Table of Contents

 
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, 2018
Or
 
¨
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 of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
201 Route 17 North 2 nd  Floor
Rutherford, NJ 07070
(201) 528-9200
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý     No   ¨

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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
 
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 13, 2018, there were 27,746,497 shares of common stock, par value $0.0001 of Cancer Genetics, Inc. outstanding.
 

Table of Contents

CANCER GENETICS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
 
 
Item 1.
 
 
 
Consolidated Statements of Operations  and Other Comprehensive Loss
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


Table of Contents

PART I — FINANCIAL INFORMATION  
Item 1.    Financial Statements (Unaudited)
Cancer Genetics, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(in thousands, except par value)
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,206

 
$
9,541

Accounts receivable, net of allowance for doubtful accounts of 2018 $7,967; 2017 $6,539
8,981

 
10,958

Other current assets
2,928

 
2,707

Total current assets
13,115

 
23,206

FIXED ASSETS, net of accumulated depreciation
4,499

 
5,550

OTHER ASSETS
 
 
 
Restricted cash
350

 
350

Patents and other intangible assets, net of accumulated amortization
4,121

 
4,478

Investment in joint venture
242

 
246

Goodwill
17,257

 
17,992

Other
301

 
399

Total other assets
22,271

 
23,465

Total Assets
$
39,885

 
$
52,221

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable and accrued expenses
$
13,040

 
$
8,715

Obligations under capital leases, current portion
324

 
272

Deferred revenue
2,409

 
516

Line of credit
2,764

 
4,137

Term note
6,000

 
6,000

Convertible note, net
2,302

 
—

Advance from NovellusDx, Ltd.
1,500

 
—

Total current liabilities
28,339

 
19,640

Obligations under capital leases
451

 
624

Deferred rent payable and other
283

 
360

Warrant liability
1,122

 
4,403

Deferred revenue, long-term
442

 
429

Total Liabilities
30,637

 
25,456

STOCKHOLDERS’ EQUITY
 
 
 
Preferred stock, authorized 9,764 shares, $0.0001 par value, none issued
—

 
—

Common stock, authorized 100,000 shares, $0.0001 par value, 27,726 and 27,754 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
3

 
3

Additional paid-in capital
163,092

 
161,527

Accumulated other comprehensive income
104

 
69

Accumulated (deficit)
(153,951
)
 
(134,834
)
Total Stockholders’ Equity
9,248

 
26,765

Total Liabilities and Stockholders’ Equity
$
39,885

 
$
52,221


See Notes to Unaudited Consolidated Financial Statements.

1
Table of Contents

Cancer Genetics, Inc. and Subsidiaries
Consolidated Statements of Operations and Other Comprehensive Loss (Unaudited)  
(in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
5,940

 
$
8,028

 
$
20,643

 
$
21,598

Cost of revenues
4,654

 
4,588

 
14,589

 
12,831

Gross profit
1,286

 
3,440

 
6,054

 
8,767

Operating expenses:
 
 
 
 
 
 
 
Research and development
692

 
981

 
2,046

 
3,080

General and administrative
5,004

 
4,346

 
14,950

 
11,352

Sales and marketing
1,280

 
1,301

 
4,212

 
3,437

Restructuring costs
1,418

 
—

 
2,151

 
—

Merger costs
890

 
—

 
890

 
—

Total operating expenses
9,284

 
6,628

 
24,249

 
17,869

Loss from operations
(7,998
)
 
(3,188
)
 
(18,195
)
 
(9,102
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(465
)
 
(350
)
 
(1,282
)
 
(797
)
Interest income
—

 
10

 
21

 
37

Change in fair value of acquisition note payable
(13
)
 
105

 
68

 
(114
)
Change in fair value of warrant liability
12

 
2,790

 
2,858

 
(3,927
)
Other (expense)
(55
)
 
—

 
(78
)
 
(46
)
Total other income (expense)
(521
)
 
2,555

 
1,587

 
(4,847
)
Loss before income taxes
(8,519
)
 
(633
)
 
(16,608
)
 
(13,949
)
Income tax (benefit)
—

 
—

 
—

 
(970
)
Net (loss)
$
(8,519
)
 
$
(633
)
 
$
(16,608
)
 
$
(12,979
)
Basic net (loss) per share
$
(0.31
)
 
$
(0.03
)
 
$
(0.61
)
 
$
(0.65
)
Diluted net (loss) per share
$
(0.31
)
 
$
(0.15
)
 
$
(0.61
)
 
$
(0.65
)
Basic weighted-average shares outstanding
27,370

 
21,577

 
27,156

 
20,059

Diluted weighted-average shares outstanding
27,370

 
22,359

 
27,156

 
20,059

 
 
 
 
 
 
 
 
Net (loss)
$
(8,519
)
 
$
(633
)
 
$
(16,608
)
 
$
(12,979
)
        Foreign currency translation gain (loss)
(30
)
 
(1
)
 
35

 
(1
)
Comprehensive (loss)
$
(8,549
)
 
$
(634
)
 
$
(16,573
)
 
$
(12,980
)
See Notes to Unaudited Consolidated Financial Statements.

2
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Cancer Genetics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) 
(in thousands)
 
Nine Months Ended September 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net (loss)
$
(16,608
)
 
$
(12,979
)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
 
 
 
Depreciation
1,266

 
1,436

Amortization
396

 
234

Provision for bad debts
1,428

 
890

Stock-based compensation
731

 
1,395

Change in fair value of warrant liability and acquisition note payable
(2,926
)
 
4,041

Amortization of discount of debt and debt issuance costs
130

 
185

Loss on sale of assets and India subsidiary
204

 
—

Modification of 2017 Debt warrants
83

 
—

Loss in equity method investment
4

 
21

Loss on extinguishment of debt
—

 
78

Changes in:
 
 
 
Accounts receivable
184

 
(4,029
)
Other current assets
(237
)
 
(606
)
Other non-current assets
—

 
251

Accounts payable, accrued expenses and deferred revenue
3,970

 
(1,057
)
Deferred rent payable and other
(64
)
 
(109
)
Net cash (used in) operating activities
(11,439
)
 
(10,249
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchase of fixed assets
(799
)
 
(1,192
)
Patent costs
(32
)
 
(73
)
Purchase of cost method investment
—

 
(200
)
Acquisition of vivoPharm, Pty Ltd., net of cash acquired
—

 
(656
)
Cash received in the sale of India subsidiary, net of cash transferred
1,551

 
—

Net cash provided by (used in) investing activities
720

 
(2,121
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Principal payments on capital lease obligations
(271
)
 
(170
)
Proceeds from warrant and option exercises
—

 
1,834

Proceeds from borrowings on Silicon Valley Bank line of credit
6,831

 
2,000

Repayment of borrowings on Silicon Valley Bank line of credit
(8,204
)
 
—

Proceeds from Convertible Note
2,500

 
—

Advance from NovellusDx, Ltd.
1,500

 
—

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
)
Payment of debt issuance costs and loan fees
—

 
(287
)
Net cash provided by financing activities
2,356

 
7,675

Effect of foreign exchange rates on cash and cash equivalents and restricted cash
28

 
—

Net (decrease) in cash and cash equivalents and restricted cash
(8,335
)
 
(4,695
)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
Beginning
9,891

 
9,502

Ending
$
1,556

 
$
4,807



3
Table of Contents

SUPPLEMENTAL CASH FLOW DISCLOSURE
 
 
 
Cash paid for interest
$
827

 
$
633

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Fixed assets acquired through capital lease arrangements
$
150

 
$
567

Derivative warrants issued with debt
—

 
1,004

Acquisition of vivoPharm business
—

 
9,856

Fair value of warrants reclassified from liabilities to equity
423

 
—

Beneficial conversion feature on Convertible Note
328

 
—

Sale of India subsidiary:
 
 
 
Accounts receivable, net
$
365

 
$
—

Other current assets
16

 
—

Fixed assets, net
608

 
—

Goodwill
735

 
—

Other noncurrent assets
98

 
—

Accounts payable, accrued expenses and deferred revenue
(180
)
 
—

Deferred rent and other
(13
)
 
—

Loss on sale of India subsidiary
(78
)
 
—

Cash received in the sale of India subsidiary, net of cash transferred
$
1,551

 
$
—


See Notes to Unaudited Consolidated Financial Statements.

4
Table of Contents

Notes to Unaudited Consolidated Financial Statements

Note 1.     Organization, Description of Business, Basis of Presentation, Merger with NovellusDx, Ltd., Recently Adopted Accounting Standards, Acquisition, Reclassifications and Recent Accounting Pronouncements

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

We were incorporated in the State of Delaware on April 8, 1999 and have offices and laboratories located in New Jersey, North Carolina, Pennsylvania, and Australia. Our laboratories comply with the highest regulatory standards as appropriate for the services we deliver including CLIA, CAP, New York State and California State, and are regularly audited by our biopharmaceutical customers under strict requirements for drug discovery and development. Our services are built on a foundation of world-class scientific knowledge and intellectual property in solid tumor and blood-borne cancers, as well as strong academic relationships with major cancer centers such as Memorial Sloan-Kettering, Mayo Clinic, and the National Cancer Institute. We offer preclinical services such as predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology relevant tumor models in our Hershey, Pennsylvania facility, and we are a leader in the field of immuno-oncology preclinical services in the United States. This service is supplemented with GLP toxicology and extended bioanalytical services in our Australian based facility in Bundoora VIC.

Basis of Presentation

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions for interim reporting as prescribed by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2017 , filed with the Securities and Exchange Commission on April 2, 2018. The consolidated balance sheet as of December 31, 2017 , 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, 2018 .

Merger with NovellusDx, Ltd.

Merger Agreement

On September 18, 2018, we entered into an agreement and plan of merger (the “Merger Agreement”) with NovellusDx, Ltd., a privately-held company formed under the law of the State of Israel (“NDX”), in regards to Wogolos Ltd., our wholly owned subsidiary company formed under the laws of the State of Israel. Subject to satisfaction or waiver of the conditions set forth in the Merger Agreement, Wogolos Ltd. will merge (the “Merger”) with and into NDX, with NDX becoming a wholly owned subsidiary of us and the surviving company.

At the effective time of the Merger, all of NDX’s share capital will be converted into the right to receive an aggregate number of shares of our common stock equal to 49% of the fully-diluted aggregate number of shares of the Company immediately following the Merger, including shares issuable upon the conversion of the Convertible Note to Iliad Research described in Note 6 and shares issuable upon the exercise of the Company’s options and warrants, determined using the treasury stock

5

method. Shares issuable under the Private Placement described in the following paragraph will be excluded from this calculation.

Private Placement

On September 18, 2018, we also entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which we agreed to sell and issue, in a private placement, a total of 8,509,891 shares of our common stock and warrants to purchase an aggregate of up to approximately 6,382,418 shares of our common stock, to the purchasers thereunder, all of whom are current NDX shareholders, for an aggregate purchase price of approximately $8.6 million , with the shares and warrants being sold together in a fixed combination of one share and one warrant to purchase 75% of a share of our common stock, at a price of $1.01 per share and related warrant (the “Private Placement”). The closing of the Private Placement is conditional upon, and will occur immediately after, the Merger. In addition, the Company and NDX may continue to solicit additional subscriptions pursuant to this Purchase Agreement prior to the closing of the Private Placement.

The warrants issued under the Private Placement will be exercisable for five years beginning on the closing date of the Merger at an initial exercise price of $1.01 per share, subject to adjustment for certain customary circumstances. The warrants can be exercised on a cashless basis.

Advance from NDX

In connection with the signing of the Merger Agreement, on September 18, 2018, we entered into a credit agreement with NDX, pursuant to which NDX agreed to loan us up to $2,300,000 as discussed in Note 6.

Recently Adopted Accounting Standards

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. The ASU replaces most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” which defers the effective date for ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Gross versus Net),” which clarifies the implementation guidance in ASU 2014-09 relating to principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which clarifies guidance related to the impact of goods and services on a performance obligation and timing and pattern of recognition issues related to intellectual property contracts. In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients,” which clarifies certain narrow provisions of ASU 2014-09. On January 1, 2018, we adopted these ASUs using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit. Financial information for the nine months ended September 30, 2017 has not been restated and continues to be reported under the accounting standards in effect for that period.

The transition adjustment resulted in a net reduction to the opening balance of accumulated deficit of $2.5 million on January 1, 2018 and increased deferred revenue associated with Biopharma Services and Discovery Services by $1.9 million and $0.6 million , respectively, due to a change in our policies for recognized revenue for performance obligations fulfilled over time. In our Clinical Services area, the majority of the amounts historically charged as a provision for bad debts are now considered an implicit price concession in determining net revenue under Accounting Standards Codification (“ASC”) Topic 606. Accordingly, we now report uncollectible balances as a reduction in the transaction price, and therefore, as a reduction in net revenues rather than a component of selling, general and administrative expenses.

The following table presents the amounts by which each line item in the Consolidated Statements of Operations and Other Comprehensive Loss was affected by adopting the new revenue recognition guidance for the three and nine months ended September 30, 2018 (in thousands):

6

 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
As Reported
 
ASC 606 Adjustments
 
Balances Without Adoption
 
As Reported
 
ASC 606 Adjustments
 
Balances Without Adoption
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Biopharma Services
 
$
3,850

 
$
(35
)
 
3,815

 
11,099

 
$
(797
)
 
10,302

Clinical Services
 
1,555

 
—

 
1,555

 
6,019

 
—

 
6,019

Discovery Services
 
535

 
—

 
535

 
3,525

 
(650
)
 
2,875

 
 
$
5,940

 
$
(35
)
 
$
5,905

 
$
20,643

 
$
(1,447
)
 
$
19,196


The following table presents the amounts by which each line item in the Consolidated Balance Sheet was affected by adopting the new revenue recognition guidance at September 30, 2018 (in thousands):
 
 
September 30, 2018
 
 
As Reported
 
ASC 606 Adjustments
 
Balances Without Adoption
CURRENT LIABILITIES
 
 
 
 
 
 
Deferred revenue
 
 
 
 
 
 
Biopharma Services
 
$
1,180

 
$
(1,062
)
 
$
118

Clinical Services
 
—

 
—

 
—

Discovery Services
 
1,229

 
—

 
1,229

 
 
$
2,409

 
$
(1,062
)
 
$
1,347

 
 
 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
 
 
Deferred revenue
 
 
 
 
 
 
Biopharma Services
 
$
428

 
$
—

 
$
428

Clinical Services
 
—

 
—

 
—

Discovery Services
 
14

 
—

 
14

 
 
$
442

 
$
—

 
$
442

 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
Accumulated (deficit)
 
$
(153,951
)
 
$
1,062

 
$
(152,889
)

Restricted Cash

Effective January 1, 2018, we adopted ASU 2016-18, which requires companies to include restricted cash accounts with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the Consolidated Statements of Cash Flows.

Acquisition of vivoPharm
On August 15, 2017, we purchased all of the outstanding stock of vivoPharm, with its principal place of business in Victoria, Australia, in a transaction valued at approximately $1.6 million in cash and shares of the Company’s common stock, valued at $8.1 million based on the closing price of the stock on August 15, 2017. The Company deposited in escrow 20% of the stock consideration until the expiration of twelve months from the closing date to serve as the initial source for any indemnification claims and adjustments.
Prior to the acquisition, vivoPharm was a contract research organization (“CRO”) that specialized in planning and conducting unique, specialized studies to guide drug discovery and development programs 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, 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 values as of the

7

closing date 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. The measurement period expired on August 15, 2018 and the final valuation was deemed consistent with the preliminary valuation completed during the acquisition diligence phase, specifically concerning lab supplies, deferred revenue and deferred taxes. On August 15, 2018, the escrowed shares were released. Subsequent to the measurement period expiration, a review of deferred revenue surfaced a refinement in contract completion estimate of $0.2 million associated with the acquisition valuation and accordingly the current revenue offset was recorded in the statement of operations for the three months ended September 30, 2018.

The final allocation of the purchase price as of August 15, 2017 consists of the following (in thousands):
Cash
 
$
544

Accounts receivable
 
905

Lab supplies
 
350

Prepaid expenses and other current assets
 
60

Fixed assets
 
765

Intangible assets
 
3,160

Goodwill
 
5,960

Accounts payable and accrued expenses
 
(913
)
Deferred revenue
 
(814
)
Deferred rent and other
 
(222
)
Obligations under capital leases
 
(76
)
Total purchase price
 
$
9,719


The following table provides certain pro forma financial information for the Company as if the acquisition of vivoPharm discussed above occurred on January 1, 2017 (in thousands except per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2017
Revenue
$
9,069

 
$
25,335

Net loss
(976
)
 
(13,788
)
 
 
 
 
Basic net loss per share
$
(0.04
)
 
$
(0.61
)
Dilutive net loss per share
(0.16
)
 
(0.61
)

The results of operations for the three and nine months ended September 30, 2018 include the operations of vivoPharm, which accounted for approximately $535,000 and $3,243,000 of the Company’s consolidated Discovery Services revenue, respectively. The net income (loss) of vivoPharm cannot be determined, as its operations were integrated with Cancer Genetics.

The results of operations 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 and nine months ended September 30, 2017 was approximately $380,000 .

Restructuring

During the nine months ended September 30, 2018 , the Company adopted a plan to migrate its California operations to its New Jersey and North Carolina locations and to permanently close its California laboratory. The Company incurred approximately $1,418,000 and $2,151,000 of restructuring costs during the three and nine months ended September 30, 2018 , respectively. The costs associated with the restructuring activities incurred are as follows:


8

 
 
For the Three Months Ended September 30, 2018
 
For the Nine Months Ended September 30, 2018
Disposal activity costs
 
$
243

 
$
692

Costs to consolidate facilities
 
375

 
405

Contract termination costs
 
267

 
521

Employee termination costs
 
533

 
533

 
 
$
1,418

 
$
2,151


 
 
Restructuring Liability at December 31, 2017
 
Cost Incurred / Additions
 
Payments / Adjustments
 
Restructuring Liability at September 30, 2018
Disposal activity costs
 
$
—

 
$
692

 
$
(692
)
 
$
—

Costs to consolidate facilities
 
—

 
405

 
(319
)
 
86

Contract termination costs
 
—

 
521

 
(304
)
 
217

Employee termination costs
 
—

 
533

 
(91
)
 
442

 
 
$
—

 
$
2,151

 
$
(1,406
)
 
$
745


Recent Accounting Pronouncements

In February 2016, the 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 lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The standard will become effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. We plan to adopt this guidance on the effective date. We are currently evaluating the impact the provisions will have on our consolidated financial statements.

Note 2. Going Concern

At September 30, 2018 , our cash position and history of losses required management to 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. The Company does not have sufficient cash at September 30, 2018 to fund normal operations beyond the next three months from the date of this report. In addition, the Company was in violation of certain financial and other covenants under its debt agreements at July 31, 2018, August 31, 2018, and September 30, 2018 and currently expects to be in violation as of October 31, 2018 and November 30, 2018. In August 2018, the Company received waivers of its covenant violations for July and August 2018 from its senior lenders, and on November 19, 2018, the Company received waivers of its past and anticipated covenant violations for September, October and November 2018. The Company's ability to continue as a going concern is dependent on the Company’s ability to close the Merger and Private Placement (see Merger Agreement commentary in Management’s Discussion & Analysis section further below), modify its existing debt, raise additional equity or debt capital or spin-off non-core assets to raise additional cash. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Net cash used in operating activities was $11.4 million and $10.2 million for the nine months ended September 30, 2018 and 2017, respectively, and the Company had unrestricted cash and cash equivalents of $1.2 million at September 30, 2018 , a reduction from $9.5 million at December 31, 2017. The Company has negative working capital at September 30, 2018 of $15.2 million .

The Company currently requires a significant amount of additional capital to fund operations and pay its accounts payable, and its ability to continue as a going concern is dependent upon its ability to raise such additional capital and achieve profitability. The Company is currently working toward closing the Merger and Private Placement, with a target of closing in the first quarter of 2019. If the Company is not successful in closing the Merger and Private Place and is not able to raise such additional capital on a timely basis or on favorable terms, the Company may need to scale back or, in extreme cases, discontinue its operations or liquidate its assets.

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

9


Note 3.     Revenue and Accounts Receivable

Revenue by service type for the three and nine months ended September 30, 2018 and 2017 is comprised of the following (in thousands): 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Biopharma Services
$
3,850

 
$
4,168

 
11,099

 
$
11,175

Clinical Services
1,555

 
2,880

 
6,019

 
8,887

Discovery Services
535

 
980

 
3,525

 
1,536

 
$
5,940

 
$
8,028

 
$
20,643

 
$
21,598

The table above includes approximately $535,000 and $3,243,000 of Discovery Services revenue from our acquisition of vivoPharm for the three and nine months ended September 30, 2018 , respectively. The table above also includes approximately $794,000 of Discovery Services revenue from our acquisition of vivoPharm for the period August 15, 2017 through September 30, 2017.

Accounts receivable by service type at September 30, 2018 and December 31, 2017 consists of the following (in thousands): 


September 30,
2018
 
December 31,
2017
Biopharma Services
$
4,103

 
$
3,746

Clinical Services
12,080

 
12,205

Discovery Services
765

 
1,546

Allowance for doubtful accounts
(7,967
)
 
(6,539
)

$
8,981

 
$
10,958


Revenue for Biopharma Services are customized solutions for patient stratification and treatment selection through an extensive suite of DNA-based testing services. Biopharma Services are billed to pharmaceutical and biotechnology companies. Clinical Services are tests performed to provide information on diagnosis of cancers to guide patient management. Clinical Services tests can be billed to Medicare, another third party insurer or the referring community hospital or other healthcare facility, or directly to patients. Discovery Services are services that provide the tools and testing methods for companies and researchers seeking to identify new DNA-based biomarkers for disease. The breakdown of our Clinical Services revenue (as a percent of total revenue) is as follows:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Medicare
8%
 
11%
 
10%
 
14%
Other third party payors
18%
 
25%
 
19%
 
27%
 
26%
 
36%
 
29%
 
41%
We have historically derived a significant portion of our revenue from a limited number of test ordering sites. Test ordering sites account for all of our Clinical Services revenue. Our test ordering sites are largely 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 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, except with biopharmaceutical companies.

During the three months ended September 30, 2018 , there was one biopharmaceutical company that accounted for approximately 10% of our total revenue. During the three months ended September 30, 2017 , there was one biopharmaceutical company that accounted for approximately 11% of our total revenue.


10

During the nine months ended September 30, 2018 , there were no customers that accounted for more than 10% of our total revenue. During the nine months ended September 30, 2017 , there was one biopharmaceutical company that accounted for approximately 11% of our total revenue.

We record deferred revenues (contract liabilities) when cash payments are received or due in advance of our performance, including amounts which are refundable.

Performance Obligations :

 
Biopharma Services
 
Clinical Services
 
Discovery Services
Performance Obligation Satisfaction and Revenue Recognition:
Performance obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Project level activities, including study setup and project management, are satisfied over the life of the contract. Revenues are recognized at a point in time when the test results or other deliverables are reported to the customer. Project level fee revenue is recognized ratably over the life of the contract.
 
Performance obligations are satisfied at a point in time when the tests are reported to the customer. Revenues are recognized at a point in time when the test results are reported to the ordering site.
 
Performance obligations are satisfied over time and as study data is transmitted to the customer. Revenue is recognized using the time elapsed method and at a point in time as the Company delivers study results to the customers.
 
 
 
 
 
 
Significant Payment Terms:
Monthly invoices at a contractual rate are generated as services are delivered for work completed during the prior month. Some contracts have prepayments prior to services being rendered that are recorded as deferred revenue.
 
The Company invoices at its list price or contractually negotiated price. Payments realized vary from amounts invoiced. Accordingly, the Company estimates the variable consideration it expects to collect.
 
As results are delivered, the invoices are generated based on contractual rates. Some contracts have prepayments prior to services being rendered that are recorded as deferred revenue.
 
 
 
 
 
 
Nature of Services:
Biopharma testing services, study setup and study management
 
Clinical testing services
 
Discovery services

Remaining Performance Obligations :

Services offered under the Biopharma and Discovery Services frequently take time to complete under their respective contacts. These times vary depending on specific contract arrangements including the length of the study and how samples are delivered to us for processing. In the case of Clinical Services and Discovery Services, the duration of performance obligation is less than one year. As of September 30, 2018 , the Company had approximately $32.4 million in remaining performance obligations in the Biopharma Services area. We expect to recognize the remaining performance obligations over the next two years .

Practical Expedients :

Our customer arrangements in Biopharma Services and Discovery Services do not contain any significant financing component (interest). We have not recognized the financing component in the case of Clinical Services, as the payment plans we may grant to our self-pay customers do not to exceed six months .
We do not incur any incremental costs to obtain or fulfill our customer contracts that require capitalization under the new revenue standard and have elected the practical expedient afforded by the new revenue standard to expense such costs as incurred.
We exclude from the measurement of the transaction price all taxes that we collect from customers that are assessed by governmental authorities and are both imposed on and concurrent with specific revenue-producing transactions.

Note 4.     Sale of India Subsidiary

On April 26, 2018, we sold our India subsidiary, BioServe Biotechnologies (India) Private Limited (“BioServe”) to Reprocell, Inc., for $1.9 million , including $1.6 million in cash at closing and up to an additional $300,000 , which was contingent upon the India subsidiary meeting a specified revenue target through August 31, 2018. During the three months ended September 30,

11

2018 , the Company reduced the contingent consideration to $213,000 , which is recorded in other current assets in our Consolidated Balance Sheet at September 30, 2018. As a result of this transaction, we recognized a loss of approximately $87,000 and $78,000 on the disposal of BioServe during the three and nine months ended September 30, 2018 , respectively, which is included in other income (expense) in our Consolidated Statements of Operations and Other Comprehensive Loss. In November 2018, we received the contingent consideration.

Note 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 were computed as follows (in thousands except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net (loss) for basic earnings per share
$
(8,519
)
 
$
(633
)
 
$
(16,608
)
 
$
(12,979
)
Change in fair value of warrant liability
—

 
2,790

 
—

 
—

Net (loss) for diluted earnings per share
$
(8,519
)
 
$
(3,423
)
 
$
(16,608
)
 
$
(12,979
)
Denominator:
 
 
 
 
 
 
 
Weighted-average basic common shares outstanding
27,370

 
21,577

 
27,156

 
20,059

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
27,370

 
22,359

 
27,156

 
20,059

Basic net (loss) per share
$
(0.31
)
 
$
(0.03
)
 
$
(0.61
)
 
$
(0.65
)
Diluted net (loss) per share
$
(0.31
)
 
$
(0.15
)
 
$
(0.61
)
 
$
(0.65
)

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,
 
2018
 
2017
 
2018
 
2017
Common stock purchase warrants
10,055

 
4,163

 
10,055

 
6,574

Stock options
3,041

 
2,816

 
3,041

 
2,816

Convertible note
3,349

 
—

 
3,349

 
—

Restricted shares of common stock
47

 
115

 
47

 
115

 
16,492

 
7,094

 
16,492

 
9,505


Note 6. Financing

Term Note and Line of Credit

On March 22, 2017, we entered into a  two  year asset-based revolving line of credit agreement (“ABL”) with SVB. The SVB credit facility provided for an 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. On August 20, 2018, the ABL was amended and the maximum borrowings available under the ABL was reduced from $6.0 million to $3.0 million ; in addition, the amended ABL required us to enter into a binding and enforceable agreement with respect to a merger or other business combination transaction with an unrelated third party by August 31, 2018. The ABL requires monthly interest payments at the Wall Street Journal prime rate plus  1.50%  ( 6.75%  at September 30, 2018 ) and matures on March 22, 2019. Absent the covenant

12

waivers, we would be required to make monthly interest payments at the default rate ( 10.75% at September 30, 2018 ). We also pay a fee of  0.25%  per year on the average unused portion of the ABL. At September 30, 2018 , we have borrowed approximately $2.8 million on the ABL.

We concurrently entered into a  three  year  $6.0 million term loan agreement (“PFG Term Note”) with 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. Absent the covenant waivers, we would be required to make monthly interest payments at the default rate of 17.5% per annum. We may prepay the PFG Term Note in whole or part at any time without penalty.

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. The SVB and PFG loan covenants were modified on June 21, 2018 and June 30, 2018, respectively; however, the Company was in violation of the modified covenants at July 31, 2018, August 31, 2018 and September 30, 2018; additionally, the Company expects to be in violation of these covenants at October 31, 2018 and November 30, 2018. The July and August covenant violations were waived on August 20, 2018 by SVB and PFG, on the condition that the Company enter into a binding and enforceable agreement satisfactory to each lender by August 31, 2018 with respect to a merger or other business combination transaction between the Company and an unrelated third party satisfactory to each lender (the “Transaction Condition”). While the Company was in violation of the Transaction Condition as of August 31, it subsequently entered into a binding and enforceable agreement satisfactory to each lender on September 18, 2018 by entering into the Merger Agreement. The Company has received waivers from its lenders concerning the Transaction Condition for July and August, the September financial and reporting covenant violations and the anticipated October and November financial covenant violations, conditioned upon the Company raising $3,000,000 through the sale of its equity securities or issuance of subordinated debt (in the case of the agreement with SVB, to investors accepted to SVB) by November 30, 2018. During the three and nine months ended September 30, 2018 , the Company incurred approximately $50,000 and $258,000 , respectively, of debt modification costs that were expensed due to prior and expected future violations of the modified 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 “PFG Warrants”). On June 30, 2018, the PFG Warrants were amended to reduce the exercise price to $0.92 per share.

At September 30, 2018 , the principal amount of the PFG Term Note of $6,000,000 is due in 2020. We have obtained waivers from our lender for violation of certain financial covenants and one reporting covenant at September 30, 2018. Nevertheless, based on the modified covenants for future months, the PFG Term Note is presented as a current liability.

Convertible Note

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

The investor may redeem any portion of the Convertible Note, at any time after six months from the issue date upon five trading days’ 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 $1.00 per share or higher. The Company may prepay the outstanding balance of the Convertible Note, in part or in full, at a 10% premium to par value if prior to the one year anniversary of the date of issuance and at par if prepaid thereafter. At maturity, the Company may pay the outstanding balance in cash, the Company’s common stock at the Conversion Price, or by a combination thereof, subject to certain conditions. The note provides that in the event of default, the lender may, at its option, elect to increase the outstanding balance applying the default effect (defined as outstanding balance at date of default multiplied by 15% plus outstanding amount) by providing written notice to the Company.

13

In addition, the interest rate increases to 22% upon default. These provisions were deemed embedded derivatives but at this time the value was de minimis.

The Convertible Note is the general unsecured obligation of the Company and is subordinated in right of payment to the ABL and PFG Term Note. The following is a summary of the Convertible Note balance at September 30, 2018 (in thousands):

Convertible Note, net of discounts of $305
2,320

Less unamortized debt issuance costs
18

Convertible Note, net
2,302


Advance from NDX

In connection with signing the Merger Agreement described in Note 1, NDX agreed to loan us up to $2,300,000 (“Credit Agreement”). The first advance of $1,500,000 was extended on September 18, 2018, and the second advance of $800,000 is payable upon satisfaction of certain conditions, including the filing of a registration statement on Form S-4 related to the Merger Agreement. Interest accrues on the outstanding balance at 10.75% per annum, and the Credit Agreement matures upon the earlier of March 31, 2019 or the date on which the Merger Agreement is terminated in accordance with its terms (or 90 days thereafter in the case of certain causes for termination). Upon certain events of default, NDX may convert all, but not less than all, of the outstanding balance into shares of the Company’s common stock at a conversion price of $0.606 per share. At September 30, 2018 , the principal balance of the Credit Agreement was $1,500,000 .

The Credit Agreement is the general unsecured obligation of the Company and is subordinated in right of payment to the ABL and PFG Term Note, provided that amounts owed to NDX may be repaid ahead of the ABL and PFG Term Note upon certain types of termination of the Merger Agreement. There is an interest rate reset up to a maximum of 21% upon an event of default that is deemed to be an embedded derivative but at this time the value was de minimis.

Note 7. 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 .

At September 30, 2018 , 186,843 shares remain available for future awards under the 2011 Plan. Effective April 9, 2018, the Company is no longer able to issue options from the 2008 Plan.

A summary of employee and non-employee stock option activity for the nine months ended September 30, 2018 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, 2018
2,844

 
$
7.00

 
6.96
 
$
4

Granted
757

 
0.91

 
 
 
 
Cancelled or expired
(560
)
 
5.14

 
 
 
 
Outstanding September 30, 2018
3,041

 
$
5.83

 
5.97
 
$
92

Exercisable September 30, 2018
1,838

 
$
8.50

 
3.91
 
$
—


Aggregate intrinsic value represents the difference between the fair value of our common stock and the exercise price of outstanding, in-the-money options.

As of September 30, 2018 , total unrecognized compensation cost related to non-vested stock options granted to employees was $1,227,971 which we expect to recognize over the next 3.01 years.


14

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. Forfeitures will be recorded 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.

The following table presents the weighted-average assumptions used to estimate the fair value of options granted to employees during the periods presented:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Volatility
76.89
%
 
75.28
%
 
77.69
%
 
74.60
%
Risk free interest rate
2.76
%
 
1.92
%
 
2.88
%
 
1.97
%
Dividend yield
0.00
%
 
0.00
%
 
0.00
%
 
0.00
%
Term (years)
6.32

 
5.73

 
6.47

 
5.90

Weighted-average fair value of options granted during the period
$
0.72

 
$
1.91

 
$
0.64

 
$
1.89


In May 2014, we issued 200,000 options to a Director 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, 2017
 
Nine Months Ended September 30, 2017
Volatility
74.39
%
 
76.06
%
Risk free interest rate
2.17
%
 
2.19
%
Dividend yield
0.00
%
 
0.00
%
Term (years)
6.64

 
6.89


Restricted stock awards have been granted to employees, directors and consultants as compensation for services. At September 30, 2018 , there was $87,803 of unrecognized compensation cost related to non-vested restricted stock granted to employees and directors; we expect to recognize the cost over 0.92 years.

The following table summarizes the activities for our non-vested restricted stock awards for the nine months ended September 30, 2018 :
 
Non-vested Restricted Stock Awards
 
Number of
Shares
(in thousands)
 
Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2018
91

 
$
4.21

Vested
(21
)
 
4.10

Cancelled
(23
)
 
6.66

Non-vested at September 30, 2018
47

 
$
3.08


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

15

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Cost of revenues
$
52

 
$
122

 
$
233

 
$
250

Research and development
13

 
11

 
44

 
110

General and administrative
101

 
356

 
399

 
949

Sales and marketing
23

 
30

 
55

 
86

Total stock-based compensation
$
189

 
$
519

 
$
731

 
$
1,395


Note 8. Warrants

The following table summarizes the warrant activity for the nine months ended September 30, 2018 (in thousands, except exercise price):  
Issued With / For
Exercise
Price
 
Warrants
Outstanding
January 1,
2018
 
Transfer Between Derivative Warrants and Non-Derivative Warrants
 
Warrants Outstanding September 30, 2018
Non-Derivative Warrants:
 
 
 
 
 
 
 
Financing
$
10.00

  
243

 
—

 
243

Financing
15.00

  
276

 
—

 
276

2015 Offering
5.00

  
3,450

 
—

 
3,450

2017 Debt
0.92

B
—

 
443

 
443

Total non-derivative warrants
5.49

C
3,969

 
443

 
4,412

Derivative Warrants:
 
 
 
 
 
 
 
2016 Offerings
2.25

A
1,968

 
—

 
1,968

2017 Debt
2.82

B
443

 
(443
)
 
—

2017 Offering
2.35

A
3,500

 
—

 
3,500

2017 Offering
2.50

A
175

 
—

 
175

Total derivative warrants
2.32

C
6,086

 
(443
)
 
5,643

Total
$
3.71

C
10,055

 
—

 
10,055


A
These warrants are subject to fair value accounting and contain a contingent net cash settlement feature. See Note 9.
B
These warrants were subject to fair value accounting until the number of shares issuable upon the exercise of the warrants became fixed on April 2, 2018. Effective June 30, 2018, the exercise price was reduced from $2.82 per share to $0.92 per share. See Note 9.
C
Weighted-average exercise prices are as of September 30, 2018 .

Note 9. Fair Value of Warrants

The following table summarizes the derivative warrant activity subject to fair value accounting for the nine months ended September 30, 2018 (in thousands):
Issued with/for
Fair value of warrants
outstanding as of
December 31, 2017
 
Change in fair
value of warrants
 
Reclassification of warrants from liability to equity
 
Fair value of warrants
outstanding as of
September 30, 2018
2016 Offerings
$
1,929

 
$
(1,134
)
 
$
—

 
$
795

2017 Debt
501

 
(78
)
 
(423
)
 
—

2017 Offering
1,973

 
(1,646
)
 
—

 
327

 
$
4,403

 
$
(2,858
)
 
$
(423
)
 
$
1,122


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 the 2017 Debt refinancing were valued using a Monte Carlo model. The derivative warrants issued in conjunction with the 2017 Offering are valued using a Black-Scholes model. Effective April 2, 2018, the

16

number of shares issuable under the 2017 Debt refinancing became fixed at 443,262 , causing the warrants to be reclassified to equity. 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, exercise or reclassification to equity during the three and nine months ended September 30, 2018 and 2017 , and at September 30, 2018 and December 31, 2017 .

 
 
 
 
 
Exercised During the
2016 Offerings
As of September 30, 2018
 
As of December 31, 2017
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
Exercise price
$
2.25

 
$
2.25

 
$
2.25

 
$
2.25

Expected life (years)
3.33

 
4.08

 
4.30

 
4.78

Expected volatility
80.88
%
 
73.44
%
 
74.20
%
 
76.24
%
Risk-free interest rate
2.88
%
 
2.11
%
 
1.81
%
 
1.94
%
Expected dividend yield
—
%
 
—
%
 
—
%
 
—
%

2017 Debt
As of December 31, 2017
 
Reclassified to Equity During the Nine Months Ended September 30, 2018
 
Issued During the Nine Months Ended September 30, 2017
Exercise price
$
2.82

 
$
2.82

 
$
2.82

Expected life (years)
6.22

 
5.97

 
7.00

Expected volatility
74.18
%
 
73.40
%
 
74.61
%
Risk-free interest rate
2.33
%
 
—
%
 
2.22
%
Expected dividend yield
—
%
 
2.55
%
 
—
%

2017 Offering
As of September 30, 2018
 
As of December 31, 2017
 
Issued During the Nine Months Ended September 30, 2017
Exercise price
$
2.36

 
$
2.36

 
2.82

Expected life (years)
0.69

 
1.43

 
7.00

Expected volatility
93.26
%
 
77.55
%
 
74.61
%
Risk-free interest rate
2.36
%
 
1.83
%
 
2.22
%
Expected dividend yield
—
%
 
—
%
 
—
%

Note 10. 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.


17

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, 2018
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Warrant liability
$
1,122

 
$
—

 
$
—

 
$
1,122

Note payable
88

 
—

 
—

 
88

 
$
1,210

 
$
—

 
$
—

 
$
1,210

 
 
 
 
 
 
 
 
 
December 31, 2017
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Warrant liability
$
4,403

 
$
—

 
$
—

 
$
4,403

Note payable
156

 
—

 
—

 
156

 
$
4,559

 
$
—

 
$
—

 
$
4,559

 
 
 
 
 
 
 
 
At September 30, 2018 and December 31, 2017 , 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 shares of our common stock at the time of payment. During the three months ended September 30, 2018 and 2017 , we recognized a loss of approximately $13,000 and a gain of approximately $105,000 , respectively, due to the change in value of the note. During the nine months ended September 30, 2018 and 2017 , we recognized a gain of approximately $68,000 and a loss of approximately $114,000 , respectively, due to changes in our stock price.

At September 30, 2018 , the warrant liability consists of stock warrants issued as part of the 2016 Offerings and 2017 Offering that contain contingent redemption features. In accordance with derivative accounting for warrants, we calculated the fair value of warrants and the assumptions used are described in Note 9, “Fair Value of Warrants.” During the three months ended September 30, 2018 and 2017 , we recognized gains of approximately $12,000 and $2,790,000 , respectively, on the derivative warrants due to changes in our stock price and expected volatility. During the nine months ended September 30, 2018 , we recognized a gain of approximately $2,858,000 on the derivative warrants due to changes in our stock price. During the nine months ended September 30, 2017 , we recorded a loss of approximately $3,927,000 on the derivative warrants due to changes in our stock price.

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

The following table summarizes the activity of the note payable to VenturEast and of our derivative warrants, which was measured at fair value using Level 3 inputs (in thousands):
 
Note Payable
 
Warrant
 
to VenturEast
 
Liability
Fair value at December 31, 2017
$
156

 
$
4,403

Fair value of warrants reclassified to equity
—

 
(423
)
Change in fair value
(68
)
 
(2,858
)
Fair value at September 30, 2018
$
88

 
$
1,122


Note 11. Joint Venture Agreement


18

In November 2011 , we entered into an affiliation agreement with the Mayo Foundation for Medical Education and Research (“Mayo”), subsequently amended. Under the agreement, we formed a joint venture with Mayo in May 2013 to focus on developing oncology diagnostic services and tests utilizing next generation sequencing. The joint venture is a limited liability company, with each party initially holding fifty percent of the issued and outstanding membership interests of the new entity (the “JV”).

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

Our share of the JV’s net loss was approximately $1,000 and $2,000 for the three months ended September 30, 2018 and 2017 , respectively, and approximately $4,000 and $21,000 for the nine months ended September 30, 2018 and 2017 , respectively, and is included in research and development expense on the Consolidated Statements of Operations and Other Comprehensive Loss. We have a net receivable due from the JV of approximately $10,000 at September 30, 2018 , which is included in other assets in the Consolidated Balance Sheets.

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

Note 12. Related Party Transactions

We have a consulting agreement with Equity Dynamics, Inc. (“EDI”), an entity controlled by John Pappajohn, effective April 1, 2014 pursuant to which EDI receives a monthly fee of $10,000 . In addition, EDI charged us $60,000 in September 2018 for financial consulting. Total expenses for each of the three months ended September 30, 2018 and 2017 were $90,000 and $30,000 , respectively. Total expenses for each of the nine months ended September 30, 2018 and 2017 were $150,000 and $90,000 , respectively. As of September 30, 2018 , we owed EDI $140,000 .

Pursuant to a consulting and advisory agreement that ended December 31, 2016, Dr. Chaganti received an option to purchase 200,000 shares of our common stock at a purchase price of $15.89 per share vesting over a period of four years. Total non-cash stock-based compensation recognized under the consulting agreement for the three months ended September 30, 2018 and 2017 was $0 and $12,625 , respectively. Total non-cash stock-based compensation recognized under the consulting agreement for the nine months ended September 30, 2018 and 2017 was $0 and $62,125 , respectively.
 
Note 13. 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 allege 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 seek, 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 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 defendant and seeking, among other things, compensatory damages in connection with purchases of CGI stock between March 10, 2016 and April 2, 2018.  Defendants’ motion to dismiss the amended complaint is due to be filed on or before December 31, 2018. The Company is unable to predict the ultimate outcome of these actions and therefore cannot estimate possible losses or ranges of losses, if any.

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. 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 complaints allege claims for breach of fiduciary duty, violations of Section 14(a) of

19

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. The Company is unable to predict the ultimate outcome of these actions and therefore cannot estimate possible losses or ranges of losses, if any.

Note 14. Subsequent Events

In November 2018, we settled the BioServe contingent consideration as discussed in Note 4.

On November 19, 2018, the Company received waivers from its senior lenders for its failure to comply with certain covenants for the months of September 30, 2018, October 31, 2018 and November 30, 2018. The Company concurrently amended its debt agreements with SVB and PFG, respectively; the new agreements require the Company to raise $3,000,000 from the sale of its equity securities or the issuance of subordinated debt (in the case of the agreement with SVB, to investors acceptable to SVB) by November 30, 2018.

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 at September 30, 2018 : Cancer Genetics Italia, S.r.l., Gentris, LLC, and 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 April 2, 2018. This MD&A may contain forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” below.

Overview

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

We are currently executing a strategy of partnering with pharmaceutical and biotech companies and clinicians as oncology diagnostic specialists by supporting therapeutic discovery, development and patient care. Pharmaceutical and biotech companies are increasingly attracted to work with us to provide molecular profiles on clinical trial participants. Similarly, we believe the oncology industry is undergoing a rapid evolution in its approach to diagnostic, prognostic and treatment outcomes (theranostic) testing, embracing precision medicine and individualized testing as a means to drive higher standards of patient treatment and disease management. These profiles may help identify biomarker and genomic variations that may be responsible for differing responses to oncology therapies, thereby increasing the efficiency of trials while lowering costs. We believe tailored and combination therapies can revolutionize oncology care through molecular- and biomarker-based testing services, enabling physicians and researchers to target the factors that make each patient and disease unique.

We believe the next shift in cancer management will bring together testing capabilities for germline, or inherited mutations, and somatic mutations that arise in tissues over the course of a lifetime. We have created a unique position in the industry by providing both targeted somatic analysis of tumor sample cells alongside germline analysis of an individual's non-cancerous cells' molecular profile as we attempt to continue achieving milestones in precision medicine.

Our clinical offerings include our portfolio of proprietary tests targeting hematological, urogenital and HPV-associated

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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 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 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 focused in part on specific oncology categories where we are developing our proprietary tests. We believe that there is significant synergy in developing and marketing a complete set of tests and services that are disease focused and delivering those tests and services in a comprehensive manner to help with treatment decisions. The insight that we develop in delivering the non-proprietary services are often leveraged in the development of our proprietary programs and now increasingly in the validation of our proprietary programs, such as MatBA and Focus::NGS.

Net cash used in operating activities was $11.4 million and $10.2 million for the nine months ended September 30, 2018 and 2017 , respectively, and the Company had unrestricted cash and cash equivalents of $1.2 million at September 30, 2018 , a reduction from $9.5 million at December 31, 2017. The Company has negative working capital at September 30, 2018 of $15.2 million .

The Company currently requires a significant amount of additional capital to fund operations and pay its accounts payable, and its ability to continue as a going concern is dependent upon its ability to raise such additional capital and achieve profitability. If the Company is not able to close the Merger and Private Placement (see Merger Agreement just below) or raise such additional capital on a timely basis or on favorable terms, the Company may need to scale back or, in extreme cases, discontinue its operations or liquidate its assets.

While we have implemented an aggressive consolidation strategy to reduce our operating costs in 2018, including the closure of our California laboratory and facility, we expect to continue to incur significant losses for the near future. We incurred losses of $20.9 million and $15.8 million for fiscal years ended December 31, 2017 and 2016 , respectively, and $16.6 million for the nine months ended September 30, 2018 , which included restructuring charges of $2.1 million associated with the closing of the California operations and $0.9 million costs associated with strategic financing, merger and acquisition options. 

As of September 30, 2018 , we had an accumulated deficit of $154.0 million . 

Merger Agreement

On September 18, 2018, we entered into an agreement and plan of merger (the “Merger Agreement”) with NovellusDx, Ltd., a privately-held company formed under the law of the State of Israel (“NDX”), in regards to Wogolos Ltd., our wholly owned subsidiary company formed under the laws of the State of Israel. Subject to satisfaction or waiver of the conditions set forth in the Merger Agreement, Wogolos Ltd. will merge (the “Merger”) with and into NDX, with NDX becoming a wholly owned subsidiary of us and the surviving company.

At the effective time of the Merger, all of NDX’s share capital will be converted into the right to receive an aggregate number of shares of our common stock equal to 49% of the fully-diluted aggregate number of shares of the Company immediately following the Merger, including shares issuable upon the conversion of the Convertible Note to Iliad Research (the “Iliad Note”) described in Note 6 and shares issuable upon the exercise of the Company’s options and warrants, determined using the treasury stock method. Shares issuable under the Private Placement described in the following paragraph will be excluded from this calculation.

Private Placement

On September 18, 2018, we also entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which we agreed to sell and issue, in a private placement, a total of 8,509,891 shares of our common stock and warrants to purchase an aggregate of up to approximately 6,382,418 shares of our common stock, to the purchasers thereunder, all of whom are current NDX shareholders, for an aggregate purchase price of approximately $8.6 million , with the shares and warrants being sold together in a fixed combination of one share and one warrant to purchase 75% of a share of our common stock, at a price of $1.01 per share and related warrant (the “Private Placement”). The closing of the Private Placement is conditional upon, and will occur immediately after, the Merger. In addition, the Company and NDX may continue to solicit additional subscriptions pursuant to this Purchase Agreement prior to the closing of the Private Placement.

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The warrants issued under the Private Placement will be exercisable for five years beginning on the closing date of the Merger at an initial exercise price of $1.01 per share, subject to adjustment for certain customary circumstances. The warrants can be exercised on a cashless basis.

Advance from NDX

In connection with the signing of the Merger Agreement, on September 18, 2018, we entered into a credit agreement (the “Credit Agreement”) with NDX, pursuant to which NDX agreed to loan us up to $2,300,000 as discussed in Note 6.

Acquisition

On August 15, 2017, we purchased all of the outstanding stock of vivoPharm, with its principal place of business in Victoria, Australia, in a transaction valued at approximately $1.6 million in cash and $8.1 million in the Company ’ s common stock based on the closing price of the stock on August 15, 2017. The Company deposited in escrow 20% of the stock consideration until the expiration of twelve months from the closing date to serve as the initial source for any indemnification claims and adjustments. The measurement period expired on August 15, 2018 and the final valuation was deemed consistent with the preliminary valuation, specifically concerning lab supplies, deferred revenue and deferred taxes. On August 15, 2018, the escrowed shares were released. Subsequent to the measurement period expiration, a review of deferred revenue surfaced a refinement in contract completion estimate of $0.2 million associated with the acquisition valuation and accordingly the revenue reduction was recorded in the statement of operations for the three months ended September 30, 2018 .

Disposal

On April 26, 2018, we sold our India subsidiary, BioServe Biotechnologies (India) Private Limited (“BioServe”) to Reprocell, Inc., for $1.9 million , including $1.6 million in cash at closing and up to an additional $300,000 , which was contingent upon the India subsidiary meeting a specified revenue target through August 31, 2018. During the three months ended September 30, 2018 , the Company reduced the contingent consideration to $213,000 , which is recorded in other current assets in our Consolidated Balance Sheet at September 30, 2018. As a result of this transaction, we recognized a loss of approximately $87,000 and $78,000 on the disposal of BioServe during the three and nine months ended September 30, 2018 , respectively, which is included in other income (expense) in our Consolidated Statements of Operations and Other Comprehensive Loss. In November 2018, we received the contingent consideration.
 
Key Factors Affecting our Results of Operations and Financial Condition

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

Our revenue is generated through our Biopharma Services, Discovery Services and Clinical Services. 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 are services provided in the development of new testing assays and methods and include pre-clinical toxicology and efficacy studies. Discovery Services are billed directly to the customer. Our 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.

We have historically derived a significant portion of our revenue from a limited number of test ordering sites, although the test ordering sites that generate a significant portion of our revenue have changed from period to period. Test ordering sites account

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for all of our Clinical Services revenue along with a portion of the Biopharma Services revenue. Our test ordering sites are hospitals, cancer centers, reference laboratories, physician offices, and pharmaceutical and biotechnology companies. Oncologists and pathologists at these sites order the tests on behalf of their oncology patients or as part of a clinical trial sponsored by a pharmaceutical or biotechnology company in which the patient is being enrolled.

During the three months ended September 30, 2018 , there was one biopharmaceutical company that accounted for approximately 10% of our total revenue. During the three months ended September 30, 2017 , there was one biopharmaceutical company that accounted for approximately 11% of our total revenue.

During the nine months ended September 30, 2018 , there were no customers that accounted for more than 10% of our total revenue. During the nine months ended September 30, 2017 , there was one biopharmaceutical company that accounted for approximately 11% 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, 2018 , Medicare and other third party payors accounted for approximately 8% and 18% of our total revenue, respectively. For the nine months ended September 30, 2018 , Medicare and other third party payors accounted for approximately 10% and 19% of our total revenue, respectively. The reduction in this concentration of revenue is part of the planned transitions the Company is making in 2018 to reduce cost and attempt to improve its operating metrics.

Cost of Revenues

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 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. In 2017, we purchased all of the outstanding stock of vivoPharm. Overall, we have made significant progress with integrating our resources and services and leveraging enterprise wide purchasing power to gain supplier discounts, in an effort to reduce costs. We will continue to assess other possible advantages to help us improve our cost structure, including other consolidations of operations and further reductions in headcount.

Operating Expenses

We classify our operating expenses into three categories: research and development, sales and marketing, and general and administrative. Our operating expenses principally consist of personnel costs, including non-cash stock-based compensation, 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. 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 incurred increases in our general and administrative expenses and anticipate only modest increases as we expand our business operations.

Sales and Marketing Expenses . Our sales and marketing expenses consist principally of personnel and related overhead costs for our sales 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 as we expand into new geographies and add new clinical tests and services.

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Restructuring Costs. In alignment with our strategic plan to migrate our California operations to our New Jersey and North Carolina locations and to permanently close our California laboratory, we experienced various expenses associated with exiting a facility, transition of lab equipment and supplies, disposal of assets and termination benefits associated with displaced employees. We consider this expense to be one time in nature and subject to board approved strategic initiatives.

Merger Costs . 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. We expect this expense to be one time in nature and yet to continue into the near term as the existing merger agreement with NovellusDX, Ltd. moves forward to final consummation.

Seasonality

Our business experiences decreased demand during spring vacation season, summer months and the December holiday season when patients are less likely to visit their health care providers. We expect this trend in seasonality to continue for the foreseeable future.

Results of Operations

Three Months Ended September 30, 2018 and 2017

The following table sets forth certain information concerning our results of operations for the periods shown:  
 
Three Months Ended September 30,
 
Change
(dollars in thousands)
2018
 
2017
 
$
 
%
Revenue
$
5,940

 
$
8,028

 
$
(2,088
)
 
(26
)%
Cost of revenues
4,654

 
4,588

 
66

 
1
 %
Research and development expenses
692

 
981

 
(289
)
 
(29
)%
General and administrative expenses
5,004

 
4,346

 
658

 
15
 %
Sales and marketing expenses
1,280

 
1,301

 
(21
)
 
(2
)%
Restructuring costs
1,418

 
—

 
1,418

 
N/A

Merger costs
890

 
—

 
890

 
N/A

Loss from operations
(7,998
)
 
(3,188
)
 
(4,810
)
 
151
 %
Interest income (expense)
(465
)
 
(340
)
 
(125
)
 
37
 %
Change in fair value of acquisition note payable
(13
)
 
105

 
(118
)
 
(112
)%
Change in fair value of warrant liability
12

 
2,790

 
(2,778
)
 
(100
)%
Other income (expense)
(55
)
 
—

 
(55
)
 
N/A

Net (loss)
$
(8,519
)
 
$
(633
)
 
$
(7,886
)
 
1,246
 %

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):

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Three Months Ended September 30,
 
 
2018
 
2017
Reconciliation of net (loss):
 
 
 
 
Net (loss)
 
$
(8,519
)
 
$
(633
)
Adjustments:
 
 
 
 
Change in fair value of acquisition note payable
 
13

 
(105
)
Change in fair value of warrant liability
 
(12
)
 
(2,790
)
Adjusted net (loss)
 
$
(8,518
)
 
$
(3,528
)
Reconciliation of basic net (loss) per share:
 
 
 
 
Basic net (loss) per share
 
$
(0.31
)
 
$
(0.03
)
Adjustments to net (loss)
 
—

 
(0.13
)
Adjusted basic net (loss) per share
 
$
(0.31
)
 
$
(0.16
)
Basic weighted-average shares outstanding
 
27,370

 
21,577

Reconciliation of diluted net (loss) per share:
 
 
 
 
Diluted net (loss) per share
 
$
(0.31
)
 
$
(0.15
)
Adjustments to net (loss)
 
—

 
(0.01
)
Adjusted diluted net (loss) per share
 
$
(0.31
)
 
$
(0.16
)
Diluted weighted-average shares outstanding
 
27,370

 
22,359


Adjusted net (loss) increased 141% to $8.5 million during the three months ended September 30, 2018 , from an adjusted net (loss) of $3.5 million during the three months ended September 30, 2017 . Adjusted basic net (loss) per share increased 94% to $0.31 during the three months ended September 30, 2018 , from $0.16 during the three months ended September 30, 2017 . Adjusted diluted net (loss) per share increased 94% to $0.31 during the three months ended September 30, 2018 , from $0.16 during the three months ended September 30, 2017 .

Revenue

The breakdown of our revenue is as follows:
 
Three Months Ended September 30,
 
Change
 
2018
 
2017
 
 
 
 
(dollars in thousands)
$
 
%
 
$
 
%
 
$
 
%
Biopharma Services
$
3,850

 
65
%
 
$
4,168

 
52
%
 
$
(318
)
 
(8
)%
Clinical Services
1,555

 
26
%
 
2,880

 
36
%
 
(1,325
)
 
(46
)%
Discovery Services
535

 
9
%
 
980

 
12
%
 
(445
)
 
(45
)%
Total Revenue
$
5,940

 
100
%
 
$
8,028

 
100
%
 
$
(2,088
)
 
(26
)%

Revenue decreased 26% , or $2.1 million , to $5.9 million for the three months ended September 30, 2018 , from $8.0 million for the three months ended September 30, 2017 , principally due to a decrease in Discovery Services of $0.4 million , a decrease in our Biopharma Services of $0.3 million and a decline in Clinical Services revenue of $1.3 million .

Revenue from Biopharma Services decreased  8% , or  $0.3 million , to  $3.9 million  for the  three months ended September 30, 2018 , from  $4.2 million  for the  three months ended September 30, 2017 as a result of a shift in the portfolio due to the completion and delivery of two large projects offset by the start-up of multiple smaller value contracts in the comparable periods. Revenue from Clinical Services customers decreased by $1.3 million , or 46% , compared to the three months ended September 30, 2017 , due to lower realization on third party and direct billings and the effects of the adoption of ASC 606, which is directly the result of actual cash collection trends. Revenue from Discovery Services decreased 45% , or $0.4 million , 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 a corresponding 2018 impact of $0.2 million of resulting estimate updates of contract obligations for the remaining portfolio of contracts.

Cost of Revenues


25
Table of Contents

Cost of revenues increased 1% , or $0.1 million , for the three months ended September 30, 2018 , principally due to increases in payroll and benefit costs and shipping costs of $0.1 million and $0.2 million, respectively, offset by a decline in lab and clinical supplies costs of $0.2 million. Gross margin decreased to 22% during the three months ended September 30, 2018 down from 43% for the three months ended September 30, 2017 directly related to lower revenue in the comparable periods, while our labor costs are relatively fixed.

Operating Expenses

Research and development expenses decreased 29% , or $0.3 million , to $0.7 million for the three months ended September 30, 2018 , from $1.0 million for the three months ended September 30, 2017 , principally due to a $0.2 million decrease in payroll and benefit costs due to the shift in our staffing costs as we reduced the amount of research and development initiatives and concentrated our staff on the delivery of our services. Given the current financial condition of the Company, we are limiting our spending for research and development expenses to our most promising projects.

General and administrative expenses increased 15% , or $0.7 million , to $5.0 million for the three months ended September 30, 2018 , from $4.3 million for the three months ended September 30, 2017 principally due to a full quarter of expenses for vivoPharm as it was acquired on August 15, 2017.

Sales and marketing expenses increased 2% , or $21,000 , to $1.3 million for the three months ended September 30, 2018 , from $1.3 million for the three months ended September 30, 2017 .

Restructuring costs of $1.4 million were incurred for the three months ended September 30, 2018 primarily associated with the closure of the California laboratory and operations.

Merger costs of $0.9 million were incurred for the three months ended September 30, 2018 principally due to the evaluation and pursuit of strategic options including the merger agreement with NovellusDx.

Interest Income (Expense)

Net interest expense increased 37% , or $0.1 million , to $0.5 million during the three months ended September 30, 2018 due to interest incurred on the Convertible Note as well as increased borrowings on our ABL, debt modification costs incurred and paying interest at the default rate.

Change in Fair Value of Acquisition Note Payable

The change in fair value of acquisition note payable resulted in approximately $13,000 of non-cash expense and $105,000 of non-cash income for the three months ended September 30, 2018 and 2017 , respectively, as a consequence of a changes 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 changes in our stock price and volatility expectations, we recognized non-cash income of $12,000 and $2.8 million for the three months ended September 30, 2018 and 2017 , respectively. In 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.

Nine Months Ended September 30, 2018 and 2017

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

26

 
Nine Months Ended September 30,
 
Change
(dollars in thousands)
2018
 
2017
 
$
 
%
Revenue
$
20,643

 
$
21,598

 
$
(955
)
 
(4
)%
Cost of revenues
14,589

 
12,831

 
1,758

 
14
 %
Research and development expenses
2,046

 
3,080

 
(1,034
)
 
(34
)%
General and administrative expenses
14,950

 
11,352

 
3,598

 
32
 %
Sales and marketing expenses
4,212

 
3,437

 
775

 
23
 %
Restructuring costs
2,151

 
—

 
2,151

 
N/A

Merger costs
890

 
—

 
890

 
N/A

Loss from operations
(18,195
)
 
(9,102
)
 
(9,093
)
 
100
 %
Interest income (expense)
(1,261
)
 
(760
)
 
(501
)
 
66
 %
Change in fair value of acquisition note payable
68

 
(114
)
 
182

 
(160
)%
Change in fair value of warrant liability
2,858

 
(3,927
)
 
6,785

 
(173
)%
Other income (expense)
(78
)
 
(46
)
 
(32
)
 
70
 %
Loss before income taxes
(16,608
)
 
(13,949
)
 
(2,659
)
 
19
 %
Income tax provision (benefit)
—

 
(970
)
 
970

 
(100
)%
Net (loss)
$
(16,608
)
 
$
(12,979
)
 
$
(3,629
)
 
28
 %

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):
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
Reconciliation of net (loss):
 
 
 
 
Net (loss)
 
$
(16,608
)
 
$
(12,979
)
Adjustments:
 
 
 
 
Change in fair value of acquisition note payable
 
(68
)
 
114

Change in fair value of warrant liability
 
(2,858
)
 
3,927

Adjusted net (loss)
 
$
(19,534
)
 
$
(8,938
)
Reconciliation of basic and diluted net (loss) per share:
 
 
 
 
Basic and diluted net (loss) per share
 
$
(0.61
)
 
$
(0.65
)
Adjustments to net (loss)
 
(0.11
)
 
0.20

Adjusted basic and diluted net (loss) per share
 
$
(0.72
)
 
$
(0.45
)
Basic and diluted weighted-average shares outstanding
 
27,156

 
20,059


Adjusted net (loss) increased 119% to $19.5 million during the nine months ended September 30, 2018 , up from an adjusted net (loss) of $8.9 million during the nine months ended September 30, 2017 . Adjusted basic and diluted net (loss) per share increased 60% to $0.72 during the nine months ended September 30, 2018 from $0.45 during the nine months ended September 30, 2017 .


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Table of Contents

Revenues

The breakdown of our revenue for the nine months ended September 30, 2018 and 2017 is as follows:
 
Nine Months Ended September 30,
 
Change
 
2018
 
2017
 
 
 
 
(dollars in thousands)
$
 
%
 
$
 
%
 
$
 
%
Biopharma Services
11,099

 
54
%
 
$
11,175

 
52
%
 
$
(76
)
 
(1
)%
Clinical Services
6,019

 
29
%
 
8,887

 
41
%
 
(2,868
)
 
(32
)%
Discovery Services
3,525

 
17
%
 
1,536

 
7
%
 
1,989

 
129
 %
Total Revenue
$
20,643

 
100
%
 
$
21,598

 
100
%
 
$
(955
)
 
(4
)%

Revenue decreased 4% , or $1.0 million , to $20.6 million for the nine months ended September 30, 2018 , from $21.6 million for the nine months ended September 30, 2017 , principally due to an decrease in Clinical Services of $2.9 million , partially offset by an increase in Discovery Services of $2.0 million .

Revenue from Biopharma Services decreased 1% , or $0.1 million , to $11.1 million for the nine months ended September 30, 2018 , from $11.2 million for the nine months ended September 30, 2017 due to the completion and delivery of two large projects offset by the start-up of multiple smaller value contracts in the comparable periods. This is in addition to a shift of volume to our North Carolina location from New Jersey which in turn has freed up capacity to absorb the forthcoming volume from our California location due to its closing at the end of the third quarter this year. Revenue from Clinical Services customers decreased by $2.9 million , or 32% , for the nine months ended September 30, 2018 due to.three quarters of refined experience in recognizing revenue under ASC 606 within collectability constraints. Revenue from Discovery Services increased 129% , or $2.0 million , during the nine months ended September 30, 2018 due to our acquisition of vivoPharm in August 2017, offset, in part, by a decline in revenue reported from our India subsidiary, due to its sale in April 2018 and an out of measurement period adjustment of $0.2 million offsetting the 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 remaining portfolio of contracts.

Cost of Revenues

Cost of revenues increased $1.8 million to $14.6 million for the nine months ended September 30, 2018 from $12.8 million for the nine months ended September 30, 2017 , principally due to increased payroll and benefit costs of $1.1 million and increased shipping costs of $0.8 million. Gross margin declined to 29% during the nine months ended September 30, 2018 from 41% during the nine months ended September 30, 2017 , directly related to lower revenue in the comparable periods, while our labor costs are relatively fixed. This decline also encompasses the incremental costs associated with the vivoPharm operations acquired in August 2017 now consolidated into the Company’s results.

Operating Expenses

Research and development expenses decreased 34% , or $1.0 million , to $2.0 million for the nine months ended September 30, 2018 , from $3.1 million for the nine months ended September 30, 2017 , principally due to reduced payroll and benefit costs of $1.0 million due to the shift in our staffing costs as we reduced the amount of research and development initiatives and concentrated our staff on the delivery of our services. Given the current financial condition of the Company, we are limiting our spending for research and development expenses to our most promising projects.

General and administrative expenses increased 32% , or $3.6 million , to $15.0 million for the nine months ended September 30, 2018 , from $11.4 million for the nine months ended September 30, 2017 , principally due to the incremental costs associated with the vivoPharm operations acquired in August 2017 now consolidated into the Company’s results.. Other increases include approximately $0.5 million of severance expense incurred in the first quarter of 2018, professional service fees of $1.2 million primarily related to our compliance requirements to adopt ASC 606 and our recent financing activities. Our bad debt expense increased $0.7 million, primarily due to accounts receivable incurred in the prior year now being deemed to be uncollectible. Taxes and insurance costs increased $0.3 million, primarily due to a net increase in Delaware franchise taxes of $0.2 million. Depreciation and amortization also increased by $0.2 million, primarily due to the additional intangibles and fixed assets acquired in August 2017 as part of the vivoPharm acquisition.


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Table of Contents

Sales and marketing expenses increased 23% , or $0.8 million , to $4.2 million for the nine months ended September 30, 2018 , from $3.4 million for the nine months ended September 30, 2017 , principally due incremental costs associated with the vivoPharm operations acquired in August 2017 now consolidated into the Company’s results.

Restructuring costs of $2.2 million were incurred for the nine months ended September 30, 2018 primarily associated with the closure of the California laboratory and operations.

Merger costs of $0.9 million were incurred for the nine months ended September 30, 2018 principally due to the evaluation and pursuit of strategic options including the merger agreement with NovellusDx.

Interest Income (Expense)

Net interest expense increased 66% , or $0.5 million , due to increased borrowings and a higher effective interest rate on the debt we refinanced in late March 2017 and interest incurred on the Convertible Note. We also incurred debt modification costs and paid interest at the default rate.
 
Change in Fair Value of Acquisition Note Payable

The change in fair value of note payable resulted in $68,000 in non-cash income for the nine months ended September 30, 2018 , as compared to non-cash expense of $0.1 million for the nine months ended September 30, 2017 . The fair value of the note decreased during the nine months ended September 30, 2018 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 changes in our stock price and our volatility expectations, we recognized non-cash income of $2.9 million for the nine months ended September 30, 2018 due to decrease in our stock price, as opposed to a non-cash charge of $3.9 million during the nine months ended September 30, 2017 that resulted from an increase in our stock price. 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.

Income Taxes

During the nine months ended September 30, 2017 , we received approximately  $1.0 million  of net proceeds from the sale of state NOL’s and state research and development credits.

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 sale of state NOL’s. On April 26, 2018, we sold our India subsidiary, BioServe Biotechnologies (India) Private Limited (“BioServe”) to Reprocell, Inc., for $1.9 million , including $1.6 million in cash at closing and up to an additional $300,000 , which was contingent upon the India subsidiary meeting a specified revenue target through August 31, 2018. During the three months ended September 30, 2018 , the Company reduced the contingent consideration to $213,000

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

Cash Flows

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

29

 
Nine Months Ended 
 September 30,
(in thousands)
2018
 
2017
Cash provided by (used in):
 
 
 
Operating activities
$
(11,439
)
 
$
(10,249
)
Investing activities
720

 
(2,121
)
Financing activities
2,356

 
7,675

Effect of foreign currency exchange rates on cash and cash equivalents
28

 
—

Net increase (decrease) in cash and cash equivalents
$
(8,335
)
 
$
(4,695
)

We had cash and cash equivalents and restricted cash of $1.6 million at September 30, 2018 , and $9.9 million at December 31, 2017 .

The $8.3 million decrease in cash and cash equivalents for the nine months ended September 30, 2018 , principally resulted from net cash used in operations of $11.4 million and net repayments of borrowings on our ABL of $1.4 million, offset in part by net proceeds from the sale of our India subsidiary of $1.6 million and net proceeds received from the Convertible Note and Advance from NovellusDx, Ltd of $2.5 million and $1.5 million, respectively.

The $4.7 million decrease in cash and cash equivalents for the nine months ended September 30, 2017 , principally resulted from net cash used in operations of $10.2 million, principal payments made on the SVB term note of $4.7 million and fixed asset additions of $1.2 million, partially offset by proceeds from the exercise of warrants of $1.8 million, net proceeds from the sale of stock to Aspire Capital of $3.0 million, proceeds from refinancing our debt of $6.0 million and borrowings on our line of credit of $2.0 million.

At September 30, 2018 , we had total indebtedness of $12.9 million, excluding capital lease obligations.

Cash Used in Operating Activities

Net cash used in operating activities was $11.4 million for the nine months ended September 30, 2018 . We used $15.3 million in net cash to fund our core operations, which included $0.8 million in cash paid for interest, and another $0.2 million to purchase other current assets, offset by a net increase in accounts payable, accrued expenses and deferred revenue of $4.0 million and a net decrease in accounts receivable of $0.2 million.

For the nine months ended September 30, 2017 , we used $10.2 million in operating activities. We used $4.7 million in net cash to fund our core operations, which included $0.6 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 $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 million, offset by a decrease in other assets of $0.3 million.

Cash Used in Investing Activities

Net cash provided by investing activities was $0.7 million for the nine months ended September 30, 2018 and principally resulted from net cash received from the sale of our India subsidiary of $1.6 million, offset in part by fixed asset purchases of $0.8 million.

Net cash used in investing activities was $2.1 million for the nine months ended September 30, 2017 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.

Cash Provided by Financing Activities

Net cash provided by financing activities was $2.4 million for the nine months ended September 30, 2018 and resulted from net proceeds received from the Convertible Note and Advance from NovellusDx, Ltd of $2.5 million and $1.5 million, respectively. offset, in part by the net repayment of borrowings on our ABL of $1.4 million and principal payments on capital lease obligations of $0.3 million.


30
Table of Contents

Net cash provided by financing activities was $7.7 million for the nine months ended September 30, 2017 and principally resulted from proceeds received from warrants exercised of $1.8 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 and proceeds from borrowing $2.0 million on our line of credit, offset by principal payments made on our SVB 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.

Capital Resources and Expenditure Requirements

We expect to continue to incur material operating losses in the 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 need to curb our expansion plans or further limit our research and development activities, which may have a material adverse impact on our business prospects and results of operations. The Company amended its debt agreements with SVB and PFG in May 2018; the new agreements required the Company to raise $2,500,000 through the sale of its equity securities or issuance of subordinated debt (in the case of the agreement with SVB, to investors accepted to SVB), which occurred on July 17, 2018, when the Company entered into an agreement pursuant to which the Company issued a convertible promissory note to an institutional accredited investor in the initial principal amount of $2,625,000. The Company received consideration of $2,500,000, reflecting an original issue discount of $100,000, a beneficial conversion feature discount of approximately $328,000 and expenses payable by the Company of $25,000. The convertible note has an 18 month term and carries interest at 10% per annum. The note is convertible into shares of the Company’s common stock at a conversion price of $0.80 per share. See Note 6 of the Notes to Unaudited Consolidated Financial Statements of this quarterly report on Form 10-Q. Effective June 21, 2018 and June 30, 2018, the loan covenants were modified with respect to the debt owed to SVB and PFG, respectively, and the exercise price of the PFG Warrants was reduced to $0.92 as of June 30, 2018. We were in violation of the modified covenants with SVB and PFG as of July 31, 2018, August 31, 2018 and September 30, 2018, and we expect to be in violation as of October 31, 2018 and November 30, 2018. On August 20, 2018, the Company received waivers from its senior lenders for the covenant violations for the months of July and August 2018. In consideration of these waivers, we agreed to reduce the maximum borrowings under the ABL from $6.0 million to $3.0 million, and agreed to enter into a binding and enforceable agreement satisfactory to each lender by August 31, 2018 with respect to a merger or other business combination transaction between the Company and an unrelated third party satisfactory to each lender (the “Transaction Condition”). While we were in violation of the Transaction Condition as of August 31, we subsequently entered into a binding and enforceable agreement satisfactory to each lender on September 18, 2018 by entering into the Merger Agreement. We have obtained waivers from our lenders for the September, October and November 2018 defaults, conditioned upon the Company raising $3,000,000 through the sale of its equity securities or issuance of subordinated debt (in the case of the agreement with SVB, to investors accepted to SVB) by November 30, 2018.

In September 2018, the Company announced the Merger Agreement with NDX. In conjunction with the plan to merge, NDX agreed to advance up to $2,300,000 to the Company. The first advance of $1,500,000 was extended on September 18, 2018, and the second advance of $800,000 is payable upon satisfaction of certain conditions, including our filing of a registration statement on Form S-4 related to the Merger Agreement. Interest accrues on the outstanding balance at 10.75% per annum, and the Credit Agreement matures upon the earlier of March 31, 2019 or the date on which the Merger Agreement is terminated in accordance with its terms (or 90 days thereafter in the case of certain causes for termination). Upon certain events of default, NDX may convert all, but not less than all, of the outstanding balance into shares of the Company’s common stock at a conversion price of $0.606 per share. At September 30, 2018 , the principal balance of the Credit Agreement was $1,500,000 .

On September 18, 2018, we also entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which we agreed to sell and issue, in a private placement, a total of 8,509,891 shares of our common stock and warrants to purchase an aggregate of up to approximately 6,382,418 shares of our common stock, to the purchasers thereunder, all of whom are current NDX shareholders, for an aggregate purchase price of approximately $8.6 million , with the shares and warrants being sold together in a fixed combination of one share and one warrant to purchase 75% of a share of our common stock, at a price of $1.01 per share and related warrant (the “Private Placement”). The closing of the Private Placement is conditional upon, and will occur immediately after, the Merger. In addition, the Company and NDX may continue to solicit additional subscriptions pursuant to this Purchase Agreement prior to the closing of the Private Placement.

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Table of Contents


The warrants issued under the Private Placement will be exercisable for five years beginning on the closing date of the Merger at an initial exercise price of $1.01 per share, subject to adjustment for certain customary circumstances. The warrants can be exercised on a cashless basis.

Net cash used in operating activities was $11.4 million and $10.2 million for the nine months ended September 30, 2018 and 2017, respectively, and the Company had unrestricted cash and cash equivalents of $1.2 million at September 30, 2018 , a reduction from $9.5 million at December 31, 2017. The Company has negative working capital at September 30, 2018 of $15.2 million .

The Company currently requires a significant amount of additional capital to fund operations and pay its accounts payable, and its ability to continue as a going concern is dependent upon its ability to raise such additional capital and achieve profitability. If the Company is not able to close the Merger and Private Placement or raise such additional capital on a timely basis or on favorable terms, the Company may need to scale back or, in extreme cases, discontinue its operations or liquidate its assets.

We do not believe that our current cash will support operations beyond the next 3 months from the date of this report unless we raise additional equity or debt capital or spin-off non-core assets to raise additional cash. We hired Raymond James & Associates Inc. as our financial advisor to assist with evaluating strategic options and their efforts resulted in the current Merger Agreement and related credit agreement with NDX referenced elsewhere herein. We are currently in discussions with possible bridge financing sources to provide adequate funding to execute on the merger with NDX As previously disclosed, one of the conditions to closing of the Merger is that the combined company have available cash of at least $20 million at the effective time of the Merger (inclusive of amounts raised in the Private Placement and advanced under the related credit agreement, but exclusive of the Company’s cash) (the “Cash Condition”). If the Merger is consummated and the Cash Condition is not waived, we anticipate that we will have approximately $18 million in cash (net of the Bridge Loan proceeds already received and being used), principally raised through the Private Placement. Consequently, if the Private Placement is successful and the Merger is closed, we believe we will have sufficient cash to support our operations for the 12 months following closing, notwithstanding that the acquisition of NDX will increase our cash flow deficits as we fund their continued development, validation and commercialization efforts. If the Merger and the Private Placement are not consummated, we will not have sufficient cash to continue to operate for any significant period after termination of the Merger Agreement. Accordingly, we intend to seek additional financing in the interim prior to consummation of the Merger, which is not anticipated to occur until the first quarter of 2019. Any such financing will dilute our current stockholders’ 51% interest in the combined company to which our current stockholders are entitled under the Merger Agreement by the number of shares issued or issuable in any such interim financing. We cannot determine at this time whether any interim financing will be available to us or, if it is, the terms of such interim financing and its effect on the percentage interest in the combined company to be held by our current stockholders post-closing of the Merger.

Meanwhile we are taking steps to improve our operating cash flow, including the consolidation of our laboratory operations and reductions in the number of staff. 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 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 year ended December 31, 2017 with respect to this uncertainty. This going concern opinion, and any future going concern opinion, could materially limit our ability to raise additional capital. The perception that we may not be able to continue as a going concern may cause potential partners or investors to choose not to deal with us due to concerns about our ability to meet our contractual and financial obligations. If we cannot continue as a going concern, our stockholders may lose their entire investment in our 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 close the Merger and Private Placement;
•
our ability to secure financing and the amount thereof;
•
our ability to achieve revenue growth and profitability;
•
the costs for funding the operations we recently acquired and our ability to realize anticipated benefits from the vivoPharm acquisition;
•
our ability to save money by moving our California operations to New Jersey and North Carolina;
•
our ability to improve efficiency of billing and collection processes;
•
our ability to obtain approvals for our new diagnostic tests;

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Table of Contents

•
our ability to execute on our marketing and sales strategy for our tests and services and gain acceptance of our tests and services in the market;
•
our ability to obtain adequate reimbursement from governmental and other third-party payors for our tests and services;
•
our ability to maintain our present customer base and obtain new customers;
•
our ability to clinically validate our pipeline of tests currently in development;
•
the costs of operating and enhancing our laboratory facilities;
•
our ability to succeed with our cost control initiative;
•
our ability to satisfy US (FDA) and international regulatory regiments with respect to our tests and services, many of which are new and still evolving;
•
the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
•
our ability to manage the costs of manufacturing our tests;
•
our rate of progress in, and cost of research and development activities associated with, products in research and early development;
•
the effect of competing technological and market developments;
•
costs related to expansion; and
•
other risks and uncertainties discussed in our annual report on Form 10-K for the year ended December 31, 2017, as updated in other reports, as applicable, we file with the Securities and Exchange Commission.

We expect that our operating expenses and capital expenditures may increase in the future as we expand our business. We plan to take additional steps to decrease our sales and marketing expenses related to our clinical tests and services, and will continue trimming our research and development expenditures for all projects that are not expected to be profitable in the near future. For example, in 2011 we entered into an affiliation agreement to form 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 do not expect to make additional capital contributions to the joint venture entity’s operational activities. Until we can generate a sufficient amount of revenues to finance our cash requirements, which we may never do, we may need to raise additional capital to fund our operations.

Subject to the availability of financing, we may use significant cash to fund acquisitions.

The consolidated financial statements for the nine months ended September 30, 2018 were prepared on the basis of a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be required to liquidate its assets.  The ability of the Company to meet its obligations, and to continue as a going concern is dependent upon the availability of future funding and the continued growth in revenues.  The financial statements do not include any adjustments that might result from the outcome of 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.

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

Management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our 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.

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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, 2017 contain a summary of our significant accounting policies. The adoption of ASU 2014-09 and ASU 2016-18 are discussed in Note 1 of Notes to Unaudited 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;
•
Stock-based compensation; and
•
Warrant liability.

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 close the Merger and Private Placement;
•
our ability to achieve revenue growth and profitability;
•
our ability to secure financing and the amount thereof;
•
our ability to save money by moving our California operations to New Jersey and North Carolina;
•
our ability to achieve profitability by increasing sales of our laboratory tests and services and to continually develop and commercialize novel and innovative laboratory tests and services focused on oncology and immuno-oncology;
•
our ability to improve efficiency of billing and collection processes;
•
with respect to our Clinical Services, our ability to obtain reimbursement from governmental and other third-party payors for our tests and services;
•
our ability to clinically validate our pipeline of tests currently in development;
•
our ability to execute on our marketing and sales strategy for our tests and services and gain acceptance of our tests and services in the market;
•
our ability to keep pace with rapidly advancing market 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;
•
our ability to maintain our present customer base and obtain new customers;
•
potential product liability or intellectual property infringement claims;
•
our dependency on third-party manufacturers to supply or manufacture our tests;
•
our ability to attract and retain a sufficient number of scientists, clinicians, sales personnel and other key personnel with extensive experience in oncology and immuno-oncology, who are in short supply;

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•
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;
•
our ability to expand internationally and launch our tests and services in emerging markets, such as China and Japan;
•
our ability to adequately support future growth; and
•
the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2017, as updated in 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, 2018 , 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 principal financial officer) has concluded that our disclosure controls and procedures were not effective at the reasonable assurance level at September 30, 2018 because of the material weakness in the Company’s internal control over financial reporting that existed at December 31, 2017 and 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

Our internal control policies changed during the nine months ended September 30, 2018 to accommodate the implementation of ASC 606. 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, 2018 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, 2017, management has begun the process of remediation of the material weakness. The remediation was conducted as part of the ASC 606 implementation that involves design changes to our internal controls over revenue recognition. We believe these actions to be sufficient to remediate the identified material weakness and to enhance our internal control over financial

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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.


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PART II — OTHER INFORMATION
Item 1.        Legal Proceedings

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 allege 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 seek, 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 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 defendant and seeking, among other things, compensatory damages in connection with purchases of CGI stock between March 10, 2016 and April 2, 2018.  Defendants’ motion to dismiss the amended complaint is due to be filed on or before December 31, 2018. The Company is unable to predict the ultimate outcome of these actions and therefore cannot estimate possible losses or ranges of losses, if any.

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. 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 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. The Company is unable to predict the ultimate outcome of these actions and therefore cannot estimate possible losses or ranges of losses, if any.

Additional shareholder lawsuits may be filed in the future. In addition, lawsuits related to the Merger may also be filed.

Item 1A.    Risk Factors

Except as set forth below, 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, 2017.

We are not currently in compliance with the continued listing requirements for NASDAQ. If the price of our common stock continues to trade below $1.00 per share for a sustained period or we do not meet other continued listing requirements, our common stock may be delisted from the NASDAQ Capital Market, which could affect the market price and liquidity for our common stock and reduce our ability to raise additional capital.
 
Our common stock is listed on the NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirements including, without limitation, a requirement that our closing bid price be at least $1.00 per share. On November 13, 2018, we received a written notice from NASDAQ indicating that we are not in compliance with the minimum bid price requirement for continued listing on the NASDAQ Capital Market. We have 180 calendar days in which to regain compliance. We can regain compliance if at any time during this 180 day period the bid price of our common stock closes at or above $1.00 per share for a minimum of ten consecutive business days.
 
We intend to monitor the closing bid price of our common stock and consider our available options to resolve our noncompliance with the minimum bid price requirement, which may include submitting for approval by our stockholders a proposal to grant discretionary authority to our board of directors to amend our certificate of incorporation to effect a reverse split of our outstanding shares of common stock within an appropriate range, with the exact reverse split ratio to be decided and publicly announced by the board of directors prior to the effective time of the amendment to our certificate of incorporation. No determination regarding our response has been made at this time. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement or we will otherwise be in compliance with other NASDAQ listing criteria. If we fail to regain compliance with the minimum bid requirement or to meet the other applicable continued listing requirements for the NASDAQ Capital Market in the future and NASDAQ determines to delist our common stock, the delisting could adversely affect the market price and liquidity of our common stock and reduce our ability to raise additional capital. In addition, if our common stock is delisted from NASDAQ and the trading price remains below $5.00 per share,

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trading in our common stock might also become subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a “penny stock” (generally, any equity security not listed on a national securities exchange or quoted on NASDAQ that has a market price of less than $5.00 per share, subject to certain exceptions). 

We will need to raise additional capital to fund our operations.

We will need to raise additional financing to fund our operations. At September 30, 2018, we had unrestricted cash and cash equivalents of $1.2 million. Net cash used in operating activities was $11.4 million and $10.2 million for the nine months ended September 30, 2018 and 2017, respectively.

The Company has retained Raymond James & Associates, Inc. as a financial advisor to assist the Company in its evaluation of a broad range of financial and strategic alternatives to enhance shareholder value, including additional capital raising transactions, the acquisition of another company or complementary assets or the potential sale or merger of the Company or another type of strategic partnership. Unless the Merger is consummated, there is no assurance that the review of strategic alternatives will result in the Company changing its business plan, pursuing any particular transaction, if any, or, if it pursues any such transaction, that it will be completed.

We currently have limited availability under our asset-based revolving line of credit agreement with Silicon Valley Bank. We can provide no assurance 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 operations and the costs to support our general and administrative, sales and marketing and research and development activities are forward-looking statements and involve risks and uncertainties. Absent sufficient additional financing, we may be unable to remain a going concern.

Risks Relating to the Merger

Failure to complete the Merger may result in us paying a termination fee to NDX and could harm our common stock price and future business and operations.

If the Merger is not completed, we are subject to the following risks:

•
if the Merger Agreement is terminated under certain circumstances and certain events occur, we will be required to pay NDX a termination fee of $800,000 plus expenses of up to $450,000 and repay all obligations to NDX under the credit agreement with NDX;
•
our stock price may decline; and
•
costs related to the Merger, such as legal, accounting and certain investment banking fees must be paid regardless of whether the Merger is completed.

In addition, upon certain events of default under the Credit Agreement, including if the Merger Agreement is terminated for any reason, NDX may convert all, but not less than all, of the outstanding balance under the Credit Agreement into shares of our common stock at a conversion price of $0.606 per share.

Further, if the Merger Agreement is terminated and our board of directors determines to seek another business combination, there can be no assurance that we will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by NDX.

The consummation of the transactions contemplated by the Merger Agreement is dependent upon our and NDX obtaining all relevant and necessary consents and approvals.

A condition to consummation of the Merger is that we and NDX obtain certain consents or approvals from third parties, including the Israeli Tax Ruling (as defined below) and approval from NASDAQ to list the shares of our common stock being issued in the Merger and the Private Placement. In addition, our stockholders must approve the issuance of common stock pursuant to the Merger Agreement. The NDX shareholders must adopt the Merger Agreement and approve the Merger to be consummated pursuant thereto, but Voting Agreements have been entered into pursuant to which holders of a sufficient amount of NDX share capital have agreed to vote in favor of the transactions. There can be no assurance that we or NDX will be able to obtain all such relevant consents and approvals on a timely basis or at all. Each of us and NDX has incurred, and expects to continue to incur, significant costs and expenses in connection with the proposed Merger. Any failure to obtain, or delay in obtaining, the necessary consents or approvals would prevent us and NDX from being able to consummate, or delay

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the consummation of, the transactions contemplated by the Merger Agreement, which could materially adversely affect our business, financial condition and results of operations, and, correspondingly, the combined company if the Merger is consummated. There is no guarantee that such approvals will be obtained or that such conditions will be satisfied.

Failure to satisfy closing conditions and complete the Merger could cause our stock price to decline and could harm our business and operating results.

The Merger Agreement contains conditions which we or NDX, respectively, must meet in order to consummate the transactions. No assurance can be given that every closing condition will be satisfied or waived. In addition, the Merger Agreement may be terminated by either us or NDX under certain circumstances.

If the Merger is not completed for any reason, we and NDX may be subject to a number of risks, including the following:

•
the market price of our common stock may decline to the extent that the relevant current market price previously reflected a market assumption that the Merger will be completed;
•
many costs related to the Merger, such as legal, accounting and financial printing fees, must be paid regardless of whether the transactions completed; and
•
there may be substantial disruption to our business and distraction of our workforce and management team.

The Private Placement may not be successful and the Cash Condition may not be satisfied.

One of the conditions of closing of both the Merger and the Private Placement is that the combined company have available cash of at least $20 million at the Effective Time (inclusive of NDX’s cash, amounts raised in the Private Placement and amounts advanced under the Credit Agreement, but exclusive of our cash) (the “Cash Condition”), which we estimate will require that we raise approximately $18 million in the Private Placement, assuming that the Merger will have occurred on December 31, 2018, based in part on NDX’s cash balance as of October 15, 2018 of approximately $3.4 million (exclusive of the amounts advanced under the Credit Agreement).  As of October 31, 2018, CGI had received subscriptions for $10,000,000 of Shares and Warrants in the Private Placement from certain current NDX shareholders.  The Private Placement contemplates issuing one share and one warrant to purchase 75% of a share of our common stock to investors at a combined price of $1.01.  At November 16, 2018, the closing price of a share of our common stock on the Nasdaq Capital Market was $0.49.  At that market price, we believe it is unlikely that we will be able to raise the balance of the funds needed to satisfy the Cash Condition on the current terms of the Private Placement, including price.  Accordingly, we may be required to seek both amendments to the current subscription agreements and additional subscriptions on terms less advantageous to us than the terms of the Private Placement, including price, in order to satisfy the Cash Condition and consummate the Merger and the Private Placement.  Based on the current trading price of our stock, it is unlikely that we will consummate the Private Placement unless we successfully amend its terms. No assurance can be given that we will be able to obtain the requisite amendments and additional subscriptions necessary to satisfy the Cash Condition.  If we cannot raise additional funds on acceptable terms and if all parties are not otherwise willing to waive the Cash Condition, we will not be able to consummate the Merger.

We may be required to raise additional capital prior to consummation of the Merger, which may be on terms less favorable to the currently contemplated terms of the Private Placement.

We may be required to raise additional operating capital prior to consummation of the Merger, which may be on terms less favorable to those currently contemplated in the Private Placement, including price. The Merger Agreement prohibits us from issuing additional equity or incurring additional indebtedness without the consent of NDX, other than issuances of equity on the same terms as the currently contemplated terms of the Private Placement. If NDX were to consent to our issuance of equity on terms less favorable to us than those in the Private Placement, we would likely have to amend the terms of the Private Placement to provide the investors thein the same terms. If the foregoing occurs, our current stockholders will experience additional dilution in their ownership of us and the combined company, assuming the Merger occurs. We have no current sources of additional capital, and we can give no assurances that we will obtain any additional capital prior to the Merger on terms favorable to us or at all.

NDX may not be successful in obtaining the Israeli Tax Ruling.

NDX and its Israeli counsel have prepared and filed, or will file, with the Israel Tax Authority (the “ITA”) an application for a ruling (the “Israeli Tax Ruling”) confirming, among others, that:
(1)
the transfer of the merger consideration to the exchange agent for the Merger is not subject to Israeli tax withholding;

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(2)
with respect to holders of NDX share capital that are non−Israeli residents, (A) exempting CGI, Merger Sub, the exchange agent, their respective agents or any other payor from any obligation to withhold Israeli tax from any consideration payable or otherwise deliverable pursuant to the Merger Agreement or clarifying that no such obligation exists, or (B) clearly instructing CGI, Merger Sub, the exchange agent, their respective agents or any other payor on how such withholding is to be executed, and in particular, with respect to the classes or categories of holders of NDX share capital from which tax is to be withheld (if any), the rate or rates of withholding to be applied and how to identify any such non−Israeli residents;
(3)
treats the Merger in accordance with the provisions of Section 104H of the Israeli Income Tax Ordinance [New Version], 1961, and the rules and regulations promulgated thereunder (the “Israeli Tax Ordinance”); and
(4)
in relation to the consideration to be paid to the holders of NDX ordinary shares (“Section 102 Shares”) issued upon exercise of NDX options granted pursuant to Section 102(b)(2) of the Israeli Tax Ordinance, which will provide, among other things that (A) the payments made in respect of Section 102 Shares that are held by a trustee pursuant to Section 102 of the Israeli Tax Ordinance (the “102 Trustee”) shall not constitute a violation of Section 102 if deposited with the 102 Trustee and released only after the lapse of the minimum trust period required by Section 102, and (B) payments made to the 102 Trustee under the Merger Agreement shall not be subject to withholding of Israeli tax (which ruling may be subject to customary conditions regularly associated with such a ruling).

Pursuant to the Merger Agreement, in the event that one or more of the topics listed above is not eventually included in the Israeli Tax Ruling or NDX’s Israeli counsel, advisors and accountants determine, in consultation with our Israeli counsel, advisors and accountants, that it will be beneficial or expedient to prepare and separate tax rulings with respect to certain topics listed above, then NDX, we and their respective advisors shall cooperate in the preparation and filing of such additional or separate rulings as the parties deem beneficial or expedient. Nevertheless, the condition to closing of the Merger contained in the Merger Agreement of obtaining the Israeli Tax Ruling is stipulated in the Merger Agreement to only refer to a ruling that in the aggregate addresses the matters set forth in items (1), (2), (3) and (4)(B) above (such that, for the avoidance of doubt, a tax ruling addressing the matter set forth in item (4)(A) above does not constitute a condition to closing of the Merger).

The combined company may need to raise additional capital by issuing securities or debt or through licensing arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or proprietary rights.

In addition to the Private Placement, the combined company may be required to raise additional funds sooner than currently planned. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined company’s stockholders’ ownership and the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to the combined company.

The market price of the combined company’s common stock following the Merger may decline as a result of the Merger.

The market price of the combined company’s common stock may decline as a result of the Merger for a number of reasons including if:

•
investors react negatively to the prospects of the combined company’s business and prospects from the Merger;
•
the effect of the Merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or
•
the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.
  
During the pendency of the Merger, we may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect our business.

Covenants in the Merger Agreement impede our ability to make acquisitions, subject to certain exceptions relating to fiduciary duties, or complete other transactions that are not in the ordinary course of business pending the closing of the Merger. As a result, if the Merger is not completed, we may be at a disadvantage to our competitors during that period. In addition, while the Merger Agreement is in effect, we are generally prohibited from soliciting, initiating, encouraging or entering into certain

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extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third-party, subject to certain exceptions. Any such transactions could be favorable to our stockholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit us from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in certain circumstances where our board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, that an unsolicited alternative takeover proposal constitutes or is reasonably likely to result in a superior takeover proposal. In addition, if we terminate the Merger Agreement under certain circumstances, including terminating because of a decision of our board of directors to recommend an alternative proposal, we would be required to pay a termination fee of $800,000 to NDX plus reimbursement of expenses of up to $450,000, and we would additionally have to repay all obligations to NDX under the Credit Agreement. These termination fees and reimbursement obligations described above may discourage third parties from submitting alternative takeover proposals to us and our stockholders, and may cause our board of directors to be less inclined to recommend an alternative proposal.
 
The issuance of shares of our common stock to NDX shareholders in the Merger will dilute substantially the voting power of our current stockholders.

If the Merger is completed, the share capital of NDX will be converted into the right to receive an aggregate number of shares of our common stock equal to 49% of the aggregate number of shares of our common stock calculated immediately following the closing of the Merger (including, among other things, shares issuable upon the conversion of the Iliad Note and shares issuable upon the exercise of ouroptions and warrants, determined using the treasury stock method) (the “Post-Closing Shares”), and the security holders of CGI as of immediately prior to the Merger will own 51% of the aggregate number of Post-Closing Shares. The foregoing percentages will be determined prior to giving effect to the Private Placement. Accordingly, the issuance of shares of our common stock to NDX shareholders in the Merger and to investors in the Private Placement will reduce significantly the relative voting power of each share of our common stock held by our current security holders. Consequently, our security holders as a group will have significantly less influence over the management and policies of the combined company after the Merger and Private Placement, than prior thereto.

The pendency of the Merger could have an adverse effect on the trading price of CGI Common Stock and CGI’s business, financial condition, results of operations or business prospects.

While there have been no significant adverse effects to date, the pendency of the Merger could disrupt CGI’s businesses in the following ways, including:
 
•
the attention of CGI’s management may be directed toward the closing of the Merger and related matters and may be diverted from the day-to-day business operations; and
•
third parties may seek to terminate or renegotiate their relationships with CGI as a result of the Merger, whether pursuant to the terms of their existing agreements with CGI or otherwise.

Should they occur, any of these matters could adversely affect the trading price of CGI Common Stock or harm CGI’s financial condition, results of operations or business prospects.

Any acquisition exposes a company to additional risks.

Acquisitions may entail numerous risks for CGI, including:

•
competing claims for capital resources;
•
difficulties in assimilating acquired operations, technologies or products;
•
diversion of management’s attention from CGI’s core business;
•
risks of undertaking activities or entering markets in which CGI has limited or no prior experience; and
•
CGI’s management team has limited experience in purchasing and integrating new businesses.

CGI’s failure to successfully complete the integration of NDX could have a material adverse effect on CGI’s business, financial condition and operating results.


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Failure of the Merger to achieve potential benefits could harm the business and operating results of the combined company.

CGI and NDX expect that the combination of their businesses will result in potential benefits for the combined company. Achieving these potential benefits will depend on a number of factors, some of which include:

•
the success of the development, validation and commercialization of the NDX technology;
•
retention of key management, marketing and technical personnel and the hiring of other appropriate management personnel after the transactions;
•
the ability of the combined company to increase the sales of products and services;
•
successfully implementing economies of scale;
•
success of integration of NDX’s and CGI’s respective businesses;
•
competitive conditions in the industry.

The failure to achieve anticipated benefits could harm the business, financial condition and operating results of the combined company.

CGI’s outstanding warrants may negatively affect CGI’s ability to raise additional capital.

As part of the Private Placement, CGI will be issuing warrants to purchase up to an additional 742,574 shares of CGI Common Stock for each $1,000,000 raised in the Private Placement. CGI already had, at October 15, 2018, approximately 13,091,254 shares of CGI Common Stock issuable under outstanding stock options and warrants. Holders of CGI’s outstanding warrants are given the opportunity to profit from a rise in the market price of CGI Common Stock. As long as these warrants are outstanding, the terms on which CGI could obtain additional capital may be adversely affected. The holders of these warrants might be expected to exercise them at a time when CGI would, in all likelihood, be able to obtain any needed capital by a new offering of securities on terms more favorable than those provided by these warrants.

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.

The combined company intends to expand its research and development platform to provide innovative diagnostic capabilities, its sales and marketing programs and other activities as needed to meet future demand. Any significant expansion 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 continually need to improve 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.

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

Not applicable.

Item 3.        Defaults Upon Senior Securities

Not applicable.

Item 4.        Mine Safety Disclosures

Not applicable.

Item 5.        Other Information

On November 19, 2018, the Company received waivers from its senior lenders for its failure to comply with certain covenants for the months of September 30, 2018, October 31, 2018 and November 30, 2018. The Company concurrently amended its debt agreements with SVB and PFG, respectively; the new agreements require the Company to raise $3,000,000 from the sale of its equity securities or the issuance of subordinated debt (in the case of the agreement with SVB, to investors acceptable to SVB) by November 30, 2018. See Note 6 to Unaudited Consolidated Financial Statements.

Item 6.        Exhibits


42
Table of Contents

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



43
Table of Contents

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 19, 2018
 
 
 
 
 
/s/ John A. Roberts
 
 
 
 
 
 
John A. Roberts
 
 
 
 
 
 
President and Chief Executive Officer
(Principal Executive and Financial Officer)
 
 
 
 
 
 
 

44
Table of Contents

INDEX TO EXHIBITS
 
Exhibit
No.
  
Description
 
 
 
2.1
 
 
 
 
4.1
 
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
10.3
 
 
 
 
10.4
 
 
 
 
10.5
 
 
 
 
10.6
 
 
 
 
10.7
 
 
 
 
10.8
 
 
 
 
10.9
 
 
 
 
31.1
  
 
 
32.1
  
 
 

45
Table of Contents

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

46
SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made as of the 18th day of September, 2018 by and among Cancer Genetics Inc., a Delaware corporation (the “Company”), and the Investors set forth on the signature pages affixed hereto (each an “Investor” and collectively the “Investors”). Recitals A. The Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“Regulation D”), as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended; and B. The Investors wish to purchase, severally and not jointly, from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, (i) shares (the “Shares”) of the Company’s Common Stock, par value $0.001 per share (together with any securities into which such shares may be reclassified, whether by merger, charter amendment or otherwise, the “Common Stock”), and (ii) warrants to purchase shares of Common Stock (subject to adjustment) at an exercise price of $1.01 per whole share (subject to adjustment) in the form attached hereto as Exhibit A (the “Warrants”); and C. The Shares and the Warrants will be sold together in a fixed combination of one Share and one Warrant to purchase three-quarters (75%) of a Share at a cash purchase price of $1.01 per Share and related Warrant (such purchase prices, the “Purchase Price”); provided, however, that the aggregate gross proceeds of the offering shall be no less than Twenty Million Dollars ($20,000,000) less (i) the amount of cash on the balance sheet of Novellus (as hereinafter defined) and (ii) any amount Novellus has loaned to the Company at and as of the closing of the Merger (as hereinafter defined (the “Minimum Investment Amount”). Any purchase and sale of securities pursuant to this Agreement shall occur at one Closing (as defined below); and D. Contemporaneous with the sale of the Shares and the Warrants, the parties hereto will execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which the Company will agree to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder; and E. In connection with the offering, the Company will be entering into an escrow agreement, in the form to be attached hereto as Exhibit C after approval by Pontifax (Israel) IV LP and Orbimed Israel Partners II, L.P. (the “Escrow Agreement”), with a bank or investment bank (the “Escrow Agent”), to hold the Purchase Price to be paid by the Investors, to be released at the Closing to the Company, upon the written notice from the Company. In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: MIA 186599799v1 MIA 186599799v3

 
1. Definitions. In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth below: “Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common Control with, such Person. “Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City and Tel Aviv, Israel, are open for the general transaction of business. “Confidential Information” means trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, processes, procedures and techniques, research and development information, computer program code, performance specifications, support documentation, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information). “Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. “Effective Date” means the date on which the initial Registration Statement is declared effective by the SEC. “Effectiveness Deadline” means the date on which the initial Registration Statement is required to be declared effective by the SEC under the terms of the Registration Rights Agreement. “Intellectual Property” means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; and (v) proprietary computer software (including but not limited to data, data bases and documentation). “Material Adverse Effect” has the meaning set forth in the Merger Agreement to the extent that the occurrence of such “Material Adverse Effect” under the Merger Agreement would permit the termination of the Merger Agreement pursuant to the terms thereof. “Merger” means the merger of a subsidiary of the Company with Novellusdx Ltd., an Israeli Company (“Novellus”) pursuant to an Agreement and Plan of Merger among the Company, a subsidiary of the Company and Novellus, dated the date hereof (the “Merger Agreement”). “Nasdaq” means The Nasdaq Capital Market. -2- MIA 186599799v1 MIA 186599799v3

 
“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. “Registration Statement” has the meaning set forth in the Registration Rights Agreement. “Required Investors” means (i) prior to Closing, the Investors who have agreed to purchase a majority of the Securities to be sold hereunder on the Closing Date and (ii) from and after the Closing the Investors who, together with their Affiliates, beneficially own (calculated in accordance with Rule 13d-3 under the 1934 Act without giving effect to any limitation on the exercise of the Warrants set forth therein) a majority of the Shares and Warrant Shares issuable pursuant hereto. “Securities” means the Shares, the Warrants and the Warrant Shares. “Subsidiary” of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. “Transaction Documents” means this Agreement, the Warrants, the Registration Rights Agreement and the Escrow Agreement. “1933 Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder. “1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder. 2. Purchase and Sale of the Shares and Warrants. Subject to the terms and conditions of this Agreement, on the Closing Date, each of the Investors shall severally, and not jointly, purchase, and the Company shall sell and issue to the Investors, the Shares, and the Warrants in the respective amounts set forth opposite the Investors’ names on the signature pages attached hereto in exchange for the portion of the Purchase Price set forth opposite the Investors’ names on the signature pages attached hereto. 3. Closing. The closing of the purchase and sale of the Shares and the Warrants (the “Closing”) shall take place at 11:00 a.m. (Eastern Time) as soon as practicable following the satisfaction or waiver of the conditions set forth in Sections 6.1 and 6.2 (the “Closing Date”), remotely by facsimile or other electronic transmission of documents or at such other time and place as the Company and the Investors may mutually agree. At the Closing, subject to the terms and conditions hereof, the Company will deliver to its Transfer Agent irrevocable instructions to deliver to each Investor a certificate or certificates, registered in such name or names as such Investor may designate, representing the Shares and the Warrants purchased by such Investor, -3- MIA 186599799v1 MIA 186599799v3

 
dated as of the Closing Date, against payment of the Purchase Price therefor. Each Investor shall deliver to the Escrow Agent the Purchase Price by cash in the form of wire transfer within three (3) Business Days of the date that it receives notice that the Merger’s Effective Date as defined in the Merger Agreement is set to a date which is seven (7) Business Days from the date of such notice, and that the shareholders of the Company have approved the issuance of the shares being issued in the Merger, unless other means of payment shall have been agreed upon by the Investors and the Company. 4. Representations and Warranties of the Company. The representations and warranties of the Company as set forth in Article III of the Merger Agreement are incorporated herein be reference, and are being provided by the Company to the Investors hereunder. Attached hereto as Schedule 4 is the CGI Disclosure Schedule. 5. Representations and Warranties of the Investors. Each of the Investors hereby severally, and not jointly, represents and warrants to the Company that: 5.1. Organization and Existence. If applicable, such Investor is a validly existing corporation, limited partnership or limited liability company and has all requisite corporate, partnership or limited liability company power and authority to invest in the Securities pursuant to this Agreement. 5.2. Authorization. The execution, delivery and performance by such Investor of the Transaction Documents to which such Investor is a party have been duly authorized and each will constitute the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally and to general equity principles. 5.3. Purchase Entirely for Own Account. The Securities to be received by such Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the 1933 Act without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time. Such Investor is not a broker-dealer registered with the SEC under the 1934 Act or an entity engaged in a business that would require it to be so registered. 5.4. Investment Experience. Such Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby. 5.5. Disclosure of Information. Such Investor has had an opportunity to receive all information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and -4- MIA 186599799v1 MIA 186599799v3

 
conditions of the offering of the Securities, including but not limited to the information set forth in Section 4.6. Such Investor acknowledges receipt of copies of the SEC Filings and the Merger Agreement and the financial statements of Novellus. Neither such inquiries nor any other due diligence investigation conducted by such Investor shall modify, limit or otherwise affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement. 5.6. Restricted Securities. Such Investor understands that the Securities are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances. 5.7. Legends. It is understood that, except as provided below, certificates evidencing the Securities may bear the following or any similar legend: (a) “The securities represented hereby have not been registered with the Securities and Exchange Commission or the securities commission of any state in reliance upon an exemption from registration under the Securities Act of 1933, as amended, and, accordingly, may not be transferred unless (i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to Rule 144, or (iii) the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933, as amended.” (b) If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority. 5.8. Investor Status. At the time such Investor was offered the Securities, it was, and at the date hereof it is, (i) an “accredited investor” as defined in Rule 501(a) under the 1933 Act or (ii) an “institutional investor” as defined in Financial Industry Regulatory Authority Rule 5110(d)(4)(B). Such Investor is not a registered broker dealer registered under Section 15(a) of the Exchange Act, or a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) or an entity engaged in the business of being a broker dealer. Except as otherwise disclosed in writing to the Company on or prior to the date of this Agreement, such Investor is not affiliated with any broker dealer registered under Section 15(a) of the 1934 Act, or a member of FINRA or an entity engaged in the business of being a broker dealer. Such Investor maintains his or her principal residence (in the case of an individual) or its principal executive office (in the case of an entity) at the location specified on its signature page hereto. 5.9. No General Solicitation. Such Investor did not learn of the investment in the Securities as a result of any general solicitation or general advertising. 5.10. Brokers and Finders. No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation -5- MIA 186599799v1 MIA 186599799v3

 
pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Investor. 5.11. Prohibited Transactions. Since the earlier of (a) such time as such Investor was first contacted by the Company or any other Person acting on behalf of the Company regarding the transactions contemplated hereby or (b) thirty (30) days prior to the date hereof, neither such Investor nor any Affiliate of such Investor which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Investor’s investments or trading or information concerning such Investor’s investments, including in respect of the Securities, or (z) is subject to such Investor’s review or input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to effect any short sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a “Prohibited Transaction”). Prior to the earliest to occur of (i) the termination of this Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline, such Investor shall not, and shall cause its Trading Affiliates not to, engage, directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges that the representations, warranties and covenants contained in this Section 5.11 are being made for the benefit of the Investors as well as the Company and that each of the other Investors shall have an independent right to assert any claims against such Investor arising out of any breach or violation of the provisions of this Section 5.11. 6. Conditions to Closing. 6.1. Conditions to the Investors’ Obligations. The obligation of each Investor to purchase the Shares and the Warrants at the Closing is subject to the satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived by such Investor (as to itself only but subject to Section 9.5): (a) The representations and warranties made by the Company in Section 4 hereof qualified as to materiality shall be true and correct at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and, the representations and warranties made by the Company in Section 4 hereof not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date. The Company shall have performed in all material respects all obligations and covenants herein required to be performed by it on or prior to the Closing Date. (b) The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase -6- MIA 186599799v1 MIA 186599799v3

 
and sale of the Securities and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect. (c) The Merger shall have closed or shall be consummated simultaneously with the closing of the transactions contemplated hereby; (d) The Company shall have executed and delivered the Registration Rights Agreement. (e) The Company shall have filed with Nasdaq a Notification Form: Listing of Additional Shares for the listing of the Shares and the Warrant Shares on Nasdaq, a copy of which shall have been provided to the Investors, and Nasdaq shall not have raised any unresolved objection thereto. (f) The Company shall have received at least the Minimum Investment Amount. (g) No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents. (h) The Company shall have delivered a Certificate, executed on behalf of the Company by its Chief Executive Officer or its Chief Executive Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in subsections (a), (b), (c), (e), (f), (g), (j), (n) and (o) of this Section 6.1. (i) The Company shall have delivered a Certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board of Directors of the Company, or a duly appointed committee thereof, approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Securities, certifying the current versions of the Certificate of Incorporation and Bylaws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company. (j) No stop order or suspension of trading shall have been imposed by Nasdaq, the SEC or any other governmental or regulatory body with respect to public trading in the Common Stock. (k) The Company shall have delivered an opinion of the Company’s legal counsel in the form attached hereto as Schedule 6.1(k), dated as of the Closing Date. (l) The Company shall have executed and delivered the Warrants to each Investor. -7- MIA 186599799v1 MIA 186599799v3

 
(m) The Company shall have delivered a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver to each Investor a certificate or certificates, registered in such name or names as such Investor may designate, representing the Shares and the Warrants purchased by such Investor, dated as of the Closing Date. (n) No Material Adverse Effect with respect to the Company since the date hereof shall have occurred. (o) No voluntary or involuntary proceeding for the reorganization, bankruptcy, dissolution or winding up of the Company shall have occurred. 6.2. Conditions to Obligations of the Company. The Company's obligation to sell and issue the Shares and the Warrants at the Closing is subject to the satisfaction on or prior to the Closing Date of the following conditions, any of which may be waived by the Company: (a) The representations and warranties made by the Investors in Section 5 hereof, other than the representations and warranties contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Investment Representations shall be true and correct in all respects when made, and shall be true and correct in all respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Investors shall have performed in all material respects all obligations and covenants herein required to be performed by them on or prior to the Closing Date. (b) The Investors shall have executed and delivered the Registration Rights Agreement. (c) The Investors shall have delivered the Purchase Price to the Escrow Agent. (d) The Company shall have received at least the Minimum Investment Amount. 6.3. Termination of Obligations to Effect Closing; Effects. (a) The obligations of the Company, on the one hand, and the Investors, on the other hand, to effect the Closing shall terminate as follows: (i) Upon the mutual written consent of the Company and the Required Investors; (ii) By the Company if any of the conditions set forth in Section 6.2 shall have become incapable of fulfillment, and shall not have been waived by the Company; -8- MIA 186599799v1 MIA 186599799v3

 
(iii) By an Investor (with respect to itself only) if any of the conditions set forth in Section 6.1 shall have become incapable of fulfillment, and shall not have been waived by the Investor; (iv) Upon termination of the Merger Agreement without consummation of the Merger; or (v) By either the Company or any Investor (with respect to itself only) if the Closing has not occurred on or prior to 5:00 P.M., New York time, on March 31, 2019 or by such later date that the Merger Agreement may be extended to in accordance with its terms, provided that any extension beyond an additional 90 day period shall be subject to the approval of the Required Investors; provided, however, that, except in the case of clause (i) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants or agreements contained in this Agreement or the other Transaction Documents if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing. (b) In the event of termination by the Company or any Investor of its obligations to effect the Closing pursuant to this Section 6.3, written notice thereof shall forthwith be given to the other Investors by the Company and the other Investors shall have the right to terminate their obligations to effect the Closing upon written notice to the Company and the other Investors. Nothing in this Section 6.3 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents. In the event of termination for any reason, the respective amounts held by the Escrow Agent will be immediately returned to the relevant Investors. 7. Covenants and Agreements of the Company. 7.1. Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of providing for the exercise of the Warrants, such number of shares of Common Stock as shall from time to time equal the number of shares sufficient to permit the exercise of the Warrants issued pursuant to this Agreement in accordance with their terms. 7.2. No Conflicting Agreements. The Company will not take any action, enter into any agreement or make any commitment that would conflict or interfere in any material respect with the Company’s obligations to the Investors under the Transaction Documents. 7.3. Listing of Underlying Shares and Related Matters. Promptly following the date hereof, the Company shall take all necessary action to cause the Shares, and the Warrant Shares to be listed on Nasdaq no later than the Closing Date. Further, if the Company applies to have its Common Stock or other securities traded on any other principal stock exchange or market, it shall include in such application the Shares and the Warrant Shares and will take such -9- MIA 186599799v1 MIA 186599799v3

 
other action as is necessary to cause such Common Stock to be so listed. The Company will use commercially reasonable efforts to continue the listing and trading of its Common Stock on Nasdaq and, in accordance, therewith, will use commercially reasonable efforts to comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of such market or exchange, as applicable. 7.4. Removal of Legends. In connection with any sale or disposition of the Securities by an Investor pursuant to Rule 144 or pursuant to any other exemption under the 1933 Act such that the purchaser acquires freely tradable shares and upon compliance by the Investor with the requirements of this Agreement, the Company shall or, in the case of Common Stock, shall cause the transfer agent for the Common Stock (the “Transfer Agent”) to issue replacement certificates representing the Securities sold or disposed of without restrictive legends. Upon the earlier of (i) registration for resale pursuant to the Registration Rights Agreement or (ii) the Shares becoming freely tradable pursuant to Rule 144 the Company shall (A) deliver to the Transfer Agent irrevocable instructions that the Transfer Agent shall credit the account of the Investor’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system, or otherwise reissue a certificate representing shares of Common Stock without legends upon receipt by such Transfer Agent of the legended certificates for such shares, together with either (1) a customary representation by the Investor that Rule 144 applies to the shares of Common Stock represented thereby or (2) a statement by the Investor that such Investor will sell (or, in the case of any Affiliate of the Company has sold) the shares of Common Stock represented thereby in accordance with the Plan of Distribution contained in the Registration Statement, and (B) cause its counsel to deliver to the Transfer Agent one or more blanket opinions to the effect that the removal of such legends in such circumstances may be effected under the 1933 Act. From and after the earlier of such dates, upon an Investor’s written request, the Company shall promptly cause certificates evidencing the Investor’s Securities to be replaced with certificates which do not bear such restrictive legends, and Warrant Shares subsequently issued upon due exercise of the Warrants shall not bear such restrictive legends provided the provisions of either clause (i) or clause (ii) above, as applicable, are satisfied with respect thereto. 8. Survival and Indemnification. 8.1. Survival. The representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing of the transactions contemplated by this Agreement. 8.2. Indemnification. (a) The Company agrees to indemnify and hold harmless each Investor and its Affiliates and their respective directors, officers, trustees, partners, members, managers, employees and agents, and their respective successors and assigns, from and against any and all losses, claims, damages, liabilities and expenses (including without limitation reasonable attorney fees and disbursements and other expenses incurred in connection with investigating, preparing or defending any action, claim or proceeding, pending or threatened and the costs of enforcement thereof) (collectively, “Losses”) to which such Person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or -10- MIA 186599799v1 MIA 186599799v3

 
to be performed on the part of the Company under the Transaction Documents, and will reimburse any such Person for all such amounts as they are incurred by such Person. (b) The Investor agrees to indemnify and hold harmless the Company and its Affiliates and their respective directors, officers, trustees, partners, members, managers, employees and agents, and their respective successors and assigns, from and against any and all Losses to which such Person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or to be performed on the part of the Investor under the Transaction Documents, and will reimburse any such Person for all such amounts as they are incurred by such Person. 8.3. Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. 9. Miscellaneous. 9.1. Successors and Assigns. This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Investors, as applicable, provided, however, that an Investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring some or all of its Securities in a transaction complying with applicable securities laws without the prior written consent of the Company or the other Investors. The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Without limiting the generality of the foregoing, in the event that the Company is a party to a merger, -11- MIA 186599799v1 MIA 186599799v3

 
consolidation, share exchange or similar business combination transaction in which the Common Stock is converted into the equity securities of another Person, from and after the effective time of such transaction, such Person shall, by virtue of such transaction, be deemed to have assumed the obligations of the Company hereunder, the term “Company” shall be deemed to refer to such Person and the term “Shares” shall be deemed to refer to the securities received by the Investors in connection with such transaction. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 9.2. Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be delivered by facsimile or other form of electronic transmission, which shall be deemed an original. 9.3. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.4. Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one Business Day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party: If to the Company: Cancer Genetics, Inc. 201 Route 17 North, 2nd Floor Rutherford, NJ 07070, USA Attention: John A. Roberts, President & CEO Phone: (201) 528-9200 Fax: (201) 528-9201 -12- MIA 186599799v1 MIA 186599799v3

 
With a copy to: Lowenstein Sandler, LLP One Lowenstein Drive Roseland, NJ 07068 Attention: Alan Wovsaniker Phone: (973) 597-2564 Fax: (973) 597-2565 If to the Investors: to the addresses set forth on the signature pages hereto. 9.5. Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such Securities, and the Company. 9.6. Publicity. Except as set forth below, no public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Investors without the prior consent of the Company (in the case of a release or announcement by the Investors) or the Required Investors (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities market, in which case the Company or the Investors, as the case may be, shall allow the Investors or the Company, as applicable, to the extent reasonably practicable in the circumstances, reasonable time to comment on such release or announcement in advance of such issuance. By 4:30 p.m. (New York City time) on the trading day immediately following the execution and delivery of this Agreement, the Company shall (i) issue a press release disclosing the execution of this Agreement and describing the transactions contemplated hereby and by the other Transaction Documents and (ii) file a Current Report on Form 8-K attaching the press release described in the foregoing sentence as well as copies of the Transaction Documents. In addition, the Company will make such other filings and notices in the manner and time required by the SEC or Nasdaq. 9.7. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect. -13- MIA 186599799v1 MIA 186599799v3

 
9.8. Entire Agreement. This Agreement, including the Exhibits, and the other Transaction Documents constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof. 9.9. Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained. 9.10. Construction. The parties agree that they and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. 9.11. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER. 9.12. Independent Nature of Investors' Obligations and Rights. The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document. The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Investor -14- MIA 186599799v1 MIA 186599799v3

 
acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Investor acknowledges that it is not relying upon any person, firm or corporation (including without limitation any other Investor), other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Investor agrees that no other Investor (acting in such capacity) nor the respective controlling persons, officers, directors, partners, agents or employees of any such other Investor shall be liable to any other Investor in connection with this investment for any action taken or omitted to be taken by any of them prior to the date hereof in connection with the transactions contemplated hereunder. Each Investor acknowledges that it has been independently afforded the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment, and that it is not relying upon any examination or inquiry performed by another Investor. Each Investor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that each of the Investors has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor. 9.13. Expenses. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, due diligence investigation, execution, delivery and performance of the Agreement; provided that upon the consummation of the Closing, the Company shall bear all legal and accounting fees and other expenses (e.g. costs of due diligence) incurred by Pontifax and Orbimed concerning the execution and closing of this transaction, in the amount of up to US$ 10,000 plus V.A.T, if applicable. [signature page follows] -15- MIA 186599799v1 MIA 186599799v3

 
IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written. The Company: CANCER GENETICS, INC. By: Name: John A. Roberts Title: Chief Executive Officer [Investor Signature Page Follows] -16- MIA 186599799v1 MIA 186599799v3

 
INVESTOR SIGNATURE PAGE FOR PURCHASE AGREEMENT WITH CANCER GENETICS, INC. -17- MIA 186599799v1 MIA 186599799v3

 
INVESTOR ADDENDUM RE ESCROW (this information is required for all Investors other than the CGI Investors) Print Name of Investor) By signing the Purchase Agreement, the above named Investor hereby certifies and confirms that: In the event that the Escrow Agent makes a disbursement to the Investor, which may or may not occur, the Investor hereby confirms that such disbursement is to be made by wire transfer using the following wire transfer instructions. The Escrow Agent and the Company can rely on this confirmation and the Investor will not revoke this confirmation unless the Investor confirms to the Company on this form, replacement wire transfer instructions at least two (2) Business Days before revoking this confirmation. The Company may instruct the Escrow Agent to, or the Escrow Agent may on its own, withhold any such disbursement until the Company is reasonably satisfied and the Escrow Agent is satisfied in its sole discretion with the instructions and procedures for making such disbursement. Bank Name: Bank Address: ABA Number: Account Number: Account Name: Reference: -18- MIA 186599799v1 MIA 186599799v3

 
Counterpart Signature Pages By: Name: Title: EIN: Aggregate Purchase Price: $ Number of Shares: Number of Warrants: (75%) -19- MIA 186599799v1 MIA 186599799v3

 
SCHEDULE OF INVESTORS Investor Purchase Price ($) Number of Shares Number of Warrants _______________ $ _______________ $ $ $ TOTAL -20- MIA 186599799v1 MIA 186599799v3

 
EXHIBIT A FORM OF WARRANT NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. COMMON STOCK PURCHASE WARRANT CANCER GENETICS, INC. Warrant Shares: [______] Issue Date: ____________, 2018 THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [_______] or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on _________________, 2023 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Cancer Genetics, Inc., a Delaware corporation (the “Company”), up to [______] shares (as subject to adjustment hereunder, the “Warrant Shares”) of the Company’s common stock (the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated ______________, 2018, among the Company and the purchasers signatory thereto. Exercise. Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) three (3) Trading Days and (ii) the number -21- MIA 186599799v1 MIA 186599799v3

 
of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within two (2) Trading Days of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof. Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $_____, subject to adjustment hereunder (the “Exercise Price”). Cashless Exercise. This Warrant may also be exercised, in whole or in part, at any time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading -22- MIA 186599799v1 MIA 186599799v3

 
hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day; (B) = the Exercise Price of this Warrant, as adjusted hereunder; and (X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise. “Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. -23- MIA 186599799v1 MIA 186599799v3

 
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c). Mechanics of Exercise. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (A) the earlier of (i) three (3) Trading Days and (ii) the number of days comprising the Standard Settlement Period, in each case after the delivery to the Company of the Notice of Exercise and (B) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by the Warrant Share Delivery Date. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, then in addition to any other rights the Investors may have hereunder or under applicable law, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise, provided, however, that the maximum aggregate liquidated damages payable to the Holder pursuant to this Section 2(d)(i) shall not be higher than 5% of the aggregate Subscription Amount paid by the Holder pursuant to the Purchase Agreement. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise. -24- MIA 186599799v1 MIA 186599799v3

 
Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. Certain Adjustments. Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a -25- MIA 186599799v1 MIA 186599799v3

 
smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution. Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property -26- MIA 186599799v1 MIA 186599799v3

 
and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, -27- MIA 186599799v1 MIA 186599799v3

 
such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. The Merger shall not be deemed to be a Fundamental Transaction. [Reserved] Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding. Notice to Holder. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least five (5) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of -28- MIA 186599799v1 MIA 186599799v3

 
record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. Transfer of Warrant. Transferability. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be required by applicable securities laws. Subject to applicable securities laws, if this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company or its Transfer Agent, as directed by the Company, together with all applicable transfer taxes, whereupon the Company will, or will cause its Transfer Agent to, forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 4(b)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 4(b)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. The acceptance of the new Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the new Warrant that the Holder has in respect of this Warrant. New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Issue Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto. Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. -29- MIA 186599799v1 MIA 186599799v3

 
Miscellaneous. No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day. Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement. Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws. Nonwaiver. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. -30- MIA 186599799v1 MIA 186599799v3

 
Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate. Notwithstanding the foregoing or anything else herein to the contrary, if the Company is for any reason unable to issue and deliver Warrant Shares upon exercise of this Warrant as required pursuant to the terms hereof, the Company shall have no obligation to “net cash settle” this Warrant. Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares. Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders of a majority in interest of the Warrants being issued on this date. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. ******************** (Signature Page Follows) -31- MIA 186599799v1 MIA 186599799v3

 
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated. CANCER GENETICS, INC. By:__________________________________________ Name: Title: MIA 186599799v1 MIA 186599799v3

 
NOTICE OF EXERCISE To: Cancer Genetics, Inc. (1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Payment shall take the form of (check applicable box): United States; or [ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c). (3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below: _______________________________ The Warrant Shares shall be delivered to the following DWAC Account Number: _______________________________ _______________________________ _______________________________ [SIGNATURE OF HOLDER] Name of Investing Entity: ________________________________________________________ Signature of Authorized Signatory of Investing Entity:____________________________________ Name of Authorized Signatory: ____________________________________________________ Title of Authorized Signatory: _____________________________________________________ Date: _______________________________________________________________________ Tax Identification No.:___________________________________________________________ MIA 186599799v1 MIA 186599799v3

 
ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to Name: (Please Print) Address: (Please Print) Phone Number: ______________________________________ Email Address: ______________________________________ Dated: _______________ __, ______ Holder’s Signature: Holder’s Address: MIA 186599813v1

 
EXHIBIT B FORM OF REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the “Agreement”) is made and entered into as of this _____ day of _____, 2018 by and among Cancer Genetics, Inc., a Delaware corporation (the “Company”), and the “Investors” named in that certain Securities Purchase Agreement by and among the Company and the Investors (the “Purchase Agreement”). Capitalized terms used herein have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein. The parties hereby agree as follows: Certain Definitions. As used in this Agreement, the following terms shall have the following meanings: “Investors” means the Investors identified in the Purchase Agreement and any Affiliate or permitted transferee of any Investor who is a subsequent holder of any Warrants or Registrable Securities. “Prospectus” means (i) any prospectus (preliminary or final) included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post- effective amendments and all material incorporated by reference in such prospectus, and (ii) any “free writing prospectus” as defined in Rule 405 under the Securities Act. “Register,” “registered” and “registration” refer to a registration made by preparing and filing a Registration Statement or similar document in compliance with the Securities Act (as defined below), and the declaration or ordering of effectiveness of such Registration Statement or document. “Registrable Securities” means (i) the Shares, (ii) the Warrant Shares, and (iii) any other securities issued or issuable with respect to or in exchange for the Shares or the Warrant Shares, whether by merger, charter amendment, or otherwise; provided, that, a security shall cease to be a Registrable Security (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the SEC under the Securities Act and such Registrable Securities have been disposed of by the holder thereof in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected holders -4- MIA 186599813v1

 
(assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by “cashless exercise” as provided in the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company and the Transfer Agent has issued certificates for such Registrable Securities to the holder thereof, or as such holder may direct, without any restrictive legend. “Registration Statement” means any registration statement of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. “Required Investors” means the Investors beneficially owning a majority of the Registrable Securities (without regard to any exercise limitations specified in the Warrants). Registration. Registration Statement. Promptly following the closing of the purchase and sale of the securities contemplated by the Purchase Agreement (the “Closing Date”) but no later than forty-five (45) days after the Closing Date (the “Filing Deadline”), the Company shall prepare and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company or such form of registration is then available to effect a registration for resale of the Registrable Securities), covering the resale of the Registrable Securities. Subject to any SEC comments, such Registration Statement shall include the plan of distribution attached hereto as Exhibit A; provided, however, that no Investor shall be named as an “underwriter” in the Registration Statement without the Investor’s prior written consent. Such Registration Statement also shall cover, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. Such Registration Statement shall not include any shares of Common Stock or other securities for the account of any other holder without the prior written consent of the Required Investors. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investors and their counsel prior to its filing or other submission. If a Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, then in addition to any other rights the Investors may have hereunder or under applicable law, the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount paid by such Investor pursuant to the Purchase Agreement for each 30-day period or pro rata for any portion thereof following the Filing Deadline for which no Registration Statement is filed with respect to the Registrable Securities; up to a maximum remedy of 6% of the aggregate amount paid. Expenses. The Company will pay all expenses associated with effecting the registration of the Registrable Securities, including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws, and listing fees, but excluding -5- MIA 186599813v1

 
discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals with respect to the Registrable Securities being sold. Effectiveness. The Company shall use commercially reasonable efforts to have any Registration Statement declared effective as soon as practicable. The Company shall notify the Investors by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any Registration Statement is declared effective and shall simultaneously provide the Investors with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby. For not more than thirty (30) consecutive days or for a total of not more than sixty (60) days in any twelve (12) month period, the Company may suspend the use of any Prospectus included in any Registration Statement contemplated by this Section in the event that the Company determines in good faith that such suspension is necessary to (A) delay the disclosure of material non-public information concerning the Company, the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company or (B) amend or supplement the affected Registration Statement or the related Prospectus so that such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading (an “Allowed Delay”); provided, that the Company shall promptly (a) notify each Investor in writing of the commencement of an Allowed Delay, but shall not (without the prior written consent of an Investor) disclose to such Investor any material non-public information giving rise to an Allowed Delay, (b) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable. Rule 415; Cutback If at any time the SEC takes the position that the offering of some or all of the Registrable Securities in a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the Securities Act or requires any Investor to be named as an “underwriter”, the Company shall use its best efforts to persuade the SEC that the offering contemplated by a Registration Statement is a bona fide secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that none of the Investors is an “underwriter”. The Investors shall have the right to participate or have their counsel participate in any meetings or discussions with the SEC regarding the SEC’s position and to comment or have their counsel comment on any written submission made to the SEC with respect thereto. No such written submission shall be made to the SEC to which the Investors’ counsel reasonably objects. In the event that, despite the Company’s best efforts and compliance with the terms of this Section 2(d), the SEC refuses to alter its position, the Company shall (i) remove from the Registration Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”); provided, however, that the Company shall not agree to name any Investor as an “underwriter” in such Registration Statement without the prior written consent of such Investor. Any cut-back imposed on the -6- MIA 186599813v1

 
Investors pursuant to this Section 2(d) shall be allocated among the Investors on a pro rata basis, unless the SEC Restrictions otherwise require or provide or the Investors otherwise agree. No liquidated damages shall accrue as to any Cut Back Shares until such date as the Company is able to effect the registration of such Cut Back Shares in accordance with any SEC Restrictions (such date, the “Restriction Termination Date” of such Cut Back Shares). From and after the Restriction Termination Date applicable to any Cut Back Shares, all of the provisions of this Section 2 (including the liquidated damages provisions) shall again be applicable to such Cut Back Shares; provided, however, that (i) the Filing Deadline for the Registration Statement including such Cut Back Shares shall be ten (10) Business Days after such Restriction Termination Date, and (ii) the date by which the Company is required to obtain effectiveness with respect to such Cut Back Shares under Section 2(c) shall be the 60th day immediately after the Restriction Termination Date. Company Obligations. The Company will use commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible: use commercially reasonable efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Registration Statement as amended from time to time, have been sold or otherwise disposed of pursuant to the Registration Statement or in a transaction in which the transferee receives freely tradable shares., and (ii) the date on which the Registrable Securities no longer constitute “Registrable Securities” pursuant to the definition thereof (the “Effectiveness Period”) and advise the Investors in writing when the Effectiveness Period has expired; prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the Effectiveness Period and to comply with the provisions of the Securities Act and the Exchange Act with respect to the distribution of all of the Registrable Securities covered thereby; provide copies to and permit counsel designated by the Investors to review each Registration Statement and all amendments and supplements thereto no fewer than seven (7) days prior to their filing with the SEC and not file any document to which such counsel reasonably objects; furnish to the Investors and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company (but not later than two (2) Business Days after the filing date, receipt date or sending date, as the case may be) one (1) copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each -7- MIA 186599813v1

 
Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor that are covered by the related Registration Statement; use commercially reasonable efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such order at the earliest possible moment; prior to any public offering of Registrable Securities, use commercially reasonable efforts to register or qualify or cooperate with the Investors and their counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Investors and do any and all other commercially reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(f), or (iii) file a general consent to service of process in any such jurisdiction; use commercially reasonable efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed; immediately notify the Investors, at any time prior to the end of the Effectiveness Period, upon discovery that, or upon the happening of any event as a result of which, the Prospectus includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare, file with the SEC and furnish to such holder a supplement to or an amendment of such Prospectus as may be necessary so that such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant to Rule 424 under the Securities Act, promptly inform the Investors in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Investors are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve (12) months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, including Rule 158 promulgated thereunder (for the purpose of this subsection 3(i), “Availability Date” means the 45th day following the end of the fourth fiscal quarter that -8- MIA 186599813v1

 
includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal quarter); and With a view to making available to the Investors the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Investors to sell shares of Common Stock to the public without registration, the Company covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable Securities may be sold without restriction by the holders thereof pursuant to Rule 144 or any other rule of similar effect or (B) such date as all of the Registrable Securities shall have been resold pursuant to a Registration Statement, Rule 144 or otherwise in a transaction in which the transferee receives freely tradable shares; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act; and (iii) furnish to each Investor upon request, as long as such Investor owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the Exchange Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such Investor of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration. Obligations of the Investors. Each Investor shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five (5) Business Days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Investor of the information the Company requires from such Investor if such Investor elects to have any of the Registrable Securities included in the Registration Statement. An Investor shall provide such information to the Company at least two (2) Business Days prior to the first anticipated filing date of such Registration Statement if such Investor elects to have any of the Registrable Securities included in the Registration Statement. Each Investor, by its acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement. Each Investor agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event pursuant to Section 3(h) hereof, such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities, until the Investor is advised by the Company that such dispositions may again be made. -9- MIA 186599813v1

 
Each Investor agrees that it will not sell, dispose or otherwise transfer its Registrable Securities other than (i) pursuant to the Plan of Distribution contained in the Registration Statement covering such Registrable Securities, (ii) in accordance with the requirements of Rule 144 or (iii) in a transaction exempt from the registration requirements of the Securities Act and as to which the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act. Indemnification. Indemnification by the Company. The Company will indemnify and hold harmless each Investor and its officers, directors, members, managers, partners, trustees, employees and agents and other representatives, successors and assigns, and each other person, if any, who controls such Investor within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement or omission or alleged omission of any material fact contained in any registration statement, any prospectus, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state in a Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the Securities Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Investor’s behalf and will reimburse such Investor, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Investor or any such controlling person in writing specifically for use in such registration statement or prospectus. Indemnification by the Investors. Each Investor agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to -10- MIA 186599813v1

 
the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Investor in connection with any claim relating to this Section 6 and the amount of any damages such Investor has otherwise been required to pay by reason of such untrue statement or omission) received by such Investor upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation. Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 6 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation. -11- MIA 186599813v1

 
Miscellaneous. Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Investors. Notices. All notices and other communications provided for or permitted hereunder shall be made as set forth in Section 9.4 of the Purchase Agreement. Assignments and Transfers by Investors. The provisions of this Agreement shall be binding upon and inure to the benefit of the Investors and their respective successors and assigns. An Investor may transfer or assign, in whole or from time to time in part, to one or more persons its rights hereunder in connection with the transfer of Registrable Securities by such Investor to such person, provided that such Investor complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after such assignment is effected. Assignments and Transfers by the Company. This Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Required Investors; provided, however, that in the event that the Company is a party to a merger, consolidation, share exchange or similar business combination transaction in which the Common Stock is converted into the equity securities of another Person, from and after the effective time of such transaction, such Person shall, by virtue of such transaction, be deemed to have assumed the obligations of the Company hereunder, the term “Company” shall be deemed to refer to such Person and the term “Registrable Securities” shall be deemed to include the securities received by the Investors in connection with such transaction unless such securities are otherwise freely tradable by the Investors after giving effect to such transaction. Benefits of the Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be delivered via facsimile or other form of electronic communication, which shall be deemed an original. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and -12- MIA 186599813v1

 
any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect. Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained. Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER. -13- MIA 186599813v1

 
IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written. The Company: CANCER GENETICS, INC. By:_________________________ Name: Title: -14- MIA 186599813v1

 
The Investors: [________________________________________] By:_______________________________ Name: Title: -15- MIA 186599813v1

 
[________________________________________] By:_______________________________ Name: Title: -16- MIA 186599813v1

 
Exhibit A Plan of Distribution The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein: • ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; • block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; • purchases by a broker-dealer as principal and resale by the broker-dealer for its account; • an exchange distribution in accordance with the rules of the applicable exchange; • privately negotiated transactions; • short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC; • through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; • broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; • a combination of any such methods of sale; and • any other method permitted by applicable law. The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this MIA 186763416v3

 
prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker- dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering. The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule. The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be "underwriters" within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are "underwriters" within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus. In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with. -18- MIA 186763416v3

 
We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus. We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (i) the date that such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 and certain other conditions have been satisfied, or (ii) all of the securities have been sold or otherwise disposed of pursuant to the registration statement of which this prospectus forms a part or in a transaction in which the transferee receives freely tradable shares. -19- MIA 186763416v3

 
EXHIBIT C FORM OF ESCROW AGREEMENT -20- MIA 186763416v3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John A. Roberts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cancer Genetics, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.




 
 
 
 
 
Date: November 19, 2018
 
 
 
/s/ John A. Roberts
 
 
 
 
John A. Roberts
 
 
 
 
President and Chief Executive Officer
 
 
 
 
(Principal Executive Officer and Principal Financial Officer)





Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Cancer Genetics, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John A. Roberts, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 19, 2018

 
/s/ John A. Roberts
John A. Roberts
President and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.