UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September 30, ~~2017~~2019



¨	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 001-35817

CANCER GENETICS, INC.

(Exact name of registrant as specified in its charter)



Delaware		04-3462475
(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation~~Incorporation or ~~organization)~~Organization		(I.R.S. Employer Identification No.)

~~201 Route 17 North 2~~nd ~~Floor~~

~~Rutherford, NJ~~



201 Route 17 North 2nd Floor Rutherford, NJ		07070
Address of Principal Executive Offices		Zip Code

(201) 528-9200

~~(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)~~Registrant’s Telephone Number, Including Area Code

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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



Title of each class	Trading symbol	Name of exchange on which registered
Common Stock, $0.0001 par value per share	CGIX	NASDAQ Capital Market

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

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



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~ x	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 13(a) of the Exchange Act. x¨

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

As of November ~~6, 2017,~~18, 2019, there were ~~24,253,831~~2,099,789 shares of common stock, par value $0.0001 of Cancer Genetics, Inc. outstanding.

CANCER GENETICS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS



PART I—FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations and Other Comprehensive ~~Loss~~Income (Loss)	3
	Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	67

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1722

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3033

Item 4.	Controls and Procedures	3033

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	3135

Item 1A.	Risk Factors	3135

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Sales of Registered Securities	3437

Item 3.	Defaults Upon Senior Securities	3438

Item 4.	Mine Safety Disclosures	3438

Item 5.	Other Information	3438

Item 6.	Exhibits	3438

SIGNATURE		3539

INDEX TO EXHIBITS		3640

PART I — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

Cancer Genetics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value)


	September 30, 2017			December 31, 2016			September 30, 2019		December 31, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	4,807		$	9,502		$	2,147	$	161
Accounts receivable, net of allowance for doubtful accounts of 2017 $2,277; 2016 $1,387	15,797			11,748
Accounts receivable							813		777
Earn-Out from siParadigm, current portion							693		—
Note receivable from IDXG							6,795		—
Other current assets	2,881			2,174			1,030		553
Current assets of discontinuing operations							1,125		23,421
Total current assets	23,485			23,424			12,603		24,912
FIXED ASSETS, net of accumulated depreciation	6,009			4,738			671		497
OTHER ASSETS
Operating lease right-of-use assets							115		—
Restricted cash	300			300			350		350
Earn-Out from siParadigm, less current portion							594		—
Patents and other intangible assets, net of accumulated amortization	8,356			1,503			3,021		3,349
Investment in joint venture	247			268			92		92
Goodwill	14,158			12,029			3,090		5,963
Other	1,415			172			300		243
Total other assets	24,476			14,272			7,562		9,997
Total Assets	$	53,970		$	42,434		$	20,836	$	35,406
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	9,314		$	8,148		$	3,330	$	3,100
Obligations under capital leases, current portion	271			109
Obligations under operating leases, current portion							207		—
Obligations under finance leases, current portion							60		20
Deferred revenue	109			789			1,607		1,215
Line of credit	2,000			—
Term note, current portion	—			2,000
Convertible note, net							2,273		2,481
Advance from NovellusDx, Ltd., net							1,500		535
Advance from siParadigm, current portion							469		—
Other derivatives							—		86
Current liabilities of discontinuing operations							3,229		20,742
Total current liabilities	11,694			11,046			12,675		28,179
Term note	4,936			2,654
Obligations under capital leases	726			374
Obligations under operating leases, less current portion							29		—
Obligations under finance leases, less current portion							148		23
Advance from siParadigm, less current portion							505		—
Deferred rent payable and other	181			290			—		154
Warrant liability	4,167			2,018			15		248
Deferred revenue, long-term	1,130			428
Total Liabilities	22,834			16,810			13,372		28,604
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, authorized 9,764 shares, $0.0001 par value, none issued	—			—			—		—
Common stock, authorized 100,000 shares, $0.0001 par value, 24,252 and 18,936 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	2			2
Additional paid-in capital	158,068			139,576
Accumulated other comprehensive (loss)	(1		)	—
Accumulated (deficit)	(126,933		)	(113,954		)
Total Stockholders’ Equity	31,136			25,624
Total Liabilities and Stockholders’ Equity	$	53,970		$	42,434
Common stock, authorized 100,000 shares, $0.0001 par value, 2,101 and 924 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively							—		—



Additional paid-in capital	171,696			164,458
Accumulated other comprehensive income (loss)	(101		)	60
Accumulated deficit	(164,131		)	(157,716		)
Total Stockholders’ Equity	7,464			6,802
Total Liabilities and Stockholders’ Equity	$	20,836		$	35,406

See Notes to Unaudited Condensed Consolidated Financial Statements.

Cancer Genetics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Other Comprehensive ~~Loss~~Income (Loss) (Unaudited)

(in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Revenue	$	8,028		$	6,750		$	21,598		$	19,819		$	2,069		$	535		$	5,416		$	3,243
Cost of revenues	4,588			4,444			12,831			12,832			960			685			2,631			2,145
Gross profit	3,440			2,306			8,767			6,987
Gross profit (loss)													1,109			(150		)	2,785			1,098
Operating expenses:
Research and development	981			1,594			3,080			4,806
General and administrative	4,346			3,701			11,352			11,677			1,290			1,939			4,463			5,236
Sales and marketing	1,301			1,054			3,437			3,731			322			320			825			900
Impairment of goodwill													2,873			—			2,873			—
Merger costs													284			890			284			890
Total operating expenses	6,628			6,349			17,869			20,214			4,769			3,149			8,445			7,026
Loss from operations	(3,188		)	(4,043		)	(9,102		)	(13,227		)
Loss from continuing operations													(3,660		)	(3,299		)	(5,660		)	(5,928		)
Other income (expense):
Interest expense	(350		)	(111		)	(797		)	(344		)	(200		)	(82		)	(1,327		)	(87		)
Interest income	10			4			37			21			—			—			—			21
Change in fair value of acquisition note payable	105			18			(114		)	119			5			(13		)	12			68
Change in fair value of other derivatives													—			—			86			—
Change in fair value of warrant liability	2,790			712			(3,927		)	729			34			12			233			2,858
Change in fair value of siParadigm Earn-Out													(982		)	—			(982		)	—
Other expense	—			(325		)	(46		)	(325		)	—			(55		)	(11		)	(78		)
Total other (expense)	2,555			298			(4,847		)	200
Total other income (expense)													(1,143		)	(138		)	(1,989		)	2,782
Loss before income taxes	(633		)	(3,745		)	(13,949		)	(13,027		)	(4,803		)	(3,437		)	(7,649		)	(3,146		)
Income tax (benefit)	—			—			(970		)	—
Net (loss)	$	(633	)	$	(3,745	)	$	(12,979	)	$	(13,027	)
Basic net (loss) per share	$	(0.03	)	$	(0.23	)	$	(0.65	)	$	(0.88	)
Diluted net (loss) per share	$	(0.15	)	$	(0.23	)	$	(0.65	)	$	(0.88	)
Basic weighted-average shares outstanding	21,577			16,519			20,059			14,868
Diluted weighted-average shares outstanding	22,359			16,519			20,059			14,868
Income tax benefit													—			—			(512		)	—
Loss from continuing operations													(4,803		)	(3,437		)	(7,137		)	(3,146		)
Income (loss) from discontinuing operations (including gain on disposal of businesses of $8,496 during the three and nine months ended September 30, 2019)													6,778			(5,082		)	722			(13,462		)
Net income (loss)													1,975			(8,519		)	(6,415		)	(16,608		)
Foreign currency translation gain (loss)													(120		)	(30		)	(161		)	35
Comprehensive income (loss)													$	1,855		$	(8,549	)	$	(6,576	)	$	(16,573	)

Net (loss)	(633		)	(3,745		)	(12,979		)	(13,027		)
Foreign currency translation (loss)	(1		)	—			(1		)	—
Comprehensive (loss)	(634		)	(3,745		)	(12,980		)	(13,027		)
Basic and diluted net loss per share from continuing operations													$	(2.38	)	$	(3.77	)	$	(3.86	)	$	(3.48	)
Basic and diluted net income (loss) per share from discontinuing operations													3.36			(5.57		)	0.39			(14.87		)
Basic and diluted net income (loss) per share													$	0.98		$	(9.34	)	$	(3.47	)	$	(18.35	)

Basic and diluted weighted-average shares outstanding													2,014			912			1,850			905

See Notes to Unaudited Condensed Consolidated Financial Statements.

Cancer Genetics, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(in thousands)



	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balance, January 1, 2019	924	$	—	$	164,458	$	60		$	(157,716	)	$	6,802
Stock based compensation—employees	—	—		158		—			—			158
Issuance of common stock - 2019 Offerings, net	952	—		5,412		—			—			5,412
Unrealized loss on foreign currency translation	—	—		—		(76		)	—			(76		)
Net loss	—	—		—		—			(4,617		)	(4,617		)
Balance, March 31, 2019	1,876	—		170,028		(16		)	(162,333		)	7,679
Stock based compensation—employees	—	—		102		—			—			102
Issuance of common stock - Iliad conversions	51	—		350		—			—			350
Increase in fair value of embedded conversion option	—	—		547		—			—			547
Unrealized gain on foreign currency translation	—	—		—		35			—			35
Net loss	—	—		—		—			(3,773		)	(3,773		)
Balance, June 30, 2019	1,927	—		171,027		19			(166,106		)	4,940
Stock based compensation—employees	—	—		57		—			—			57
Issuance of common stock - Iliad exchanges	174	—		612		—			—			612
Unrealized gain on foreign currency translation	—	—		—		(120		)	—			(120		)
Net income	—	—		—		—			1,975			1,975
Balance, September 30, 2019	2,101	$	—	$	171,696	$	(101	)	$	(164,131	)	$	7,464



	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
	Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balance, January 1, 2018	925		$	—	$	161,530	$	69		$	(134,834	)	$	26,765
Stock based compensation—employees	(1	)	—		274		—			—			274
Transition adjustment for adoption of Accounting Standards Codification Topic 606	—		—		—		—			(2,509		)	(2,509		)
Unrealized loss on foreign currency translation	—		—		—		(20		)	—			(20		)
Net loss	—		—		—		—			(4,456		)	(4,456		)
Balance, March 31, 2018	924		—		161,804		49			(141,799		)	20,054
Stock based compensation—employees	—		—		268		—			—			268
Fair value of warrants reclassified from liabilities to equity	—		—		423		—			—			423
Warrant modification costs	—		—		83		—			—			83
Unrealized gain on foreign currency translation	—		—		—		85			—			85
Net loss	—		—		—		—			(3,633		)	(3,633		)
Balance, June 30, 2018	924		—		162,578		134			(145,432		)	17,280
Stock based compensation—employees	—		—		189		—			—			189
Beneficial conversion feature on Convertible Note	—		—		328		—			—			328
Unrealized loss on foreign currency translation	—		—		—		(30		)	—			(30		)
Net loss	—		—		—		—			(8,519		)	(8,519		)
Balance, September 30, 2018	924		$	—	$	163,095	$	104		$	(153,951	)	$	9,248

See Notes to Unaudited Condensed Consolidated Financial Statements.

Cancer Genetics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



	Nine Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(6,415	)	$	(16,608	)
Loss (income) from discontinuing operations	(722		)	13,462
Net loss from continuing operations	(7,137		)	(3,146		)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	42			120
Amortization	328			379
Stock-based compensation	226			403
Change in fair value of warrant liability, acquisition note payable and other derivatives	(331		)	(2,926		)
Change in fair value of siParadigm Earn-Out	982			—
Amortization of discount of debt and debt issuance costs	470			57
Interest added to Convertible Note	268			—
Modification of 2017 Debt warrants	—			83
Impairment of goodwill	2,873			—
Loss in equity-method investment	—			4
Loss on extinguishment of debt	256			—
Changes in:
Accounts receivable	(36		)	521
Other current assets	(555		)	(420		)
Operating lease right-of-use assets	123			—
Other non-current assets	(57		)	5
Accounts payable, accrued expenses and deferred revenue	1,721			742
Obligations under operating leases	(156		)	—
Deferred rent payable and other	—			(34		)
Net cash used in operating activities, continuing operations	(983		)	(4,212		)
Net cash used in operating activities, discontinuing operations	(4,556		)	(7,227		)
Net cash used in operating activities	(5,539		)	(11,439		)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets	(71		)	(17		)
Net cash received in disposal of Clinical Business	828			—
Net cash received in disposal of BioPharma Business	2,258			—
Net cash provided by (used in) investing activities, continuing operations	3,015			(17		)
Net cash provided by (used in) investing activities, discontinuing operations	(562		)	737
Net cash provided by investing activities	2,453			720
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on obligations under finance leases	(14		)	(39		)
Proceeds from offerings of common stock, net of certain offering costs	5,412			—
Proceeds from Convertible Note	—			2,500
Advance from NovellusDx, Ltd.	—			1,500
Net cash provided by financing activities, continuing operations	5,398			3,961
Net cash used in financing activities, discontinuing operations	(199		)	(1,605		)
Net cash provided by financing activities	5,199			2,356

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (12,979 ) $ (13,027 )
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation 1,436
1,502
Amortization 234
260
Provision for bad debts 890
8
Stock-based compensation 1,395
1,538
Change in fair value of acquisition note payable 114
(119 )
Change in fair value of warrant liability 3,927
(729 )
Amortization of debt issuance costs 51
9
Amortization of discount on debt 134
—
Loss in equity method investment 21
45
Loss on extinguishment of debt 78
—
Changes in:
Accounts receivable (4,029 ) (7,066 )
Other current assets (606 ) (67 )
Other non-current assets 251
(9 )
Accounts payable, accrued expenses and deferred revenue (1,057 ) 372
Deferred rent payable and other (109 ) (16 )
Net cash (used in) operating activities (10,249 ) (17,299 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (1,192 ) (345 )
Patent costs (73 ) (127 )
Purchase of cost method investment (200 ) —
Acquisition of vivoPharm, Pty Ltd., net of cash acquired (656 ) —
Net cash (used in) investing activities (2,121 ) (472 )
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations (170 ) (101 )
Proceeds from warrant exercises 1,827
—
Proceeds from option exercises 7
—
Proceeds from offerings of common stock with derivative warrants, net of certain offering costs —
9,962
Proceeds from borrowings on Silicon Valley Bank line of credit 2,000
—
Proceeds from Partners for Growth IV, L.P. term note 6,000
—
Proceeds from Aspire Capital common stock purchases, net of certain offering costs 2,965
—
Principal payments on Silicon Valley Bank term note (4,667 ) (833 )
Payment of debt issuance costs and loan fees (287 ) —
Net cash provided by financing activities 7,675
9,028
Net (decrease) in cash and cash equivalents (4,695 ) (8,743 )
CASH AND CASH EQUIVALENTS
Beginning 9,502
19,459
Ending $ 4,807
$ 10,716
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 633
$ 250
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Fixed assets acquired through capital lease arrangements $ 567
$ —
Derivative warrants issued with debt 1,004
—
Acquisition of vivoPharm business 9,856
—



Effect of foreign exchange rates on cash and cash equivalents and restricted cash	(127		)	28
Net increase (decrease) in cash and cash equivalents and restricted cash	1,986			(8,335		)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Beginning	511			9,891
Ending	$	2,497		$	1,556



SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest	$	1,185		$	827
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Fixed assets acquired through capital lease arrangement	$	145		$	150
Conversion of debt and accrued interest into common stock	350			—
Increase in fair value of conversion option	547			—
Exchanges of principal on Convertible Note for common stock	612			—
Fair value of warrants reclassified from liabilities to equity	—			426
Beneficial conversion feature on Convertible Note	—			328
Disposal of Clinical Business:
Goodwill	$	1,188		$	—
Accounts payable and accrued expenses	(287		)	—
Gain on disposal of Clinical Business	1,222			—
Earn-Out from siParadigm	(2,269		)	—
Advance from siParadigm, net of repayments	974			—
Net cash received in disposal of Clinical Business	$	828		$	—
Disposal of BioPharma Business:
Accounts receivable	$	4,064		$	—
Other current assets	1,142			—
Fixed assets	4,121			—
Operating lease right-of-use assets	2,060			—
Patents and other intangible assets	42			—
Goodwill	10,106			—
Accounts payable and accrued expenses	(7,505		)	—
Obligations under operating leases	(2,110		)	—
Obligations under finance leases	(423		)	—
Deferred revenue	(1,053		)	—
Line of credit	(2,665		)	—
Term note	(6,000		)	—
Gain on disposal of BioPharma Business	7,274			—
Note receivable from IDXG	(6,795		)	—
Net cash received in disposal of BioPharma Business	$	2,258		$	—

See Notes to Unaudited Condensed Consolidated Financial Statements.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization, Description of Business, Basis of Presentation, ~~Acquisition~~Reverse Stock Split, Business Disposals, 2019 Offerings, Standstill Agreement, Advance from NDX, Loan from Atlas Sciences, LLC, Recently Adopted Accounting Standard, and Recent Accounting Pronouncements

~~We are~~Cancer Genetics, Inc. supports the biotechnology and pharmaceutical industry to develop innovative new drug therapies.

Until the closing of the Business Disposals (as defined below) in July 2019, we were an emerging leader in ~~the field of~~enabling precision medicine ~~enabling~~in oncology by providing multi-disciplinary diagnostic and data solutions, facilitating individualized therapies ~~in the field of oncology~~ through our diagnostic ~~products and~~tests, services and molecular markers. ~~We develop, commercialize~~Following the Business Disposals described below, we currently have an extensive set of anti-tumor referenced data based on predictive xenograft 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, 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. We have a comprehensive, disease-focused oncology testing portfolio. Our tests and techniques target a wide range of cancers, covering nine 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 diagnosesyngeneic tumor ~~types or poorly differentiated metastatic disease. Following~~models from the acquisition of vivoPharm, Pty Ltd. (“vivoPharm”)~~, as discussed~~ in ~~more detail below, we~~2017, to provide contract research services, focused primarily on unique specialized studies to guide drug discovery and development programs in the oncology and ~~immune-oncology~~immuno-oncology fields.

We were incorporated in the State of Delaware on April 8, 1999 and, ~~have~~until the Business Disposals, had offices and state-of-the-art laboratories located in ~~California,~~ New Jersey and North Carolina and today continue to have laboratories in Pennsylvania ~~Shanghai (China), Victoria (Australia)~~ and ~~Hyderabad (India). Our laboratories comply with the highest regulatory standards as appropriate for the~~Australia. The Company’s corporate headquarters are in Rutherford, New Jersey. We offer preclinical services they deliver including CLIA, CAP, NY State, California State and NABL (India). 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,~~predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology relevant tumor models in our Hershey PA facility, and are a leader in the ~~National Cancer Institute.~~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.

Basis of Presentation

The accompanying unaudited condensed consolidated 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 condensed 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.~~

~~Foreign Currency Translation~~2019.

~~During~~Reverse Stock Split

On October 24, 2019, we amended our Certificate of Incorporation and effected a 30-for-1 reverse stock split of our common stock. All shares and per share information referenced throughout the condensed consolidated financial statements and footnotes have been retrospectively adjusted to reflect the reverse stock split.

Business Disposals - Discontinuing Operations

Interpace Diagnostics Group, Inc.

On July 15, 2019, the Company entered into and consummated a secured creditor asset purchase agreement (the “BioPharma Agreement”) by and among the Company, Gentris, LLC, a wholly owned subsidiary of the Company, Partners for Growth IV, L.P. (“PFG”), Interpace Diagnostics Group, Inc. (“IDXG”) and a newly-formed subsidiary of IDXG, Interpace BioPharma, Inc. (“Buyer”). The BioPharma Agreement provided for a consensual private foreclosure sale by PFG of all assets relating to the Company’s BioPharma Business (as defined in the BioPharma Agreement) to Buyer (the “BioPharma Disposal”).

delivered to the Company in addition to the Excess Consideration Note. The fair value of the Excess Consideration Note was $6,795,000 at September 30, 2019.

The Excess Consideration Note, which required interest-only quarterly payments at a rate of 6% per year, matured in October 2019 and was settled on October 24, 2019 for $6,024,489, including interest of $23,674. The Buyer withheld from the settlement of the Excess Consideration Note approximately $775,000 for a net worth adjustment (assets less liabilities) of the BioPharma business (“Net Worth”), $153,000 to secure collection of certain older accounts receivable of the Company purchased by Buyer (“AR Holdback”) and an additional $735,000 as security for indemnification obligations of the Company for any breaches of certain limited warranties and covenants of the Company and other specified items (“Indemnification Holdback”). The amount of the older accounts receivable determined to be paid as of December 31, 2019 will be remitted to Company from the AR Holdback. Any amounts remaining in the Indemnification Holdback shall be remitted to the Company on January 15, 2020 (six months from the date of the BioPharma Agreement), unless there are pending indemnification claims.

The Company and Buyer also entered into a transition services agreement (the “TSA”) pursuant to which the Company and Buyer are providing certain services to each other to accommodate the transition of the BioPharma Business to Buyer. In particular, the Company agreed to provide to Buyer, among other things, certain personnel services, payroll processing, administration services and benefit administration services, for a period not to exceed six months from July 15, 2019, subject to the terms and conditions of the TSA, in exchange for payment or reimbursement, as applicable, by Buyer for the costs related thereto, including salaries and benefits for certain of the Company’s BioPharma employees during the transition period. Unless and until John A. Roberts, the Company’s Chief Executive Officer, and Glenn Miles, the Company’s Chief Financial Officer, enter into part-time consulting arrangements with Buyer and/or IDXG to assist with the transition, if any, Buyer is reimbursing the Company for their salaries and benefits. In addition, Buyer is providing office space, rent-free, for certain of the Company’s employees during the TSA period.

In connection with the closing of the BioPharma Disposal, the SVB ABL and the PFG Term Note were terminated, and all related liens were released.

siParadigm, Inc.

On July 5, 2019, the Company entered into an asset purchase agreement (the “Clinical Agreement”) by and among the Company and siParadigm, LLC (“siParadigm”), pursuant to which the Company sold to siParadigm, certain assets associated with the Company’s clinical laboratory business (the “Clinical Business,” and such assets, the “Designated Assets”), and agreed to cease operating its Clinical Business. The Designated Assets include intellectual property, equipment and customer lists associated with the Clinical Business, and the Company is providing certain transitional services to siParadigm pursuant to the Clinical Agreement. The cash consideration paid by siParadigm at closing was approximately $758,000, which includes approximately $45,000 for certain equipment plus a $1,000,000 advance payment of the Earn-Out (as defined below), less approximately $177,000 of supplier invoices paid directly by siParadigm and transaction costs of approximately $110,000. The Clinical Business sale (together with the BioPharma Disposal, the “Business Disposals”) was completed on July 8, 2019.

The Earn-Out, to be paid over the 24 months post-closing, is based on fees for all tests performed by siParadigm for the Company’s clinical customers during the 12-month period following the closing (the “Earn-Out”). At September 30, 2019, the fair value of the current and long-term portion of the Earn-Out from siParadigm was approximately $693,000 and $594,000, respectively. In addition, the current and long-term portion of the Advance from siParadigm was approximately $469,000 and $505,000, respectively.

Under the Clinical Agreement, the Company agreed to certain non-competition and non-solicitation provisions, including that it will cease performing certain clinical tests and will not solicit or seek business from certain of its customers (other than for the Company’s other lines of business) for a period of three years following the closing date.

The Business Disposals have been classified as discontinuing operations in conformity with GAAP. Accordingly, BioPharma and Clinical operations and balances have been reported as discontinuing operations and removed from all financial disclosures of continuing operations. As permitted by Accounting Standards Codification (“ASC”) 205-20, the Company elected to allocate approximately $22,000 and $1,464,000 of interest expense on debt not required to be repaid to discontinuing operations during the three and nine months ended September 30, ~~2017,~~2019, respectively. The Company elected to allocate approximately $105,000 of interest expense from the Convertible Note and Advance from NDX to discontinuing operations during the three and nine months ended September 30, 2018. Unless otherwise indicated, information in these notes to unaudited condensed consolidated financial statements relates to continuing operations.

2019 Offerings

On January 9, 2019, we ~~started accounting~~entered into an underwriting agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), relating to an underwritten public offering of 444,444 shares of our common stock for $6.75 per share. We received proceeds from the offering of approximately $2,437,000, net of expenses and discounts of approximately $563,000. We also issued warrants to purchase 31,111 shares of common stock to H.C. Wainwright in connection with this offering. The warrants are exercisable for five years from the date of issuance at a per share price of $7.43.

On January 26, 2019, we issued 507,246 shares of common stock at a public offering price of $6.90 per share. We received proceeds from the offering of approximately $2,975,000, net of expenses and discounts of approximately $525,000. We also issued warrants to purchase 35,507 shares of common stock to the underwriter, H.C. Wainwright, in connection with this offering. The warrants are exercisable for five years from the date of issuance at a per share price of $7.59.

The January 9, 2019 and January 26, 2019 offerings will be referred to collectively as the “2019 Offerings.” As disclosed in Note 15, certain of our ~~foreign currency translation~~directors and executive officers purchased shares in ~~other comprehensive income (loss). Assets and liabilities recorded in foreign currencies are translated~~the 2019 Offerings at the public offering price.

Standstill Agreement

In May 2019, we entered into a second standstill agreement (“Second Standstill”) with Iliad Research and Trading, L.P. (“Iliad”), related to the $2,625,000 convertible promissory note dated July 17, 2018 (“Convertible Note”) described further in Note 7. The Second Standstill provided that Iliad would not seek to redeem any portion of the Convertible Note until May 31, 2019. In consideration for the Second Standstill, we agreed to adjust the conversion price on the first $1,250,000 of our debt to Iliad from $24.00 to $6.82. In May 2019, Iliad converted $350,000 of the Convertible Note balance into 51,327 shares of our common stock at a conversion price of $6.82 per share. On or about June 11, 2019, following the expiration of the Second Standstill, Iliad sent the Company a Redemption Notice (as defined in Note 7). On June 20, 2019, Iliad sent a notice to the Company asserting that the nonpayment of the redemption amount by the redemption due date constituted an event of default. Iliad asserted its right to increase the interest rate to 22% and to increase the then-outstanding balance of the loan by 15% (approximately $408,000). During the three and nine months ended September 30, 2019, the Company issued an aggregate of 173,557 shares of common stock to Iliad in exchange for the return of $612,175 of principal amount of the Convertible Note to the Company. In October 2019, the Company settled its debt with Iliad for approximately $2,712,000, using, in part, all of the proceeds of its loan from Atlas Sciences, LLC, described below.

Advance from NovellusDx, Ltd.

On September 18, 2018, we entered into an agreement and plan of merger (“Merger Agreement”) with NovellusDx, Ltd. (“NDX”). In connection with signing the Merger Agreement, NDX loaned us $1,500,000 (“Advance from NDX”). 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. On October 21, 2019, the Company and NDX entered into a settlement agreement (“NDX Settlement Agreement”). The NDX Settlement Agreement required the Company to pay $100,000 on the date of execution and $1,000,000 upon receipt of proceeds from the Excess Consideration Note. The $1,000,000 payment was made in October 2019. As a result of such payment, pursuant to the NDX Settlement Agreement, the balance of the Advance from NDX was reduced to $450,000 and each party released the other from all claims under the original credit agreement and the Merger Agreement. The remaining amount due is to be paid in nine monthly payments of $50,000 commencing one month after the receipt of the Excess Consideration Note. If the Company fails to make any of the required monthly payments, NDX may convert all, but not less than all, of the amounts then owing into a number of shares of the Company’s common stock at a conversion price of $4.50 per share. The NDX Settlement Agreement adjusted the interest rate of the obligation to 0%.

Loan from Atlas Sciences, LLC

On October 21, 2019, we issued an unsecured promissory note to Atlas Sciences, LLC (“Atlas Sciences”), an affiliate of Iliad, for $1,347,500 (“Atlas Sciences Note”). We received consideration of $1,250,000, reflecting an original issue discount of $87,500 and expenses payable by us of $10,000. The Atlas Sciences Note has a 12 month term and bears interest at 10% per annum. The proceeds from the Atlas Sciences Note were utilized to partially repay the Convertible Note. Atlas Sciences may redeem any portion of the note, at any time after six months from the issuance date upon three business days' notice, subject to a monthly maximum redemption amount of $300,000. We may prepay the Atlas Sciences Note at any time without penalty. Upon the occurrence of an event of default, the interest rate will be adjusted to 22% per annum.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance codified in ASC 842, Leases, which supersedes the guidance in former ASC 840, Leases, to increase transparency and comparability among organizations by requiring recognition of right-of-use assets and lease liabilities on the balance sheet ~~date. Revenue~~ and ~~expenses are translated at average rates~~disclosure of ~~exchange prevailing during~~key information about leasing arrangements (with the ~~year. Translation adjustments for prior periods have~~exception of short-term leases).

In July 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-11 to the existing transition guidance that allows entities to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. Effective January 1, 2019, we adopted ASC 842 using this new transition guidance. The comparative information has not been ~~presented,~~restated and continues to be reported under the accounting standard in effect for those periods.

We have elected to use the package of practical expedients, which allows us to not (1) reassess whether any expired or existing contracts are considered or contain leases; (2) reassess the lease classification for any expired or existing leases; and (3) reassess the initial direct costs for any existing leases. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.

The most significant impact of adopting ASC 842 is related to the recognition of right-of-use assets and lease liabilities for operating leases. Our accounting for finance leases remains substantially unchanged. The adoption of ASC 842 had no impact on our unaudited condensed consolidated statements of operations or total cash flows from operations.

The cumulative effect of the changes made to our unaudited consolidated January 1, 2019 balance sheet for the adoption of ASC 842 were as ~~they are not material.~~follows (in thousands):



	As of December 31, 2018		Adjustment for Adoption of ASC 842			As of January 1, 2019
ASSETS
Current assets of discontinuing operations	$	23,421	$	2,327		$	25,748
Operating lease right-of-use assets	—		238			238
	$	23,421	$	2,565		$	25,986
LIABILITIES
Current liabilities of discontinuing operations	$	20,742	$	2,327		$	23,069
Deferred rent payable and other	154		(154		)	—
Obligations under operating leases, current portion	—		204			204
Obligations under operating leases, less current portion	—		188			188
	$	20,896	$	2,565		$	23,461

~~Liquidity~~In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): “Simplifying the Accounting for Goodwill Impairment,” which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company adopted this standard July 1, 2019. Because we adopted ASU 2017-04, we did not have to fair value all of the Company's assets and liabilities to determine the amount of goodwill impairment. Instead we impaired goodwill for the difference between the fair value of the Company and the book value of the Company's stockholders' equity.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. The update will become effective for interim and annual periods beginning after December 15, 2019 and may be adopted either retrospectively or prospectively. Early adoption is permitted. We plan to adopt this standard prospectively. We are currently evaluating the impact that adoption of this ASU will have on our consolidated financial statements and whether or not to early adopt.

Note 2. Going Concern

At September 30, ~~2017,~~2019, our cash position and history of losses required management to ~~asses~~assess 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. Prior to the ~~history and operational losses~~closing of the Business Disposals transactions in July 2019, the Company did not anticipate having

sufficient cash at September 30, 2019 to ~~have a material effect on our~~fund normal operations beyond the next three months unless certain current assets were converted to cash, as described below. After the Business Disposals, the Company’s ability to continue as a going concern ~~unless we take actions~~is still dependent on the Company’s ability to ~~alleviate those conditions. Our primary sources of liquidity have been funds generated~~raise additional equity or debt capital, spin-off non-core assets to raise additional cash, collect its outstanding accounts receivable and collect amounts held in escrow by Buyer or receive the Earn-Out payments from ~~our debt financings~~siParadigm without significant offsets, and ~~equity financings. We have reduced, and plan~~negotiate discounts in good faith with its trade suppliers. These factors raise substantial doubt about the Company's ability to continue reducing, our operating expenses, and expect to grow our revenue in 2017 and beyond, and have also increased our cash collections from our customers and third-party payors and plan to continue to improve our cash collection results.

Management believes that its existing cash and cash equivalents, taken together with the borrowings available from the Silicon Valley Bank line of credit and the common stock purchase agreement with Aspire Capital Fund, LLC (described in Note 3), will be sufficient to fund the Company's operationsas a going concern for ~~at least~~ the next twelve months ~~after filing~~from the issuance of this ~~quarterly~~current report on Form 10-Q.

~~Acquisition~~Net cash used in operating activities for continuing operations was $1.0 million for the nine months ended September 30, 2019 and the Company had unrestricted cash and cash equivalents of ~~vivoPharm~~$2.1 million at September 30, 2019, an increase from $0.2 million at December 31, 2018. The Company has positive working capital from continuing operations at September 30, 2019 of $2.0 million.

~~On August 15, 2017,~~

The Company currently requires additional capital to pay its unsecured debt and accounts payable, and its ability to continue as a going concern is dependent upon its ability to collect amounts held in escrow by Buyer and its outstanding accounts receivable, receive the Earn-Out payments from siParadigm and negotiate discounts in good faith with its trade suppliers. In July 2019, we ~~purchased~~sold our BioPharma Business and Clinical Business as described in Note 1. While the Buyer assumed certain of our liabilities in the BioPharma Disposal, the cash received to date from the Business Disposals is insufficient to satisfy all of the ~~outstanding stock~~Company’s liabilities and other obligations, and the Company cannot determine at this time if future Earn-Out payments and receipt of ~~vivoPharm,~~amounts held in escrow by Buyer, combined with settlements of claims against the Company will enable all creditors to be paid in full and provide sufficient funds for future operations. We are continuing to evaluate additional strategic options, with the assistance of an investment bank, which could include the sale of other assets, a merger, reverse merger or other strategic transaction. We can provide no assurances that our current actions will be successful or that additional sources of cash or financing will be available to us on favorable terms, if at all. If the Company is not able to collect its ~~principal place of business~~accounts receivable or raise additional capital on a timely basis or on favorable terms, the Company may need to scale back further its operations.

The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Note 3. Discontinuing Operations

As described in ~~Victoria, Australia,~~Note 1, the Company sold its BioPharma Business and Clinical Business in ~~a transaction valued at approximately $1.2 million in cash, $9.5 million in~~July 2019. In conjunction with the ~~Company's common stock based on~~BioPharma Disposal, the ~~closing price of the stock on August 15, 2017, plus an estimated settlement of $345,000 for excess working capital in accounts payable~~Company repaid its debt to SVB and ~~accrued expenses in the accompanying balance sheet.~~PFG. The Company ~~has deposited in escrow 20%~~elected to allocate approximately $22,000 and $1,464,000 of ~~the stock consideration until the expiration of twelve months~~interest expense from the ~~closing date~~Convertible Note and Advance from NDX to ~~serve as the initial source for any indemnification claims and adjustments. The Company had an estimated $150,000 in transaction costs associated with the purchase of vivoPharm, which were expensed~~discontinuing operations during the three and nine months ended September 30, ~~2017.~~

~~Prior~~2019, respectively. The Company elected to allocate approximately $105,000 of interest expense from the ~~acquisition, vivoPharm was a contract research organization (“CRO”) that specialized in planning~~Convertible Note and ~~conducting unique, specialized studies~~Advance from NDX to ~~guide drug discovery~~discontinuing operations during the three and ~~development programs~~nine months ended September 30, 2018. Revenue and other significant accounting policies associated with ~~a concentration in oncology and immuno-oncology. The transaction is being accounted for using~~ the ~~acquisition method of accounting for business combinations in accordance with GAAP. Under this method,~~discontinuing operations have not changed since the total consideration transferred to consummate the acquisition is being allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair valuesmost recently filed audited financial statements as of and for the ~~closing date~~year ended December 31, 2018, except for the adoption of the acquisition. The acquisition method of accounting requires extensive use of estimates and judgments to allocate the consideration transferred to the identifiable tangible and intangible assets acquired and liabilities assumed. Accordingly, the allocation of the consideration transferred is preliminary and will be adjusted upon completion of the final valuation of the assets acquired and liabilities assumed. The final valuation is expected to be completedASC 842 as ~~soon as practicable but no later than twelve months after the closing date of the acquisition.~~described in Note 1.

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

Cash $ 544
Accounts receivable 905
Lab supplies 1,258
Prepaid expenses and other current assets 101
Fixed assets 949
Intangible assets 7,014
Goodwill 2,129
Accounts payable and accrued expenses (913 )
Deferred revenue (814 )
Obligations under capital leases (117 )
Total purchase price $ 11,056

The following table provides certain pro forma financial information for the Company as if the acquisition of vivoPharm discussed above occurred on January 1, 2016 (in thousands except per share amounts):

Three Months Ended September 30 Nine Months Ended September 30,
2017 2016 2017 2016
Revenue $ 9,069
$ 7,958
$ 25,335
$ 23,595
Net loss (976 ) (3,919 ) (13,788 ) (13,596 )

Basic net loss per share $ (0.04 ) $ (0.20 ) $ (0.61 ) $ (0.76 )
Diluted net loss per share (0.16 ) (0.20 ) (0.61 ) (0.76 )

The pro forma numbers above are derived from historical numbers of the Company and vivoPharm. Over time the operations of vivoPharm will be integrated into the operations of the Company. At the current time, we do not have enough information to prepare a reliable estimate of any possible changes.

~~The~~Summarized results of our unaudited condensed consolidated discontinuing operations are as follows for the three and nine months ended September 30, ~~2017 include the operations of vivoPharm from August 15, 2017, which accounted for approximately $794,000 of the Company’s consolidated Discovery Services revenue.~~

~~The net income of vivoPharm that is included in the Company’s results of operations for the three~~2019 and ~~nine months ended September 30, 2017 was approximately $380,000.~~

~~Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board (“FASB��) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. As issued and amended, ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. The updated standard becomes effective for the Company in the first quarter of fiscal year 2018. Early adoption is permitted in the first quarter of fiscal year 2017. The Company believes its Biopharma Service and Discovery Service revenues will be affected by the new standard. The Company is presently evaluating all of its contracts for performance obligations and variable consideration provisions that may affect the timing of revenue recognition subsequent to ASU 2014-09’s adoption. The Company expects to adopt the new standard on January 1, 2018 using the modified retrospective approach, which involves applying the new standard to all contracts initiated on or after the effective date and recording an adjustment to opening equity for pre-existing contracts that have remaining obligations as of the effective date.

~~Note 2. Revenue and Accounts Receivable~~

~~Revenue by service type for the three and nine months ended September 30, 2017 and 2016 is comprised of the following~~ (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Biopharma Services $ 4,168
$ 3,805
11,175
$ 11,374
Clinical Services 2,880
2,687
8,887
7,685
Discovery Services 980
258
1,536
760
$ 8,028
$ 6,750
$ 21,598
$ 19,819

~~Accounts receivable by service type at September 30, 2017 and December 31, 2016 consists of the following (in thousands):~~

September 30,
2017 December 31,
2016
Biopharma Services $ 3,702
$ 3,683
Clinical Services 13,072
8,972
Discovery Services 1,300
480
Allowance for doubtful accounts (2,277 ) (1,387 )

$ 15,797
$ 11,748

Allowance for Doubtful Accounts (in thousands)
Balance, December 31, 2016 $ 1,387
Bad debt expense 890
Balance, September 30, 2017 $ 2,277

Revenue for Biopharma Services are customized solutions for patient stratification and treatment selection through an extensive suite of DNA-based testing services. Clinical Services are tests performed to provide information on diagnosis, prognosis and theranosis of cancers to guide patient management. These tests can be billed to Medicare, another third party insurer or the referring community hospital or other healthcare facility. 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:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Medicare 11% 14% 14% 13%
Other insurers 19% 21% 22% 20%
Other healthcare facilities 6% 5% 5% 6%
36% 40% 41% 39%



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	428		$	5,405		$	10,066		$	17,400
Cost of revenues	563			3,969			7,692			12,444
Gross profit (loss)	(135		)	1,436			2,374			4,956
Operating expenses:
Research and development	47			692			937			2,046
General and administrative	782			3,065			4,121			9,714
Sales and marketing	15			960			1,527			3,312
Restructuring costs	100			1,418			100			2,151
Transaction costs	—			—			651			—
Impairment of patents and other intangible assets	601			—			601			—
Total operating expenses	1,545			6,135			7,937			17,223
Loss from discontinuing operations	(1,680		)	(4,699		)	(5,563		)	(12,267		)
Other income (expense):
Interest expense	(38		)	(383		)	(2,211		)	(1,195		)
Gain on disposal of Clinical Business	1,222			—			1,222			—
Gain on disposal of BioPharma Business	7,274			—			7,274			—
Total other income (expense)	8,458			(383		)	6,285			(1,195		)
Net income (loss) from discontinuing operations	$	6,778		$	(5,082	)	$	722		$	(13,462	)

~~We have historically derived~~Unaudited condensed consolidated carrying amounts of major classes of assets and liabilities from discontinuing operations were as follows as of September 30, 2019 and December 31, 2018 (in thousands):



	September 30, 2019		December 31, 2018
Current assets of discontinuing operations:
Accounts receivable, net of allowance for doubtful accounts of $3,785 in 2019; $3,462 in 2018	$	1,082	$	6,261
Other current assets	43		1,652
Fixed assets, net of accumulated depreciation	—		3,559
Patents and other intangible assets, net of accumulated amortization	—		655
Goodwill	—		11,294
Current assets of discontinuing operations	$	1,125	$	23,421

Current liabilities of discontinuing operations
Accounts payable and accrued expenses	$	3,229	$	9,967
Obligations under finance leases	—		666
Deferred revenue	—		1,337
Line of credit	—		2,621
Term note	—		6,000
Deferred rent payable and other	—		151
Current liabilities of discontinuing operations	$	3,229	$	20,742

Note 4. Revenue

Revenue from the Company’s Discovery Services comes from preclinical oncology and immuno-oncology services offered to our biotechnology and pharmaceutical customers. The Company is a ~~significant portion of our revenue~~leader in orthotopic and metastases tumor models and

offers whole body imaging, in addition to toxicology testing and bionalytical analysis. Our Discovery Services are designed to support new compounds being studied to guide drug development, starting 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 alongcompound libraries and ending with a ~~portion~~comprehensive set of ~~the Biopharma Services revenue. Our test ordering sites are largely hospitals, cancer centers, reference laboratories, physician offices~~in vitro and ~~biopharmaceutical companies. Oncologists~~in vivo data and ~~pathologists at these sites order the tests on behalf of the needs of their oncology patients or~~reports, as part of a clinical trial sponsored by a biopharmaceutical company in which the patient is being enrolled. We generally do not have formal, long-term written agreements with such test ordering sites, and, as a result, we may lose a significant test ordering site at any time.needed for Investigational New Drug (IND) filing.

~~The top five test ordering sites during~~During the ~~three~~nine months ended September 30, ~~2017 and 2016~~2019, four customers accounted for approximately ~~45% and 39%~~79% of our ~~testing volumes, respectively.~~ consolidated revenue from continuing operations. During the nine months ended September 30, 2018, three customers accounted for approximately 47% of our consolidated revenue from continuing operations.

During the three months ended September 30, ~~2017, there was one biopharmaceutical company which~~2019, four customer accounted for approximately ~~11%~~83% of our ~~total revenue.~~consolidated revenue from continuing operations. During the three months ended September 30, ~~2016, there was one biopharmaceutical company which~~2018, two customers accounted for approximately ~~18%~~48% of our ~~total revenue.~~consolidated revenue from continuing operations.

~~The top five test ordering sites during~~Remaining Performance Obligations:

Services offered under Discovery Services frequently take time to complete under their respective contacts. These times vary depending on specific contract arrangements including the ~~nine months ended September 30, 2017~~length of the study and ~~2016 accounted~~how samples are delivered to us for ~~approximately 40% and 31%~~processing. In the case of ~~our testing volumes, respectively. During~~Discovery Services, the ~~nine months ended September 30, 2017, there was~~duration of performance obligations is less than one biopharmaceutical company which accounted for approximately 11% of our total revenue. During the nine months ended September 30, 2016, there was one biopharmaceutical company which accounted for approximately 10% of our total revenue.year.

~~Note 3. Common Stock Purchase Agreement with Aspire Capital~~

On August 14, 2017, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), which provides that Aspire Capital is committed to purchase up to an aggregate of $16.0 million of our common stock (the “Purchase Shares”) from time to time over the term of the Purchase Agreement. Aspire Capital made an initial purchase of 1,000,000 Purchase Shares (the “Initial Purchase”) at a purchase price of $3.00 per share on the commencement date of the agreement.

After the commencement date, on any business day over the 24-month term of the Purchase Agreement, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice (each, a “Purchase Notice”) directing Aspire Capital to purchase up to 33,333 Purchase Shares per business day, provided that Aspire Capital will not be required to buy Purchase Shares pursuant to a Purchase Notice that was received by Aspire Capital on any business day on which the last closing trade price of our common stock on the NASDAQ Capital Market is below $3.00. The Company and Aspire Capital also may mutually agree to increase the number of shares that may be sold to as much as an additional 2,000,000 Purchase Shares per business day. The purchase price per Purchase Share will be $3.00. As consideration for entering into the Purchase Agreement, we issued 320,000 shares of our common stock to Aspire Capital (“Commitment Shares”).

The number of Purchase Shares covered by and timing of each Purchase Notice are determined by us, at our sole discretion. The aggregate number of shares that we can sell to Aspire Capital under the Purchase Agreement may in no case exceed 3,938,213 shares of our common stock (which is equal to approximately 19.9% of the common stock outstanding on the date of the Purchase Agreement), including the 320,000 Commitment Shares and the 1,000,000 Initial Purchase Shares, unless shareholder approval is obtained to issue additional shares.

Our net proceeds will depend on several factors, including the frequency of our sales of Purchase Shares to Aspire Capital and the frequency at which the last closing trade price of our common stock is below $3.00, subject to a maximum of $16.0 million in gross proceeds, including the Initial Purchase. Our delivery of Purchase Notices will be made subject to market conditions, in light of our capital needs from time to time and under the limitations contained in the Purchase Agreement. We currently intend to use the net proceeds from sales of Purchase Shares for general corporate purposes and working capital requirements.

As of September 30, 2017, the Company has sold 1,000,000 shares under this agreement at $3.00 per share, resulting in proceeds of approximately $2,965,000, net of offering costs of approximately $35,000. The Company has also issued 320,000 shares as consideration for entering into the Purchase Agreement. The Company has not deferred any offering costs associated with this

~~agreement.~~

Note 4.5. Earnings Per Share

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.

~~Basic net loss and diluted net loss per share data~~ For all periods presented, all common stock equivalents outstanding were ~~computed as follows (in thousands except per share data):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Numerator:
Net (loss) for basic earnings per share $ (633 ) $ (3,745 ) $ (12,979 ) $ (13,027 )
Change in fair value of warrant liability 2,790
—
—
—
Net (loss) for diluted earnings per share $ (3,423 ) $ (3,745 ) $ (12,979 ) $ (13,027 )
Denominator:
Weighted-average basic common shares outstanding 21,577
16,519
20,059
14,868
Assumed conversion of dilutive securities:
Common stock purchase warrants 782
—
—
—
Potentially dilutive common shares 782
—
—
—
Denominator for diluted earnings per share – adjusted weighted-average shares 22,359
16,519
20,059
14,868
Basic net (loss) per share $ (0.03 ) $ (0.23 ) $ (0.65 ) $ (0.88 )
Diluted net (loss) per share $ (0.15 ) $ (0.23 ) $ (0.65 ) $ (0.88 )

The above table includes adjustments to diluted earnings per share in accordance with FASB Accounting Standards Codification (“ASC”) 260. The adjustments were required for the three months ended September 30, 2017 as the derivative warrants were dilutive and the change in fair value of the derivative warrants was a gain.anti-dilutive.

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


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016	2019	2018	2019	2018
Common stock purchase warrants	4,163	7,145	6,574	7,145	279	335	279	335
Stock options	2,816	2,128	2,816	2,128	68	101	68	101
Convertible Note					206	112	206	112
Advance from NDX					98	—	98	—
Restricted shares of common stock	115	73	115	73	—	2	—	2
	7,094	9,346	9,505	9,346	651	550	651	550

Note 6. Leasing Arrangements

Operating Leases

We lease our laboratory, research facility and administrative office space under various operating leases. We also lease scientific equipment under various finance leases. Following the Business Disposals, we have assigned our office leases in North Carolina and New Jersey to Buyer.

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and operating lease liabilities, non-current on our unaudited condensed consolidated balance sheets. Finance leases are included in fixed assets, net of accumulated depreciation and obligations under finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Our incremental borrowing rate was determined by adjusting our secured borrowing interest rate for the longer-term nature of our leases. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The operating lease ROU asset also includes any lease payments made and excludes lease incentives incurred. Our lease terms may include options to

extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

The components of lease expense were as follows for the three and nine months ended September 30, 2019 for continuing operations (in thousands):



	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	43	$	130
Short-term lease cost	14		68
Variable lease cost	29		74
	$	86	$	272

Supplemental cash flow related to leases of our continuing operations was as follows for the three and nine months ended September 30, 2019 (in thousands):



	Three months ended September 30, 2019		Nine months ended September 30, 2019
Cash paid amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	54	$	164

Other supplemental information related to leases of our continuing operations was as follows at September 30, 2019:



Weighted average remaining lease term (in years)
Operating leases	1.24

Weighted average discount rate
Operating leases	7.97	%

We did not enter into any new operating leases that met scope during the three and nine months ended September 30, 2019.

At September 30, 2019, future estimated minimum lease payments under non-cancelable operating leases were as follows (in thousands):



2019 (remaining 3 months)	$	56
2020	191
2021	11
Total minimum lease payments	258
Less amount representing interest	22
Total	$	236

Note 7. Financing

Convertible Note

On July 17, 2018, the Company entered into the Convertible Note, pursuant to which the Company issued an unsecured 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 had an eighteen month term, carried interest at 10% per annum and was subordinated in right of payment to the ABL and PFG Term Note. The note was convertible into shares of the Company’s common stock at a conversion price of $24.00 per share (“Conversion Price”) upon five trading days’ notice, subject to certain adjustments (standard dilution) and ownership limitations specified in the Convertible Note. In May 2019, the conversion price was reduced to $6.82 for $1,250,000 of the balance of the Convertible Note; the remainder was still convertible at $24.00. The reduction in the conversion price increased the fair value of the embedded conversion option by approximately $547,000. The future cash flows of the Convertible Note changed by more than 10% as a result of the Standstill Agreement, so the Company amortized the remaining debt discount and debt issuance costs of $37,000, resulting in a loss on debt extinguishment of approximately $584,000 during the nine months ended September 30, 2019, of which approximately $328,000 was allocated to discontinuing operations. Loss on debt extinguishment allocated to continuing operations was recorded in interest expense.

The investor could redeem any portion of the Convertible Note upon five trading days’ notice (“Redemption Notice”) 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 $30.00 per share or higher. The Company could 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 could 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 Convertible Note is the general unsecured obligation of the Company. At September 30, 2019, the principal balance of the Convertible Note is approximately $2.3 million, not including accrued interest of approximately $406,000, which is recorded in accounts payable and other accrued expenses on the Condensed Consolidated Balance Sheets.

In May 2019, Iliad converted $350,000 of the Convertible Note balance into 51,327 shares of our common stock at $6.82 per share. During the three and nine months ended September 30, 2019, the Company issued an aggregate of 173,557 shares of common stock to Iliad in exchange for the return of $612,175 of principal amount of the Convertible Note to the Company.

As of June 20, 2019, the Company was in default on the Convertible Note. The Convertible Note was accruing interest at the default rate of 22%, and the outstanding balance was increased by 15% (approximately $408,000) upon the notice of default. In October 2019, the Convertible Note was settled for $2,712,000, including interest of approximately $439,000, as discussed in Note 1.

Advance from NDX

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 gave 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 $18.18 per share. At September 30, 2019, the principal balance of the Advance from NDX was $1,500,000, not including accrued interest of approximately $288,000, which is recorded in accounts payable and other accrued expenses on the Condensed Consolidated Balance Sheets.

The Advance from NDX is the general unsecured obligation of the Company and was subordinated in right of payment to the ABL and PFG Term Note, provided that NDX has asserted that its obligation to standstill under its subordination agreements will not be applicable at a time when the Company attains certain levels of unrestricted cash, as a result of the Company having improperly terminated the Merger Agreement. The Company does not believe it improperly terminated the Merger Agreement. The Company and NDX entered into the NDX Settlement Agreement in October 2019, which is discussed in detail in Note 1.

Atlas Sciences Note

In October 2019, we entered into a twelve month unsecured promissory note with Atlas Sciences of $1,347,500. The Atlas Sciences Note resulted in cash receipts of $1,250,000, reflecting an original issue discount of $87,500 and expenses payable by us of $10,000. The Atlas Sciences Note has a 12 month term and bears interest at 10% per annum. Atlas Sciences may redeem any portion of the note, at any time after six months from the issuance date upon three business days' notice, subject to a

monthly maximum redemption amount of $300,000. We may prepay the Atlas Sciences Note at any time without penalty. Upon the occurrence of an event of default, the interest rate will be adjusted to 22% per annum.

Note 8. Capital Stock

2019 Offerings

On January 9, 2019, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), relating to an underwritten public offering of 444,444 shares of our common stock for $6.75 per share. We received proceeds from the offering of approximately $2,437,000, net of expenses and discounts of approximately $563,000.

Conversions and Exchanges of Debt into Common Stock

In May 2019, Iliad converted $350,000 of the Convertible Note into an aggregate of 51,327 shares of our common stock at a conversion price of $6.82 per share.

During the three and nine months ended September 30, 2019, the Company issued 173,557 shares of common stock to Iliad in exchange for the return of $612,175 of principal amounts due under the Convertible Note using the exchange date fair market value of the Company's common stock.

Note 5.9. Sale of Net Operating Losses

On ~~February 22, 2017,~~April 4, 2019, we sold ~~$18,177,059~~$11,638,516 of gross State of New Jersey NOL’s relating to the ~~2014 and 2015~~2017 tax ~~years for approximately $876,000~~year as well as ~~$167,572~~$71,968 of state research and development tax credits. The sale resulted in the net receipt by the Company of approximately ~~$970,000. This figure includes all costs~~$512,000, which is included in the income tax benefit line on the Condensed Consolidated Statements of Operations and ~~expenses associated with the sale of these state tax attributes as deducted from the gross sales price of $1,043,517.~~Other Income (Loss).

~~Note 6. Term Notes and Line of Credit~~

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

credit agreement. The new SVB credit facility provides for an asset-based line of credit (“ABL”) for an amount not to exceed the lesser of (a) $6.0 million or (b) 80% of eligible accounts receivable plus the lesser of 50% of the net collectible value of third party accounts receivable or three (3) times the average monthly collection amount of third party accounts receivable over the previous quarter. The ABL requires monthly interest payments at the Wall Street Journal prime rate plus 1.50% (5.75% at September 30, 2017) and matures on March 22, 2019. We paid to SVB a $30,000 commitment fee at closing and will pay a fee of 0.25% per year on the average unused portion of the ABL. At September 30, 2017, we have borrowed $2.0 million ~~on the ABL.~~

We concurrently entered into a new three year $6.0 million term loan agreement (“PFG Term Note”) with Partners for Growth IV, L.P. (“PFG”). The PFG Term Note is an interest only loan with the full principal and any outstanding interest due at maturity on March 22, 2020. Interest is payable monthly at a rate of 11.5% per annum, with the possibility of reducing to 11.0% in 2018 based on achieving certain financial milestones set forth by PFG. We may prepay the PFG Term Note in whole or part at any time without penalty. We paid PFG a commitment fee of $120,000 ~~at closing.~~

Both loan agreements require us to comply with certain financial covenants, including minimum adjusted EBITDA, revenue and liquidity covenants, and restrict us from, among other things, paying cash dividends, incurring debt and entering into certain transactions without the prior consent of the lenders. Repayment of amounts borrowed under the new loan agreements may be accelerated if an event of default occurs, which includes, among other things, a violation of such financial covenants and negative covenants.

Our obligations to SVB under the ABL facility are secured by a first priority security interest on substantially all of our assets, and our obligations under the PFG Term Note are secured by a second priority security interest subordinated to the SVB lien.

In connection with the PFG Term Note, we issued seven year warrants to the lenders to purchase an aggregate of 443,262 shares of our common stock at an exercise price of $2.82 per share. The number of warrants may be reduced by 20% subject to us achieving certain financial milestones set forth by PFG.

~~The following is a summary of long-term debt (in thousands):~~

September 30, 2017 December 31, 2016
SVB Term Note, repaid in 2017 $ —
$ 4,667
PFG Term Note, net of discount of $865 5,135
—
Less unamortized debt issuance costs 199
13
Term notes, net 4,936
4,654
Less current maturities —
2,000
Long-term portion $ 4,936
$ 2,654

~~At September 30, 2017, the principal amount of the PFG Term Note of $6,000,000 is due in 2020.~~

Note 7.10. Stock-Based Compensation

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, 391,317~~2019, 28,524 shares remain available for future awards under the 2011 ~~Plan~~Plan. On July 23, 2019, the Company issued 3,333 stock options to each of its five non-employee directors. The options will vest in equal monthly installments over the next twelve months and ~~134,354 shares remain available for future awards under the 2008 Plan.~~have an exercise price of $4.50 per share.

A summary of employee and non-employee stock option activity for the nine months ended September 30, ~~2017~~2019 for both continuing and discontinuing employees is as follows:

Options Outstanding
Weighted-
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic
Value
(in thousands)

Number of
Shares
(in thousands)

Weighted-
Average
Exercise
Price

Outstanding January 1, 2017 2,198
$ 9.09
7.04 $ —
Granted 860
2.87

Exercised (3 ) 2.23

Cancelled or expired (239 ) 10.80

Outstanding September 30, 2017 2,816
$ 7.05
7.19 $ 367
Exercisable September 30, 2017 1,533
$ 9.54
5.69 $ 76



	Options Outstanding				Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
	Number of Shares (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding January 1, 2019	100		$	173.10	5.70	$	—
Granted	20		5.89
Cancelled or expired	(52	)	183.59
Outstanding September 30, 2019	68		$	116.79	7.30	$	—
Exercisable September 30, 2019	38		$	194.39	5.80	$	—

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,~~2019, total unrecognized compensation cost related to non-vested stock options granted to employees was ~~$2,865,963~~approximately $214,000 for continuing operations, which we expect to recognize over the next ~~2.32~~2.27 years.

~~As of September 30, 2017, total unrecognized compensation cost related to non-vested stock options granted to non-employees was $12,625 which we~~ We expect to ~~recognize over~~incur stock-based compensation for employees who will transfer to Buyer no later than January 15, 2020 pursuant to the ~~next 0.25 years. The estimate of unrecognized non-employee compensation is based on the fair value of the non-vested options as of September 30, 2017.~~TSA described in Note 1.

The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term (the period of time that the options granted are expected to be outstanding), the volatility of our common stock, a risk-free interest rate, and expected dividends. ~~To the extent actual forfeitures differ from the estimates, the difference~~Forfeitures will be recorded ~~as a cumulative adjustment in the period estimates are revised.~~when they occur. No compensation cost is recorded for options that do not vest. We use the simplified calculation of expected life described in the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, and volatility is based on the historical volatility of our common stock. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. We use an expected dividend yield of zero, as we do not anticipate paying any dividends in the foreseeable future. ~~Forfeitures will be recorded when they occur.~~

The following table presents the weighted-average assumptions used to estimate the fair value of options granted to continuing and discontinuing employees during the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Volatility 75.28 % 74.30 % 74.60 % 74.30 %
Risk free interest rate 1.92 % 1.17 % 1.97 % 1.17 %
Dividend yield 0.00 % 0.00 % 0.00 % 0.00 %
Term (years) 5.73
5.92
5.90
5.92
Weighted-average fair value of options granted during the period 1.91
1.30
1.89
1.30

In May 2014, we issued 200,000 options to our Director, Raju Chaganti, with an exercise price of $15.89. See Note 12 for additional information. The following table presents the weighted-average assumptions used to estimate the fair value of options reaching their measurement date for non-employees during the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,						Nine Months Ended September 30,
	2017		2016		2017		2016		2019			2018			2019			2018
Volatility	74.39	%	72.97	%	76.06	%	74.50	%	94.57		%	76.89		%	93.86		%	77.69		%
Risk free interest rate	2.17	%	1.46	%	2.19	%	1.43	%	1.84		%	2.76		%	1.95		%	2.88		%
Dividend yield	0.00	%	0.00	%	0.00	%	0.00	%	0.00		%	0.00		%	0.00		%	0.00		%
Term (years)	6.64		7.64		6.89		7.89		5.27			6.32			5.44			6.47
Weighted-average fair value of options granted during the period									$	3.23		$	21.60		$	4.32		$	19.20

Restricted stock awards have been granted to employees, directors and consultants as compensation for services. At September 30, ~~2017,~~2019, there was ~~$383,829 of~~no unrecognized compensation cost related to non-vested restricted stock granted to employees and ~~directors; we expect to recognize the cost over 1.50 years.~~directors.

The following table summarizes the activities for our non-vested restricted stock awards for the nine months ended September 30, ~~2017:~~2019 for both continuing and discontinuing employees:

Non-vested Restricted Stock Awards
Number of
Shares
(in thousands) Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2017 80
$ 6.30
Granted 65
3.29
Vested (30 ) 8.30
Non-vested at September 30, 2017 115
$ 4.09



	Non-vested Restricted Stock Awards
	Number of Shares (in thousands)		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2019	1		$	102.82
Vested	(1	)	107.00
Non-vested at September 30, 2019	—		$	—

The TSA with Buyer described in Note 1 requires the Company to continue to employ individuals who will transfer to Buyer no later than six months from the closing of the transaction. Stock-based compensation related to these employees is included in discontinuing operations. 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 continuing operations included in our Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) during the periods presented (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cost of revenues $ 122
$ 83
$ 250
$ 219
Research and development 11
45
110
140
General and administrative 356
356
949
1,095
Sales and marketing 30
30
86
84
Total stock-based compensation $ 519
$ 514
$ 1,395
$ 1,538



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cost of revenues	$	4	$	4	$	12	$	12
General and administrative	36		130		214		391
Total stock-based compensation related to continuing operations	$	40	$	134	$	226	$	403

~~Note 8. Warrants~~

~~On March 22, 2017, we issued seven~~ year warrants to PFG and certain of its affiliates to purchase an aggregate of 443,262 shares of our common stock at an exercise price of $2.82 per share, in conjunction with our debt refinancing described in Note 5. The number of warrants may be reduced by 20% subject to us achieving certain financial milestones set forth by PFG. The warrants can be net settled in common stock using the average 90-trading day price of our common stock. These warrants are defined in the table below as 2017 Debt derivative warrants.

During the three and nine months ended September 30, ~~2017,~~2019, we recognized approximately $17,000 and $91,000, respectively, of stock-based compensation related to discontinuing operations. During the ~~Company received~~three and nine months ended September 30, 2018, we recognized approximately ~~$56,000~~$55,000 and ~~$1,827,000,~~$328,000, respectively, ~~from shareholders who exercised~~of stock-based compensation related to discontinuing operations.

Note 11. Warrants

On January 14, 2019, we issued 31,111 warrants to purchase ~~25,000 and 811,900 shares of~~ common stock ~~respectively,~~ at ~~$2.25. In addition,~~$7.43 per share. The warrants are immediately exercisable and expire on ~~March 28, 2017, warrant holders exercised~~January 9, 2024. On January 31, 2019 we issued 35,507 warrants to purchase ~~90,063 shares of~~ common stock at ~~an exercise price~~$7.59 per share. These warrants are immediately exercisable and expire on January 26, 2024. All of ~~$2.25 per share using~~these warrants were issued in conjunction with the ~~net issuance exercise method whereby 45,162 shares were surrendered~~2019 Offerings.

During the three and nine months ended September 30, 2019, 122,500 warrants issued as ~~payment in full~~part of a public offering of the ~~exercise price resulting~~Company's common stock and warrants in ~~a net issuance of 44,901 shares.~~December 2017 (the "2017 Offering") expired unexercised.

The following table summarizes the warrant activity for the nine months ended September 30, ~~2017~~2019 (in thousands, except exercise price):


Issued With / For	Exercise Price			Warrants Outstanding January 1, 2017	2017 Warrants Issued	2017 Warrants Exercised		Warrants Outstanding September 30, 2017	Exercise Price			Warrants Outstanding January 1, 2019	2019 Warrants Issued	2019 Warrants Expired		Warrants Outstanding September 30, 2019
Non-Derivative Warrants:
Financing	$	10.00		243	—	—		243	$	300.00		8	—	—		8
Financing	15.00			361	—	—		361	450.00			9	—	—		9
Debt guarantee	15.00			109	—	—		109
2015 Offering	5.00			3,450	—	—		3,450	150.00			115	—	—		115
2017 Debt									27.60			15	—	—		15
2019 Offering									7.43			—	31	—		31
2019 Offering									7.59			—	35	—		35
Total non-derivative warrants	6.42		C	4,163	—	—		4,163	115.54		B	147	66	—		213
Derivative Warrants:
2016 Offerings	2.25		A	2,870	—	(902	)	1,968	67.50		A	66	—	—		66
2017 Debt	2.82		B	—	443	—		443
2017 Offering									70.50		A	117	—	(117	)	—
2017 Offering									75.00		A	6	—	(6	)	—
Total derivative warrants	2.35		C	2,870	443	(902	)	2,411	67.50		B	189	—	(123	)	66
Total	$	4.93	C	7,033	443	(902	)	6,574	$	104.18	B	336	66	(123	)	279


A	These warrants are subject to fair value accounting and contain a contingent net cash settlement feature. See Note 12.


B	These warrants are subject to fair value accounting and contain a net settlement provision that uses the 90-trading day price of our common stock. These warrants are subject to a 20% reduction if certain financial milestones are met.


C	Weighted-average exercise prices are as of September 30, ~~2017.~~2019.

Note 9.12. Fair Value of Warrants

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


Issued with/for	Fair value of warrants outstanding as of December 31, 2016		Fair value of warrants issued		Fair value of warrants exercised			Change in fair value of warrants			Fair value of warrants outstanding as of September 30, 2017		Fair value of warrants outstanding as of December 31, 2018		Change in fair value of warrants			Fair value of warrants outstanding as of September 30, 2019
2016 Offerings	$	2,018	$	—	$	(2,782	)	$	4,107		$	3,343	$	225	$	(210	)	$	15
2017 Debt	—		1,004		—			(180		)	824
2017 Offering													23		(23		)	—
	$	2,018	$	1,004	$	(2,782	)	$	3,927		$	4,167	$	248	$	(233	)	$	15

The derivative warrants issued as part of the 2016 Offerings are valued using a probability-weighted Binomial model, while the derivative warrants issued ~~as part of~~in conjunction with the 2017 ~~Debt refinancing are~~Offering were valued using a ~~Monte Carlo~~Black-Scholes model. The following

tables summarize the assumptions used in computing the fair value of derivative warrants subject to fair value accounting at ~~the date of issue or exercise during the three and nine months ended~~ September 30, ~~2017 and 2016, and at September 30, 2017~~2019 and December 31, ~~2016.~~2018.


	Issued During the						Exercised During the
2016 Offerings	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016			Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017			As of September 30, 2017			As of December 31, 2016			As of September 30, 2019			As of December 31, 2018
Exercise price	$	2.25		$	2.25		$	2.25		$	2.25		$	2.25		$	2.25		$	67.50		$	67.50
Expected life (years)	5.50			5.50			4.30			4.78			4.33			5.06			2.33			3.08
Expected volatility	73.28		%	74.36		%	74.20		%	76.24		%	75.07		%	72.82		%	114.58		%	100.51		%
Risk-free interest rate	1.21		%	1.30		%	1.81		%	1.94		%	1.92		%	1.93		%	1.68		%	2.46		%
Expected dividend yield	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%


2017 Debt	Issued During the Nine Months Ended September 30, 2017			As of September 30, 2017
2017 Offering							As of December 31, 2018
Exercise price	$	2.82		$	2.82		$	70.80
Expected life (years)	7.00			6.48			0.44
Expected volatility	74.61		%	74.07		%	172.5		%
Risk-free interest rate	2.22		%	2.16		%	2.56		%
Expected dividend yield	—		%	—		%	—		%

Note ~~10.~~13. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. 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):


	September 30, 2017								September 30, 2019
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Warrant liability	$	4,167	$	—	$	—	$	4,167	$	15	$	—	$	—	$	15
Note payable	228		—		—		228		8		—		—		8
	$	4,395	$	—	$	—	$	4,395	$	23	$	—	$	—	$	23


	December 31, 2016								December 31, 2018
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Warrant liability	$	2,018	$	—	$	—	$	2,018	$	248	$	—	$	—	$	248
Note payable	114		—		—		114		20		—		—		20
Other derivatives									86		$	—	$	—	86
	$	2,132	$	—	$	—	$	2,132	$	354	$	—	$	—	$	354

At September 30, 2019 and December 31, 2018, the Company had a liability payable to VenturEast from a prior acquisition. The ultimate payment to VenturEast will be the fair value of ~~84,278~~2,809 shares of our common stock at the time of payment. ~~The value of the note payable to VenturEast was determined using the fair value of our common stock.~~ During the three months ended

September 30, ~~2017~~2019 and ~~2016,~~2018, we recognized a gain of approximately ~~$105,000~~$5,000 and ~~$18,000,~~a loss of approximately $13,000, respectively, due to the change in value of the note. During the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, we ~~recognized a loss~~recorded gains of approximately ~~$114,000~~$12,000 and ~~a gain of approximately $119,000,~~$68,000, respectively, due to the change in value of the note.

At September 30, ~~2017,~~2019, the warrant liability consists of stock warrants issued as part of the 2016 Offerings 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 9,12, “Fair Value of Warrants.” During the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, we recognized gains of approximately ~~$2,790,000~~$34,000 and ~~$712,000,~~$12,000, respectively, on the derivative warrants due to the decrease in our stock price. During the nine months ended September 30, ~~2017,~~2019 and 2018, we recognized ~~a loss~~gains of approximately ~~$3,927,000~~$233,000 and $2,858,000 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 Unaudited Condensed Consolidated Statements of ~~Operations.~~Operations and Other Comprehensive Income (Loss).

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

Note Payable Warrant
to VenturEast Liability
Fair value at December 31, 2016 $ 114
$ 2,018
Fair value of warrants issued —
1,004
Fair value of warrants exercised —
(2,782 )
Change in fair value 114
3,927
Fair value at September 30, 2017 $ 228
$ 4,167



	Note Payable			Warrant			Other
	to VenturEast			Liability			Derivatives
Fair value at December 31, 2018	$	20		$	248		$	86
Change in fair value	(12		)	(233		)	(86		)
Fair value at September 30, 2019	$	8		$	15		$	—

Note ~~11.~~14. Joint Venture Agreement

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~~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 and do not expect to incur further liabilities in connection with the JV.

During the three and nine months ended September 30, 2019, there was no activity in the JV. Our share of the JV’s net loss was approximately ~~$2,000~~$1,000 and ~~$18,000~~$4,000 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,~~2018, respectively, and is included in ~~research~~general and ~~development~~administrative expense on the Unaudited Condensed Consolidated Statements of ~~Operations.~~Operations and Other

Comprehensive Income (Loss). We have a net receivable due from the JV of approximately $10,000 at September 30, ~~2017,~~2019, which is included in other assets in the Unaudited Condensed 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.

Note ~~12.~~15. Related Party Transactions

We ~~have~~had a consulting agreement with Equity Dynamics, Inc. (“EDI”), an entity controlled by the former Chairman of our Board of Directors, John Pappajohn, effective April 1, 2014 through August 31, 2018, pursuant to which EDI ~~receives~~received a monthly fee of $10,000. Total expenses for ~~each of~~ the three ~~months ended September 30, 2017~~ and ~~2016 were $30,000. Total expenses for each of the~~ nine months ended September 30, ~~2017~~2018 were $90,000 and ~~2016 were $90,000.~~$150,000, respectively. As of September 30, ~~2017,~~2019, we ~~owed EDI $20,000.~~accrued liabilities of $70,000 for unpaid fees due to EDI.

As described in Note 1, the Company closed two public offerings in January 2019, in which various executives and directors purchased shares at the public offering price. On January 14, 2019, John Pappajohn, John Roberts, our President and Chief Executive Officer, and Geoffrey Harris, a Director, purchased 33,333 shares, 3,333 shares and 3,333 shares, respectively, at the public offering price of $6.75 per share. On January 31, 2019, John Pappajohn, John Roberts, Edmund Cannon, a Director, and M. Glenn Miles, our Chief Financial Officer, purchased 33,333 shares, 6,181 shares, 1,449 shares and 5,000 shares, respectively, at the public offering price of $6.90 per share.

On July 23, 2019, the Company issued 3,333 stock options to each of its five non-employee directors. The options will vest in equal monthly installments over the next twelve months and have an exercise price of $4.50 per share. The directors have waived their rights to any claim for past due director compensation as a condition of these option grants.

Note 16. Contingencies

On April 5, 2018 and April 12, 2018, purported stockholders of the Company filed nearly identical putative class action lawsuits in the U.S. District Court for the District of New Jersey, against the Company, Panna L. Sharma, John A. Roberts, and Igor Gitelman, captioned Ben Phetteplace v. Cancer Genetics, Inc. et al., No. 2:18-cv-05612 and Ruo Fen Zhang v. Cancer Genetics, Inc. et al., No. 2:18-06353, respectively. The complaints alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 based on allegedly false and misleading statements and omissions regarding our business, operational, and financial results. The lawsuits sought, among other things, unspecified compensatory damages in connection with purchases of our stock between March 23, 2017 and April 2, 2018, as well as interest, attorneys’ fees, and costs. On August 28, 2018, the Court consolidated the two actions in one action captioned In ~~2010, we entered into~~re Cancer Genetics, Inc. Securities Litigation (the “Securities Litigation”) and appointed shareholder Randy Clark as the lead plaintiff. On October 30, 2018, the lead plaintiff filed an amended complaint, adding Edward Sitar as a ~~three-year consulting agreement~~defendant and seeking, among other things, compensatory damages in connection with ~~Dr. Chaganti, which was subsequently renewed through~~purchases of CGI stock between March 10, 2016 and April 2, 2018. On December 31, ~~2016 pursuant~~2018, Defendants filed a motion to ~~which Dr. Chaganti received $5,000 per month~~dismiss the amended complaint for ~~providing consulting and technical support services. Pursuant~~failure to state a claim. On March 1, 2019, lead plaintiff filed its opposition to the ~~terms~~motion to dismiss. On April 15, 2019, defendants filed their reply in further support of their motion to dismiss. Defendants' motion remains pending before the Court. The Company is unable to predict the ultimate outcome of the ~~renewed consulting agreement, Dr. Chaganti received an option~~Securities Litigation and therefore cannot estimate possible losses or ranges of losses, if any.

In addition, on June 1, 2018, September 20, 2018, and September 25, 2018, purported stockholders of the Company filed nearly identical derivative lawsuits on behalf of the Company in the U.S. District Court for the District of New Jersey against the Company (as a nominal defendant) and current and former members of the Company’s Board of Directors and current and former officers of the Company. The three cases are captioned: Bell v. Sharma et al., No. 2:18-cv-10009-CCC-MF, McNeece v. Pappajohn et al., No. 2:18-cv-14093, and Workman v. Pappajohn, et al., No. 2:18-cv-14259 (the “Derivative Litigation”). The complaints allege claims for breach of fiduciary duty, violations of Section 14(a) of the Securities Exchange Act of 1934 (premised upon alleged omissions in the Company’s 2017 proxy statement), and unjust enrichment, and allege that the individual defendants failed to ~~purchase 200,000 shares~~implement and maintain adequate controls, which resulted in ineffective disclosure controls and procedures, and conspired to conceal this alleged failure. The lawsuits seek, among other things, damages and/or restitution to the Company, appropriate equitable relief to remedy the alleged breaches of fiduciary duty, and attorneys’ fees and costs. On November 9, 2018, the Court in the Bell v. Sharma action entered a stipulation filed by the parties staying the Bell action until the Securities Litigation is dismissed, with prejudice, and all appeals have been exhausted; or the defendants’ motion to dismiss in the Securities Litigation is denied in whole or in part; or either of the parties in the Bell action gives 30 days’ notice that they no longer consent to the stay. On December 10, 2018, the parties in the McNeece action filed a stipulation that is substantially identical to the Bell stipulation. On February 1, 2019, the Court in the Workman action granted a stipulation that is substantially

identical to the Bell stipulation. The Company is unable to predict the ultimate outcome of the Derivative Litigation and therefore cannot estimate possible losses or ranges of losses, if any.

Note 17. Subsequent Events

Reverse Stock Split

As discussed in Note 1, we effected a 30-for-1 reverse stock split of our common stock ~~at a purchase price~~on October 24, 2019.

Settlement of ~~$15.89 per share vesting over a period~~Excess Consideration Note

On October 24, 2019, the Excess Consideration Note matured and was settled for $6,024,489. Buyer withheld from the settlement certain amounts as security for future claims and uncollected receivables. See Note 1 for additional details.

Settlement of ~~four years. Total non-cash stock-based compensation recognized under the consulting agreement for the three months ended September 30, 2017~~Advance from NovellusDx, Ltd.

In October 2019, we settled our Advance from NDX by paying $1,100,000 and 2016 was $12,625 and $7,125, respectively. Total non-cash stock-based compensation recognized under the consulting agreement for the nine months ended September 30, 2017 and 2016 was $62,125 and $32,750, respectively. Also pursuant to the consulting agreement, Dr. Chaganti assigned to us all rights to any inventions which he may invent during the course of rendering consulting services to us. In exchange for this assignment, if the USPTO issues a patent for an invention on which Dr. Chaganti is listed as an inventor, we are requiredagreeing to pay ~~Dr. Chaganti (i) a one-time payment~~nine monthly payments of $50,000 ~~and (ii) 1% of any net revenues we receive from any licensed sales of the invention. In the first quarter of 2016, we paid Dr. Chaganti $50,000 which was recognized as an expense~~commencing in ~~fiscal 2015 when one patent was issued.~~

~~Note 13. Contingencies~~November 2019.

InLoan from Atlas Sciences, LLC

On October 21, 2019, we issued a $1,347,500 unsecured promissory note to Atlas Sciences, as described further in Note 1. We utilized the ~~normal course of business, the Company may become involved in various claims and legal proceedings. In the opinion of management, the ultimate liability or disposition thereof is not expected~~proceeds from this note to ~~have a material adverse effect on~~partially repay our ~~financial condition, results of operations, or liquidity.~~Convertible Note.

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

As used herein, the “Company,” “CGI,” “we,” “us,” “our” or similar terms, refer to Cancer Genetics, Inc. and its wholly owned ~~subsidiaries:~~subsidiaries at September 30, 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. The share numbers in the following discussion reflect a 1-for-30 reverse stock split that we effected October 24, 2019.

Overview

~~We are~~Cancer Genetics, Inc. supports the biotechnology and pharmaceutical industry to develop innovative new drug therapies. Until the closing of the Business Disposals (as defined below) in July 2019, we were an emerging leader in ~~the field of~~enabling precision medicine ~~enabling~~in oncology by providing multi-disciplinary diagnostic and data solutions, facilitating individualized therapies ~~in the field of oncology~~ through our diagnostic ~~products and~~tests, services and molecular markers. ~~We develop, commercialize~~Following the Business Disposals described below, we currently have an extensive set of anti-tumor referenced data based on predictive xenograft and syngeneic tumor models from the acquisition of vivoPharm, Pty Ltd. (“vivoPharm”) in 2017, to provide ~~molecular-~~Discovery Services such as contract research services, focused primarily on unique specialized studies to guide drug discovery and ~~biomarker-based tests~~development programs in the oncology and ~~services that enable physicians to personalize~~immuno-oncology fields.

Until 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. We have a comprehensive, disease-focused oncology testing portfolio. Our tests and techniques target a wide range of cancers, covering nineclosing of the ~~top ten cancers~~Business Disposals in ~~prevalence in the United States,~~July 2019, we were executing a strategy of partnering 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.~~

~~Our vision is to become the oncology diagnostics partner for biopharmaceutical~~pharmaceutical and biotech companies and clinicians as oncology diagnostic specialists by ~~participating in the entire care continuum from bench to bedside. We believe the diagnostics industry is undergoing a rapid evolution in its approach to oncology testing, embracing precision medicine~~supporting therapeutic discovery, development and ~~individualized testing as a means to drive higher standards of~~ patient treatment and disease management. Similarly, biopharmaceutical companies are increasingly engaging companies such as ours to provide information on clinical trial participants' molecular profiles in order to identify biomarker and genomic variations that may be responsible for differing responses to pharmaceuticals, and particularly to oncology drugs, thereby increasing the efficiency of trials while lowering related costs. We believe tailored therapeutics can revolutionize oncology medicine through molecular- and biomarker-based testing services, enabling physicians and researchers to target the factors that make each patient and disease unique.

Our services are performed at our state-of-the-art laboratories located in New Jersey, Pennsylvania, North Carolina, California, Shanghai (China), Victoria (Australia), and Hyderabad (India). Our laboratories comply with the highest regulatory standards

as appropriate for the services they deliver including CLIA, CAP, NY State, California State and NABL (India). 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.care.

Our clinical offerings ~~include~~included our portfolio of proprietary tests targeting hematological, urogenital and HPV-associated cancers, in conjunction with ancillary non-proprietary tests. Our proprietary tests target cancers that are difficult to prognose and predict treatment outcomes through currently available mainstream techniques. We ~~provide~~provided our proprietary tests and services, along with a comprehensive range of non-proprietary oncology-focused tests and laboratory services, to oncologists and pathologists at hospitals, cancer centers, and physician offices, as well as biotech and pharmaceutical companies to support their clinical trials. Our proprietary tests are based principally on our expertise in specific cancer types, test development methodologies and proprietary algorithms correlating genetic events with disease specific information. Our portfolio primarily ~~includes~~included comparative genomic hybridization (CGH) microarrays and next generation sequencing (NGS) panels, gene expression tests, and DNA fluorescent in situ hybridization (FISH) probes.

The non-proprietary testing services we ~~offer are~~offered were focused in part on specific oncology categories where we ~~are~~were 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.

The ~~insight that~~Company currently requires additional capital to pay its unsecured debt and accounts payable, and its ability to continue as a going concern is dependent upon its ability to collect amounts held in escrow by Buyer and its outstanding accounts receivable, receive the Earn-Out payments from siParadigm and negotiate discounts in good faith with its trade suppliers. In July 2019, we ~~develop~~sold our BioPharma Business and Clinical Business as described in ~~delivering~~Note 1. While the ~~non-proprietary services are often leveraged~~Buyer assumed certain of our liabilities in the ~~development of our proprietary programs and now increasingly in~~BioPharma Disposal, the ~~validation of our proprietary programs, such as MatBA and Focus::NGS.~~

~~We expect~~cash received to ~~continue~~date from the Business Disposals is insufficient to incur significant losses for the near future. We incurred losses of $15.8 million and $20.2 million for fiscal years ended December 31, 2016 and 2015, respectively, and $13.0 million for the nine months ended September 30, 2017.

~~As of September 30, 2017, we had an accumulated deficit of $126.9 million.~~

~~Acquisitions~~

~~On August 15, 2017, we purchased~~satisfy all of the ~~outstanding stock~~Company’s liabilities and other obligations, and the Company cannot determine at this time if future Earn-Out payments and receipt of ~~vivoPharm,~~amounts held in escrow by Buyer, combined with settlements of claims against the Company will enable all creditors to be paid in full and provide sufficient funds for future operations. We are continuing to evaluate additional strategic options, with the assistance of an investment bank, which could include the sale of other assets, a merger, reverse merger or other strategic transaction. We can provide no assurances that our current actions will be successful or that additional sources of cash or financing will be available to us on favorable terms, if at all. If the Company is not able to collect its ~~principal place of business in Victoria, Australia, in~~accounts receivable or raise additional capital on a ~~transaction valued at approximately $1.2 million in cash, $9.5 million in~~timely basis or on favorable terms, the Company may need to scale back further its operations. These factors raise substantial doubt about the Company's ~~common stock based on~~ability to continue as a going concern for the closing price of the stock on August 15, 2017, plus an estimated accrued settlement of $345,000 for excess working capital. The Company has deposited in escrow 20% of the stock consideration until the expiration ofnext twelve months from the issuance of this current report on Form 10-Q.

Business Disposals - Discontinuing Operations

Interpace Diagnostics Group, Inc.

On July 15, 2019, the Company entered into a secured creditor asset purchase agreement (the “BioPharma Agreement”) by and among the Company, Gentris, LLC, a wholly owned subsidiary of the Company, Partners for Growth IV, L.P. (“PFG”), Interpace Diagnostics Group, Inc. (“IDXG”) and a newly-formed subsidiary of IDXG, Interpace BioPharma, Inc. (“Buyer”). The BioPharma Agreement provided for a consensual private foreclosure sale by PFG of all assets relating to the Company’s BioPharma Business (as defined in the BioPharma Agreement) to Buyer (the “BioPharma Disposal”). The BioPharma Disposal was consummated on July 15, 2019.

Pursuant to the BioPharma Agreement, Buyer purchased from PFG certain assets and assumed certain liabilities of the Company relating to the BioPharma Business, providing as gross consideration $23,500,000, less certain closing ~~date~~adjustments totaling $1,978,240, of which $7,692,300 was paid in the form of a promissory note issued by Buyer to ~~serve~~the Company (the “Excess Consideration Note”) and the remainder was paid to PFG in cash. PFG utilized the cash proceeds to satisfy the outstanding balances of the Silicon Valley Bank (“SVB”) asset-based revolving line of credit (“ABL”) and the $6.0 million term note to PFG (“PFG Term Note”), and to satisfy certain transaction expenses. The balance of approximately $2,258,450 was delivered to the Company along with the Excess Consideration Note. The Excess Consideration Note which required interest-only quarterly payments at a rate of 6% per year, matured in October 2019 and was settled on October 24, 2019 for $6,024,489, including interest of $23,674. The Buyer withheld from the settlement of the Excess Consideration Note approximately $775,000 for a net worth adjustment (assets less liabilities) of the BioPharma business (“Net Worth”), $153,000 to secure collection of certain older accounts receivable of the Company purchased by Buyer (“AR Holdback”) and an additional $735,000 as security for indemnification obligations of the ~~initial source~~Company for any breaches of certain limited warranties and covenants of the Company and other specified items (“Indemnification Holdback”). The amount of the older accounts receivable determined to be paid as of December 31, 2019 will be remitted to the Company from the AR Holdback. Any amounts remaining in the Indemnification Holdback shall be remitted to the Company on January 15, 2020 (six months from the date of the BioPharma Agreement), unless there are pending indemnification ~~claims and adjustments.~~claims.

~~vivoPharm is~~The Company and Buyer also entered into a ~~contract research organization (“CRO”~~transition services agreement (the “TSA”) ~~that specializes in planning~~pursuant to which the Company and ~~conducting unique, specialized studies~~Buyer are providing certain services to ~~guide drug discovery and development programs with a concentration in oncology and immuno-oncology. These studies range from early compound selection~~each other to ~~developing comprehensive sets~~accommodate the transition of in vitro and in vivo data, as needed for FDA Investigational New Drug (“IND”) applications. vivoPharm has developed industry recognized capabilities in early phase development and discovery, especially in immuno-oncology models, tumor micro-environment studies, specialized pharmacologythe BioPharma Business to Buyer. In particular, the Company agreed to provide to Buyer, among other things, certain personnel services, payroll processing, administration services and ~~PDx (patient derived xenograft) model studies that support basic discovery, preclinical~~benefit administration services, for a period not to exceed six months from July 15, 2019, subject to the terms and ~~phase 1 clinical trials.~~conditions of the TSA, in exchange for payment or reimbursement, as applicable, by Buyer for the costs related thereto, including salaries and benefits for certain of the Company’s BioPharma employees during the transition period. Unless and until John A. Roberts, the Company’s Chief Executive Officer, and Glenn Miles, the Company’s Chief Financial Officer, enter into part-time consulting arrangements with Buyer and/or IDXG to assist with the transition, if any, Buyer is reimbursing the Company for their salaries and benefits. In addition, Buyer is providing office space, rent-free, for certain of the Company’s employees during the TSA period.

vivoPharm maintains three international locations, enabling the company to access global market opportunities. The headquarters in Victoria, Australia, specializes in safety and toxicology studies, including mammalian, genetic and in vitro, along with bioanalytical services including immune-analytical capabilities. vivoPharm’s U.S. based lab, located at the Hershey Center for Applied Research in Hershey, Pennsylvania, primarily focuses on screening and efficacy testing for a wide range of pharmaceutical and chemical products. The third location, in Munich, Germany, hosts project management and marketing personnel. Further, vivoPharm brings to CGI an additional 38 employees, 16 of which are located in the U.S. and 17 in Australia, with expertise in early stage discovery services and pre-clinical testing.siParadigm, Inc.

~~vivoPharm’s studies~~On July 5, 2019, the Company entered into an asset purchase agreement (the “Clinical Agreement”) by and among the Company and siParadigm, LLC (“siParadigm”), pursuant to which the Company sold to siParadigm, certain assets associated with the Company’s clinical laboratory business (the “Clinical Business,” and such assets, the “Designated Assets”), and agreed to cease operating its Clinical Business. The Designated Assets include intellectual property, equipment and customer lists associated with the Clinical Business, and the Company is providing certain transitional services to siParadigm pursuant to the Clinical Agreement. The cash consideration paid by siParadigm at closing was approximately $758,000, which includes approximately $45,000 for certain equipment plus a $1,000,000 advance payment of the Earn-Out (as defined below), less approximately $177,000 of supplier invoices paid directly by siParadigm and transaction costs of approximately $110,000. The Earn-Out, to be paid over the 24 months post-closing, is based on fees for all tests performed by siParadigm for the Company’s clinical customers during the 12-month period following the closing (the “Earn-Out”). The Clinical Business sale (together with the BioPharma Disposal, the “Business Disposals”) was completed on July 8, 2019.

The Business Disposals have been ~~utilized to support over 200 IND submissions to date across a range~~classified as discontinuing operations in conformity with GAAP. Accordingly, BioPharma and Clinical operations and balances have been reported as discontinuing operations and removed from all financial disclosures of therapeutic indications, including lymphomas, leukemia, GI-cancers, liver cancer, pancreatic cancer, non-small cell lung cancer, and other non-cancer rare diseases. vivoPharm is presently serving over forty biotechnology and pharmaceutical companies across five continents in over 55 studies and trials with highly specialized development, clinical and preclinical research. Over the past 10 years, vivoPharm has also generated an extensive library of human xenograft and syngeneic tumor models, including subcutaneous, orthotopic and metastatic models.continuing operations.

2019 Offerings

~~vivoPharm’s specialized tumor~~ In January 2019, we closed two public offerings and ~~disease models, toxicology~~issued an aggregate of951,690 shares of common stock for approximately $5.4 million, net of expenses and ~~pharmacology services and animal imaging capabilities provide CGI opportunities~~discounts of approximately $1.1 million. The Company also issued 66,618 warrants to ~~deepen~~ its ~~relationships~~underwriters in conjunction with existing biopharma customers through additional discovery and downstream molecular work, while also furthering CGI’s previously announced initiative aimed at early-phase drug repurposing and drug rescue programs.these offerings.

Key Factors Affecting our Results of Operations and Financial Condition

Our ~~overall long-term growth plan~~wholly-owned subsidiary, vivoPharm, provides proprietary preclinical oncology and immuno-oncology services, offering integrated services in different disease areas to the biotechnology and pharmaceutical industries. vivoPharm is ~~predicated on our ability~~a leader in orthotopic and metastases tumor models. The Company provides all services including toxicology testing and bionalytical analysis to ~~develop~~GLP. vivoPharm specializes in conducting studies tailored to guide drug development, starting from compound libraries and ~~commercialize our proprietary tests, penetrate the Biopharma community to achieve more revenue supporting clinical trials~~ending with a comprehensive set of in vitro and ~~develop~~in vivo data and penetrate the Indian market. Our 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. reports, as needed for Investigational New Drug (IND) filing.

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.

Revenues from Continuing Operations

~~Our revenue is primarily generated through~~Revenue from our Clinical Services and Biopharma Services. Clinical Services can be billed to Medicare, another third party insurer or the referring community hospital or other healthcare facility or patients in accordance with state and federal law. Biopharma Services are billed to the customer directly. While we have agreements with our Biopharma clients, volumes from these clients are subject to the progression and continuation of the clinical trials which can impact testing volume. We also derive revenue from Discovery Services ~~which~~comes from preclinical oncology and immuno-oncology services offered to our biotechnology and pharmaceutical customers. We are ~~services provided~~a leader in ~~the development of new~~orthotopic and metastases tumor models and offers whole body imaging, in addition to toxicology testing ~~assays~~ and ~~methods.~~bionalytical analysis. Discovery Services are ~~billed directly~~designed to specialize in conducting studies tailored to guide drug development, starting from compound libraries and ending with a comprehensive set of in vitro and in vivo data and reports, as needed for Investigational New Drug (IND) filing.

Due to the ~~customer.~~

~~We have historically derived a significant portion of~~Business Disposals that occurred in July 2019, revenues from 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 ourBiopharma Services and Clinical Services ~~revenue along with a portion~~are presented net of the Biopharma Services revenue. Our test ordering sites are hospitals, cancer centers, reference laboratories, physician offices and biopharmaceutical 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 biopharmaceutical companyexpenses in ~~which the patient is being enrolled.~~

The top five test ordering sites during the three months ended September 30, 2017 and 2016 accounted for approximately 45% and 39% of our testing volumes, respectively. During the three months ended September 30, 2017, one Biopharma client accounted for approximately 11% of our revenue. During the three months ended September 30, 2016, one Biopharma client accounted for approximately 18% of our revenue.

The top five test ordering sites during the nine months ended September 30, 2017 and 2016 accounted for approximately 40% and 31% of our testing volumes, respectively. During the nine months ended September 30, 2017, there was one biopharmaceutical company which accounted for approximately 11% of our total revenue. During the nine months ended September 30, 2016, there was one biopharmaceutical company which accounted for approximately 10% of our total revenue.

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.

For the three months ended September 30, 2017, Medicare accounted for approximately 11% of our total revenue, other insurance accounted for approximately 19% of our total revenue and other healthcare facilities accounted for 6% of our total revenue. For the nine months ended September 30, 2017, Medicare accounted for approximately 14% of our total revenue, other insurance accounted for approximately 22% of our total revenue and other healthcare facilities accounted for 5% of our total revenue. On average, we generate less revenue per test from other healthcare facilities billed directly, than from other insurance payers. discontinuing operations.

Cost of Revenues from Continuing Operations

Our cost of revenues consists principally of internal personnel costs, including non-cash stock-based compensation, laboratory consumables, shipping costs, overhead and other direct expenses, such as specimen procurement and third party validation studies. We ~~are pursuing~~continue to pursue various strategies to ~~reduce and~~ control our cost of revenues, including automating our processes through more efficient technology and attempting to negotiate improved terms with our suppliers. With our three acquisitions in 2014 and 2015, we have made significant progress with integrating our resources and services in an effort to reduce costs. With our acquisition of vivoPharm in the third quarter of 2017, we are working to integrate its business and reduce costs. We will continue to assess other possible advantages to help us improve our cost structure.

Operating Expenses from Continuing Operations

We classify our operating expenses into ~~three~~four categories: ~~research and development,~~ sales and marketing, ~~and~~ general and ~~administrative.~~administrative, merger costs, and impairment of goodwill. Our operating expenses principally consist of personnel costs, including non-cash stock-based compensation, ~~facility costs,~~ outside services, laboratory consumables and overhead, development costs, marketing program costs and legal and accounting fees.

~~Research and Development Expenses.~~ We incur research and development expenses principally in connection with our efforts to develop our proprietary tests. Our primary research and development expenses consist of direct personnel costs, laboratory equipment and consumables and overhead expenses. In 2013, we entered into a joint venture with the Mayo Foundation for Medical Education and Research, with a focus on developing oncology diagnostic services and tests utilizing next generation sequencing. These efforts have continued. All research and development expenses are charged to operations in the periods they are incurred.

General and Administrative Expenses. General and administrative expenses consist principally of personnel-related expenses, professional fees, such as legal, accounting and business consultants, occupancy costs, ~~bad debt~~ and other general expenses. We have ~~experienced decreases~~incurred increases in our general and administrative expenses ~~but~~and anticipate only modest increases as ~~we expand~~ our ~~business operations.~~Discovery Business grows.

Sales and Marketing ~~Expenses~~Expenses.. Our sales and marketing expenses consist principally of personnel and related overhead costs for our ~~sales~~business development team and their support personnel, travel and entertainment expenses, and other selling costs including sales collaterals and trade shows. We expect our sales and marketing expenses to ~~increase~~remain relatively flat as we ~~expand into new geographies~~continue to operate and ~~add new clinical tests and services.~~grow our Discovery Services business.

~~Seasonality~~Merger Expenses: In the pursuit of various strategic options for the Company, legal and other professional costs are incurred while evaluating, negotiating, executing and implementing merger and acquisition alternatives.

~~Our~~Impairment of Goodwill: During the quarter ended September 30, 2019, the Company recorded a goodwill impairment charge of $2.9 million given the estimated fair market value of the business ~~experiences decreased demand during spring vacation season, summer months and~~was less than the ~~December holiday season when patients are less likely to visit their health care providers. We expect this trend~~carrying amount. If the Company is not successful in ~~seasonality to continue for~~executing it’s strategic business plans, there may be a further impairments in the ~~foreseeable~~ future.

Results of Operations

Three Months Ended September 30, ~~2017~~2019 and ~~2016~~2018

The following table sets forth certain information concerning our results of operations for the periods shown:


	Three Months Ended September 30,						Change					Three Months Ended September 30,						Change
(dollars in thousands)	2017			2016			$			%		2019			2018			$			%
Revenue	$	8,028		$	6,750		$	1,278		19	%	$	2,069		$	535		$	1,534		287	%
Cost of revenues	4,588			4,444			144			3	%	960			685			275			40	%
Research and development expenses	981			1,594			(613		)	(38	)%
General and administrative expenses	4,346			3,701			645			17	%
Sales and marketing expenses	1,301			1,054			247			23	%
Loss from operations	(3,188		)	(4,043		)	855			(21	)%
Interest income (expense)	(340		)	(107		)	(233		)	218	%
General and administrative												1,290			1,939			(649		)	(33	)%
Sales and marketing												322			320			2			1	%
Impairment of goodwill												2,873			—			2,873			n/a
Merger costs												284			890			(606		)	(68	)%
Loss from continuing operations												(3,660		)	(3,299		)	(361		)	11	%
Interest expense, net												(200		)	(82		)	(118		)	144	%
Change in fair value of acquisition note payable	105			18			87			483	%	5			(13		)	18			(138	)%
Change in fair value of warrant liability	2,790			712			2,078			292	%	34			12			22			183	%
Change in fair value of siParadigm Earn-Out												(982		)	—			(982		)	n/a
Other expense	—			(325		)	325			(100	)%	—			(55		)	55			(100	)%
Net (loss)	$	(633	)	$	(3,745	)	$	3,112		(83	)%
Net loss from continuing operations												(4,803		)	(3,437		)	(1,366		)	40	%
Net income (loss) from discontinuing operations												6,778			(5,082		)	11,860			(233	)%
Net income (loss)												$	1,975		$	(8,519	)	$	10,494		(123	)%

Non-GAAP Financial Information

In addition to disclosing financial results in accordance with United States generally accepted accounting principles (“GAAP”), the table below contains non-GAAP financial measures that we believe are helpful in understanding and comparing our past financial performance and our future results. The non-GAAP financial measures disclosed by the Company exclude the non- operating changes in the fair value of derivative instruments. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Management believes that these non-GAAP measures provide useful information about the Company’s core operating results and thus are appropriate to

enhance the overall understanding of the Company’s past financial performance and its prospects for the future. The non-GAAP financial measures in the table below include adjusted net (loss) and the related adjusted basic and diluted net (loss) per share amounts.

Reconciliation from GAAP to Non-GAAP Results (in thousands, except per share amounts):

Three Months Ended September 30,
2017 2016
Reconciliation of net (loss):
Net (loss) $ (633 ) $ (3,745 )
Adjustments:
Change in fair value of acquisition note payable (105 ) (18 )
Change in fair value of warrant liability (2,790 ) (712 )
Adjusted net (loss) $ (3,528 ) $ (4,475 )
Reconciliation of basic net (loss) per share:
Basic net (loss) per share $ (0.03 ) $ (0.23 )
Adjustments to net (loss) (0.13 ) (0.04 )
Adjusted basic net (loss) per share $ (0.16 ) $ (0.27 )
Basic weighted-average shares outstanding 21,577
16,519
Reconciliation of diluted net (loss) per share:
Diluted net (loss) per share $ (0.15 ) $ (0.23 )
Adjustments to net (loss) (0.01 ) (0.04 )
Adjusted diluted net (loss) per share $ (0.16 ) $ (0.27 )
Diluted weighted-average shares outstanding 22,359
16,519



	Three Months Ended September 30,
	2019			2018
Reconciliation of net loss from continuing operations:
Net loss from continuing operations	$	(4,803	)	$	(3,437	)
Adjustments:
Change in fair value of acquisition note payable	(5		)	13
Change in fair value of warrant liability	(34		)	(12		)
Change in fair value of siParadigm Earn-Out	982			—
Adjusted net loss from continuing operations	$	(3,860	)	$	(3,436	)
Reconciliation of basic and diluted net loss per share from continuing operations:
Basic and diluted net loss per share from continuing operations	$	(2.38	)	$	(3.77	)
Adjustments to net loss	0.46			—
Adjusted basic and diluted net loss per share from continuing operations	$	(1.92	)	$	(3.77	)
Basic and diluted weighted-average shares outstanding	2,014			912

Adjusted net ~~(loss) decreased 21%~~loss from continuing operations increased 12% to ~~$3.5~~$3.9 million during the three months ended September 30, ~~2017, down~~2019, from an adjusted net ~~(loss)~~loss from continuing operations of ~~$4.5~~$3.4 million during the three months ended September 30, ~~2016.~~2018. Adjusted basic and diluted net ~~(loss)~~loss per share from continuing operations decreased ~~41%~~49% to ~~$0.16~~$1.92 during the three months ended September 30, ~~2017, down~~2019, from ~~$0.27~~$3.77 during the three months ended September 30, 2018.

~~2016. Adjusted diluted net (loss) per share decreased 41% to $0.16~~Revenue from Continuing Operations

Revenue from continuing operations increased 287%, or $1.5 million, during the three months ended September 30, ~~2017, down from $0.27~~2019 compared to the same period in 2018 primarily due to a higher volume of active projects during the three months ended September 30, ~~2016.~~2019, as the demand for toxicity and efficacy studies continued to increase as well as a $0.4 million reduction in revenue, during the three months ended September 30, 2018 primarily due to an out of measurement period adjustment of $0.2 million offsetting the contract obligations liability associated with the vivoPharm acquisition and corresponding 2018 impact of $0.2 million of resulting estimate updates of contract obligations for the remaining portfolio of contracts

~~Revenue~~Cost of Revenues from Continuing Operations

~~The breakdown~~Cost of ~~our revenue is as follows:~~

Three Months Ended September 30, Change
2017 2016
(dollars in thousands) $ % $ % $ %
Biopharma Services $ 4,168
52 % $ 3,805
56 % $ 363
10 %
Clinical Services 2,880
36 % 2,687
40 % 193
7 %
Discovery Services 980
12 % 258
4 % 722
280 %
Total Revenue $ 8,028
100 % $ 6,750
100 % $ 1,278
19 %

~~Revenue~~revenues from continuing operations increased ~~19%~~40%, or ~~$1.3 million, to $8.0~~$0.3 million, for the three months ended September 30, ~~2017,~~2019, principally due to outsourcing costs returning to typical levels associated with related projects. Correspondingly, gross profit (loss) from ~~$6.8 million~~continuing operations increased to 54% during the three months ended September 30, 2019 up from (28)% for the three months ended September 30, ~~2016, principally due~~2018, impacted by the out of measurement period adjustment to ~~an increase in Discovery Services of $0.7 million and an increase in our Biopharma Services of $0.4 million. Our average~~ revenue per test decreased to $376 per test for the three months ended September 30, 2017 from $397 per test for the three months ended September 30, 2016, principally due to the additional Clinical Services volume from our Los Angeles facility, which yields lower average revenue per test. Test volume increased by 11% from 12,348 tests for the three months ended September 30, 2016 to 13,726 tests for the three months ended September 30, 2017.

Revenue from Biopharma Services increased 10%, or $0.4 million, to $4.2 million for the three months ended September 30, 2017, from $3.8 million for the three months ended September 30, 2016 due to completing more studies from its top ten customers. Revenue from Clinical Services customers increased by $0.2 million, or 7%, compared to the three months ended September 30, 2016, due to increased clinical test volume. Revenue from Discovery Services increased 280%, or $0.7 million, during the three months ended September 30, 2017 due to the acquisition of vivoPharm, which accounted for $0.8 million of the increase.

~~Cost of Revenues~~

Cost of revenues increased 3%, or $0.1 million, for the three months ended September 30, 2017, principally due to increased payroll and benefit costs of $0.2 million offset by reduced costs of supplies used in our testing facilities of $0.1 million. Gross margin improved to 43% during the three months ended September 30, 2017 up from 34% for the three months ended September 30, 2016.noted above.

Operating Expenses

~~Research and development expenses decreased 38%, or $0.6 million, to $1.0 million for the three months ended September 30, 2017,~~ from $1.6 million for the three months ended September 30, 2016, principally due to a $0.3 million decrease in payroll and benefit costs and a $0.3 million decrease in lab supplies used to validate new diagnostic tests and perform certain research and development projects.Continuing Operations

General and administrative expenses ~~increased 17%~~from continuing operations decreased 33%, or $0.6 million, to $4.3 million for the three months ended September 30, 2017, from $3.7 million for the three months ended September 30, 2016, principally due to an increase in our bad debt reserve of $0.7 million and an increase in payroll and other benefits of $0.3 million, offset by a $0.2 million decrease in facility costs resulting from the elimination of building management fees at our North Carolina location and decreased professional fees and taxes of $0.1 million each.

~~Sales and marketing expenses increased 23%, or $0.2~~ million, to $1.3 million for the three months ended September 30, ~~2017,~~2019, from ~~$1.1~~$1.9 million for the three months ended September 30, ~~2016, principally due to increased compensation costs~~2018 as the result of on-going overall expense reduction initiatives, including a $0.3 million decrease in professional services and ~~offset by decreased facility costs~~board of ~~$0.1 million.~~director fees.

~~Interest Income (Expense)~~

~~Net interest expense increased 218%, or $0.2 million, to~~Sales and marketing expenses from continuing operations remained relatively flat at $0.3 ~~million during the three months ended September 30, 2017 due to the higher effective interest rate on our refinanced debt.~~

~~Change in Fair Value of Acquisition Note Payable~~

The change in fair value of note payable resulted in approximately $105,000 and $18,000 of non-cash income for the three months ended September 30, 2017 and 2016, respectively. The fair value of the note representing part of the purchase price for BioServe decreased during the three months ended September 30, 2017 and 2016 as a consequence of a decrease in our stock price.

~~Change in Fair Value of Warrant Liability~~

Changes in fair value of some of our common stock warrants may impact our quarterly results. Accounting rules require us to record certain of our warrants as a liability, measure the fair value of these warrants each quarter and record changes in that value in earnings. As a result of a decrease in our stock price, we recognized non-cash income of $2.8 million and $0.7 million for the three months ended September 30, ~~2017 and 2016, respectively. In~~2019 as compared to $0.3 million for the future, if our stock price increases, with all other factors being equal, we would record a non-cash charge as a result of changes in the fair value of our common stock warrants. Alternatively, if the stock price decreases, with all other factors being equal, we may record non-cash income.

~~Other Expense~~three months ended September 30, 2018.

During the three months ended September 30, ~~2016,~~2019, we ~~expensed~~recorded impairment of goodwill on $2.9 million after considering the effects of our business disposals and decline in our stock price.

During the three months ended September 30, 2019, we recognized $0.3 million of ~~offering~~merger costs associated with our business disposals, as compared to $0.9 million during the ~~derivative warrants issued~~three months ended September 30, 2018 related to our failed merger with NDX.

Interest Expense, Net

Net interest expense from continuing operations increased by $0.1 million during the three months ended September 30, 2019 due to the addition of two financing agreements that were not in place for the full three months ended September 30, 2018. The Company incurred $0.2 million of interest on its Convertible Note and Advance from NDX.

Change in Fair Value of siParadigm Earn-Out

During the three months ended September 30, 2019, we recognized a $1.0 million reduction in the ~~2016 Offerings.~~ fair value of the siParadigm Earn-Out due to the loss of a significant Clinical Business customer in the latter part of the third quarter.

Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018

The following table sets forth certain information concerning our results of operations for the periods shown:

Nine Months Ended September 30, Change
(dollars in thousands) 2017 2016 $ %
Revenue $ 21,598
$ 19,819
$ 1,779
9 %
Cost of revenues 12,831
12,832
(1 ) — %
Research and development expenses 3,080
4,806
(1,726 ) (36 )%
General and administrative expenses 11,352
11,677
(325 ) (3 )%
Sales and marketing expenses 3,437
3,731
(294 ) (8 )%
Loss from operations (9,102 ) (13,227 ) 4,125
(31 )%
Interest income (expense) (760 ) (323 ) (437 ) 135 %
Change in fair value of acquisition note payable (114 ) 119
(233 ) (196 )%
Change in fair value of warrant liability (3,927 ) 729
(4,656 ) (639 )%
Other income (46 ) (325 ) 279
(86 )%
Loss before income taxes (13,949 ) (13,027 ) (922 ) 7 %
Income tax provision (benefit) (970 ) —
(970 ) n/a
Net (loss) $ (12,979 ) $ (13,027 ) $ 48
— %



	Nine Months Ended September 30,						Change
(dollars in thousands)	2019			2018			$			%
Revenue	$	5,416		$	3,243		$	2,173		67	%
Cost of revenues	2,631			2,145			486			23	%
General and administrative	4,463			5,236			(773		)	(15	)%
Sales and marketing	825			900			(75		)	(8	)%
Impairment of goodwill	2,873			—			2,873			n/a
Merger costs	284			890			(606		)	(68	)%
Loss from continuing operations	(5,660		)	(5,928		)	268			(5	)%
Interest expense, net	(1,327		)	(66		)	(1,261		)	1,911	%
Change in fair value of acquisition note payable	12			68			(56		)	(82	)%
Change in fair value of other derivatives	86			—			86			n/a
Change in fair value of warrant liability	233			2,858			(2,625		)	(92	)%
Change in fair value of siParadigm Earn-Out	(982		)	—			(982		)	n/a
Other expense	(11		)	(78		)	67			(86	)%
Loss before income taxes from continuing operations	(7,649		)	(3,146		)	(4,503		)	143	%
Income tax benefit	(512		)	—			(512		)	n/a
Net loss from continuing operations	(7,137		)	(3,146		)	(3,991		)	127	%
Net income (loss) from discontinuing operations	722			(13,462		)	14,184			(105	)%
Net loss	$	(6,415	)	$	(16,608	)	$	10,193		(61	)%

Non-GAAP Financial Information

Reconciliation from GAAP to Non-GAAP Results (in thousands, except per share amounts):

Nine Months Ended September 30,
2017 2016
Reconciliation of net (loss):
Net (loss) $ (12,979 ) $ (13,027 )
Adjustments:
Change in fair value of acquisition note payable 114
(119 )
Change in fair value of warrant liability 3,927
(729 )
Adjusted net (loss) $ (8,938 ) $ (13,875 )
Reconciliation of basic and diluted net (loss) per share:
Basic and diluted net (loss) per share $ (0.65 ) $ (0.88 )
Adjustments to net (loss) 0.20
(0.05 )
Adjusted basic and diluted net (loss) per share $ (0.45 ) $ (0.93 )
Basic and diluted weighted-average shares outstanding 20,059
14,868



	Nine Months Ended September 30,
	2019			2018
Reconciliation of net loss from continuing operations:
Net loss from continuing operations	(7,137		)	(3,146		)
Adjustments:
Change in fair value of acquisition note payable	(12		)	(68		)
Change in fair value of other derivatives	(86		)	—
Change in fair value of warrant liability	(233		)	(2,858		)
Change in fair value of siParadigm Earn-Out	982			—
Adjusted net loss from continuing operations	$	(6,486	)	$	(6,072	)
Reconciliation of basic and diluted net loss per share from continuing operations:
Basic and diluted net loss per share from continuing operations	$	(3.86	)	$	(3.48	)
Adjustments to net loss	0.35			(3.23		)
Adjusted basic and diluted net loss per share from continuing operations	$	(3.51	)	$	(6.71	)
Basic and diluted weighted-average shares outstanding	1,850			905

Adjusted net ~~(loss) decreased 36%~~loss from continuing operations increased 7% to ~~$8.9~~$6.5 million during the nine months ended September 30, ~~2017, down~~2019, from an adjusted net ~~(loss)~~loss from continuing operations of ~~$13.9~~$6.1 million during the nine months ended September 30, ~~2016.~~2018. Adjusted basic and diluted net ~~(loss)~~loss per share from continuing operations decreased ~~52%~~48% to ~~$0.45~~$3.51 during the nine months ended September 30, ~~2017, down~~2019 from ~~$0.93~~$6.71 during the nine months ended September 30, ~~2016.~~

~~The breakdown of our revenue is as follows:~~

Nine Months Ended September 30, Change
2017 2016
(dollars in thousands) $ % $ % $ %
Biopharma Services 11,175
52 % $ 11,374
57 % $ (199 ) (2 )%
Clinical Services 8,887
41 % 7,685
39 % 1,202
16 %
Discovery Services 1,536
7 % 760
4 % 776
102 %
Total Revenue $ 21,598
100 % $ 19,819
100 % $ 1,779
9 %
2018.

Revenue from Continuing Operations

Revenue from continuing operations increased 9%67%, or ~~$1.8~~$2.2 million, to ~~$21.6~~$5.4 million for the nine months ended September 30, ~~2017,~~2019, from ~~$19.8~~$3.2 million for the nine months ended September 30, ~~2016,~~2018, principally due to ~~an increase~~a higher volume of $1.2 million in our Clinical Services and an increase in Discovery Services of $0.8 million, offset by a decrease of $0.2 million in our Biopharma Services. Our average revenue per test decreased to $378 per test foractive projects during the nine months ended September 30, ~~2017 from $408 per test~~2019, as the demand for toxicity and efficacy studies continued to increase as well as a $0.4 million reduction in revenue, during the nine months ended September 30, ~~2016, principally~~2018 primarily due to an out of measurement period adjustment of $0.2 million offsetting the ~~additional Clinical Services volume from our Los Angeles facility, which yields lower average revenue per test. Test volume increased by 12% from 36,156 tests~~contract obligations liability associated with the vivoPharm acquisition and a corresponding 2018 impact of $0.2 million of resulting estimate updates of contract obligations for the ~~nine months ended September 30, 2016 to 40,451 tests for the nine months ended September 30, 2017.~~remaining portfolio of contracts.

~~Revenue~~Cost of Revenues from ~~Biopharma Services decreased 2%, or $0.2~~Continuing Operations

Cost of revenues from continuing operations increased $0.5 million to ~~$11.2~~$2.6 million for the nine months ended September 30, ~~2017,~~2019 from ~~$11.4~~$2.1 million for the nine months ended September 30, ~~2016~~2018, principally due to ~~completing fewer studies for its top ten customers. Revenue~~a $0.3 million increase in lab supplies, offset in part by a $0.1 decrease in payroll and benefit costs and decreased facility costs of $0.1 million. Correspondingly, gross margin increased to 51% during the nine months ended September 30, 2019 from ~~Clinical Services customers increased~~34% during the nine months ended September 30, 2018, impacted by ~~$1.2~~the out of measurement period adjustment to revenue noted above.

Operating Expenses from Continuing Operations

General and administrative expenses from continuing operations decreased 15%, or $0.8 million, ~~or 16%,~~to $4.5 million for the nine months ended September 30, ~~2017~~2019, from $5.2 million for the nine months ended September 30, 2018, as the result of on-going overall expense reduction initiatives and decreased board of director fees of $0.2 million.

Sales and marketing expenses from continuing operations decreased 8%, or $0.1 million, to $0.8 million for the nine months ended September 30, 2019, from $0.9 million for the nine months ended September 30, 2018, principally due to ~~increased volume~~a $0.1 million decline in facility costs.

During the nine months ended September 30, 2019, we recorded impairment of goodwill on $2.9 million after considering the effects of our business disposals and decline in our ~~clinical services laboratory operations in Los Angeles. Revenue from Discovery Services increased 102%, or $0.8~~stock price.

During the nine months ended September 30, 2019, we recognized $0.3 million of merger costs associated with our business disposals, as compared to $0.9 million during the nine months ended September 30, ~~2017 due~~2018 related to our ~~acquisition of vivoPharm, which accounted for all of the increase.~~failed merger with NDX.

~~Cost of Revenues~~Interest Expense, Net

~~Cost of revenues remained steady for the nine months ended September 30, 2017 and 2016. While lab supplies and facility costs both~~Net interest expense from continuing operations increased by ~~$0.2~~$1.3 million during the nine months ended September 30, ~~2017, depreciation~~2019 due to the addition of ~~equipment and outsourced labor decreased by $0.1 million and $0.2 million, respectively,~~two financing agreements that were not in place during the nine months ended September 30, ~~2017. In addition, our shipping costs declined by $0.1~~2018. The Company incurred $0.5 million of interest on its Convertible Note and Advance from NDX. The Company also amortized $1.1 million of debt discounts on these two agreements during the nine months ended September 30, ~~2017. Gross margin improved to 41% during~~2019. The Company entered into a standstill agreement with Iliad in January 2019, which resulted in $0.2 million of additional fees. It later entered into a second standstill agreement that reduced the ~~nine months ended~~conversion price on a portion of the Convertible Note, resulting in $0.5 million of additional interest. In June 2019, the Company defaulted on the Convertible Note, creating a 15% increase in the outstanding balance at the date of default, which approximated $0.4 million. At September 30, ~~2017 from 35% during~~2019 the ~~nine months ended September 30, 2016, as we continue to rationalize our cost structure from prior acquisitions and introduce greater efficiency in our laboratory operations.~~

~~Operating Expenses~~

~~Research and development expenses decreased 36%, or $1.7 million, to $3.1 million for~~Company is accruing interest at the nine months ended September 30, 2017, from $4.8 million for the nine months ended September 30, 2016, principally due to reduced payroll and benefit costs of $0.7 million, decreased lab supplies of $0.7 million and reduced facility costs of $0.2 million.

General and administrative expenses decreased 3%, or $0.3 million, to $11.4 million for the nine months ended September 30, 2017, from $11.7 million for the nine months ended September 30, 2016, principally due to decreased facility costs of $0.6 million, decreased professional fess of $0.2 million, decreased miscellaneous expenses of $0.2 million and decreased franchise and property taxes of $0.2 million, partially offset by an increase in our bad debt reserve of $0.9 million.

Sales and marketing expenses decreased 8%, or $0.3 million, to $3.4 million for the nine months ended September 30, 2017, from $3.7 million for the nine months ended September 30, 2016, principally due to reduced travel and entertainment expenses of $0.2 million and decreased facility costs of $0.2 million.

~~Interest Income (Expense)~~

~~Net interest expense increased 135%, or $0.4 million, principally due to recognizing a loss on extinguishment of debt of $0.1 million in March 2017 and the higher effective interest~~default rate on ~~our refinanced debt.~~both of these agreements. The Company allocated $1.5 million of this interest to discontinuing operations.

~~Change in Fair Value of Acquisition Note Payable~~

The change in fair value of note payable resulted in $0.1 million in non-cash expense for the nine months ended September 30, 2017, as compared to non-cash income of $0.1 million for the nine months ended September 30, 2016. The fair value of the note representing part of the purchase price for BioServe increased during the nine months ended September 30, 2017 as a consequence of a increase in our stock price.

Change in Fair Value of Warrant Liability

Changes in fair value of some of our common stock warrants may impact our quarterly results. Accounting rules require us to record certain of our warrants as a liability, measure the fair value of these warrants each quarter and record changes in that value in earnings. As a result of ~~an increase~~changes in our stock price, we recognized non-cash ~~expense~~income of ~~$3.9~~$0.2 million ~~for~~and $2.9 million during the nine months ended September 30, ~~2017. In the future, if our stock price increases, we would record a non-cash charge as a result of changes in the fair value of our common stock warrants.~~2019 and 2018. Consequently, we may be exposed to non-cash charges, or we may record non-cash income, as a result of this warrant exposure in future periods.

~~We recognized non-cash income~~Change in Fair Value of ~~$0.7 million during~~siParadigm Earn-Out

During the ~~nine~~three months ended September 30, ~~2016 due to changes~~2019, we recognized a $1.0 million reduction in the fair value of the ~~warrants issued~~siParadigm Earn-Out due to the loss of a significant Clinical Business customer in the ~~2016 Offerings and the expiration of other unexercised warrants.~~

~~Other Expense~~

~~During the nine months ended September 30, 2017 and 2016, we expensed $46,000 and $0.3 million of issuance costs associated with the derivative warrants issued as~~latter part of the third quarter.

Income Tax Benefit

On April 4, 2019, we sold $11.6 million of gross State of New Jersey NOL’s relating to the 2017 ~~debt refinancing~~tax year as well as $0.1 million of state research and development tax credits. The sale resulted in the ~~2016 Offerings, respectively.~~net receipt by the Company of approximately $0.5 million.

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of liquidity have been funds generated from our debt financings and equity financings. In addition, we have generated funds from the following sources: (i) cash collections from customers and (ii) cash received from the sale of state NOL’s.In January 2019, we closed two public offerings and issued an aggregate of951,690 shares of common stock for approximately $5.4 million, net of expenses and discounts of approximately $1.1 million. On April 4, 2019, we sold $11.6 million of gross State of New Jersey NOL’s relating to the 2017 tax year as well as $0.1 million of state research and development tax credits. The sale resulted in the net receipt by the Company of approximately $0.5 million. In July 2019, we completed two business disposals, resulting in an aggregate of $3.0 million of net cash proceeds at the time of closing; however, $1.0 million of the funds received is an advance from siParadigm that will be deducted from the Earn-Out amounts earned during the period. In addition, we had a promissory note from IDXG for approximately $7.7 million, subject to adjustments including a Net Worth adjustment of approximately $0.8 million, which required interest-only quarterly payments at a rate of 6% per year, matured in October 2019 and was settled on October 24, 2019 for $6,024,489, including interest of $23,674. The Buyer withheld from the settlement of the Excess Consideration Note approximately $0.8 million for the Net Worth adjustment, $0.2 million to secure collection of certain older accounts receivable of the Company purchased by Buyer and an additional $0.7 million as security for indemnification obligations of the Company for any breaches of certain limited warranties and covenants of the Company and other specified items. The amount of the older accounts receivable determined to be paid as of December 31, 2019 will be remitted to Company from the AR Holdback. Any amounts remaining in the Indemnification Holdback shall be remitted to the Company on January 15, 2020 (six months from the date of the BioPharma Agreement), unless there are pending indemnification claims.

In general, our primary uses of cash are providing for operating expenses, working capital purposes and servicing debt. ~~As of~~

~~September 30, 2017, we have up to $4.0 million of available borrowings from our line of credit with Silicon Valley Bank, and we are able to sell shares to Aspire Capital.~~

~~Aspire Capital~~

Cash Flows from Continuing Operations

Our net cash flow from operating, investing and financing activities from continuing operations for the periods below were as follows:


	Nine Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2017			2016			2019			2018
Cash provided by (used in):
Cash provided by (used in) continuing operations:
Operating activities	$	(10,249	)	$	(17,299	)	$	(983	)	$	(4,212	)
Investing activities	(2,121		)	(472		)	3,015			(17		)
Financing activities	7,675			9,028			5,398			3,961
Net (decrease) in cash and cash equivalents	$	(4,695	)	$	(8,743	)
Effect of foreign currency exchange rates on cash and cash equivalents and restricted cash							(127		)	28
Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations							$	7,303		$	(240	)

We had cash and cash equivalents and restricted cash of ~~$4.8~~$2.5 million at September 30, ~~2017,~~2019, and ~~$9.5~~$0.5 million at December 31, ~~2016.~~2018.

The ~~$4.7~~$7.3 million increase in cash and cash equivalents and restricted cash from continuing operations for the nine months ended September 30, 2019, principally resulted from net proceeds from the 2019 Offerings of $5.4 million and net proceeds from the Business Disposals of $3.1 million, offset by $1.0 million of cash used in operations.

The $0.2 million decrease in cash and cash equivalents and restricted cash for the nine months ended September 30, ~~2017,~~2018, principally resulted from net cash used in operations of ~~$10.2~~$4.2 million, ~~principal payments made on the Silicon Valley Bank term note of $4.7 million and fixed asset additions of $1.2 million, partially~~ offset, in part, by proceeds of $2.5 million from the ~~exercise~~Convertible Note and proceeds of ~~warrants of $1.8~~$1.5 million ~~net proceeds~~ from the ~~sale of stock to Aspire Capital of $3.0 million, proceeds~~Advance from ~~refinancing our debt of $6.0 million and borrowings on our line of credit of $2.0 million.~~

The $8.7 million decrease in cash and cash equivalents for the nine months ended September 30, 2016, principally resulted from $17.3 million of net cash used in operations, partially offset by $10.0 million of net proceeds from the 2016 Offerings.NDX.

At September 30, ~~2017,~~2019, we had total indebtedness of ~~$8.0~~$3.8 million, excluding ~~capital~~finance lease obligations. At September 30, 2019, we are in default of our Convertible Note and Advance from NDX agreements; however, the Convertible Note was repaid in October 2019, and we entered into the NDX Settlement Agreement in October 2019.

Cash Used in Operating Activities from Continuing Operations

Net cash used in continuing operating activities was ~~$10.2~~$1.0 million for the nine months ended September 30, ~~2017.~~2019. We used ~~$4.7~~$2.0 million in net cash to fund our core ~~operations, which included~~continuing operations. We incurred additional uses of cash when adjusting for working capital items as follows: a net reduction in our operating lease liabilities of $0.2 million, an increase in other non-current assets of $0.1 million, and a net increase in other current assets of $0.6 million, offset in part, by a net increase in accounts payable, accrued expenses and deferred revenue of $1.7 million and a decrease in operating right-of-use assets of $0.1 million.

For the nine months ended September 30, 2018, we used $4.2 million of cash ~~paid for interest.~~in continuing operating activities. We used $5.0 million in net cash to fund our continuing operations. We incurred additional uses of cash when adjusting for working capital items as follows: a net increase in ~~accounts receivable of $4.0 million, an increase in~~ other current assets of ~~$0.6 million, a net decrease in accounts payable, accrued expenses and deferred revenue of $1.1 million and a decrease in deferred rent payable and other of $0.1~~$0.4 million, offset, ~~by a decrease~~ in ~~other assets of $0.3 million.~~

For the nine months ended September 30, 2016, we used $17.3 million in operating activities. We used $10.5 million in net cash to fund our core operations, which included $0.3 million in cash paid for interest. We incurred additional uses of cash when adjusting for working capital items as follows: a net increase in accounts receivable of $7.1 million and an increase in other current assets of $0.1 million, offsetpart, by a net increase in accounts payable, accrued expenses and deferred revenue of ~~$0.4~~$0.8 million and a net decrease in accounts receivable of $0.5 million.

Cash Used in Investing Activities from Continuing Operations

Net cash ~~used in~~provided by continuing investing activities was ~~$2.1~~$3.0 million for the nine months ended September 30, ~~2017~~2019 and resulted from the net proceeds from the Business Disposals of $3.1 million, offset by $0.1 million of cash used to purchase fixed assets.

Net cash used in continuing investing activities was $17,000 for the nine months ended September 30, 2018 and resulted from the purchase of fixed ~~assets of $1.2 million, patent costs of $0.1 million, net cash paid to acquire vivoPharm of $0.7 million and investing $0.2 million in a cost method investment.~~assets.

Cash Provided by Financing Activities from Continuing Operations

Net cash ~~used in investing~~provided by continuing financing activities was ~~$0.5~~$5.4 million for the nine months ended September 30, ~~2016~~2019 and principally resulted from net proceeds from the ~~purchase of fixed assets of $0.3 million and patent costs of $0.1 million.~~

~~Cash Provided by Financing Activities~~2019 Offerings.

Net cash provided by continuing financing activities was ~~$7.7~~$4.0 million for the nine months ended September 30, ~~2017~~2018 and ~~principally~~ resulted from proceeds ~~received from warrants exercised~~ of ~~$1.8~~$2.5 million ~~proceeds~~ from the ~~sale of stock to Aspire Capital of $3.0 million net of certain offering costs, proceeds from refinancing our debt of $6.0 million~~Convertible Note and proceeds of $1.5 million from borrowing $2.0 million on our line of credit, offset by principal payments made on our Silicon Valley Bank term note of $4.7 million, capital lease payments of $0.2 million and debt issuance costs and loan fees of $0.3 million related to our refinanced debt.

~~Net cash provided by financing activities was $9.0 million for~~ the ~~nine months ended September 30, 2016 and principally resulted~~Advance from ~~proceeds received in the 2016 Offerings of $10.0 million, offset by principal payments made on the bank term note of $0.8 million and capital lease payments of $0.1 million.~~NDX.

Capital Resources and Expenditure Requirements

We expect to continue to incur material operating losses in the ~~near~~ future. It may take several years, if ever, to achieve positive operational cash flow. We may need to raise additional capital to fund our current operations, to repay certain outstanding indebtedness and to fund ~~expansion of~~ our business to meet our long-term business objectives through public or private equity offerings, debt financings, borrowings or strategic partnerships coupled with an investment in our company or a combination thereof. If we raise additional funds through the issuance of convertible debt securities, or other debt securities, these securities could be secured and could have rights senior to those of our common stock. In addition, any new debt incurred by the Company could impose covenants that restrict our operations and increase our interest expense. The issuance of any new equity securities will also dilute the interest of our current stockholders. Given the risks associated with our business, including our unprofitable operating history, ~~and our ability to develop additional proprietary tests,~~ additional capital may not be available when needed on acceptable terms, or at all. If adequate funds are not available, we ~~will~~may need to ~~curb~~sell off non-core assets, or, in extreme cases, discontinue our ~~expansion plans~~operations or ~~limit~~liquidate our ~~research~~assets. In July 2019, we repaid our ABL and ~~development activities, which would have~~Term Note as part of the Business Disposals. In October 2019, we paid off the Convertible Note owed to Iliad and now owe $1.4 million in principal amount to Atlas Sciences under a ~~material adverse impact on our business prospects and results~~new unsecured note due in October 2020. Finally, we owe an aggregate of ~~operations.~~$0.5 million to NDX pursuant to the NDX Settlement Agreement, to be paid in nine monthly installments of $50,000 starting in November 2019.

WePrior to the closing of the Business Disposals transactions in July 2019, we did not believe that our current cash ~~taken together with~~would support operations beyond the ~~borrowings available~~next three months from the ~~Silicon Valley Bank line~~date of ~~credit~~this report unless certain assets were converted to cash as described below with respect to the Business Disposals. The Company currently requires additional capital to pay its unsecured debt and accounts payable, and its ability to continue as a going concern following the ~~common stock purchase agreement~~Business Disposals is dependent upon its ability to collect amounts held in escrow by Buyer related to the BioPharma Disposal and its outstanding accounts receivable, receive the Earn-Out payments from siParadigm and negotiate discounts in good faith with ~~Aspire Capital Fund, LLC, will support operations~~its trade suppliers. These factors raise substantial doubt about our ability to continue as a going concern for ~~at least~~ the next 12twelve months from the date of this report. In July 2019, we sold our BioPharma Business and Clinical Business as described in the Business Disposal section above. While the Buyer assumed certain of our liabilities in the BioPharma Disposal, the cash received to date from the Business Disposals is insufficient to satisfy all of the Company’s liabilities and other obligations, and the Company cannot determine at this time if future Earn-Out payments and receipt of amounts held in escrow by Buyer, combined with settlements of claims against the Company will enable all creditors to be paid in full and provide sufficient funds for future operations. We ~~continue~~are continuing to ~~explore opportunities for~~evaluate additional ~~equity~~strategic options, with the assistance of an investment bank, which could include the sale of other assets, a merger, reverse merger or ~~debt~~other strategic transaction. We can provide no assurances that our current actions will be successful or that additional sources of cash or financing ~~and~~will be available to us on favorable terms, if at all. If the Company is not able to collect its accounts receivable or raise additional capital on a timely basis or on favorable terms, the Company may need to scale back further its operations.

Meanwhile we are taking steps to improve our operating cash flow. We can provide no assurances that our current actions will be successful or that any additional sources of financing will be available to us on favorable terms, if at all, when needed. Our ~~forecast of the period of time through which our current financial resources will be adequate to support our~~cash position, recurring losses from operations and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern, and as a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the ~~costs~~year ended December 31, 2018 with respect to ~~support~~this uncertainty. This going concern opinion, and any future going concern opinion, could materially limit our ~~general~~ability to raise additional capital. The perception that we may not be able to continue as a going concern may cause customers, potential partners or investors to choose not to deal with us due to concerns about our ability to meet our contractual and ~~administrative, sales and marketing and research and development activities are forward-looking statements and involve risks and uncertainties.~~

~~We expect~~financial obligations. If we cannot continue as a going concern, our ~~sales and marketing, research and development and other general and administrative expenses to increase as we continue to expand~~stockholders may lose their entire investment in our ~~business.~~common stock.

Our forecast of the period of time through which our current financial resources will be adequate to support our operations and our expected operating expenses are forward-looking statements and involve risks and uncertainties. Actual results could vary materially and negatively as a result of a number of factors, including:

our ability to collect amounts held in escrow by Buyer;

our ability to realize upon the earn-out obligations due from siParadigm in a timely manner, and the possible reduction in the current or future volume of business acquired from us;

our ability to collect the accounts receivable from third-party commercial insurance payers we have retained;

our ability to negotiate discounted settlements with our creditors;

the ability of our vivoPharm subsidiary to achieve revenue growth and profitability;

~~our ability to improve efficiency of billing and collection processes;~~

our ability to maintain our present customer base and obtain ~~approvals~~new customers for ~~our new diagnostic tests;~~

~~our ability to execute on our marketing and sales strategy for our tests and CRO services and gain acceptance of our tests and CRO services in the market;~~

~~our ability to obtain adequate reimbursement from governmental and other third-party payors for our tests and services;~~

~~the costs, scope, progress, results, timing and outcomes of the clinical trials of our tests;~~vivoPharm;

the costs of operating and enhancing our laboratory facilities;

our ability to ~~succeed~~develop and rationalize our business strategy going forward to be commensurate with our ~~cost control initiative;~~

~~the timing of and the costs involved in regulatory compliance, particularly if the regulations change;~~

~~the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;~~corporate overhead;

our ability to ~~manage the costs of manufacturing our tests;~~satisfy regulatory requirements;

our ~~rate~~ability to secure new financing and the amount thereof;

our ability to maintain our listing on Nasdaq;

our ability to retain our management team and have them be able to devote sufficient time and attention to our business in light of ~~progress~~potentially competing obligations to assist the acquirers in ~~and cost~~the transition of ~~research and development activities associated with, products in research and early development;~~the Business Disposals;

the effect of competing technological and market developments;

~~costs related to expansion;~~

~~our ability to secure financing and the amount thereof;~~ and

other risks and uncertainties discussed in our annual report on Form 10-K for the year ended December 31, ~~2016,~~2018, as updated in this ~~quarterly report on~~ Form 10-Q and other reports, as applicable, we file with the Securities and Exchange Commission.

~~We expect~~The unaudited condensed consolidated financial statements for the nine months ended September 30, 2019 were prepared on the basis of a going concern, which contemplates that ~~our operating expenses may slightly increase as a result of our purchase of vivoPharm, but at a lesser rate than~~ the ~~expected increase in revenue. We expect our capital expenditures~~Company will ~~slightly increase~~be able to realize assets and discharge liabilities in the ~~future as we expand our~~normal course of business. ~~We plan~~Accordingly, they do not give effect to ~~increase our sales and marketing headcount~~adjustments that would be necessary should the Company be required to ~~promote our new clinical tests and services and~~liquidate its assets. The ability of the Company to ~~expand into new geographies~~meet its obligations, and to continue our research and development expenditures associated with performing work with research collaborators, to expand our pipeline and to perform work associated with our research collaborations. For example, in 2011 we entered into an affiliation agreement to formas a joint venture with the Mayo Foundation for Medical Education and Research pursuant to which we made an initial $1.0 million capital contribution in October 2013 and $1.0 million in the third quarter of 2014. We may make additional capital contributions of up to $4.0 million, subject to the joint venture entity’s achievement of certain operational milestones. Until we can generate a sufficient amount of revenues to finance our cash requirements, which we may never do, we will need to raise additional capital to fund our operations.

~~Subject to~~going concern is dependent upon the availability of ~~financing, we may use significant cash to fund acquisitions.~~

~~In March 2017, we entered into a new line~~future funding and the continued growth in revenues. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of credit with Silicon Valley Bank and refinanced our term note with a new lender, Partners for Growth. See Note 6 of Notes to Unaudited Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q. In August 2017, we entered into a common stock purchase agreement with Aspire Capital Fund, LLC. See Note 3 of Notes to Unaudited Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q.these uncertainties.

Income Taxes

Over the past several years we have generated operating losses in all jurisdictions in which we may be subject to income taxes. As a result, we have accumulated significant net operating losses and other deferred tax assets. Because of our history of losses and the uncertainty as to the realization of those deferred tax assets, a full valuation allowance has been recognized. We do not expect to report a benefit related to the deferred tax assets until we have a history of earnings, if ever, that would support the realization of our deferred tax assets. ~~Utilization of these net operating loss carryforwards is subject to limitation due to ownership changes that may delay the utilization of a portion of the carryforwards.~~

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

Critical Accounting Policies and Significant Judgment and Estimates

~~Our management’s~~Management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and make various assumptions, which management believes to be reasonable under the circumstances, which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Section 107 of the JOBS Act 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. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

The notes to our audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, ~~2016~~2018 contain a summary of our significant accounting policies. The adoption of ASC 842 is discussed in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q. We consider the following accounting policies critical to the understanding of the results of our operations:

Revenue recognition;

Accounts receivable and bad debts;

Warrant liabilities and other derivatives;

Stock-based compensation;

Income taxes; and

~~Warrant liability.~~Impairment of intangibles and long-lived assets.

Cautionary Note Regarding Forward-Looking Statements

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” or the negative of those terms, and similar expressions and comparable terminology intended to identify forward-looking statements. These statements reflect our current views with respect to future events. There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

our ability to ~~achieve profitability~~collect amounts held in escrow by ~~increasing sales of our laboratory tests and services and to continually develop and commercialize novel and innovative diagnostic tests and services for cancer patients;~~Buyer;

our ability to ~~improve efficiency~~realize upon the earn-out obligations due from siParadigm in a timely manner, and the possible reduction in the current or future volume of ~~billing and collection processes;~~

~~with respect to our Clinical Services, our ability to obtain reimbursement~~business acquired from ~~governmental and other third-party payors for our tests and services;~~

~~our ability clinically validate our pipeline of tests currently in development;~~us;

our ability to ~~execute on our marketing and sales strategy for our tests and CRO services and gain acceptance of our tests and CRO services in~~collect the ~~market;~~accounts receivable from third-party commercial insurance payers we have retained;

our ability to ~~keep pace~~negotiate discounted settlements with ~~rapidly advancing market~~our creditors;

the ability of our vivoPharm subsidiary to achieve revenue growth and ~~scientific developments;~~

~~our ability to satisfy U.S. (including FDA) and international regulatory requirements with respect to our tests and services, many of which are new and still evolving;~~

~~our ability to raise additional capital to meet our liquidity needs;~~

~~competition from clinical laboratory services companies, tests currently available or new tests that may emerge;~~

our ability to maintain our clinical collaborations and enter into new collaboration agreements with highly regarded organizations in the cancer field so that, among other things, we have access to thought leaders in the field and to a robust number of samples to validate our tests;

profitability;

our ability to maintain our present customer base and obtain new ~~customers;~~customers for vivoPharm;

~~potential product liability or intellectual property infringement claims;~~

the costs of operating and enhancing our ~~dependency on third-party manufacturers to supply or manufacture our products;~~laboratory facilities;

our ability to ~~attract~~develop and ~~retain a sufficient number of scientists, clinicians, sales personnel and other key personnel~~rationalize our business strategy going forward to be commensurate with ~~extensive experience in oncology, who are in short supply;~~our corporate overhead;

our ability to ~~obtain or maintain patents or other appropriate protection for the intellectual property in our proprietary tests and services;~~

~~our dependency on the intellectual property licensed to us or possessed by third parties;~~satisfy regulatory requirements;

our ability to ~~expand internationally~~secure new financing and ~~launch our tests in emerging markets, such as India and Brazil;~~the amount thereof;

our ability to ~~adequately support future growth;~~maintain our listing on Nasdaq;

our ability to retain our management team and have them be able to devote sufficient time and attention to our business in light of potentially competing obligations to assist the acquirers in the transition of the Business Disposals;

the effect of competing technological and market developments; and

~~the risk factors~~other risks and uncertainties discussed in our annual report on Form 10-K for the year ended December 31, ~~2016,~~2018, as updated in this ~~quarterly report on~~ Form 10-Q and other reports, as applicable, ~~that~~ we file with the Securities and Exchange Commission.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this quarterly report on Form 10-Q and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this quarterly report on Form 10-Q. You should read this quarterly report on Form 10-Q and the documents referenced herein and filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We evaluated, under the supervision and with the participation of the principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (“Exchange Act”), as amended, as of September 30, ~~2017,~~2019, the end of the period covered by this report on Form 10-Q. Based on this evaluation, our President and Chief Executive Officer (principal executive officer) and our Chief ~~Operating~~Financial Officer (principal financial officer) have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level at September 30, ~~2017.~~2019 because of the material weakness in the Company’s internal control over financial reporting that existed at December 31, 2018 that has not been fully remediated by the end of the period covered by this quarterly report on Form 10-Q.

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) is accumulated and communicated to management, including the

principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

Changes in Internal Control over Financial Reporting

~~There~~Our internal control policies changed during the nine months ended September 30, 2019 to accommodate the implementation of ASC 606 and specifically its effect on the different customer types within Clinical Services in part for a legacy location as well as the practical recording of the relevant accounts receivable and subsequent cash receipts.

Other than changes to accommodate the implementation of ASC 606, and the remediation activities discussed below, there were no changes in our internal control over financial reporting during the three months ended September 30, ~~2017~~2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Material Weakness in Internal Control over Financial Reporting

Subsequent to the evaluation made in connection with filing our annual report on Form 10-K for the year ended December 31, 2018, management has begun the process of remediation of the material weakness. The further remediation is being conducted due to latency effects associated with the ASC 606 implementation as well as a legacy location that involves design changes to our internal controls over revenue recognition. In 2019, management plans to include additional reconciliations between its general ledger and billing systems to enhance its remediation efforts. We believe these actions to be sufficient to remediate the identified material weakness and to enhance our internal control over financial reporting. However, the new enhanced controls have not operated long enough to conclude at the time of this filling that the material weakness was fully remediated. The Company expects this deficiency to be corrected by the end of 2019.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

~~In the normal course~~On April 5, 2018 and April 12, 2018, purported stockholders of ~~business,~~ the Company ~~may become involved~~filed nearly identical putative class action lawsuits in ~~various claims~~the U.S. District Court for the District of New Jersey, against the Company, Panna L. Sharma, John A. Roberts, and ~~legal proceedings.~~ Igor Gitelman, captioned Ben Phetteplace v. Cancer Genetics, Inc. et al., No. 2:18-cv-05612 and Ruo Fen Zhang v. Cancer Genetics, Inc. et al., No. 2:18-06353, respectively. The complaints alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 based on allegedly false and misleading statements and omissions regarding our business, operational, and financial results. The lawsuits sought, among other things, unspecified compensatory damages in connection with purchases of our stock between March 23, 2017 and April 2, 2018, as well as interest, attorneys’ fees, and costs. On August 28, 2018, the Court consolidated the two actions in one action captioned In re Cancer Genetics, Inc. Securities Litigation (the “Securities Litigation”) and appointed shareholder Randy Clark as the ~~opinion~~lead plaintiff. On October 30, 2018, the lead plaintiff filed an amended complaint, adding Edward Sitar as a defendant and seeking, among other things, compensatory damages in connection with purchases of ~~management,~~CGI stock between March 10, 2016 and April 2, 2018. On December 31, 2018, Defendants filed a motion to dismiss the amended complaint for failure to state a claim. On March 1, 2019, lead plaintiff filed its opposition to the motion to dismiss. On April 15, 2019, defendants filed their reply in further support of their motion to dismiss. Defendants' motion remains pending before the Court. The Company is unable to predict the ultimate ~~liability~~outcome of the Securities Litigation and therefore cannot estimate possible losses or ~~disposition thereof~~ranges of losses, if any.

In addition, on June 1, 2018, September 20, 2018, and September 25, 2018, purported stockholders of the Company filed nearly identical derivative lawsuits on behalf of the Company in the U.S. District Court for the District of New Jersey against the Company (as a nominal defendant) and current and former members of the Company’s Board of Directors and current and former officers of the Company. The three cases are captioned: Bell v. Sharma et al., No. 2:18-cv-10009-CCC-MF, McNeece v. Pappajohn et al., No. 2:18-cv-14093, and Workman v. Pappajohn, et al., No. 2:18-cv-14259 (the “Derivative Litigation”). The complaints allege claims for breach of fiduciary duty, violations of Section 14(a) of the Securities Exchange Act of 1934 (premised upon alleged omissions in the Company’s 2017 proxy statement), and unjust enrichment, and allege that the individual defendants failed to implement and maintain adequate controls, which resulted in ineffective disclosure controls and procedures, and conspired to conceal this alleged failure. The lawsuits seek, among other things, damages and/or restitution to the Company, appropriate equitable relief to remedy the alleged breaches of fiduciary duty, and attorneys’ fees and costs. On November 9, 2018, the Court in the Bell v. Sharma action entered a stipulation filed by the parties staying the Bell action until the Securities Litigation is ~~not expected~~dismissed, with prejudice, and all appeals have been exhausted; or the defendants’ motion to ~~have~~dismiss in the Securities Litigation is denied in whole or in part; or either of the parties in the Bell action gives 30 days’ notice that they no longer consent to the stay. On December 10, 2018, the parties in the McNeece action filed a ~~material adverse effect on our financial condition, results~~stipulation that is substantially identical to the Bell stipulation. On February 1, 2019, the Court in the Workman action granted a stipulation that is substantially identical to the Bell stipulation. The Company is unable to predict the ultimate outcome of ~~operations,~~the Derivative Litigation and therefore cannot estimate possible losses or ~~liquidity.~~ranges of losses, if any.

Item 1A. Risk Factors

~~Except as set forth below, there~~There have been no material changes to the risk factors disclosed in Part 1, Item 1A, of our annual report on Form 10-K for the year ended December 31, ~~2016.~~2018 except as noted below:

~~Risks Related to the vivoPharm Acquisition~~

~~Any acquisition exposes a company to additional risks.~~

~~Acquisitions may entail numerous risks for Cancer Genetics, including:~~

~~competing claims for capital resources;~~

~~uncertainty~~Our recurring losses from operations have raised substantial doubt regarding our ability to ~~retain and grow relationships with vivoPharm’s key customers;~~

~~difficulties in assimilating acquired operations, technologies or products; and~~

~~diversion of management’s attention from our core business.~~continue as a going concern.

~~Our failure~~At September 30, 2019, our cash position and history of losses required management to ~~successfully complete~~assess our ability to continue operating as a going concern, according to FASB ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Prior to the ~~integration~~closing of ~~vivoPharm could have~~the Business Disposals transactions in July 2019, the Company did not anticipate having sufficient cash at September 30, 2019 to fund normal operations beyond the next three months unless certain current assets were converted to cash, as described below. The Company’s ability to continue as a ~~material adverse effect~~going concern after the Business Disposals is now dependent on ~~our business, financial condition~~the Company’s ability to raise additional equity or debt capital, spin-off non-core assets to raise additional cash, collect its outstanding accounts receivable and ~~operating results.~~amounts held in escrow by Buyer or receive the Earn-Out payments from siParadigm without further significant offsets, and negotiate discounts in good faith with its trade suppliers. These factors raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of this current report on Form 10-Q.

~~Failure~~Net cash used in operating activities for continuing operations was $1.0 million for the nine months ended September 30, 2019 and the Company had unrestricted cash and cash equivalents of $2.1 million at September 30, 2019, an increase from $0.2 million at December 31, 2018. The Company has negative working capital from continuing operations at September 30, 2019 of $2.0 million.

The Company currently requires additional capital to pay its unsecured debt and accounts payable, and its ability to continue as a going concern is dependent upon its ability to collect its outstanding accounts receivable, receive the Earn-Out payments from siParadigm and negotiate discounts in good faith with its trade suppliers. In July 2019, we sold our BioPharma Business and Clinical Business as described in Note 1 to our financial statements. While the Buyer assumed certain of our liabilities in the BioPharma Disposal, the cash received to date from the Business Disposals is insufficient to satisfy all of the ~~vivoPharm acquisition~~Company’s liabilities and other obligations, and the Company cannot determine at this time if future collections, combined with settlements of claims against the Company will enable all creditors to ~~achieve potential benefits~~be paid in full and provide sufficient funds for future operations. We are continuing to evaluate additional strategic options, with the assistance of an investment bank, which could ~~harm~~include the ~~business~~sale of other assets, a merger, reverse merger or other strategic transaction. We can provide no assurances that our current actions will be successful or that additional sources of cash or financing will be available to us on favorable terms, if at all. If the Company is not able to collect its accounts receivable or raise additional capital on a timely basis or on favorable terms, the Company may need to scale back further its operations.

The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

The Company’s ability to collect timely on the amounts held in escrow by IDXG is uncertain.

On July 15, 2019, the Company entered into a secured creditor asset purchase agreement (the “BioPharma Agreement”) by and ~~operating results~~among the Company, Gentris, LLC, a wholly-owned subsidiary of the ~~combined company.~~Company, Partners for Growth IV, L.P. (“PFG”), Interpace Diagnostics Group, Inc. (“IDXG”) and a newly-formed subsidiary of IDXG, Interpace BioPharma, Inc. (“Buyer”). The BioPharma Agreement provided for a consensual private foreclosure sale by PFG of all assets relating to the Company’s BioPharma Business (as defined in the BioPharma Agreement) to Buyer (the “BioPharma Disposal”). Pursuant to the BioPharma Agreement, Buyer purchased from PFG certain assets and assumed certain liabilities of the Company relating to the BioPharma Business, providing as gross consideration $23,500,000, less certain closing adjustments totaling $1,978,240, of which $7,692,300 was paid in the form of a promissory note issued by Buyer to the Company (the “Excess Consideration Note”) and the remainder was paid to PFG in cash. PFG utilized the cash proceeds to satisfy the outstanding balances of the Silicon Valley Bank (“SVB”) asset-based revolving line of credit (“ABL”) and the $6.0 million term note to PFG (“PFG Term Note”), and to satisfy certain transaction expenses. The balance of approximately $2,260,000 was delivered to the Company along with the Excess Consideration Note.

~~We expect that~~The Excess Consideration Note, which required interest-only quarterly payments at a rate of 6% per year, matured in October 2019 and was settled on October 24, 2019 for $6,024,489, including interest of $23,674. The Buyer withheld from the ~~acquisition~~settlement of the ~~vivoPharm businesses~~Excess Consideration Note approximately $775,000 for a net worth adjustment, $153,000 to secure collection of certain older accounts receivable of the Company purchased by Buyer (“AR Holdback”) and an additional $735,000 as security for indemnification for obligations of the Company for any breaches of certain limited warranties and of covenants of the Company and other specified items (“Indemnification Holdback”). The amount of the older accounts receivable determined to be paid as of December 31, 2019 will ~~result~~be remitted to Company from the AR Holdback. Any amounts remaining in ~~potential benefits~~the Indemnification Holdback shall be remitted to the Company on January 15, 2020 (six months from the date of the BioPharma Agreement, unless there are pending indemnification claims.

In accordance with the original purchase agreement, IDXG is currently holding back approximately $153,000 related to certain of the Company’s older accounts receivable assumed by IDXG, and is entitled to retain this amount if these accounts are not collected prior to December 31, 2019. In addition, IDXG has put $735,000 of amounts owed by them to the Company in escrow as security for the ~~combined company, the expansion~~indemnification for potential breaches of certain limited warranties and of covenants of the ~~number~~Company and ~~geographic coverage of our sales~~other specified items, subject to agreed-upon caps, baskets and ~~marketing team, stronger penetration into new biotechnology customers, an extended portfolio of capabilities which will differentiate us~~survival periods as set forth in the ~~markets we serve, advancing our strategy~~BioPharma Agreement.

The Company's ability to satisfy claims of ~~bench-to-bedside services,~~all its creditors in full is uncertain.

While in connection with the closing of the BioPharma Disposal, the SVB ABL and ~~bolstering our growth~~the PFG Term Note were terminated, and all related liens were released, the Company remains liable to various unsecured creditors, including in the amount of $450,000 due to NovellusDx, Ltd. (“NDX”), in connection with ~~a global customer base~~its October 2019 NDX Settlement Agreement, and $1,347,500 due to Atlas Sciences, LLC pursuant to its October 2019 unsecured note. At September 30, 2019, other than those of ~~biopharma partners.~~discontinuing operations, the Company had an aggregate of $9.4 million of current liabilities and $10.1 million in total liabilities. This is compared to current assets other than those of discontinuing operations of $11.5 million, as of September 30, 2019. No assurance can be given that wethe Company will ~~achieve any or all of these potential benefits. Even if we are~~be able to ~~achieve any of these potential benefits, we cannot predict with certainty when the benefits~~pay such unsecured creditors in full or that claims will ~~occur, or~~not be asserted in addition to the ~~extent to~~amounts which ~~they actually will be achieved. For example,~~ the benefits from the acquisition may be offset by costs incurred in integrating the businesses. The failure to achieve anticipated benefits could harm the business, financial condition and operating results of the combined company.Company believes it is liable for at this time.

If the market for the combined company’s tests and services does not experience significant growth or if the combined company’s tests and services do not achieve broad acceptance, the combined company’s operations will suffer.

Cancer Genetics cannot accurately predict the future growth rate or the size of the market for the combined company’s tests and services. The expansion of this market depends on a number of factors, such as:

~~the results of clinical trials;~~

~~the cost, performance and reliability of the combined company’s tests and services, and the tests and services offered by competitors;~~

~~customers’ perceptions regarding the benefits of the combined company’s test and services;~~

~~customers’ satisfaction with our tests and services; and~~

~~marketing efforts and publicity regarding our tests and services.~~

~~If the combined company is unable to manage growth in its business, its prospects may be limited and its future results of operations may be adversely affected.~~

Any significant expansion such as the acquisition of vivoPharm may strain the combined company’s managerial, financial and other resources. If the combined company is unable to manage its growth, its business, operating results and financial condition could be adversely affected. The combined company will need to improve continually its operations, financial and other

~~internal systems to manage its growth effectively, and any failure to do so may lead to inefficiencies and redundancies, and result in reduced growth prospects and diminished operational results.~~

~~Operating in multiple countries requires us to comply with different legal and regulatory requirements.~~

Other laws applicable to our international business include local clinical, employment, tax, privacy, data security, environmental and intellectual property protection laws and regulations. These requirements may differ significantly from the requirements applicable to our business in the U.S. and may require resources to accommodate, and may result in decreased operational efficiencies and performance. As these laws continue to evolve and if we expand to more jurisdictions or acquire new businesses, compliance will become more complex and expensive, and the risk of non-compliance will increase.

Compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business abroad, and violation of these laws or regulations may interfere with our ability to offer our tests and services competitively in one or more countries, expose us or our employees to fines and penalties, and result in the limitation or prohibition of our conduct of business.

The ~~potential loss or delay~~Company’s additional sources of ~~our large contracts or of multiple contracts could adversely affect our results.~~funds are uncertain.

~~Most~~The Company has three sources of ~~our Discovery~~funds following the Business Disposals. First, as part of the sale of the Clinical Business to siParadigm, the Company is receiving earn-out payments based on the revenues of siParadigm from the former customers of the Company’s Clinical Services ~~clients~~business. Such earn-out payments are based on revenues generated in the 12 months following the closing of the sale of the Clinical Services business, and are to be paid over 24 months following such sale. While the Company received net payments of approximately $70,000 from siParadigm in the third quarter, no assurances can ~~terminate our contracts upon~~be given with respect to the amount and timing of any further payments. The Company is also attempting to collect on certain accounts receivable it owns that were not sold to siParadigm or IDXG. The net amount of such accounts receivable as of September 30, 2019 was approximately $1.1 million. No assurances can be given as to ~~90 days notice. These clients may delay, terminate or reduce~~ the ~~scope~~amounts and timing of ~~our contracts for a variety of reasons beyond our control, including but not limited to:~~collections on such accounts receivable.

~~decisions~~Finally, the Company continues to ~~forego or terminate~~own its Discovery Business through its vivoPharm subsidiary. For the first nine months of 2019, the Discovery Business had a ~~particular clinical trial;~~

~~lack~~net loss of ~~available financing, budgetary limits or changing priorities;~~

~~actions by regulatory authorities;~~

~~production problems resultings~~$4.8 million and had cash used in ~~shortages~~operations of ~~the drug being tested;~~

~~failure of products being tested~~$1.0 million. All vivoPharm revenues will have to be used to satisfy ~~safety requirements or efficacy criteria;~~

~~unexpected or undesired clinical results for products;~~

~~shift of business~~vivoPharm’s liabilities and obligations. No assurance can be given as to ~~a competitor or internal resources; or~~

~~shut down of manufacturing facilities.~~whether the Discovery Business will ever generate sufficient positive cash flow so as to be able to pay dividends to the parent company, and support our corporate overhead.

As a result ~~contract terminations, delays~~of the Business Disposals, we no longer will be generating revenues at the parent company level.

The Company’s business operations are more limited than prior to the sale of its Clinical Services business and ~~alterations~~the foreclosure sale of its BioPharma Services business, and thus the costs of maintaining itself as a publicly traded corporation are proportionally higher and will be more burdensome to the Company going forward.

As a ~~possible outcome~~public company, we have incurred and will continue to incur significant legal, accounting and other expenses. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the other rules and regulations of the Securities and Exchange Commission, or SEC, and the rules and regulations of The Nasdaq Stock Market, or Nasdaq. Compliance with the various reporting and other requirements applicable to public companies requires considerable time and attention of management. For example, the Sarbanes-Oxley Act and the rules of the SEC and national securities exchanges have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel are devoting and will continue to need to devote a substantial amount of time and money to these compliance obligations. The board may view these costs to be disproportionately expensive when viewed in light of our ~~Discovery Services business. In~~reduced operations following the Business Disposals.

As a result, our board of directors may elect to pursue a strategic transaction to attempt to expand the business and create additional value for shareholders, or in light of the time, costs and uncertainties inherent in seeking such a strategic transaction, and the costs in remaining as a public company, our board may decide to pursue a dissolution and liquidation of the Company. If our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation of the Company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. Our commitments and contingent liabilities may include severance obligations related to the recent asset sales. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of ~~termination, our contracts often provide for fees for~~a liquidation, dissolution or winding ~~down~~up of the project, but these fees may not be sufficient for us to maintain our margins, and termination may result in lower resource utilization rates. In addition, we may not realize the full benefits of our backlog of contractually committed services if our clients cancel, delay or reduce their commitments under our contracts with them, which may occur if, among other things, a client decides to shift its business to a competitor or revoke our status as a preferred provider. Thus, the loss or delay of a large contract or the loss or delay of multiple contracts could adversely affect our revenues and profitability. We believe the risk of loss or delay of multiple contracts potentially has greater effect where we are party to broader partnering arrangements with global biopharmaceutical companies.company.

~~Our financial results~~Management may ~~be adversely affected if we underprice our contracts, overrun our cost estimates or fail to receive approval for or experience delays in documenting change orders.~~have conflicts of interest.

Most of our Discovery Services contracts are either fee for service contracts or fixed-fee contracts. Our past financial results have been, and our future financial results may be, adversely impacted if we initially underprice our contracts or otherwise overrun our cost estimates and are unable to successfully negotiate a change order. Change orders typically occur when the scope of work we perform needs to be modified from that originally contemplated by our contract with the client. Modifications can occur, for example, when there is a change in a key clinical trial assumption or parameter or a significant change in timing. Where we are not successful in converting out-of-scope work into change orders under our current contracts, we bear the costCurrent management of the ~~additional work. Such underpricing, significant cost overruns or delay in documentation of change orders could have a material adverse effect on our business, results of~~Company, principally its Chief Executive Officer and Chief Financial Officer, are responsible for the day-to-day operations ~~financial condition or cash flows.~~

If we fail to perform our services in accordance with contractual requirements, regulatory standards and ethical considerations, we could be subject to significant costs or liability and our reputation could be harmed.

In connection with our Discovery Services business, we contract with biopharmaceutical companies to provide specialized services to assist them in planning and conducting unique, specialized studies to guide drug discovery and development programs with a concentration in oncology and immuno-oncology. Our services include monitoring clinical trials, data and laboratory analysis, electronic data capture and other related services. Such services are complex and subject to contractual requirements, regulatory standards and ethical considerations. If we fail to perform our services in accordance with these

requirements, regulatory agencies may take action against us for failure to comply with applicable regulations governing clinical trials. Clients may also bring claims against us for breach of our contractual obligations. Any such action could have a material adverse effect on our results of operations, financial condition and reputation.

~~Such consequences could arise if, among other things, the following occur:~~

~~Improper performance of our services.~~ ~~The performance of clinical development services is complex and time-consuming. For example, we may make mistakes in conducting a clinical trial that could negatively impact or obviate the usefulness~~ of the ~~clinical trial or cause~~Company, including planning for the ~~results~~future direction of the ~~clinical trial to be reported improperly. If~~Company after the ~~clinical trial results are compromised, we could be subject to significant costs or liability, which could have an adverse impact on our ability to perform our services. As examples:~~

~~non-compliance generally could result~~Business Disposals. Such officers may enter into consulting agreements with Buyer (and, in the ~~termination of ongoing clinical trials or sales and marketing projects or the disqualification of data for submission to regulatory authorities;~~

compromise of data from a particular clinical trial, such as failure to verify that informed consent was obtained from patients, could require us to repeat the clinical trial under the terms of our contract at no further cost to our client, but at a substantial cost to us; and

~~breach of a contractual term could result in liability for damages or termination~~case of the ~~contract.~~

~~While we endeavor~~Chief Executive Officer, siParadigm) pursuant to ~~contractually limit our exposure to such risks, improper performance of our services could have an adverse effect on our financial condition, damage our reputation and result~~which they will assist in the ~~cancellation~~transition of ~~current contracts by or failure~~the Clinical Business and BioPharma Business to ~~obtain future contracts from~~siParadigm and IDXG, as applicable. It is possible that the ~~affected client or other clients.~~

~~Investigation~~dual roles will create conflicts of ~~clients.~~ ~~From time to time, one or more of our clients are audited or investigated by regulatory authorities or enforcement agencies~~interest for such officers with respect to ~~regulatory compliance~~allocation of their ~~clinical trials, programs or~~time and otherwise. No assurance can be given that the ~~marketing~~officers of the Company will have sufficient time and ~~sale~~resources to properly direct the future operations of ~~their drugs. In these situations, we have often provided services to our clients with respect to~~ the clinical trials, programs or activities being audited or investigated, and we are called upon to respond to requests for information by the authorities and agencies. There is a risk that either our clients or regulatory authorities could claim that we performed our services improperlyCompany, or that we are responsible for clinical trial or program compliance. If our clients or regulatory authorities make such claims against us and prove them, we could be subject to damages, fines or penalties. In addition, negative publicity regarding regulatory complianceother conflicts of ~~our clients’ clinical trials, programs or drugs could have an adverse effect on our business and reputation.~~interest in their dual roles will not arise.

Security breaches and unauthorized use of our IT systems and information, or the IT systems or information in the possession of our vendors, could expose us, our clients, our data suppliers or others to risk of loss.

We rely upon the security of our computer and communications systems infrastructure to protect us from cyberattacks and unauthorized access. Cyberattacks can include malware, computer viruses, hacking or other significant disruption of our computer, communications and related systems. Although we take steps to manage and avoid these risks and to prevent their recurrence, our preventive and remedial actions may not be successful. Such attacks, whether successful or unsuccessful, could result in our incurring costs related to, for example, rebuilding internal systems, defending against litigation, responding to regulatory inquiries or actions, paying damages or fines, or taking other remedial steps with respect to third parties. Publicity about vulnerabilities and attempted or successful incursions could damage our reputation with clients and data suppliers and reduce demand for our services.

We also store proprietary and sensitive information in connection with our business, which could be compromised by a cyberattack. To the extent that any disruption or security breach results in a loss or damage to our data, an inappropriate disclosure of proprietary or sensitive information, an inability to access data sources, or an inability to process data or provide our offerings to our clients, it could cause significant damage to our reputation, affect our relationships with our data suppliers and clients (including loss of suppliers and clients), lead to claims against us and ultimately harm our business. We may be required to incur significant costs to alleviate, remedy or protect against damage caused by these disruptions or security breaches in the future. We may also face inquiry or increased scrutiny from government agencies as a result of any such disruption or breach. While we have insurance coverage for certain instances of a cyber security breach, our coverage may not be sufficient if we suffer a significant attack or multiple attacks. Any such breach or disruption could have a material adverse effect on our operating results and our reputation as a provider of mission-critical services.

Some of our vendors have significant responsibility for the security of certain of our data centers and computer-based platforms. Also, our data suppliers have responsibility for security of their own computer and communications environments. These third parties face risks relating to cyber security similar to ours, which could disrupt their businesses and therefore materially impact ours. Accordingly, we are subject to any flaw in or breaches to their computer and communications systems

~~or those that they operate for us, which could result in a material adverse effect on our business, operations and financial results.~~

~~Current and proposed laws and regulations regarding the protection of personal data could result in increased risks of liability or increased cost to us or could limit our service offerings.~~

The confidentiality, collection, use and disclosure of personal data, including clinical trial patient-specific information, are subject to governmental regulation generally in the country that the personal data were collected or used. For example, United States federal regulations under Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and as amended in 2014 by the Health Information Technology for Economic and Clinical Health (“HITECH”) Act, require individuals’ written authorization, in addition to any required informed consent, before Protected Health Information may be used for research. We are both directly and indirectly affected by the privacy provisions surrounding individual authorizations because many investigators with whom we are involved in clinical trials are directly subject to them as a HIPAA “covered entity” and because we obtain identifiable health information from third parties that are subject to such regulations. As there are some instances where we are a HIPAA “business associate” of a “covered entity,” we can also be directly liable for mishandling protected health information. Under HIPAA’s enforcement scheme, we can be subject to up to $1.5 million in annual civil penalties for each HIPAA violation.

In the EU personal data includes any information that relates to an identified or identifiable natural person with health information carrying additional obligations, including obtaining the explicit consent from the individual for collection, use or disclosure of the information. In addition, we are subject to EU rules with respect to cross-border transfers of such data out of the EU. The United States, the EU and its member states, and other countries where we have operations, such as Japan, South Korea, Malaysia, the Philippines, Russia and Singapore, continue to issue new privacy and data protection rules and regulations that relate to personal data and health information. Failure to comply with certain certification/registration and annual re-certification/registration provisions associated with these data protection and privacy regulations and rules in various jurisdictions, or to resolve any serious privacy complaints, could subject us to regulatory sanctions, criminal prosecution or civil liability. Federal, state and foreign governments are contemplating or have proposed or adopted additional legislation governing the collection, possession, use or dissemination of personal data, such as personal health information, and personal financial data as well as security breach notification rules for loss or theft of such data. Additional legislation or regulation of this type might, among other things, require us to implement new security measures and processes or bring within the legislation other personal data, each of which may require substantial expenditures or limit our ability to offer some of our services. Additionally, if we violate applicable laws, regulations or duties relating to the use, privacy or security of personal data, we could be subject to civil liability or criminal prosecution, be forced to alter our business practices and suffer reputational harm.

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

~~Not applicable.~~Between July 24, 2019 and September 6, 2019, the Company issued an aggregate of 173,557 shares (the “Exchange Shares”) of

common stock to Iliad in exchange for the return of $612,175 of principal amount of the Convertible Note to the Company.

The Exchange Shares are not registered under the Securities Act of 1933, as amended (the “Securities Act”) or any state

securities laws. The Company has relied on the exemption from the registration requirements of the Securities Act by virtue of

Section 3(a)(9) under the Securities Act.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

See the Index to Exhibits following the signature page hereto, which Index to Exhibits is incorporated herein by reference.

SIGNATURE

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.



						Cancer Genetics, Inc.
						(Registrant)

Date: November ~~13, 2017~~						~~/s/ Panna L. Sharma~~
						~~Panna L. Sharma~~
						~~President and Chief Executive Officer~~ ~~(Principal Executive Officer)~~

~~Date: November 13, 2017~~19, 2019						/s/ John A. Roberts
						John A. Roberts
						President and Chief ~~Operating~~Executive Officer (Principal ~~Financial~~Executive Officer)

Date: November ~~13, 2017~~19, 2019						/s/ ~~Igor Gitelman~~M. Glenn Miles
						~~Igor Gitelman~~M. Glenn Miles
						Chief ~~Accounting~~Financial Officer (Principal Financial and Accounting Officer)

INDEX TO EXHIBITS



Exhibit No.		Description

2.1***2.1		~~Stock~~Asset Purchase Agreement, dated ~~as of August 14, 2017,~~July 5, 2019, by and among the Company, the Trustee of The Brandt Family Trust, Sabine Brandt, Royal Melbourne Institute of Technology, South Australian Life Science Advancement Partnership, LP, vivoPharm Pty Ltd. ACN 106 101 615, the Shareholders’ Representative party thereto, the Management Parties party theretosiParadigm, LLC and ~~certain other stockholders named therein~~Cancer Genetics, Inc. (incorporated by reference to Exhibit 2.1 for the Company's Quarterly Report on Form 10-Q, filed on August 19, 2019).

2.2		Secured Creditor Asset Purchase Agreement, dated July 15, 2019, by and among Interpace BioPharma, Inc., Cancer Genetics, Inc., Interpace Diagnostics Group, Inc., and Partners for Growth IV, L.P. (incorporated by reference to Exhibit 2.1 of the ~~Company’s~~Company's Current Report on Form 8-K, filed on ~~August 16, 2017)~~July 19, 2019).

3.1		Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of Cancer Genetics, Inc. dated October 24, 2019 (incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K, filed on October 25, 2019).

4.1		~~Registration Rights Agreement,~~Promissory Note of Interpace BioPharma, Inc., dated asJuly 15, 2019, in favor of ~~August 14, 2017, by and between the Company and Aspire Capital Fund, LLC~~Cancer Genetics, Inc. (incorporated by reference to Exhibit 4.1 toof the ~~Company’s~~Company's Current Report on Form 8-K, filed on ~~August 16, 2017)~~July 19, 2019).

4.2		Promissory Note with Atlas Sciences, LLC dated October 21, 2019 (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K, filed on October 25, 2019).

10.1		~~Common Stock Purchase~~Transition Services Agreement, dated ~~as of August 14, 2017,~~July 15, 2019, by and between ~~the Company~~Interpace BioPharma, Inc. and ~~Aspire Capital Fund, LLC~~Cancer Genetics, Inc. (incorporated by reference to Exhibit 10.1 toof the ~~Company’s~~Company's Current Report on Form 8-K, filed on ~~August 16, 2017)~~July 19, 2019).

10.2		Note Purchase Agreement with Atlas Sciences, LLC dated October 21, 2019 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on October 25, 2019).

10.3		Settlement Agreement with NovellusDx Ltd dated October 21, 2019 (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on October 25, 2019).

31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under The Securities Exchange Act of 1934, as amended * *

31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under The Securities Exchange Act of 1934, as amended * *

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

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

101		The following materials from the Registrant’s quarterly report on Form 10-Q for the quarter ended September 30, ~~2017,~~2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet at September 30, ~~2017~~2019 (unaudited) and December 31, ~~2016,~~2018, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the three and nine month periods ended September 30, ~~2017~~2019 and ~~2016~~2018 (unaudited), (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine month periods ended September 30, 2019 and 2018 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, ~~2017~~2019 and ~~2016~~2018 (unaudited) and ~~(iv)~~(v) Condensed Notes to Consolidated Financial Statements (unaudited)



*		Filed herewith.
**		Furnished herewith.
~~***~~		The schedules and exhibits to the Stock Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K under the Securities Act of 1933, as amended. Cancer Genetics agrees to furnish as a supplement a copy of any omitted schedules or exhibits to the Stock Purchase Agreement to the Securities and Exchange Commission upon request, provided that Cancer Genetics may request confidential treatment for any schedule or exhibit so furnished.

3641



Cash	$	544
Accounts receivable	905
Lab supplies	1,258
Prepaid expenses and other current assets	101
Fixed assets	949
Intangible assets	7,014
Goodwill	2,129
Accounts payable and accrued expenses	(913		)
Deferred revenue	(814		)
Obligations under capital leases	(117		)
Total purchase price	$	11,056



	Three Months Ended September 30						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	9,069		$	7,958		$	25,335		$	23,595
Net loss	(976		)	(3,919		)	(13,788		)	(13,596		)

Basic net loss per share	$	(0.04	)	$	(0.20	)	$	(0.61	)	$	(0.76	)
Diluted net loss per share	(0.16		)	(0.20		)	(0.61		)	(0.76		)



	September 30, 2017			December 31, 2016
Biopharma Services	$	3,702		$	3,683
Clinical Services	13,072			8,972
Discovery Services	1,300			480
Allowance for doubtful accounts	(2,277		)	(1,387		)
	$	15,797		$	11,748



Allowance for Doubtful Accounts (in thousands)
Balance, December 31, 2016	$	1,387
Bad debt expense	890
Balance, September 30, 2017	$	2,277



	September 30, 2017		December 31, 2016
SVB Term Note, repaid in 2017	$	—	$	4,667
PFG Term Note, net of discount of $865	5,135		—
Less unamortized debt issuance costs	199		13
Term notes, net	4,936		4,654
Less current maturities	—		2,000
Long-term portion	$	4,936	$	2,654