.5	%
		100.0	%		100.0	%

Net l

oss per

s

hare

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, preferred stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

Common equivalent shares, consisting of

5,604,451

and

4,571,912

shares for the

six

months ended

June 30, 2019

and

2018,

respectively, issuable upon the exercise of stock options and warrants have been excluded from the diluted earnings per share calculation as their effect is anti-dilutive.

Common equivalent shares, that could potentially dilute loss per share in the future that were

not

included in the computation of diluted loss per share are as follows:

	June 30, 2019		June 30, 2018
Warrants to purchase common stock		1,397,720		2,045,248
Options to purchase common stock		4,206,731		2,526,664
Total		5,604,451		4,571,912

Leases

Effective

January 1, 2019,

we account for leases under Accounting Standards Codification (“ASC”) Topic

842,

Leases

. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right-of-use asset and lease liability, we elected to combine lease and non-lease components. We exclude short-term leases having initial terms of

12

months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

We accounted for leases in the prior period financial statements under ASC Topic

840.

Recently Issued or Newly Adopted Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we do

not

believe that the impact of recently issued standards that are

not

yet effective will have a material impact on our financial position or results of operations upon adoption.

In

August 2018,

the FASB issued Accounting Standard Update (“ASU”)

No.

2018

-

13,

Fair Value Measurement (Topic

820

)

, which modifies the disclosure requirements on fair value measurements in Topic

820,

Fair Value Measurement, including, among other changes, the consideration of costs and benefits when evaluating disclosure requirements. For public companies, the amendments are effective for annual reporting periods beginning after

December 15, 2019,

including interim periods within those annual periods. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting guidance will have on our financial statements and footnote disclosures.

In

June 2018,

the FASB issued ASU

2018

-

07,

 

Improvements to Nonemployee Share-Based Payment Accounting

(“ASU

2018

-

07”

), which supersedes ASC

505

-

50

and expands the scope of ASC

718

to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective for annual reporting periods beginning after

December 

15,

2018,

including interim periods within those annual periods. Early adoption is permitted, but

no

earlier than a company's adoption date of ASC

606.

The adoption of this ASU

2018

-

07

on

January 1, 2019

did

not

have a material impact on our consolidated financial statements.

In

July 2017,

the FASB issued ASU

2017

-

11,

Earnings Per Share (Topic

260

); Distinguishing Liabilities from Equity (Topic

480

); Derivatives and Hedging (Topic

815

): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

(“ASU

2017

-

11”

). The amendments in this update are intended to simplify the accounting for certain equity linked financial instruments and embedded features with down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings. Under the new guidance, a down round feature will

no

longer need to be considered when determining whether certain financial instruments or embedded features should be classified as liabilities or equity instruments. That is, a down round feature will

no

longer preclude equity classification when assessing whether an instrument or embedded feature is indexed to an entity's own stock. In addition, the amendments clarify existing disclosure requirements for equity-classified instruments. These amendments are effective for fiscal years, and interim periods within those years, beginning after

December 15, 2018,

with early adoption permitted. The adoption of this ASU

2017

-

11

on

January 1, 2019

resulted in the reclassification of our warrant liability in amount of

$86,000

into additional paid-in capital.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments - Credit Losses

(“ASU

2016

-

13”

). The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but

not

limited to, available for sale debt securities and accounts receivable. We are required to adopt this standard starting in the

first

quarter of fiscal year

2021.

Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

In

February 2016,

the FASB issued ASU

No.

 

2016

-

02,

 

Leases

(“ASU

2016

-

02”

). Under this standard, which applies to both lessors and lessees, lessees will be required to recognize all leases (except for short-term leases) as a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and as a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. ASU

2016

-

02

is effective for fiscal years and interim periods within those fiscal years beginning after

December 15, 2018 

and is to be applied at the beginning of the earliest period presented using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. We adopted ASU

2016

-

02

on

January 1, 2019

and recorded right-to-use assets and liabilities for all operating lease obligations with terms of

12

months or greater. Any prior period changes were immaterial and therefore

no

retrospective adjustments were recorded. 

XML

Note 3 - Accounts Receivable

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

3

. Accounts Receivable

We use the specific identification method for recording the provision for doubtful accounts. There was

no

allowance for doubtful accounts as of

June 30, 2019

and

December 31, 2018.

XML

Note 4 - Property and Equipment

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

Note

4

. Property and Equipment

Property and equipment consisted of the following as of

June 30, 2019

and

December 

31,

2018:

(in thousands)	June 30, 2019			December 31, 2018
Office furniture and equipment	$	1,915		$	1,746
Leasehold improvement		-			318
Gross property and equipment		1,915			2,064
Less: Accumulated depreciation and amortization		(1,556	)		(1,801	)
Total property and equipment, net	$	359		$	263

Depreciation expense was

$34,000

and

$72,000

for the

three

and

six

months ended

June 30, 2019,

respectively compared with approximately

$85,000

and

$170,000

for the same periods in

2018,

respectively.

XML

Note 5 - Common Stock

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note

5

. Common Stock

In

January 2019,

there was an exercise of

20,000

warrants at an exercise price of

$5.00

per share. We received approximately

$100,000

of proceeds and issued

20,000

shares of our common stock.

In

April 2019,

there was an exercise of

9,479

stock options at an exercise price of

$7.50

per share. We received approximately

$71,000

of proceeds and issued

9,479

shares of our common stock.

In

May 2019,

there was an exercise of

172,461

warrants at an exercise price of

$4.80

per share. We received approximately

$828,000

of proceeds and issued

172,461

shares of our common stock.

In

May 2019,

there was an exercise of

129,906

stock options at a weighted average exercise price of

$10.79

per share. We received approximately

$1.4

million of proceeds and issued

129,906

shares of our common stock.

In

June 2019,

there was an exercise of

20,000

warrants at an exercise price of

$5.00

per share. We received approximately

$100,000

of proceeds and issued

20,000

shares of our common stock.

XML

Note 6 - Stock Compensation

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

6

.

Stock

Compensation

Our

2017

Stock Incentive Plan (the

“2017

Plan”), provides for the issuance of up to

2,333,334

shares of our common stock and an additional

243,853

shares of our common stock that are represented by awards granted under our

2010

Stock Incentive Plan (the

“2010

Plan”). In

August 2018,

at our Annual Stockholders Meeting, stockholders approved an amendment to the

2017

Plan, among other things, to provide for an additional

1,400,000

shares to be issued in connection with awards granted thereunder (the

“2017

Amended Plan”). In

February 2019,

we increased the number of shares in the

2017

Plan by

552,884

shares as allowed in the

2017

Plan for annual increases to the number of shares available under the

2017

Plan. Incentive stock options (ISOs) under Section

422A

of the Internal Revenue Code and non-qualified options (NSOs) are authorized under the

2017

Amended Plan. We have granted stock options to executive officers, employees, members of our board of directors, and certain outside consultants. The terms and conditions upon which options become exercisable vary among grants; however, option rights expire

no

later than

ten

years from the date of grant and employee and Board of Director awards generally vest over

three

to

five

years on a straight-line basis. As of

June 30, 2019,

we had

4,156,731

vested and unvested stock options outstanding issued to Employees and Directors and

50,000

vested and unvested stock options outstanding issued to Non-Employees. There are

183,955

shares reserved for future awards.

Stock compensation expense attributable to operations was

$1.6

million and

$2.6

million for the

three

and

six

months ended

June 30, 2019,

respectively, compared with approximately

$425,000

and

$753,000

for the same periods in

2018,

respectively.

Stock Options - Employees and Directors

A summary of stock option activity for employees and directors is as follows:

	Number of Shares			Weighted Average Exercise Price
Outstanding as of December 31, 2018		3,761,259		$	9.44
Granted		620,378			10.54
Forfeited		(35,521	)		7.50
Exercised		(139,385	)		10.57
Outstanding as of June 30, 2019		4,206,731		$	9.58
Options vested and expected to vest as of June 30, 2019		4,206,731		$	9.58
Options vested and exercisable as of June 30, 2019		935,077		$	14.59

As of

June 30, 2019,

there was

$9.9

million of total unrecognized compensation cost related to non-vested stock compensation arrangements granted to employees and directors under the

2017

Amended Plan. That cost is expected to be recognized over a weighted-average period of approximately

2.89

years.          

Stock Options and Warrants - Non-

E

mployees

A summary of warrants activity for non-employees is as follows:

	Number of Warrants			Weighted Average Exercise Price
Outstanding as of December 31, 2018		1,608,996		$	4.71
Issued		55,352			11.88
Expired		(54,167	)		12.46
Exercised		(212,461	)		4.84
Outstanding as of June 30, 2019		1,397,720		$	4.68
Warrants exercisable as of June 30, 2019		1,397,720		$	4.68

There were

none

and

50,000

options issued to non-employees at a weighted average exercise price of

$9.93

for the

three

and

six

months ended

June 30, 2019,

respectively, compared with

none

for the same periods in

2018.

There were

4,167

warrants issued in exchange for services for the

three

and

six

months ended

June 30, 2019,

respectively, compared with

none

and

24,000

for the same periods in

2018.

Generally, the costs associated with shares issued for services are amortized to the related expense on a straight-line basis over the related service periods.

As of

June 30, 2019,

there was approximately

$286,000

of total unrecognized compensation cost related to non-vested stock compensation arrangements granted to non-employees under the

2017

Amended Plan. That cost is expected to be recognized over a weighted-average period of approximately

2.58

years 

XML

Note 7 - Leases

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note

7

.

Leases

The operating lease agreement for our Los Angeles, CA office space expired in

April 2019,

therefore there are

no

remaining operating lease right-of-use assets or liabilities associated with this office as of

June 30, 2019.

In

September 2018,

we signed an operating lease for our new corporate headquarters in Santa Monica, CA (“Santa Monica Headquarters”). The lease agreement includes

7,869

square feet for

60

months commencing in

July 2019,

which is

30

days following date the premises were ready for occupancy. The base rent is approximately

$48,000

subject to annual adjustments.

Our lease liability resulted from the lease of our Santa Monica Headquarters which expires in

2024.

This lease does

not

require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Our lease includes renewal options and escalation clauses; renewal options have

not

been included in the calculation of the lease liability and right-of-use asset as we are

not

reasonably certain to exercise the options. Variable expenses generally represent our share of the landlord’s operating expenses. We do

not

act as a lessor or have any leases classified as financing leases.

As of

June 30, 2019,

we have an operating lease liability of approximately

$2.3

million and right-of-use asset of approximately

$2.6

million, which are included in the consolidated balance sheet.

Quantitative information for the operating lease is as follows: 

	For the Three Months Ended		For the Si x Months Ended
(In thousands)	June 30, 2019		June 30, 2019
Operating lease expense	$	93	$	167
Short-term lease rent expense		14		17
Total rent expense	$	107	$	184

	For the Three Months Ended		For the Six Months Ended
(In thousands)	June 30, 2019		June 30, 2019
Operating cash flows from operating leases	$	63	$	163

	June 30, 2019
Weighted-average remaining lease term – operating leases (years)		4.9
Weighted-average discount rate – operating leases		10.15	%

Maturities of the operating lease liabilities are as follows:

(In thousands)	Amount
Remaining six months ended December 31, 2019	$	301
Year ended December 31, 2020		583
Year ended December 31, 2021		604
Year ended December 31, 2022		624
Year ended December 31, 2023		646
Year ended December 31, 2024		273
Total		3,031
Less present value discount		(726	)
Operating lease liabilities	$	2,305

We incurred rent expense of approximately

$107,000

and

$184,000

for the

three

and

six

months ended

June 30, 2019,

respectively compared with approximately

$75,000

and

$149,000

for the same periods in

2018,

respectively.

XML

Note 8 - Debt

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Long-term Debt [Text Block]

Note

8

. Debt

In

June 2018,

we entered into a venture loan and security agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”), which provides for up to

$7.5

million in loans to Catasys, including initial loans in the amount of

$5.0

million funded upon signing of the Loan Agreement. An additional

$2.5

million loan was subject to our achievement of billings of

not

less than

$5.0

million during any

three

consecutive month period on or prior to

November 30, 2018.

In

August 2018,

we incurred the additional

$2.5

million loan as a result of our achievement of the trailing

three

-month billings exceeding

$5.0

million on or prior to

November 30, 2018.

In addition, in

June 2018,

we entered into a loan and security agreement (the “A/R Facility”) in connection with a

$2.5

million receivables financing facility with Corporate Finance, a division of Heritage Bank of Commerce (“Heritage”). The A/R Facility provides for Catasys to borrow up to

85%

of our eligible accounts receivable, as defined in the A/R Facility. In

February 2019,

we borrowed approximately

$1.9

million on the A/R Facility during the month.

None

of the A/R Facility is outstanding as of

June 30, 2019.

In

March 

2019,

we entered into an amended and restated venture loan and security agreement (as so amended and restated, the “Amended Loan Agreement”) with Horizon, which provides for up to

$15.0

million in loans to us, including initial term loans in the amount of

$7.5

million previously funded under the original Loan Agreement entered into in

June 2018

and an additional up to

$7.5

million loan in

three

revolving tranches of

$2.5

million in availability, subject to our achievement of trailing

three

month billings exceeding

$5.0

million,

$7.0

million and

$8.0

million, respectively (collectively, the “Billing Requirements”). An initial advance of

$2.5

million was funded upon the execution and delivery of the Amended Loan Agreement, subject to repayment if the foregoing

$5.0

million threshold is

not

reached by

July 1, 2019. 

We concurrently entered into an amendment to the previously disclosed

$2.5

million A/R Facility with Heritage intended primarily to reflect the amendment and restatement of the Amended Loan Agreement. We have met all

three

of the Billing Requirements and as a result have incurred the full

$7.5

million under the Amended Loan Agreement.

Repayment of the Revolving Loan is on an interest-only basis through

September 30, 2020,

followed by monthly payments of principal and accrued interest until maturity on the date which is the earliest of: (a)

September 30, 2022, (

b) the date of acceleration of such loan, following an event of default (c) or the date of prepayment. Until we receive cash proceeds of

$10.0

million from the sale of our equity securities, we are required to maintain reserve cash on deposit for Horizon in an amount equal to our net operating loss for the trailing

three

-month calendar period, plus all amounts required to repaid in respect of all outstanding indebtedness for the following

three

months, plus

$4.0

million. From and after the receipt of

$10.0

million in cash proceeds from the sale of our equity securities, we are required to maintain reserve cash on deposit for Horizon in an amount equal to the net operating loss of our trailing

three

-month calendar period, plus all amounts required to repaid in respect of all outstanding indebtedness for the following

three

months.

The Revolving Loan bears interest at a floating coupon rate of the amount by which

one

-month LIBOR exceeds

2.00%

plus

9.75%.

After

September 30, 2020,

upon the earlier of (i) payment in full of the principal balance of the Revolving Loan, (ii) an event of default and demand by Lender of payment in full of the Revolving Loan or (iii) on the Revolving Loan Maturity Date (

September 30, 2022),

as applicable, we shall pay to Lender a payment equal to the greater of

$150,000

or

6%

of the outstanding principal balance of the Revolving Loan on

August 31, 2020. 

The Loan Agreement includes customary affirmative and restrictive covenants, excluding any covenants to attain or maintain certain financial metrics, and also includes customary events of default, including for payment failures, breaches of covenants, change of control and material adverse changes. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional

5%

may

be applied to the outstanding loan balances, certain minimum revenue based payment guarantees become due and Horizon

may

declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.

A summary of our debt activity is as follows:

	June 30,			December 31,
(in thousands)	2019			2018
Debt
Loans payable:
Horizon term loan	$	7,950		$	7,950
Horizon revolving loan		7,500			-
Horizon debt discount		(365	)		(478	)
Horizon revolving final payment		450			-
Total debt	$	15,535		$	7,472
Current portion of long-term debt	$	1,917		$	-
Long term debt	$	13,618		$	7,472

During the

three

and

six

months ended

June 30, 2019

we incurred debt related interest expense of approximately

$471,000

and

$792,000

respectively compared with

$36,000

and

$37,000

for the same periods in

2018,

respectively. Interest expense for the

three

and

six

months ended

June 30, 2019

included amortization of debt discount of approximately

$33,000

and

$65,000

related to the A/R Facility and amortization of debt discount of

$70,000

and

$81,000

related to the Horizon Loan Agreement.

Catasys is in compliance with all debt covenants as of

June 30, 2019.

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Note 9 - Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

9

.

Fair Value Measurements 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure fair value. The fair value hierarchy distinguishes between (

1

) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (

2

) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of

three

broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I) and the lowest priority to unobservable inputs (Level III). The

three

levels of the fair value hierarchy are described below:

Level Input:	Input Definition:
Level I	Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II	Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III	Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following tables summarize fair value measurements by level as of

June 30, 2019

and

December 31, 2018,

respectively, for assets and liabilities measured at fair value on a recurring basis:

	Balance as of June 30, 2019
(in thousands)	Level I		Level II		Level III		Total
Certificates of deposits (1)	$	408	$	-	$	-	$	408
Total assets	$	408	$	-	$	-	$	408
Warrant liabilities		-	$	-	$	842	$	842
Total liabilities		-	$	-	$	842	$	842

( 1 )  $408,000 is included in restricted cash, long-term on our balance sheet as of June 30, 2019. 

	Balance as of December 31, 2018
(in thousands)	Level I		Level II		Level III		Total
Letter of credit (2)	$	479	$	-	$	-	$	479
Total assets	$	479	$	-	$	-	$	479
Warrant liabilities		-	$	-	$	86	$	86
Total liabilities		-	$	-	$	86	$	86

( 2 )  $71,000 is included in cash and restricted cash and $408,000 is included in restricted cash, long term on our balance sheet as of December 31, 2018. 

The following is a rollforward of our warrant liabilities: 

	Level III
	Warrant
(in thousands)	Liabilities
Balance as of December 31, 2018	$	86
Issuance of new warrant liability		631
Change in fair value of warrant liability		211
Reclassification of warrant liability to equity upon adoption of ASU 2017-11		(86	)
Balance as of June 30, 2019	$	842

For the

three

and

six

months ended

June 30, 2019,

we recognized a loss of

$120,000

and

$211,000,

respectively compared with approximately

$19,000

and

$29,000

for the same periods in

2018,

respectively, related to the revaluation of our warrant liabilities.

In

March 2019,

in connection with our entry into the Amended Loan Agreement, we issued Horizon

40,279

seven

-year warrants to purchase an aggregate of

$600,000

(depending on the level of availability under the Amended Loan Agreement) at the trailing volume weighted average price (“VWAP”) of our common stock on the NASDAQ Capital Market for the

five

days preceding the relative dates of grants at a per share exercise price equal to the lower of (i)

$9.93

or (ii) the price per share of any securities that

may

be issued by us in an equity financing during the

18

months following the agreement date.

In

May 2019,

we met the

$7.0

million Billing Requirement under the Amended Loan Agreement and incurred an additional

$2.5

million revolving loan. In connection with the additional revolving loan, we issued Horizon

5,561

seven

-year warrants to purchase an aggregate of

$100,000

(depending on the level of availability under the Loan Agreement) at the trailing VWAP of our common stock on the NASDAQ Capital Market for the

five

days preceding the relative dates of grants at a per share exercise price equal to the lower of (i)

$17.98

or (ii) the price per share of any securities that

may

be issued by us in an equity financing during the

18

months following the agreement date.

In

June 2019,

we met the

$8.0

million Billing Requirement under the Amended Loan Agreement and incurred the final

$2.5

million revolving loan. In connection with the additional revolving loan, we issued Horizon

5,345

seven

-year warrants to purchase an aggregate of

$100,000

(depending on the level of availability under the Loan Agreement) at the trailing VWAP of our common stock on the NASDAQ Capital Market for the

five

days preceding the relative dates of grants at a per share exercise price equal to the lower of (i)

$18.71

or (ii) the price per share of any securities that

may

be issued by us in an equity financing during the

18

months following the agreement date (the “Horizon Warrants”).

In

no

event will we be required to issue more than

19.9%

of its currently outstanding common stock pursuant to the Horizon Warrants.

We adopted ASU

2017

-

11,

as of

January 1, 2019.

However, given the number of variable features, the Horizon Warrants have been classified as a liability at the time of issuance in accordance with ASC

815.

We initially valued the Horizon Warrants using a Monte Carlo model and recorded the fair value of the Horizon Warrants as a discount to the debt obligation. As of

June 30, 2019,

we have met all Billing Requirements under the Amended Loan Agreement and we will continue to mark-to-market the warrants each month using the Black-Scholes model.

The key assumptions used to value the Horizon Warrants are as follows:

	June 30, 2019
Expected price volatility	98.0%	-	100.2%
Expected term (in years)	6.7	-	7.0
Risk-free interest rate	1.7%	-	2.3%
Dividend yield		0.0%

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Note 10 - Variable Interest Entities

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Variable Interest Entity Disclosure [Text Block]

Note

1

0

.

Variable

I

nterest

E

ntities

The amounts and classification of assets and liabilities of the variable interest entities included in our consolidated balance sheets are as follows:

	June 30,		December 31,
(in thousands)	2019		2018
Cash and cash equivalents	$	418	$	45
Accounts receivable		324		94
Prepaid and other current assets		9		29
Total assets	$	751	$	168
Accounts payable	$	8	$	7
Accrued liabilities		40		14
Intercompany payable		710		147
Total liabilities	$	758	$	168

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Revenue from Contract with Customer [Policy Text Block]

Revenue

, Deferred Revenue and Performance Obligations

Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation

may

be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (i.e. the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will

not

occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of

third

parties.

The following table disaggregates our revenue by business line:

	For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2019					2018					2019					2018
(in thousands)	Revenue		Percentage			Revenue		Percentage			Revenue		Percentage			Revenue		Percentage
Commercial	$	4,617		60	%	$	2,145		66	%	$	8,798		61	%	$	3,245		63	%
Government		3,064		40	%		1,128		34	%		5,694		39	%		1,939		37	%
	$	7,681		100	%	$	3,273		100	%	$	14,492		100	%	$	5,184		100	%

Our customer contracts are generally designed to provide cash fees to us on a monthly basis, an upfront case rate, or fee for service based on enrolled members. Our performance obligation is satisfied over time as the OnTrak service is provided continuously throughout the service period. Catasys recognizes revenue evenly over the service period using a time-based measure because we are providing a continuous service to our customers. Contracts with minimum performance guarantees or price concessions include variable consideration and are subject to the revenue constraint. Catasys uses an expected value method to estimate variable consideration for these minimum performance guarantees and price concessions. Additionally, Catasys has constrained revenue for expected price concessions for the

three

and

six

months ended

June 30, 2019.

Cost of Goods and Service [Policy Text Block]

Cost of

R

evenue

Cost of revenue consists primarily of salaries related to our care coaches, outreach specialists and other staff directly involved in member care, healthcare provider claims payments, and fees charged by our

third

-party administrators for processing these claims. Salaries and fees charged by our

third

-party administrators for processing claims are expensed when incurred and healthcare provider claims payments are recognized in the period in which an eligible member receives services. We contract with doctors and licensed behavioral healthcare professionals, on a fee-for-service basis. We determine that a member has received services when we receive a claim or in the absence of a claim, by utilizing member data recorded in the OnTrak database within the contracted timeframe, with all required billing elements correctly completed by the service provider. 

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk 

The following table is a summary of concentration of credit risk by customer revenues and accounts receivables:

	Three Months Ended June 30,						Six Months Ended June 30,
Percentage of Revenue	2019			2018			2019			2018
Largest customer		27.0	%		26.7	%		26.5	%		25.0	%
2nd largest customer		25.2	%		29.7	%		25.8	%		26.1	%
3rd largest customer		17.9	%		7.5	%		17.1	%		5.1	%
4th largest customer		12.2	%		10.8	%		11.9	%		15.2	%
Remaining customers		17.7	%		25.3	%		18.7	%		28.6	%
		100.0	%		100.0	%		100.0	%		100.0	%

Percentage of
Accounts Receivable	June 30, 2019			December 31, 2018
Largest customer		53.2	%		41.6	%
2nd largest customer		13.0	%		24.9	%
3rd largest customer		8.7	%		12.8	%
4th largest customer		7.6	%		11.2	%
Remaining customers		17.5	%		9.5	%

Earnings Per Share, Policy [Policy Text Block]

Net l

oss per

s

hare

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, preferred stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

Common equivalent shares, consisting of

5,604,451

and

4,571,912

shares for the

six

months ended

June 30, 2019

and

2018,

respectively, issuable upon the exercise of stock options and warrants have been excluded from the diluted earnings per share calculation as their effect is anti-dilutive.

Common equivalent shares, that could potentially dilute loss per share in the future that were

not

included in the computation of diluted loss per share are as follows:

	June 30, 2019		June 30, 2018
Warrants to purchase common stock		1,397,720		2,045,248
Options to purchase common stock		4,206,731		2,526,664
Total		5,604,451		4,571,912

Lessee, Leases [Policy Text Block]

Leases

Effective

January 1, 2019,

we account for leases under Accounting Standards Codification (“ASC”) Topic

842,

Leases

. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right-of-use asset and lease liability, we elected to combine lease and non-lease components. We exclude short-term leases having initial terms of

12

months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

We accounted for leases in the prior period financial statements under ASC Topic

840.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued or Newly Adopted Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we do

not

believe that the impact of recently issued standards that are

not

yet effective will have a material impact on our financial position or results of operations upon adoption.

In

August 2018,

the FASB issued Accounting Standard Update (“ASU”)

No.

2018

-

13,

Fair Value Measurement (Topic

820

)

, which modifies the disclosure requirements on fair value measurements in Topic

820,

Fair Value Measurement, including, among other changes, the consideration of costs and benefits when evaluating disclosure requirements. For public companies, the amendments are effective for annual reporting periods beginning after

December 15, 2019,

including interim periods within those annual periods. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting guidance will have on our financial statements and footnote disclosures.

In

June 2018,

the FASB issued ASU

2018

-

07,

 

Improvements to Nonemployee Share-Based Payment Accounting

(“ASU

2018

-

07”

), which supersedes ASC

505

-

50

and expands the scope of ASC

718

to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective for annual reporting periods beginning after

December 

15,

2018,

including interim periods within those annual periods. Early adoption is permitted, but

no

earlier than a company's adoption date of ASC

606.

The adoption of this ASU

2018

-

07

on

January 1, 2019

did

not

have a material impact on our consolidated financial statements.

In

July 2017,

the FASB issued ASU

2017

-

11,

Earnings Per Share (Topic

260

); Distinguishing Liabilities from Equity (Topic

480

); Derivatives and Hedging (Topic

815

): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

(“ASU

2017

-

11”

). The amendments in this update are intended to simplify the accounting for certain equity linked financial instruments and embedded features with down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings. Under the new guidance, a down round feature will

no

longer need to be considered when determining whether certain financial instruments or embedded features should be classified as liabilities or equity instruments. That is, a down round feature will

no

longer preclude equity classification when assessing whether an instrument or embedded feature is indexed to an entity's own stock. In addition, the amendments clarify existing disclosure requirements for equity-classified instruments. These amendments are effective for fiscal years, and interim periods within those years, beginning after

December 15, 2018,

with early adoption permitted. The adoption of this ASU

2017

-

11

on

January 1, 2019

resulted in the reclassification of our warrant liability in amount of

$86,000

into additional paid-in capital.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments - Credit Losses

(“ASU

2016

-

13”

). The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but

not

limited to, available for sale debt securities and accounts receivable. We are required to adopt this standard starting in the

first

quarter of fiscal year

2021.

Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

In

February 2016,

the FASB issued ASU

No.

 

2016

-

02,

 

Leases

(“ASU

2016

-

02”

). Under this standard, which applies to both lessors and lessees, lessees will be required to recognize all leases (except for short-term leases) as a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and as a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. ASU

2016

-

02

is effective for fiscal years and interim periods within those fiscal years beginning after

December 15, 2018 

and is to be applied at the beginning of the earliest period presented using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. We adopted ASU

2016

-

02

on

January 1, 2019

and recorded right-to-use assets and liabilities for all operating lease obligations with terms of

12

months or greater. Any prior period changes were immaterial and therefore

no

retrospective adjustments were recorded. 

XML

Note 2 - Accounting Standards and Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

	For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2019					2018					2019					2018
(in thousands)	Revenue		Percentage			Revenue		Percentage			Revenue		Percentage			Revenue		Percentage
Commercial	$	4,617		60	%	$	2,145		66	%	$	8,798		61	%	$	3,245		63	%
Government		3,064		40	%		1,128		34	%		5,694		39	%		1,939		37	%
	$	7,681		100	%	$	3,273		100	%	$	14,492		100	%	$	5,184		100	%

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
Percentage of Revenue	2019			2018			2019			2018
Largest customer		27.0	%		26.7	%		26.5	%		25.0	%
2nd largest customer		25.2	%		29.7	%		25.8	%		26.1	%
3rd largest customer		17.9	%		7.5	%		17.1	%		5.1	%
4th largest customer		12.2	%		10.8	%		11.9	%		15.2	%
Remaining customers		17.7	%		25.3	%		18.7	%		28.6	%
		100.0	%		100.0	%		100.0	%		100.0	%

Percentage of
Accounts Receivable	June 30, 2019			December 31, 2018
Largest customer		53.2	%		41.6	%
2nd largest customer		13.0	%		24.9	%
3rd largest customer		8.7	%		12.8	%
4th largest customer		7.6	%		11.2	%
Remaining customers		17.5	%		9.5	%
		100.0	%		100.0	%

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	June 30, 2019		June 30, 2018
Warrants to purchase common stock		1,397,720		2,045,248
Options to purchase common stock		4,206,731		2,526,664
Total		5,604,451		4,571,912

XML

Note 4 - Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Property, Plant and Equipment [Table Text Block]

(in thousands)	June 30, 2019			December 31, 2018
Office furniture and equipment	$	1,915		$	1,746
Leasehold improvement		-			318
Gross property and equipment		1,915			2,064
Less: Accumulated depreciation and amortization		(1,556	)		(1,801	)
Total property and equipment, net	$	359		$	263

XML

Note 6 - Stock Compensation (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Number of Warrants			Weighted Average Exercise Price
Outstanding as of December 31, 2018		1,608,996		$	4.71
Issued		55,352			11.88
Expired		(54,167	)		12.46
Exercised		(212,461	)		4.84
Outstanding as of June 30, 2019		1,397,720		$	4.68
Warrants exercisable as of June 30, 2019		1,397,720		$	4.68

Employees and Directors [Member]

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	Number of Shares			Weighted Average Exercise Price
Outstanding as of December 31, 2018		3,761,259		$	9.44
Granted		620,378			10.54
Forfeited		(35,521	)		7.50
Exercised		(139,385	)		10.57
Outstanding as of June 30, 2019		4,206,731		$	9.58
Options vested and expected to vest as of June 30, 2019		4,206,731		$	9.58
Options vested and exercisable as of June 30, 2019		935,077		$	14.59

XML

Note 7 - Leases (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Lease, Cost [Table Text Block]

	For the Three Months Ended		For the Si x Months Ended
(In thousands)	June 30, 2019		June 30, 2019
Operating lease expense	$	93	$	167
Short-term lease rent expense		14		17
Total rent expense	$	107	$	184

Schedule of Operating Leases Information [Table Text Block]

	For the Three Months Ended		For the Six Months Ended
(In thousands)	June 30, 2019		June 30, 2019
Operating cash flows from operating leases	$	63	$	163

	June 30, 2019
Weighted-average remaining lease term – operating leases (years)		4.9
Weighted-average discount rate – operating leases		10.15	%

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(In thousands)	Amount
Remaining six months ended December 31, 2019	$	301
Year ended December 31, 2020		583
Year ended December 31, 2021		604
Year ended December 31, 2022		624
Year ended December 31, 2023		646
Year ended December 31, 2024		273
Total		3,031
Less present value discount		(726	)
Operating lease liabilities	$	2,305

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Note 8 - Debt (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30,			December 31,
(in thousands)	2019			2018
Debt
Loans payable:
Horizon term loan	$	7,950		$	7,950
Horizon revolving loan		7,500			-
Horizon debt discount		(365	)		(478	)
Horizon revolving final payment		450			-
Total debt	$	15,535		$	7,472
Current portion of long-term debt	$	1,917		$	-
Long term debt	$	13,618		$	7,472

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Note 9 - Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Balance as of June 30, 2019
(in thousands)	Level I		Level II		Level III		Total
Certificates of deposits (1)	$	408	$	-	$	-	$	408
Total assets	$	408	$	-	$	-	$	408
Warrant liabilities		-	$	-	$	842	$	842
Total liabilities		-	$	-	$	842	$	842

	Balance as of December 31, 2018
(in thousands)	Level I		Level II		Level III		Total
Letter of credit (2)	$	479	$	-	$	-	$	479
Total assets	$	479	$	-	$	-	$	479
Warrant liabilities		-	$	-	$	86	$	86
Total liabilities		-	$	-	$	86	$	86

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	Level III
	Warrant
(in thousands)	Liabilities
Balance as of December 31, 2018	$	86
Issuance of new warrant liability		631
Change in fair value of warrant liability		211
Reclassification of warrant liability to equity upon adoption of ASU 2017-11		(86	)
Balance as of June 30, 2019	$	842

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

	June 30, 2019
Expected price volatility	98.0%	-	100.2%
Expected term (in years)	6.7	-	7.0
Risk-free interest rate	1.7%	-	2.3%
Dividend yield		0.0%

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Note 10 - Variable Interest Entities (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Variable Interest Entities [Table Text Block]

	June 30,		December 31,
(in thousands)	2019		2018
Cash and cash equivalents	$	418	$	45
Accounts receivable		324		94
Prepaid and other current assets		9		29
Total assets	$	751	$	168
Accounts payable	$	8	$	7
Accrued liabilities		40		14
Intercompany payable		710		147
Total liabilities	$	758	$	168

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Note 1 - Basis of Consolidation and Presentation (Details Textual)	6 Months Ended
	Jun. 30, 2019 USD ($)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Ending Balance	$ 7,500,000
Working Capital Deficit	461,000
Cash Used, Per Month	$ 1,000,000
Number of States in which Entity Operates	27

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Note 2 - Accounting Standards and Significant Accounting Policies (Details Textual) - USD ($)		6 Months Ended
	Jan. 01, 2019	Jun. 30, 2019	Jun. 30, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		5,604,451	4,571,912
Reclassification of Warrant Liability to Equity		$ 86,000
Additional Paid-in Capital [Member]
Reclassification of Warrant Liability to Equity		$ 86,000
Accounting Standards Update 2017-11 [Member] | Additional Paid-in Capital [Member]
Reclassification of Warrant Liability to Equity	$ 86,000

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Note 2 - Accounting Standards and Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue	$ 7,681	$ 3,273	$ 14,492	$ 5,184
Revenues, percentage	100.00%	100.00%	100.00%	100.00%
Commercial [Member]
Revenue	$ 4,617	$ 2,145	$ 8,798	$ 3,245
Revenues, percentage	60.00%	66.00%	61.00%	63.00%
Government Contract [Member]
Revenue	$ 3,064	$ 1,128	$ 5,694	$ 1,939
Revenues, percentage	40.00%	34.00%	39.00%	37.00%

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Note 2 - Accounting Standards and Significant Accounting Policies - Concentration of Credit Risk (Details) - Customer Concentration Risk [Member]	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Revenue Benchmark [Member]
Concentration risk, Customer revenue	100.00%	100.00%	100.00%	100.00%
Revenue Benchmark [Member] | Largest Customer [Member]
Concentration risk, Customer revenue	27.00%	26.70%	26.50%	25.00%
Revenue Benchmark [Member] | Second Largest Customer [Member]
Concentration risk, Customer revenue	25.20%	29.70%	25.80%	26.10%
Revenue Benchmark [Member] | Third Largest Customer [Member]
Concentration risk, Customer revenue	17.90%	7.50%	17.10%	5.10%
Revenue Benchmark [Member] | Forth Largest Customer [Member]
Concentration risk, Customer revenue	12.20%	10.80%	11.90%	15.20%
Revenue Benchmark [Member] | Other Customer [Member]
Concentration risk, Customer revenue	17.70%	25.30%	18.70%	28.60%
Accounts Receivable [Member]
Concentration risk, Customer revenue			100.00%		100.00%
Accounts Receivable [Member] | Largest Customer [Member]
Concentration risk, Customer revenue			53.20%		41.60%
Accounts Receivable [Member] | Second Largest Customer [Member]
Concentration risk, Customer revenue			13.00%		24.90%
Accounts Receivable [Member] | Third Largest Customer [Member]
Concentration risk, Customer revenue			8.70%		12.80%
Accounts Receivable [Member] | Forth Largest Customer [Member]
Concentration risk, Customer revenue			7.60%		11.20%
Accounts Receivable [Member] | Other Customer [Member]
Concentration risk, Customer revenue			17.50%		9.50%

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Note 2 - Accounting Standards and Significant Accounting Policies - Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Antidilutive Securities (in shares)	5,604,451	4,571,912
Warrant [Member]
Antidilutive Securities (in shares)	1,397,720	2,045,248
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities (in shares)	4,206,731	2,526,664

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Note 3 - Accounts Receivable (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounts Receivable, Allowance for Credit Loss, Ending Balance	$ 0	$ 0

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Note 4 - Property and Equipment (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Depreciation, Total	$ 34,000	$ 85,000	$ 72,000	$ 170,000

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Note 4 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Office furniture and equipment	$ 1,915	$ 1,746
Leasehold improvement		318
Gross property and equipment	1,915	2,064
Less: Accumulated depreciation and amortization	(1,556)	(1,801)
Total property and equipment, net	$ 359	$ 263

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Note 5 - Common Stock (Details Textual) - USD ($)	1 Months Ended				6 Months Ended
	Jun. 30, 2019	May 31, 2019	Apr. 30, 2019	Jan. 31, 2019	Jun. 30, 2019	Jun. 30, 2018
Class or Warrant or Right, Exercised During the Period	20,000	172,461		20,000	212,461
Class of Warrant or Right, Exercised During Period, Weighted Average Exercise Price	$ 5	$ 4.80		$ 5	$ 4.84
Proceeds from Warrant Exercises	$ 100,000	$ 828,000		$ 100,000	$ 1,028,000
Stock Issued During Period, Shares, Exercise of Warrants	20,000	172,461		20,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		129,906	9,479
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price		$ 10.79	$ 7.50
Proceeds from Stock Options Exercised		$ 1.40	$ 71,000		$ 1,473,000

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Note 6 - Stock Compensation (Details Textual) - USD ($)	1 Months Ended		3 Months Ended		6 Months Ended
	Feb. 28, 2019	Aug. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Payment Arrangement, Noncash Expense, Total			$ 1,600,000	$ 425,000	$ 2,591,000	$ 753,000
Class of Warrant or Right, Issued During Period					55,352
Warrants Related to Investor Relations Services [Member]
Class of Warrant or Right, Issued During Period				0	4,167	24,000
Employees and Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number			4,206,731		4,206,731
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					620,378
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price					$ 10.54
The 2017 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			2,333,334		2,333,334
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized	552,884	1,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period					10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number			4,156,731		4,156,731
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares, Ending Balance			50,000		50,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			183,955		183,955
The 2017 Stock Incentive Plan [Member] | Employees and Directors [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total			$ 9,900,000		$ 9,900,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition					2 years 324 days
The 2017 Stock Incentive Plan [Member] | Nonemployees [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total			$ 286,000		$ 286,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition					2 years 211 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0	0	50,000	0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 9.93		$ 9.93
The 2017 Stock Incentive Plan [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					3 years
The 2017 Stock Incentive Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					5 years
The 2010 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			243,853		243,853

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Note 6 - Stock Compensation - Employee and Director Stock Option Activity (Details) - $ / shares	1 Months Ended		6 Months Ended
	May 31, 2019	Apr. 30, 2019	Jun. 30, 2019
Exercised, shares (in shares)	(129,906)	(9,479)
Exercised, weighted average exercise price (in dollars per share)	$ 10.79	$ 7.50
Employees and Directors [Member]
Outstanding, shares (in shares)			3,761,259
Outstanding, weighted average exercise price (in dollars per share)			$ 9.44
Granted, shares (in shares)			620,378
Granted, weighted average exercise price (in dollars per share)			$ 10.54
Forfeited, shares (in shares)			(35,521)
Forfeited, weighted average exercise price (in dollars per share)			$ 7.50
Exercised, shares (in shares)			(139,385)
Exercised, weighted average exercise price (in dollars per share)			$ 10.57
Outstanding, shares (in shares)			4,206,731
Outstanding, weighted average exercise price (in dollars per share)			$ 9.58
Options vested and expected to vest, share (in shares)			4,206,731
Options vested and expected to vest, weighted average exercise price (in dollars per share)			$ 9.58
Options vested and exercisable, share (in shares)			935,077
Options vested and exercisable, weighted average exercise price (in dollars per share)			$ 14.59

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Note 6 - Share Compensation - Summary of Warrant Activity (Details) - $ / shares	1 Months Ended			6 Months Ended
	Jun. 30, 2019	May 31, 2019	Jan. 31, 2019	Jun. 30, 2019
Outstanding, number of warrants (in shares)			1,608,996	1,608,996
Outstanding, weighted average exercise price (in dollars per share)			$ 4.71	$ 4.71
Class of Warrant or Right, Issued During Period				55,352
Warrants issued, weighted average exercise price (in dollars per share)				$ 11.88
Warrants expired, number of warrants (in shares)				(54,167)
Warrants expired, weighted average exercise price (in dollars per share)				$ 12.46
Warrants exercised, number of warrants (in shares)	(20,000)	(172,461)	(20,000)	(212,461)
Warrants exercised, weighted average exercise price (in dollars per share)	$ 5	$ 4.80	$ 5	$ 4.84
Outstanding, number of warrants (in shares)	1,397,720			1,397,720
Outstanding, weighted average exercise price (in dollars per share)	$ 4.68			$ 4.68
Warrants exercisable, number of warrants (in shares)	1,397,720			1,397,720
Warrants exercisable, weighted average exercise price (in dollars per share)	$ 4.68			$ 4.68

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Note 7 - Leases (Details Textual)	1 Months Ended	3 Months Ended		6 Months Ended
	Sep. 30, 2018 USD ($) ft²	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Area of Real Estate Property | ft²	7,869
Lessee, Operating Lease, Base Rent	$ 48,000
Operating Lease, Liability, Total		$ 2,305,000		$ 2,305,000
Operating Lease, Right-of-Use Asset		2,595,000		2,595,000
Lease, Cost, Total		$ 107,000	$ 75,000	$ 184,000	$ 149,000

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Note 7 - Leases - Operating Leases (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Operating lease expense	$ 93,000		$ 167,000
Short-term lease rent expense	14,000		17,000
Total rent expense	$ 107,000	$ 75,000	$ 184,000	$ 149,000

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Note 7 - Leases - Operating Lease Information (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)
Operating cash flows from operating leases	$ 63	$ 163
Weighted-average remaining lease term – operating leases (Year)	4 years 328 days	4 years 328 days
Weighted-average discount rate – operating leases	10.15%	10.15%

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Note 7 - Leases - Maturities of Operating Lease Liabilities (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Remaining six months ended December 31, 2019	$ 301
Year ended December 31, 2020	583
Year ended December 31, 2021	604
Year ended December 31, 2022	624
Year ended December 31, 2023	646
Year ended December 31, 2024	273
Total	3,031
Less present value discount	(726)
Operating lease liabilities	$ 2,305

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Note 8 - Debt (Details Textual) - USD ($)		1 Months Ended					3 Months Ended			6 Months Ended
	Aug. 31, 2020	Jun. 30, 2019	May 31, 2019	Mar. 31, 2019	Jun. 30, 2018	Feb. 28, 2018	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Aug. 31, 2018
Amortization of Debt Issuance Costs										$ 112,000
Corporate Finance [Member] | A/R Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity				$ 2,500,000	$ 2,500,000			$ 2,500,000	$ 2,500,000		$ 2,500,000
Line of Credit Facility, Percentage of Accounts Receivable as Borrowings					85.00%				85.00%		85.00%
Proceeds from Lines of Credit, Total						$ 1.90
Long-term Line of Credit, Total						$ 0
Debt Instrument, Term, Cash Proceeds From Sale of Equity Securities				10,000,000
Debt Instrument, Input, Cash Reserve				4,000,000
Loan Agreement [Member]
Debt Instrument, Face Amount					$ 5,000,000				$ 5,000,000		$ 5,000,000
Debt Instrument, Face Amount of Potential Additional Loan					2,500,000				2,500,000		2,500,000
Debt Instrument, Billings Threshold for Additional Loan					5,000,000
Achievement of Billing, Additional Loan, Amount												$ 2,500,000
Proceeds from Issuance of Long-term Debt, Total				$ 2,500,000
Debt Instrument, Interest Rate, Stated Percentage				9.75%				9.75%
Debt, Interest Rate, Default Interest Rate		5.00%					5.00%			5.00%
Interest Expense, Debt, Total							$ 471,000		36,000	$ 792,000	37,000
Amortization of Debt Issuance Costs							$ 33,000		70,000	$ 65,000	81,000
Loan Agreement [Member] | Forecast [Member]
Debt Instrument, Periodic Payment, Total	$ 150,000
Percentage of Outstanding Principal Balance	6.00%
Loan Agreement [Member] | Revolving Loan [Member]
Debt Instrument, Face Amount of Potential Additional Loan				$ 7,500,000				$ 7,500,000
Debt Instrument, Face Amount of Potential Additional Loan, Tranche One				2,500,000				2,500,000
Debt Instrument, First Billings Threshold for Additional Loan				5,000,000
Debt Instrument, Second Billings Threshold for Additional Loan			$ 7,000,000	7,000,000
Debt Instrument, Third Billings Threshold for Additional Loan		$ 8,000,000		8,000,000
Proceeds from Issuance of Long-term Debt, Total		$ 2,500,000	$ 2,500,000
Loan Agreement [Member] | Maximum [Member]
Debt Instrument, Face Amount				$ 15,000,000	$ 7,500,000			$ 15,000,000	$ 7,500,000		$ 7,500,000
Loan Agreement [Member] | Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate, Threshold Percent								2.00%

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Note 8 - Debt - Summary of Debt Activity (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Horizon debt discount	$ (365)	$ (478)
Total debt	15,535	7,472
Current portion of long-term debt	1,917
Long term debt	13,618	7,472
Term Loan [Member]
Loans payable	7,950	7,950
Revolving Loan [Member]
Loans payable	7,500
Horizon revolving final payment	$ 450

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Note 9 - Fair Value Measurements (Details Textual) - USD ($)	1 Months Ended			3 Months Ended			6 Months Ended
	Jun. 30, 2019	May 31, 2019	Mar. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Fair Value Adjustment of Warrants				$ 120,000		$ 19,000	$ 211,000	$ 29,000
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 4.68			$ 4.68			$ 4.68		$ 4.71
Class of Warrant or Right, Issued During Period							55,352
Loan Agreement [Member]
Proceeds from Issuance of Long-term Debt, Total			$ 2,500,000
Loan Agreement [Member] | Revolving Loan [Member]
Debt Instrument, Second Billings Threshold for Additional Loan		$ 7,000,000	7,000,000
Proceeds from Issuance of Long-term Debt, Total	$ 2,500,000	$ 2,500,000
Debt Instrument, Third Billings Threshold for Additional Loan	$ 8,000,000		$ 8,000,000
Stock in Connection With Horizon Warrants [Member]
Class of Warrant Or Right Value of Securities Called By Warrants Or Rights					$ 600,000
Horizon Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			40,279		40,279
Warrants and Rights Outstanding, Term			7 years		7 years
Class of Warrant or Right, Exercise Price of Warrants or Rights			$ 9.93		$ 9.93
Warrant Issued in May 2019 [Member]
Warrants and Rights Outstanding, Term	7 years	7 years		7 years			7 years
Class of Warrant Or Right Value of Securities Called By Warrants Or Rights	$ 100,000	$ 100,000
Class of Warrant or Right, Issued During Period		5,561
Warrant Issued in May 2019 [Member] | Maximum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 18.71	$ 17.98		$ 18.71			$ 18.71
Warrant Issued in June 2019 [Member]
Class of Warrant or Right, Issued During Period	5,345
Noncurrent Restricted Cash [Member[
Certificates of Deposit, at Carrying Value	$ 408,000			$ 408,000			$ 408,000		$ 408,000
Cash, Cash Equivalents and Restricted Cash [Member]
Certificates of Deposit, at Carrying Value									$ 71,000

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Note 9 - Fair Value Measurements - Fair Value, Assets and Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2019		Dec. 31, 2018
Total assets	$ 408		$ 479
Warrant liabilities	842		86
Total liabilities	842		86
Certificates of Deposit [Member]
Certificates of deposits	408	[1]	479	[2]
Fair Value, Inputs, Level 1 [Member]
Total assets	408		479
Warrant liabilities
Total liabilities
Fair Value, Inputs, Level 1 [Member] | Certificates of Deposit [Member]
Certificates of deposits	408	[1]	479	[2]
Fair Value, Inputs, Level 2 [Member]
Total assets
Warrant liabilities
Total liabilities
Fair Value, Inputs, Level 2 [Member] | Certificates of Deposit [Member]
Certificates of deposits		[1]		[2]
Fair Value, Inputs, Level 3 [Member]
Total assets
Warrant liabilities	842		86
Total liabilities	842		86
Fair Value, Inputs, Level 3 [Member] | Certificates of Deposit [Member]
Certificates of deposits		[1]		[2]

[1] $408,000 is included in restricted cash, long-term on our balance sheet as of June 30, 2019.

[2] $71,000 is included in cash and restricted cash and $408,000 is included in restricted cash, long term on our balance sheet as of December 31, 2018.

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Note 9 - Fair Value Measurements - Fair Value Measurements Using Significant Level III Inputs (Details) - Warrants [Member] - Fair Value, Inputs, Level 3 [Member] $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Balance	$ 86
Issuance of new warrant liability	631
Change in fair value of warrant liability	211
Reclassification of warrant liability	(86)
Balance	$ 842

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Note 9 - Fair Value Measurements - Fair Value Assumptions, Warrant Liabilities (Details)	Jun. 30, 2019 yr
Measurement Input, Price Volatility [Member] | Minimum [Member]
Expected price volatility (Year)	98
Measurement Input, Price Volatility [Member] | Maximum [Member]
Expected price volatility (Year)	100.2
Measurement Input, Expected Term [Member] | Minimum [Member]
Expected price volatility (Year)	0.067
Measurement Input, Expected Term [Member] | Maximum [Member]
Expected price volatility (Year)	0.07
Measurement Input, Risk Free Interest Rate [Member] | Minimum [Member]
Expected price volatility (Year)	0.017
Measurement Input, Risk Free Interest Rate [Member] | Maximum [Member]
Expected price volatility (Year)	0.023
Measurement Input, Expected Dividend Rate [Member]
Expected price volatility (Year)	0

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Note 10 - Variable Interest Entities - Summary of Amounts and Classification of Assets and Liabilities of the VIE in Our Consolidated Balance Sheets (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Cash and cash equivalents	$ 7,059	$ 3,162
Prepaid and other current assets	724	942
Total assets	16,060	6,323
Accounts payable	1,459	497
Total liabilities	28,215	15,288
Variable Interest Entity, Primary Beneficiary, Aggregated Disclosure [Member] | TIH [Member]
Cash and cash equivalents	418	45
Accounts receivable	324	94
Prepaid and other current assets	9	29
Total assets	751	168
Accounts payable	8	7
Accrued liabilities	40	14
Intercompany payable	710	147
Total liabilities	$ 758	$ 168