See Notes to Unaudited Consolidated Financial Statements.

See Notes to Unaudited Consolidated Financial Statements.

We are an emerging leader in the field ofenabling precision medicine enablingin oncology by providing multi-disciplinary diagnostic and data solutions, facilitating individualized therapies in the field of oncology through our diagnostic products andtests, services and molecular markers. We develop, commercialize and provide molecular- and biomarker-based tests and services, including proprietary preclinical oncology and immuno-oncology services, that enable biotech and pharmaceutical companies engaged in oncology and immuno-oncology trials to better select candidate populations and reduce adverse drug reactions by providing information regarding genomic and molecular factors influencing subject responses to therapeutics. Through our clinical services, we enable physicians to personalize the clinical management of each individual patient by providing genomic information to better diagnose, monitor and inform cancer treatment and that enable biotech and pharmaceutical companies engaged in oncology trials to better select candidate populations and reduce adverse drug reactions by providing information regarding genomic factors influencing subject responses to therapeutics.treatment. We have a comprehensive, disease-focused oncology testing portfolio.portfolio, and extensive set of anti-tumor referenced data based on predictive xenograft and syngeneic tumor models. Our tests and techniques target a wide range of cancers,indications, covering nineall ten of the top ten cancers in prevalence in the United States, with additional unique capabilities offered by our FDA-cleared Tissue of Origin® test for identifying difficult to diagnose tumor types or poorly differentiated metastatic disease. Following the acquisition of vivoPharm, Pty Ltd. (“vivoPharm”), as discussed in more detail below, we provide contract research services, focused primarily on unique specialized studies to guide drug discovery and development programs in the oncology and immune-oncologyimmuno-oncology fields.

We were incorporated in the State of Delaware on April 8, 1999 and currently have offices and state-of-the-art laboratories located in California, New Jersey, North Carolina, Pennsylvania, Shanghai (China), Victoria (Australia) and Hyderabad (India).Australia. Our laboratories comply with the highest regulatory standards as appropriate for the services they deliver including CLIA, CAP, and NY State, California State and NABL (India).State. Our services are built on a foundation of world-class scientific knowledge and intellectual property in solid and blood-borne cancers, as well as strong academic relationships with major cancer centers such as Memorial Sloan-Kettering, Mayo Clinic, and the National Cancer Institute. We offer preclinical services such as predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology relevant tumor models in our Hershey PA facility, and a leader in the field of immuno-oncology preclinical services in the United States. This service is supplemented with GLP toxicology and extended bioanalytical services in our Australian based facility in Bundoora VIC.

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions for interim reporting as prescribed by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2016,2018, filed with the Securities and Exchange Commission on March 23, 2017.April 16, 2019. The consolidated balance sheet as of December 31, 2016,2018, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP. Interim financial results are not necessarily indicative of the results that may be expected for any future interim period or for the year ending December 31, 2017.

The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives requiring separate recognition in the three months ended September 30, 2017, we startedCompany’s financial statements. The result of this accounting for our foreign currency translationtreatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability and the change in fair value is recorded in other comprehensive income (loss). Assets and(expense) in the consolidated results of operations. In circumstances where there are multiple embedded instruments that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments should be recorded as liabilities recorded in foreign currencies are translatedor as equity, is reassessed at the exchangeend of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within twelve months of the balance sheet date.

On January 16, 2019, we entered into forbearance agreements with both Partners for Growth IV, L.P. (“PFG”) and Silicon Valley Bank (“SVB”) that among other things, (i) required us to comply with certain milestones in connection with a potential strategic transaction satisfactory to PFG and SVB with an anticipated closing date of on or before April 15, 2019 (the “Milestones”), and (ii) provided for PFG and SVB’s forbearance of their respective rights and remedies resulting from existing and stated potential events of default under the $6.0 million term note (“PFG Term Note”) and SVB asset-based line of credit (“ABL”) until the earlier of (a) the occurrence of an additional event of default or (b) February 15, 2019; provided such date was to automatically extend to (1) February 28, 2019 and then to (2) April 15, 2019 so long as we were in compliance with the Milestones required as of such dates. In addition, the ABL interest rate was increased to 2.25% over the Wall Street Journal prime rate, and the maturity date was extended until April 15, 2019. While the expired forbearance agreements with PFG and SVB acknowledged that we were and anticipated that we would be in violation of certain financial and other covenants of the ABL and the PFG Term Note as of December 31, 2018, January 31, 2019, February 28, 2019 and March 31, 2019, the ABL is currently past its maturity date. We are in discussions with SVB and PFG about possible extensions of the forbearance agreements and of the maturity of the ABL as part of the overall strategic process.

At September 30, 2017,March 31, 2019, our cash position and history of losses required management to assesassess our ability to continue operating as a going concern, according to FASB Accounting Standards Update No. 2014-15,ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). Management evaluated

Concern. The Company does not have sufficient cash at March 31, 2019 to fund normal operations beyond the historynext three months from the date of this report. In addition, while the expired forbearance agreements with PFG and operational losses to have a material effect on ourSVB acknowledged that we were and anticipated that we would be in violation of certain financial and other covenants of the ABL and the PFG Term Note as of December 31, 2018, January 31, 2019, February 28, 2019 and March 31, 2019, the ABL is currently past its maturity date. We are in discussions with SVB and PFG about possible extensions of the forbearance agreements and of the maturity of the ABL as part of the overall strategic process. The Company’s ability to continue as a going concern unless we take actionsis dependent on the Company’s ability to alleviate those conditions. Our primary sourcesextend the forbearance agreements and the term of liquidity have been funds generated from ourthe ABL, raise additional equity or debt financings and equity financings. We have reduced, and plancapital or spin-off non-core assets to raise additional cash. These factors raise substantial doubt about the Company's ability to continue reducing, ouras a going concern.

Net cash used in operating expenses,activities was $4.5 million and expect to grow our revenue in 2017$4.5 million for the three months ended March 31, 2019 and beyond,2018, respectively, and have also increased our cash collections from our customers and third-party payors and plan to continue to improve our cash collection results.

The Company currently requires a significant amount of additional capital to fund the Company's operations for at least the next twelve months after filing this quarterly report on Form 10-Q.

The estimated allocation of the purchase price as of August 15, 2017 consists of the following (in thousands):

Revenue by service type for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 is comprised of the following (in thousands): 

Accounts receivable by service type at September 30, 2017March 31, 2019 and December 31, 20162018 consists of the following (in thousands): 

Revenue for Biopharma Services are customized solutions for patient stratificationproviding information regarding genomic and treatment selection through an extensive suite of DNA-based testing services.molecular factors influencing subject responses to therapeutics. Biopharma Services are billed to pharmaceutical and biotechnology companies. Clinical Services are tests performed to provide information on diagnosis prognosis and theranosis of cancers to guide patient management. TheseClinical Services tests can be billed to Medicare, another third party insurer or the referring community hospital or other healthcare facility.

facility, or directly to patients. Discovery Services are services that provide the tools and testing methods for companies and researchers seeking to identify new DNA-based biomarkers for disease. The breakdown of our Clinical Services revenue (as a percent of total revenue) is as follows:

The top five test ordering sites duringServices offered under the nine months ended September 30, 2017Biopharma and 2016 accountedDiscovery Services frequently take time to complete under their respective contacts. These times vary depending on specific contract arrangements including the length of the study and how samples are delivered to us for processing. In the case of Clinical Services and Discovery Services, the duration of performance obligations is less than one year. As of March 31, 2019, the Company had approximately 40% and 31% of our testing volumes, respectively. During$36.8 million in remaining performance obligations in the nine months ended September 30, 2017, there was one biopharmaceutical company which accounted for approximately 11% of our total revenue. DuringBiopharma Services area. We expect to recognize the nine months ended September 30, 2016, there was one biopharmaceutical company which accounted for approximately 10% of our total revenue.remaining performance obligations over the next two years.

For purposes of this calculation, stock warrants, outstanding stock options, convertible debt and unvested restricted shares are considered common stock equivalents using the treasury stock method, and are the only such equivalents outstanding.

The following table summarizes equivalent units outstanding that were excluded from the earnings per share calculation because their effects were anti-dilutive (in thousands):

On March 22, 2017, we refinanced our debt with Silicon Valley Bank (“SVB”), by repaying the outstanding term loan (“SVB Term Note”), which was scheduled to mature in April 2019, and entered into a new two year asset-based revolving line of

On July 17, 2018, the Company entered into the Convertible Note, pursuant to which the Company issued a convertible promissory note to an institutional accredited investor in the initial principal amount of $2,625,000. The Company received consideration of $2,500,000, reflecting an original issue discount of $100,000, a beneficial conversion feature discount of approximately $328,000 and expenses payable by the Company of $25,000. The Convertible Note has an 18 month term and carries interest at 10% per annum. The note is convertible into shares of the Company’s common stock at a conversion price of $0.80 per share (“Conversion Price”) upon five trading days’ notice, subject to certain adjustments (standard dilution) and ownership limitations specified in the Convertible Note. In connectionMay 2019, the conversion price was reduced to $0.2273 for $1,250,000 of the balance of the Convertible Note; the remainder is still convertible at $0.80.

Prior to the Standstill Agreements, the investor could redeem any portion of the Convertible Note upon five trading days’ notice, beginning January 17, 2019, subject to a maximum monthly redemption amount of $650,000, with the Company having the option to pay such redemptions in cash, the Company’s common stock at the Conversion Price, or by a combination thereof, subject to certain conditions, including that the stock price is $1.00 per share or higher. After taking into consideration the Standstill Agreements, Iliad cannot request a monthly redemption until June 1, 2019. The Company may prepay the outstanding balance of the Convertible Note, in part or in full, at a 10% premium to par value if prior to the one year anniversary of the date of issuance and at par if prepaid thereafter. At maturity, the Company may pay the outstanding balance in cash, the Company’s common stock at the Conversion Price, or by a combination thereof, subject to certain conditions. The note provides that in the event of default, the lender may, at its option, elect to increase the outstanding balance applying the default effect (defined as outstanding balance at date of default multiplied by 15% plus outstanding amount) by providing written notice to the Company. In addition, the interest rate increases to 22% upon default. The default effect and default interest rate provisions qualify as embedded derivatives with an estimated fair value of $55,000 at March 31, 2019.

The Convertible Note is the general unsecured obligation of the Company and is subordinated in right of payment to the ABL and PFG Term Note. The following is a summary of the Convertible Note we issued seven year warrants tobalance at March 31, 2019 (in thousands):

On September 18, 2018, we entered into the Merger Agreement with NDX. In connection with signing the Merger Agreement, NDX loaned us $1,500,000. Interest accrued on the outstanding balance at 10.75% per annum until we terminated the Merger Agreement on December 15, 2018. As a result of the termination, the Advance from NDX, plus interest thereon, became due and payable on March 15, 2019. The termination was a specified event of default, so on December 15, 2018, the interest rate was increased to 21%. The default also gives NDX the right to convert all, but not less than all, of the outstanding balance into shares of the Company’s common stock at a conversion price of $2.82$0.606 per share. The numberAt March 31, 2019, the principal balance of warrants may be reduced by 20% subject to us achieving certain financial milestones set forth by PFG.the Advance from NDX was $1,500,000.

The followingAdvance from NDX is a summarythe general unsecured obligation of long-term debt (in thousands):

We have two equity incentive plans: the 2008 Stock Option Plan (the “2008 Plan”) and the 2011 Equity Incentive Plan (the “2011 Plan”, and together with the 2008 Plan, the “Stock Option Plans”). The Stock Option Plans are meant to provide additional incentive to officers, employees and consultants to remain in our employment. Options granted are generally exercisable for up to 10 years. Effective April 9, 2018, the Company cannot issue additional options from the 2008 Plan.

At September 30, 2017, 391,317March 31, 2019, 730,051 shares remain available for future awards under the 2011 Plan and 134,354 shares remain available for future awards under the 2008 Plan.

A summary of employee and non-employee stock option activity for the ninethree months ended September 30, 2017March 31, 2019 is as follows:

Aggregate intrinsic value represents the difference between the fair value of our common stock and the exercise price of outstanding, in-the-money options. During the three and nine months ended September 30, 2017, the Company received approximately $2,500 and $6,500, respectively, from the exercise of options.

As of September 30, 2017,March 31, 2019, total unrecognized compensation cost related to non-vested stock options granted to employees was $2,865,963$780,553 which we expect to recognize over the next 2.323.20 years.

Restricted stock awards have been granted to employees, directors and consultants as compensation for services. At September 30, 2017,March 31, 2019, there was $383,829$34,285 of unrecognized compensation cost related to non-vested restricted stock granted to employees and directors; we expect to recognize the cost over 1.500.44 years.

The following table summarizes the activities for our non-vested restricted stock awards for the ninethree months ended September 30, 2017:March 31, 2019:

The following table presents the effects of stock-based compensation related to stock option and restricted stock awards to employees and non-employees on our Consolidated Statements of Operations and Other Comprehensive Loss during the periods presented (in thousands):

The following table summarizes the derivative warrant activity subject to fair value accounting for the ninethree months ended September 30, 2017March 31, 2019 (in thousands):

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. The Fair Value Measurements and Disclosures Topic of the FASB ASC requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the Topic establishes a fair value hierarchy for valuation inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect our own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following table summarizes the financial liabilities measured at fair value on a recurring basis segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

At September 30, 2017,March 31, 2019, the warrant liability consists of stock warrants issued as part of the 2016 Offerings and 2017 Offering that contain contingent redemption features and warrants issued as part of the debt refinancing outlined in Note 6.net settlement features. In accordance with derivative accounting for warrants, we calculated the fair value of these warrants and the assumptions used are described in Note 9,10, “Fair Value of Warrants.” During the three months ended September 30, 2017 and 2016, we recognized gains of approximately $2,790,000 and $712,000, respectively, on the derivative warrants due to the decrease in our stock price. During the nine months ended September 30, 2017,March 31, 2019, we recognized a loss of approximately $3,927,000$7,000 on the derivative warrants. During the three months ended March 31, 2018, we recorded a gain of approximately $692,000 on the derivative warrants primarily due to changes in our stock price. During the nine months ended September 30, 2016, we recorded a gain of approximately $712,000 on the derivative warrants due to changes in our stock price. During the nine months ended September 30, 2016, we also recorded a gain of approximately $17,000 due to the expiration of derivative warrants outstanding at December 31, 2015.

Realized and unrealized gains and losses related to the change in fair value of the VenturEast note, and warrant liability and other derivatives are included in other income (expense) on the Consolidated Statements of Operations.Operations and Other Comprehensive Loss.

The following table summarizes the activity of the note payable to VenturEast and of our derivative warrants and other derivatives, which waswere measured at fair value using Level 3 inputs (in thousands):

In November 2011, we entered into an affiliation agreement with the Mayo Foundation for Medical Education and Research (“Mayo”), subsequently amended. Under the agreement, we formed a joint venture with Mayo in May 2013 to focus on developing oncology diagnostic services and tests utilizing next generation sequencing. The joint venture is a limited liability

company, with each party initially holding fifty percent of the issued and outstanding membership interests of the new entity (the “JV”).

The agreement requires aggregate capital contributions by us of up to $6.0 million, of which $2.0 million has been paid to date. The timing of the remaining installments is subject to the JV's achievement of certain operational milestones agreed upon by the board of governors of the JV. In exchange for its membership interest, Mayo’s capital contribution takes the form of cash, staff, services, hardware and software resources, laboratory space and instrumentation, the fair market value of which will be approximately equal to $6.0 million. Mayo’s continued contribution will also be conditioned upon the JV’s achievement of certain milestones. We are in the process of winding down the JV.

During the three months ended March 31, 2019, there was no activity in the JV. Our share of the JV’s net loss was approximately $2,000 and $18,000 for the three months ended September 30, 2017 and 2016, and approximately $21,000 and $45,000 for the nine months ended September 30, 2017 and 2016, respectively,March 31, 2018, and is included in research and development expense on the Consolidated Statements of Operations.Operations and Other Comprehensive Loss. We have a net receivable due from the JV of approximately $10,000 at September 30, 2017,March 31, 2019, which is included in other assets in the Consolidated Balance Sheets.

The joint venture is considered a variable interest entity under ASC 810-10, but we are not the primary beneficiary as we do not have the power to direct the activities of the JV that most significantly impact its performance. Our evaluation of ability to impact performance is based on our equal board membership and voting rights and day-to-day management functions which are performed by the Mayo personnel.

As used herein, the “Company,” “CGI,” “we,” “us,” “our” or similar terms, refer to Cancer Genetics, Inc. and its wholly owned subsidiaries:subsidiaries at March 31, 2019: Cancer Genetics Italia, S.r.l., Gentris, LLC, and BioServe Biotechnologies (India) Private Limited,vivoPharm Pty, Ltd, except as expressly indicated or unless the context otherwise requires. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help facilitate an understanding of our financial condition and our historical results of operations for the periods presented. This MD&A should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K filed with the SEC on March 23, 2017.April 16, 2019. This MD&A may contain forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” below.

We are an emerging leader in the field ofenabling precision medicine enablingin oncology by providing multi-disciplinary diagnostic and data solutions, facilitating individualized therapies in the field of oncology through our diagnostic products andtests, services and molecular markers. We develop, commercialize and provide molecular- and biomarker-based tests and services, that enable physicians to personalize the clinical management of each individual patient by providing genomic information to better diagnose, monitorincluding proprietary preclinical oncology and inform cancer treatment andimmuno-oncology services, that enable biotech and pharmaceutical companies engaged in oncology trials to better select candidate populations and reduce adverse drug reactions by providing information regarding genomic factors influencing subject responses to therapeutics. Through our clinical services, we enable physicians to personalize the clinical management of each individual patient by providing genomic information to better diagnose, monitor and inform cancer treatment. We have a comprehensive, disease-focused oncology testing portfolio.portfolio, and an extensive set of anti-tumor referenced data based on predictive xenograft and syngeneic tumor models. Our tests and techniques target a wide range of cancers,indications, covering nineall ten of the top ten cancers in prevalence in the United States, with additional unique capabilities offered by our FDA-cleared Tissue of Origin® test for identifying difficult to diagnose tumor types or poorly differentiated metastatic disease. Following the acquisition of vivoPharm Pty Ltd (“vivoPharm”) we provide contract research services, focused primarily on unique specialized studies to guide drug discovery and development programs in the oncology and immuno-oncology fields.

The non-proprietary testing services we offer are focused in part on specific oncology categories where we are developing our proprietary tests. We believe that there is significant synergy in developing and marketing a complete set of tests and services that are disease focused and delivering those tests and services in a comprehensive manner to help with treatment decisions.

While we have implemented an aggressive consolidation strategy to reduce our operating costs in 2018 and the first quarter of 2019, including the closure of our California laboratory and facility, we expect to continue to incur significantmaterial losses for the near future. We incurred losses of $15.8$20.4 million and $20.2$20.9 million for fiscal years ended December 31, 20162018 and 2015,2017, respectively, and $13.0$4.6 million for the ninethree months ended September 30, 2017. 

Our overall long-term growth plan is predicated on our ability to develop and commercialize our proprietary tests, penetrateor acquire technology solutions to accelerate the penetration into the Biopharma community to achieve more revenue supporting clinical trials and develop and penetrate the Indian market.commercialize unique or proprietary services and tests to achieve sustainable organic growth. Our unique and proprietary tests include CGH microarrays, NGS panels, and DNA FISH probes. We continue to develop additional proprietary tests. To facilitate market adoption of our proprietary tests, we anticipate having to successfully complete additional studies with clinical samples and publish our results in peer-reviewed scientific journals. Our ability to complete such studies is dependent upon our ability to leverage our collaborative relationships with pharmaceutical and biotechnology companies and leading institutions to facilitate our research and obtain data for our quality assurance and test validation efforts.

We believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition.

We have historically derived a significant portion of our revenue from a limited number of test ordering sites, although the test ordering sites that generate a significant portion of our revenue have changed from period to period. Test ordering sites account for all of our Clinical Services revenue along with a portion of the Biopharma Services revenue. Our test ordering sites are hospitals, cancer centers, reference laboratories, physician offices, and biopharmaceuticalpharmaceutical and biotechnology companies. Oncologists and pathologists at these sites order the tests on behalf of the needs of their oncology patients or as part of a clinical trial sponsored by a biopharmaceuticalpharmaceutical or biotechnology company in which the patient is being enrolled.

We receive revenue for our Clinical Services from Medicare, other insurance carriers and other healthcare facilities. Some of our customers choose, generally at the beginning of our relationship, to pay for laboratory services directly as opposed to having patients (or their insurers) pay for those services and providing us with the patients’ insurance information. A hospital may elect to be a direct bill customer and pay our bills directly, or may provide us with patient information so that their patients pay our bills, in which case we generally expect payment from their private insurance carrier or Medicare. In a few instances, we have arrangements where a hospital may have two accounts with us, so that certain tests are billed directly to the hospital, and certain tests are billed to and paid by a patient’s insurer. The billing arrangements generally are dictated by our customers and in accordance with state and federal law.