UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 X . Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2017

     . Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ___________ to ______________

Commission file number: 000-54600

PROLUNG, INC.

(FORMERLY FRESH MEDICAL LABORATORIES, INC.)

(Exact name of registrant as specified in its charter)

Delaware		20-1922768
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

757 East South Temple, Suite 150
Salt Lake City, Utah		84102
(Address of principal executive offices)		(Zip Code)

(801) 736–0729

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  X ..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 definition of “accelerated filer”, “large 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	X .
		Emerging growth company	X .

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 7(a)(2)(B) of the Securities Act.      .

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of May 19, 2017, the issuer had 30,418,194 shares of common stock, $0.001 par value, outstanding.

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PROLUNG, INC.

TABLE OF CONTENTS

	Part I – Financial Information
Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited), March 31, 2017 and December 31, 2016	3
	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March, 2017 and 2016	4
	Condensed Consolidated Statement of Changes in Shareholders’ Deficit (Unaudited) for the Three Months Ended March, 2017	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2017 and 2016	6
	Notes to the Unaudited Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4	Controls and Procedures	19
	Part II – Other Information
Item 1	Legal Proceedings	20
Item 1A	Risk Factors	20
Item 2	Unregistered Sales Of Equity Securities And Use Of Proceeds	20
Item 3	Defaults Upon Senior Securities	20
Item 4	Mine Safety Disclosures	20
Item 5	Other Information	20
Item 6	Exhibits	21
Signatures		21

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ITEM 1. FINACIAL INFORMATION

ProLung, Inc. and Subsidiary
(formerly Fresh Medical Laboratories, Inc.)
Condensed Consolidated Balance Sheets
(Unaudited)
					March 31,			December 31,
					2017			2016
		Assets
Current Assets
	Cash			$	1,549,023		$	28,922
	Accounts receivable, net of allowance for doubtful accounts of $194,467 and $194,467, respectively				-			-
	Prepaid expenses				16,561			8,831
Total Current Assets					1,565,584			37,753
Inventory, noncurrent					309,600			291,559
Property and equipment, net of accumulated depreciation					85,496			82,917
Intangible assets, net of accumulated amortization					163,348			165,738
Total Assets				$	2,124,028		$	577,967
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
	Accounts payable			$	143,428		$	358,477
	Accrued liabilities				168,668			264,698
	Related-party notes payable				-			105,000
	Current portion of long-term debt				-			32,000
Total Current Liabilities					312,096			760,175
Long-Term Liabilities
	Long-term debt, net of current portion				1,396,320			2,653,370
Total Long-Term Liabilities					1,396,320			2,653,370
Total Liabilities					1,708,416			3,413,545
Stockholders' Equity (Deficit):
	Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding				-			-
	Common stock, $0.001 par value; 40,000,000 shares authorized; 28,248,783 shares and 24,006,515 shares issued and outstanding, respectively				28,249			24,007
	Additional paid-in capital				17,435,176			13,226,048
	Accumulated deficit				(17,047,813)			(16,085,633)
Total Stockholders' Equity (Deficit)					415,612			(2,835,578)
Total Liabilities and Stockholders' Equity (Deficit)				$	2,124,028		$	577,967

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

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ProLung, Inc. and Subsidiary
(formerly Fresh Medical Laboratories, Inc.)
Condensed Consolidated Statements of Operations
(Unaudited)
					For the Three Months Ended March 31,
					2017			2016
Revenues:
	Revenue			$	-		$	-
	Total revenue				-			-
Cost of revenue					-			10,193
Gross margin					-			(10,193)
Operating expenses:
	Research and development expense				431,824			304,302
	Selling, general and administrative expense				480,452			421,884
	Total operating expenses				912,276			726,186
Loss from operations					(912,276)			(736,379)
Other expense:
	Interest expense, net				(49,904)			(71,721)
	Total other expense				(49,904)			(71,721)
	Net loss			$	(962,180)		$	(808,100)
	Basic and diluted loss per share			$	(0.04)		$	(0.04)
	Weighted-average common shares outstanding, basic and diluted				25,406,900			21,506,956

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

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ProLung, Inc. and Subsidiary
(formerly Fresh Medical Laboratories, Inc.)
Condensed Consolidated Statement of Changes In Stockholders’ Deficit
(Unaudited)
					Additional				Total
	Common Stock				Paid-In		Accumulated		Stockholders’
	Shares		Amount		Capital		Deficit		Deficit
Balance at January 1, 2017	24,006,515		$24,007		$13,226,048		$(16,085,633)		$(2,835,578)
Issuance of common stock upon conversion of debentures	1,752,274		1,752		1,137,226		-		1,138,978
Issuance of common stock, net of issuance costs	2,174,967		2,175		2,922,736		-		2,924,911
Issuance of common stock to placement agents	225,027		225		(225)		-		-
Issuance of common stock upon conversion of related-party notes payable	40,000		40		59,960		-		60,000
Issuance of common stock to consultants for services	50,000		50		54,950		-		55,000
Stock-based compensation	-		-		34,481		-		34,481
Net loss	-		-		-		(962,180)		(962,180)
Balance at March 31, 2017	28,248,783		$28,249		$17,435,176		$(17,047,813)		$415,612

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

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ProLung, Inc. and Subsidiary
(formerly Fresh Medical Laboratories, Inc.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
					For the Three Months Ended March 31,
					2017			2016
Cash flows from operating activities:
	Net loss			$	(962,180)		$	(808,100)
	Adjustments to reconcile net loss to net cash flows from operating activities:
		Depreciation and amortization			8,719			5,906
		Stock-based compensation			89,481			110,429
		Obsolete inventory			-			10,193
		Change in assets and liabilities:
		Inventory			(18,041)			(57,916)
		Prepaid expenses			(7,730)			4,734
		Accounts payable			(215,049)			1,385
		Accrued liabilities			(1,142)			47,192
Net cash flows from operating activities					(1,105,942)			(686,177)
Cash flows from investing activities:
	Payments for property, equipment, and intangible assets				(8,908)			-
Net cash flows from investing activities					(8,908)			-
Cash flows from financing activities:
	Issuance of common stock and warrants				3,262,451			463,450
	Payment of offering costs				(280,000)			-
	Payments on convertible debentures				(265,500)			-
	Proceeds from related party debt				-			30,000
	Payments on debt				(32,000)			-
	Payments on related party debt				(50,000)			(55,000)
Net cash flows from financing activities					2,634,951			438,450
Net increase (decrease) in cash					1,520,101			(247,727)
Cash at beginning of period					28,922			451,526
Cash at end of period				$	1,549,023		$	203,799
Supplemental disclosure of cash flow information:
	Cash paid for interest			$	94,399		$	24,671
	Cash paid for income taxes			$	-		$	-
Supplemental disclosure of non-cash investing and financing activities:
	Conversion of convertible debt and interest			$	1,138,978		$	175,070
	Related-party note and interest settled with common stock			$	60,000		$	-
	Commissions to placement agent			$	57,540		$	-
	Stock issued to placement agent			$	225		$	35

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

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ProLung, Inc. and Subsidiary

(formerly Fresh Medical Laboratories, Inc.)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies

Organization

ProLung, Inc. (formerly Fresh Medical Laboratories, Inc.) (the “Company”) is a Delaware corporation that was incorporated on November 22, 2004 and is doing business as “ProLungdx.” The Company’s headquarters are located in Salt Lake City, Utah. The Company’s business is the development, marketing, and sales of precision predictive analytical medical devices specializing in lung cancer. The Company’s principal activities are primarily developing markets for its products, securing strategic alliances and obtaining financing.

Principles of Consolidation

During the year ended December 31, 2012, the Company formed a wholly-owned subsidiary, Hilltop Acquisition Corporation, Inc., which has had no activity since its inception and is included in the accompanying condensed consolidated financial statements from the date of its formation.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by management in accordance with rules and regulations promulgated by the U.S. Securities and Exchange Commission and therefore certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for them to be presented fairly, with those adjustments consisting only of normal recurring adjustments. These interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements included in the Company’s annual report on Amendment No. 1 to the Annual Report on Form 10-K/A (the “Form 10-K”) for the year ended December 31, 2016. The results of operations for the three months ended March 31, 2017 may not be indicative of the results to be expected for the year ending December 31, 2017.

The Company has incurred losses for the past several years while pursuing the development of its primary predictive analytical medical device, and approval from the U.S. Food and Drug Administration (FDA) to market the device, while also developing markets outside the United States. The Company incurred net losses of $2.8 million in 2016 and 2015. Cash used in operating activities was $2.0 million and $2.6 million in 2016 and 2015, respectively. Historically, operations have been funded primarily through the sale of equity or debt securities. Should management continue to fund operations at similar levels, additional equity or debt securities would need to be sold, or other financing arrangements made.

The Company has the ability to maintain current levels of spending or reduce expenditures significantly if funding is not available. Additionally, should FDA approval be obtained, the Company could execute on an aggressive marketing plan that would require significant additional funding; however, this plan would not begin until funding is in place.

As discussed in Note 10, subsequent to March 31, 2017, the Company closed the Private Placement Memorandum dated December 28, 2015 and received subscriptions of an additional $2,942,208, net of offering costs, in exchange for selling 2,179,411 units comprised of one share of common stock and one warrant to purchase one share of common stock. As of the filing date of this report, the maximum offering amount of $5,250,000 was oversubscribed by approximately $3,000,000. On a fully diluted basis, the Company currently does not have enough authorized shares to cover all of the oversubscribed units. In the event the Company does not approve an increase in authorized shares, the Company may be required to return a portion of the cash received from the oversubscribed units to the investors.

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ProLung, Inc. and Subsidiary

(formerly Fresh Medical Laboratories, Inc.)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Basic and Diluted Loss Per Share

The Company computes basic loss per share by dividing net loss by the weighted-average number of common shares outstanding during the period. The Company computes diluted loss per share by dividing net loss by the sum of the weighted-average number of common shares outstanding and the weighted-average dilutive common share equivalents outstanding. The computation of diluted loss per share does not assume exercise or conversion of securities that would have an anti-dilutive effect. As of March 31, 2017 and 2016, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:

	For the Three Months Ended
	March 31,
	2017		2016
Warrants to purchase shares	6,846,488		1,423,211
Restricted common stock grants	872		152,483
Convertible debentures	-		3,045,192
Convertible notes	1,609,242		1,609,242

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (ASU 2016-02). ASU 2016-02 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. ASU 2016-02 will be effective for the Company’s fiscal year beginning January 1, 2019 on a modified retrospective basis and earlier adoption is permitted. Management is currently evaluating the impact of the pending adoption of ASU 2016-02 on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. This update does not have a material effect on the Company’s consolidated financial statements.

Note 2 – Inventory

Inventory principally consists of the cost of materials purchased and assembled during the years ended March 31, 2017 and 2016. The cost of inventory also includes the costs of direct labor for the assembly and certain indirect costs incurred in connection with purchasing of parts and the assembly of products. Inventory consists of the following:

			March 31,			December 31,
			2017			2016
Raw materials		$	74,594		$	69,264
Work in progress			30,627			31,185
Finished goods			204,379			191,110
Total inventory			309,600			291,559

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ProLung, Inc. and Subsidiary

(formerly Fresh Medical Laboratories, Inc.)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 3 – Accrued Liabilities

Accrued liabilities consisted of the following at March 31, 2017 and 2016:

			March 31,			December 31,
			2017			2016
Accrued interest		$	39,341		$	234,405
Accrued royalties			17,873			17,873
Accrued payroll and payroll taxes			18,024			12,420
Accrued clinical and legal expense			35,890			-
Accrued placement agent commissions			57,540			-
Total accrued liabilities		$	168,668		$	264,698

Note 4 –Short and Long-term Debt

During the three months ended March 31, 2017, the remaining balance of convertible debentures was converted or repaid as follows: the Company issued 1,752,274 shares of common stock for conversion of debenture principal of $991,550 and accrued interest payable of $147,428, and the Company repaid the remaining principal of $265,500 and accrued interest payable of $41,607.

During the quarter ended March 31, 2017, a related-party note for $55,000 was repaid with common stock and a third-party note for $32,000 was repaid with cash.

Short and Long-term debt is summarized as follows:

			March 31,			December 31,
			2017			2016
Convertible debentures; unsecured; interest at 8.00% per annum; due May 1, 2018		$	-		$	1,257,050
Convertible notes payable; unsecured; interest at 8.00% per annum; due November 6, 2020			1,206,931			1,206,931
Note payable secured by all the assets of the Company; interest at 15.00% per annum; due June 30, 2018			189,389			189,389
Unsecured Note payable; interest at 10.00% per annum; due on demand			-			32,000
Related-party note payable			-			105,000
Total long-term debt			1,396,320			2,790,370
Less: current portion			-			137,000
Long-term debt, net of current portion		$	1,396,320		$	2,653,370

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ProLung, Inc. and Subsidiary

(formerly Fresh Medical Laboratories, Inc.)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Related-Party Note Payable

As of March 31, 2017, $105,000 of principal of related-party notes was repaid along with interest and fees of $5,000. $55,000 of this principal and related interest was settled in common stock and $50,000 was settled in cash.  During the three months ended March 31, 2016, the Company issued a note to a related-party for $30,000 which was then paid back along with interest and fees of $599.

Note Payable to a Relative of an Executive Officer

At March 31, 2017 and March 31, 2016, the Company was obligated under the terms of a master note to an individual related to an executive officer of the Company in the amount of $189,389. The note is secured by all the assets of the Company, bears interest at 15% per annum, and requires the board of directors to retain the current management as long as the note is outstanding. The note was extended on June 30, 2016 and is now due September 30, 2018. The balance of accrued interest at March 31, 2017 and December 31, 2016 was $36,503 and $29,498, respectively. As part of the extension of the due date, the Company analyzed the note and determined that the change in due date did not qualify as a debt modification under generally accepted accounting principles and accordingly, moved the note to long-term.

Subsequent to March 31, 2017, the remaining balance of this note was converted or repaid as follows: The Company converted $100,000 of principal for 66,667 shares of common stock as well as 66,667 warrants to purchase stock at a price of $1.50, and the Company repaid the remaining principal of $89,389 and accrued interest payable of $39,071. Any and all security interest held by the noteholder was released to the Company. As of the date of this report, no shares or warrants have been issued for the conversion of this debt.

Note 5 – Preferred Stock

The stockholders of the Company have authorized 10,000,000 shares of preferred stock, par value $0.001 per share. The preferred stock may be issued in one or more series. The board of directors has the right to fix the number of shares of each series (within the total number of authorized shares of the preferred stock available for designation as a part of such series), and designate, in whole or part, the preferences, limitations and relative rights of each series of preferred stock. As of March 31, 2017 and 2016, the board of directors has not designated any series of preferred stock and there are no shares of preferred stock issued or outstanding.

Note 6 – Common Stock

Private Placement of Common Stock of the Company

Pursuant to a Private Placement Memorandum dated December 28, 2015, the Company offered a minimum of 333,333 units, comprised of one share of common stock and one warrant to purchase one share of common stock at $1.50, or a maximum of 3,500,000 units at a purchase price of $1.50 per unit, for a minimum offering amount of $500,000 and a maximum offering amount of $5,250,000. The units were offered to a limited number of prospective investors who qualify as “accredited investors.” The units were offered on a “best efforts, all-or-none” basis for the first 333,333 units subscribed for and on a “best efforts” basis thereafter.

The Company engaged two separate placement agents during different time periods in connection with the offering, which placement agents were entitled to a cash commission of ten percent of the issuance price of the common stock sold in the offering, and one share of common stock of the Company for each ten shares of the Company’s common stock sold in the offering.  Pursuant to these agreements, the Company had incurred commission fees to the placement agents of $337,540 together with 225,027 shares of common stock as of March 31, 2017. As of the date of this report, all but $57,540 of the placement agent commissions fees have been paid. For the three months ended March 31, 2017, the Company received subscriptions for $2,982,451, net of offering costs that had been paid in cash.

Subsequent to March 31, 2017, the Company received subscriptions for an additional $2,942,208, net of offering costs, by selling 2,179,411 units comprised of one share of common stock and one warrant to purchase one share of common stock, at the price of $1.50.

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ProLung, Inc. and Subsidiary

(formerly Fresh Medical Laboratories, Inc.)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of the filing date of this report, the maximum offering amount of $5,250,000 was oversubscribed by approximately $3,000,000. In the event the Company does not approve an increase in authorized shares, the Company may be required to return a portion of the cash received from investors.

Common Stock Issued for Conversion of Debt

During the three months ended March 31, 2017, the remaining balance of convertible debentures was converted or repaid as follows: the Company issued 1,752,274 shares of common stock for conversion of debenture principal of $991,550 and accrued interest payable of $147,428, and the Company repaid the remaining principal of $265,500 and accrued interest payable of $41,607.

Common Stock Issued for Services

The Company recognized stock-based compensation related to shares issued to directors, officers and consultants for the three months ended March 31, 2017 and 2016 of $55,000 and $50,594, respectively.

A summary of the status of the Company’s non-vested shares as of March 31, 2017 and changes during the three months then ended, is presented below:

		Restricted Common Stock		Weighted Average Common Stock
		Grants		Price
Balance at December 31, 2016		872		$0.50
Awarded		-		-
Vested		-		-
Balance at March 31, 2017		872		$0.50

Total stock-based compensation expense from all sources for the three months ended March 31, 2017 and 2016, including stock-based compensation for the warrant discussed below in Note 7, has been included in the condensed consolidated statements of operations as follows:

			For the Three Months Ended March 31,
			2017			2016
Research and development expense		$	-		$	73,931
Selling, general and administrative expense			89,481			36,498
Total share-based compensation		$	89,481		$	110,429

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ProLung, Inc. and Subsidiary

(formerly Fresh Medical Laboratories, Inc.)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7 – Common Stock Warrants

The Company has issued warrants to purchase its common stock for payment of consulting services, in connection with the extension of a note payable, as incentives to investors, and for cash. The fair value of warrants issued for consulting services is recognized as consulting expense at the date the warrants become exercisable. The Company values non-vested warrants based on the fair value of the stock on the date of issuance and records compensation over the requisite service period which is usually the vesting period. The non-vested shares are included in the total outstanding shares recorded in the condensed consolidated financial statements. The fair value of warrants was estimated using the Black-Scholes option pricing model. The fair value of the warrant shares that vested during the three months ended March 31, 2017 was $0.70 per share. The weighted-average assumptions used for the warrant shares that vested during the three months ended March 31, 2017 were risk-free interest rate of 1.61%, expected volatility of 144%, expected life of 3.2 years, and expected dividend yield of zero. The fair value of the warrant shares that vested during the year ended December 31, 2016 was $0.76 per share. The weighted-average assumptions used for the warrant shares that vested during the year ended December 31, 2016 were risk-free interest rate of 1.33%, expected volatility of 124%, expected life of 4.5 years, and expected dividend yield of zero. The Company recognized $34,481 and $59,835 as share-based compensation and additional paid-in capital related to the vesting of warrant shares for the three months ended March 31, 2017 and 2016 respectively.

A summary of warrant activity for the three months ended March 31, 2017 is presented below:

						Weighted		Aggregate
				Weighted		Average		Intrinsic
		Shares		Average		Remaining		Value of
		Under		Exercise		Contractual		Vested
		Warrants		Price		Life		Warrants
Outstanding at December 31, 2016		3,447,386		$0.88		4.2 years		$546,333
Issued		3,399,102		1.19		2.5 years
Exercised		-		-
Expired		-		-
Outstanding at March 31, 2017		6,846,488		$1.03		3.2 years		$939,258

The intrinsic value at March 31, 2017 is calculated at $0.89 per share less the exercise price, based on the management’s latest estimate of the fair value of the shares of common stock, which is the latest price the Company issued shares of common stock for cash.

Note 8 – Commitments and Contingencies

Consulting Representation Agreement

In February 2017, the Company entered into a consulting agreement with Dr. Robin Smith, who is a director of the Company. Under the agreement, Dr. Smith has agreed to provide advisory services related to the Company’s clinical assets, capital markets, public company related issues and other matters as agreed to by the parties. The agreement has a term of one year, and Dr. Smith is to receive compensation of $120,000.

In February 2017, the Company entered into a consulting agreement with Cynthia Tsai. Under the agreement, Ms. Tsai has agreed to provide advisory services related to the Company’s public company related issues and other matters as agreed to by the parties. The agreement has a term of one year, and Ms. Tsai is to receive compensation of $50,000.

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ProLung, Inc. and Subsidiary

(formerly Fresh Medical Laboratories, Inc.)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Lease Agreement

The Company leases office space under an agreement that expires in 2018, with an option to renew with a 3% annual rent escalation. Monthly rental payments as of December 31, 2016 are $3,940 per month.

Year ending March 31,
	2017	$	35,460
	2018		27,580
	Thereafter		-
	Total	$	63,040

Lease expense charged to operations for the three months ended March 31, 2017 and 2016 was $11,819 and $15,679, respectively.

License Agreement

The Company has a license agreement with a party related through a shareholder and former member of the board of directors. Under the agreement, the Company has the right to the exclusive use of certain patents pending and related technology (the “technology”) in its medical devices and other products for an indefinite term. In return, the Company agreed to incur a minimum of $4,750,000 in development costs by the year 2014 to develop and market its products worldwide based on a graduated schedule and to make royalty payments based on a percentage of the aggregate worldwide net sales (as defined in the agreement) of its medical device and other products that utilize the technology. The minimum expenditure of $4,750,000 was achieved. At March 31, 2017 and 2016, accrued royalties under this license agreement total $17,873, respectively.

Note 9 – Other Related Party Transactions

As of March 31, 2017, the Company has consulting agreements in place with two of the members of its board of directors. The directors provide marketing and medical advisory services. The consulting agreements may be terminated by either the Company or by the consultant at any time and for any reason. During the three months ended March 31, 2017, the directors were paid a total of $80,681 under these agreements.

 

Note 10 – Subsequent Events

Subsequent to March 31, 2017, the remaining balance of the note payable to a relative of an executive officer was converted or repaid as follows: The Company converted $100,000 of principal with 66,667 shares of common stock as well as 66,667 warrants to purchase stock at a price of $1.50, and repaid the remaining principal of $89,389 and accrued interest payable of $39,071. Any and all security interest held by the noteholder was released to the Company.

Subsequent to March 31, 2017, the Company closed its $5.2 million Private Placement Memorandum dated December 28, 2015 and received subscriptions for an additional $2,942,208, net of offering costs, by selling 2,179,411 units comprised of one share of common stock and one warrant to purchase one share of common stock, for a price of $1.50 per unit. Pursuant to the placement agent agreement, the Company has agreed to pay the placement agents a cash commission of ten percent of the issuance price of the common stock sold in the Company’s private placement offering of common stock, and one share of common stock of the Company for each ten shares of the Company’s common stock sold in the offering.

The Company evaluated all subsequent events that occurred after the balance sheet date through May 19, 2017, the date its financial statements were available to be issued, and concluded there were no additional events or transactions occurring during this period that required recognition in the financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the financial statements and related notes that appear elsewhere in this Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Certain statements in this Form 10-Q constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; receipt or denial of marketing approval from the FDA and similar agencies; receipt or denial of reimbursement from government agencies and insurance companies; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words "believe", "expect", "anticipate", “will”, "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

Overview

In this Report, ProLung, Inc. (formerly Fresh Medical Laboratories, Inc.) and its consolidated subsidiary are referred to as “ProLung” in addition to as the “Company” versions of “we” or “us.” We have registered trademarks under ProLungdx®, Fresh Medical Laboratories®, ProLung®, EPN Scan®, Electro Pulmonary Nodule Scanner® and EPN Scanner®. Any other trademarks and service marks used in this Report are the property of their respective holders.

We are a medical device company that is developing, testing and commercializing its non-invasive lung cancer risk stratification test (the “Electro Pulmonary Nodule Scan,” “ProLung Test,” or “EPN Scan,”). The EPN Scan was developed to be adjunctive to Computed Tomography (“CT”), or what is commonly referred to as a “CT scan” of the chest. The EPN Scan assists in evaluating the risk associated with a CT finding in the lung that is suspicious for cancer.

We believe the EPN Scan is the only predictive analytic focused on the lung. ProLung’s bioconductance technology is the first accurate and reliable “mass averaging” bioconductance device that has shown utility to evaluate the risk of lung cancer in patients with lesions of the lung in well-controlled clinical trials. The novel “mass averaging” bioconductance technology of the Company refers to the simultaneous consideration of multiple measurement pathways.

The EPN Scan will be introduced to the market like a standard predictive analytic test without the need for transmission of a physical sample or specimen. Instead, the EPN Scan acquires precision bioconductance measurements by means of a patented Probe and disposable diaphoretic electrodes14 placed on the back and arms. The data containing precision measurements is processed by a proprietary classifier algorithm and a report is electronically generated that may be used by the physician in addition to other risk factors such as nodule size, family history, gender, histology and other risk stratification information to evaluate patients with suspicious masses or lesions identified by CT scan. The EPN Scan is immediate, pain-free, non-invasive, and non-radiating. It requires little patient preparation and can be completed in less than 20 minutes by a proficient technician.

When patients at high risk of lung cancer have suspicious lung findings after CT evaluation, clarifying the risk of the disease, or risk stratification, has the potential to reduce the cost, anxiety, and/or time associated with the inaccurate and/or delayed diagnosis of lung cancer. Risk stratification may also play a role in identifying those patients who need to modulate the extent and frequency of follow-up. On December 31, 2013, the U.S. Preventative Services Task Force recommended CT screening guidelines for lung cancer in adults aged 55 to 80 who have a 30 pack-year history and currently smoke or have quit smoking in the past 15 years. On February 5, 2016, Medicare began to pay for lung cancer screening. The guideline and its related reimbursement by Medicare are expected to increase the number of individuals identified with suspicious findings in the lung that may be candidates for the EPN Scan. The reimbursement also expected to increase the development of lung cancer centers for interdisciplinary review of screening results. We believe that these changes may increase the number of patients seeking further risk assessment from the administrations of tests like the EPN Scan.

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On May 10, 2013, the EPN Scan received the “CE” mark in Europe for its Electro Pulmonary Nodule Scanner. This marking is regulatory approval that clears the marketing and sales of the EPN Scan in the European Economic Area and European Free Trade Association Countries representing 509 million individuals and 31 member states. The new screening guidelines and Medicare coverage recently announced in the U.S. for lung cancer screening are not available in Europe.

In the United States, ProLung submitted an application for marketing approval under Section 510(k) from the United States Food and Drug Administration, or FDA. In February, 2015, we received a letter from the FDA identifying a number of issues, questions, and concerns in our application, including the risk classification of the test, the study design and study analysis along with what we consider other less important questions. In subsequent meetings with the FDA, ProLung succeeded in reducing the number of concerns and was asked to complete an additional study. We must complete the requested clinical research and resubmit the application with the results of the requested study and resolve or negotiate the removal of the remaining issues previously identified by the FDA as well as address possible issues to be identified in the future.

From inception to date, we have generated limited revenues. During the year ended December 31, 2014, we commenced selling the EPN Scan to customers in the European Union. We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and will be subject to reduced public company reporting requirements.

We plan to continue the development and deployment of medical devices and procedures specializing in the immediate, non-invasive evaluation of indeterminate masses in the lung seen in CT and radiography. We anticipate the need to fund expansion and market growth by raising capital over the next two years. The amount of capital needed could change based on the opportunities available to us and the ability to expand our markets.

Results of Operations

The following discussion is included to describe our consolidated financial position and results of operations. The consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.

 

Revenues and Cost of Revenue. During the three months ended March 31, 2017 and March 31, 2016 we had no revenues. For the three months ended March 31, 2017, there was no cost of revenues. For the three months ended March 31, 2016, packaging valued at $10,193 was written off due to our new branding efforts and is reported as cost of revenues in the accompanying statement of operations.

Operating Expenses. Total operating expenses for selling, general, and administrative expense and for research and development expense for the three months ended March 31, 2017 were $912,276 compared to the total operating expenses for the three months ended March 31, 2016, of $726,186, representing an increase of $186,090. This was due to an increase of $86,743 in personnel related expenses, $65,175 in consulting fees, and $60,878 in travel expenses related to the ongoing clinical trials and our preparation for a commercial launch of the EPN Scan in the United States upon FDA approval. These costs were partially offset by a decrease in supplies of $15,513 and other operating expenses of $11,193.

Other Expense. Other expense for the three months ended March 31, 2017 was $49,904 as compared to $71,721 for the three months ended March 31, 2016 representing a decrease of $21,817. This was mostly due to the decrease in interest expense associated with several Convertible Debentures that were converted during the three months ended March 31, 2017.

Liquidity and Capital Resources

The following is a summary of our key liquidity measures at March 31, 2017 and 2016:

			March 31,
			2017			2016
Cash		$	1,549,023		$	203,799
Current assets		$	1,565,584		$	264,759
Current liabilities			(312,096)			(461,928)
Working capital (deficit)		$	1,253,488		$	(197,169)

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We need additional capital to continue our operations. Subsequent to March 31, 2017, we completed a financing in which we raised an additional $2,942,208, net of offering costs. We expect the proceeds of such financing to be sufficient to satisfy our capital requirements at least through May 19, 2018. If we obtain FDA clearance to market the EPN Scan in the U.S., we expect that our need for capital will expand. We estimate the cash outflows necessary for the marketing launch, including the ramp up to deploy sales and distribution, will be approximately $8,000,000 over an 18 to 24 month period. We expect that in order to raise such capital we will be required to issue equity securities, debt securities and rights to acquire equity securities. We have no existing commitment to provide capital, and given our early stage of development, we may be unable to raise sufficient capital when needed and, in any case, will likely be required to pay a high price for capital.

Our future capital requirements and adequacy of available funds will depend on many factors including:

·

our ability to obtain regulatory approval in markets outside of Europe;

·

our ability to successfully commercialize our EPN Scan, EPN Scanner and related products and the market acceptance of these products;

·

the pace of our orders, if any, and the pricing and payment terms of those orders;

·

our ability to establish and maintain collaborative arrangements with corporate partners for the development and commercialization of certain product opportunities;

·

the cost of manufacturing and production scale-up;

·

our financial results;

·

the cost and availability of capital generally; and

·

the occurrence of unexpected adverse expenses or events.

Long-Term Debt

Since our inception, the principal source of our financing has come from the issuance of equity securities and from debt financing. As of March 31, 2017, our outstanding debt financing includes the following borrowing arrangements.

Note Payable to a Relative of an Executive Officer

At March 31, 2017, we were obligated under the terms of a master note agreement to an individual related to an executive officer of the Company in the amount of $189,389. The note is secured by all of our assets, bears interest at 15% per annum, and requires the board of directors to retain the current management as long as the note is outstanding. The note was extended on June 30, 2016 and is now due September 30, 2018. The balance of accrued interest on this note at March 31, 2017 was $36,503.

Subsequent to March 31, 2017, the remaining balance of the note payable to a relative of an executive officer was converted or repaid as follows: The Company issued 66,667 shares of common stock as well as 66,667 warrants to purchase stock at a price of $1.50 for conversion of debt principal of $100,000, and the Company repaid the remaining principal of $89,389 and accrued interest payable of $39,071. Any and all security interest held by the noteholder was released to the Company.

Convertible Debentures

In February 2015, the Company commenced an offering of Convertible Debentures in an aggregate amount of up to $2,000,000. As of April 30, 2015, the Company had received subscriptions with respect to $2,000,000 in Convertible Debentures. The Convertible Debentures were issued in April 2015, are unsecured, and bear interest at the rate of 8% per annum commencing on the issuance date. Principal and accrued interest are due on the maturity date, which is May 1, 2018. The holder of the Convertible Debenture is entitled, at its option, to convert all or any portion of the outstanding principal of the Convertible Debenture into shares of the Company’s common stock at a conversion price of $0.65 per share. Interest accruing from the date of issuance to the conversion date shall be paid on the maturity date. The Company evaluated the Convertible Debentures for consideration of any beneficial conversion features as required under generally accepted accounting principles. The Company determined that there was no beneficial conversion feature.

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The Company engaged two separate placement agents at different times in connection with a private offering. Additionally, each placement agent agreement provides for potential compensation to the placement agent in connection with the future conversion of the Convertible Debentures into shares of common stock of the Company. Upon the conversion of the Convertible Debentures, the Company is required to issue the respective placement agent warrants to acquire shares of the Company’s common stock at an exercise price of $0.65 per share. On a quarterly basis, the placement agent is to be issued a warrant to purchase one share of common stock for each $0.81 of the principal amount of the Convertible Debentures converted into common stock during the quarter, with the maximum number of shares issuable under the placement agreements combined limited to 2,463,460 shares of the Company’s common stock. The term of the warrants shall be for a period of 36 months from the date of issuance.

As of March 31, 2017, the remaining balance of convertible debentures was converted or repaid as follows: the Company issued 1,752,274 shares of common stock for conversion of debenture principal of $991,550 and accrued interest payable of $147,428, and repaid the remaining principal of $265,500 and accrued interest payable of $41,607.

Convertible Notes Payable

On November 6, 2015, the Company issued two convertible promissory notes (the “Convertible Notes”) in the aggregate principal amount of $1,206,931 to two investment entities controlled by a single family. In the same transaction, the investment entities purchased an aggregate of 66,666 shares of common stock for a purchase price of $50,000, or $0.75 per share. The Convertible Notes are unsecured and accrue interest at the rate of 8% per annum with interest payable on the last day of each calendar quarter. The principal amount under the Convertible Notes is due on the five-year anniversary of the issue date. The Convertible Notes are convertible at any time prior to maturity at the option of the holders at a conversion rate of $0.75 per share. If the Company’s common stock commences trading and closes at a price of $3.50 per share for five consecutive trading days, the principal amount under the Convertible Notes automatically converts into common stock at the rate of $0.75 per share. Proceeds from the Convertible Notes were to be used for the purpose of retirement of long-term debt. The Company evaluated the Convertible Notes for consideration of any beneficial conversion features as required under generally accepted accounting principles. The Company determined that there was no beneficial conversion feature.

Cash provided by (used in) operating, investing and financing activities

Cash provided by (used in) operating, investing and financing activities for the three months ended March 31, 2017 and 2016 is as follows:

			March 31,
			2017			2016
Operating activities		$	(1,105,942)		$	(686,177)
Investing activities			(8,908)			-
Financing activities			2,634,951			438,450
Net increase (decrease) in cash		$	1,520,101		$	(247,727)

Operating Activities

For the three months ended March 31, 2017, the differences between our net loss and net cash used in operating activities were due to net non-cash charges totaling $98,200 included in our net loss for stock-based compensation and depreciation. For the three months ended March 31, 2016, the differences between our net loss and net cash used in operating activities were due to net non-cash charges totaling $126,528 included in our net loss for stock-based compensation, depreciation, and loss on inventory obsolescence due to rebranding efforts.

Investing Activities

During the three months ended March 31, 2017, the Company purchased fixed assets for the office and production facilities of $8,908. During the three months ended March 31, 2016, the Company had no activities classified as investing activities.

Financing Activities

During the three months ended March 31, 2017, cash flows from financing activities totaled $2,634,951. These cash flows were related to proceeds of $2,982,451, net of offering costs, received from the $5.2 Million Private Placement Memorandum during the three months ended March 31, 2017. This was partially offset by payments totaling $265,500, $50,000, and $32,000 applied to debenture, third-party, and related-party debts respectively.

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Critical Accounting Policies and Estimates

 

The Company’s accounting policies are more fully described in Note 1 of the consolidated financial statements.

 

Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The allowance for doubtful accounts is particularly susceptible to change in the near term.

Revenue Recognition – Revenue is recognized by the Company when a binding sales or service agreement exists between the parties, services have been rendered, the price for the services is fixed or determinable, collection is reasonably assured, and the Company has no significant obligations remaining with respect to the arrangement.

Trade Receivables and Credit Policies – Accounts receivable are recorded at the invoiced amount, with foreign currencies reflected in U.S. dollars (based on the exchange rate on the date of sale and adjusted to current exchange rates at the end of each reporting period), and do not bear interest. The Company uses an allowance for doubtful accounts to reflect the Company’s best estimate of the amount of probable credit losses in accounts receivable. Account balances will be charged off against the allowance when the account receivable is considered uncollectible. The allowance for doubtful accounts is an estimate that is particularly susceptible to change in the near term.

Inventory – Inventory is valued at the lower of cost or market value, with cost determined based on the first-in-first-out method. Management evaluates inventory for obsolescence based on expectations about future demand and marketability of products, and if necessary, reduces inventory to the lower of cost or market through the use of on inventory valuation account for obsolescence. The estimated cost of inventory not expected to be converted to cash within one year is reflected as “Inventory, noncurrent” in the consolidated balance sheet.

Long-lived Assets – Long-lived assets, including property and equipment, and intangible assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. If this comparison indicates that there is an impairment, the amount of the impairment is calculated based on fair value.

Stock-based Compensation – The Company measures the cost of employee and consulting services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The awards issued are valued using a fair value-based measurement method. The resulting cost is recognized over the period during which an employee or consultant is required to provide services in exchange for the award, usually the vesting period.

Emerging Growth Company – We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Although we have not delayed the adoption of any accounting standards, we may choose to take advantage of the extended transition period for complying with new or revised accounting standards in the future.

Off Balance Sheet Arrangements

 

The Company has not had any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable to the Company because the Company is a smaller reporting company.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended, (“the Exchange Act”)).  Disclosure controls and procedures are controls and other procedures designed to reasonably assure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that this information is accumulated and communicated to our management, including the Principal Financial Officer and the Principal Officer, to allow timely decisions regarding required disclosure.

Based on this evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2017, our disclosure controls and procedures were not effective, at a reasonable assurance level, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and is (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure primarily as a result of the lack of segregation of duties.

In order to mitigate these material weaknesses to the fullest extent possible, all financial reports are reviewed by the Chief Executive Officer and Principal Financial Officer. In addition, we engage a third-party accounting firm to provide additional expertise in accounting for non-routine or complex transactions. Furthermore, regular meetings are held with the Board of Directors. If at any time we determine a new control can be implemented to mitigate these risks at a reasonable cost, it will be implemented as soon as possible.

To further strengthen our internal controls, subsequent to year end, the Company hired an experienced controller to take over all day to day accounting functions. This individual has 13 years of accounting experience of which three years are as a controller for a publicly traded medical device company. Additionally, the Company hired a senior accountant to further leverage and strengthen the new controller position.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to Commission rules that permit the Company to provide only management’s report in this annual report.

This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred in the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We know of no existing or pending legal proceedings against us, nor are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our directors, officers or any of their respective affiliates, or any beneficial stockholder is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS

We are a smaller reporting company and, as a result, are not required to provide the information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Subsequent to March 31, 2017, the Company offered and received subscriptions for 2,029,411 units, comprised of one share of Common Stock and one warrant to purchase one share of Common Stock, for a purchase price of $1.50 per unit, $3,269,120 in the aggregate.

The offer and sale of such shares of common stock and warrants to purchase common stock is being effected in reliance upon the exemptions for sales of securities not involving a public offering, as set forth in Section 4(a)(2) of the Securities Act and as set forth in Rule 506(b) under the Securities Act, based upon the following: (a) each investor has confirmed to us that the investor was an “accredited investor,” as defined in Rule 501 promulgated under the Securities Act and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there has been no public offering or general solicitation with respect to each offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) the investors acknowledged that all securities being purchased were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; and (e) a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act; and (f) a Form D has been filed with respect to the offering.

On or about February 16, 2017, the Company issued 30,000 shares of common stock to a director under a consulting agreement. The offer and sale of such shares of common stock is being effected in reliance upon the exemptions for sales of securities not involving a public offering, as set forth in Section 4(a)(2) of the Securities Act based upon the factors identified above (other than the filing of a Form D).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On March 8, 2017, the Company entered into a Placement Agent Agreement with Weild Capital, LLC.  Pursuant to the agreement, the Company has agreed to pay the placement agents a cash commission of ten percent of the issuance price of the common stock sold in the Company’s $5.5 million offering of common stock, and one share of common stock of the Company for each ten shares of the Company’s common stock sold in the offering. In addition, the Company agreed to issue to the placement agent warrants to acquire shares of the Company’s common stock at an exercise price of $0.65 per share for each $0.81 of the principal amount of the Convertible Debentures converted into common stock.

In February 2017, the Company entered into a Consulting Agreement with Robin Smith, a director of the Company. Under the agreement, Dr. Smith is providing certain business and financial services in exchange for compensation of $120,000 per year. In addition, in connection with her joining the Board of Directors, she was promised a grant of 30,000 shares of common stock and options to purchase 70,000 shares of common stock.

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ITEM 6. EXHIBITS

* Filed herewith

(1)

Incorporated by reference with Form 10 filed February 10, 2012, File No. 12750426.

(2)

Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on December 9, 2014.

(3)

Incorporated by reference to our Current Report on Form 8-K filed on April 6, 2017.

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.

		FRESH MEDICAL LABORATORIES, Inc.
Date: May 22, 2017		By: /s/ Steven C. Eror
		Steven C. Eror,
		Chief Executive Officer and President (Principal Executive Officer)
Date: May 22, 2017		By: /s/ Aaron Stout
		Aaron Stout,
		Chief Accounting Officer
		(Principal Financial Officer)

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