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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 June 30, 2019
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
Address of Principal Executive Offices
 
Zip Code

(201) 528-9200
Registrant’s Telephone Number, Including Area Code
 
 






Table of Contents

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of exchange on which registered
Common Stock, $0.0001 par value per share
CGIX
NASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically 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   ¨
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
 
¨
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   ý
As of August 16, 2019, there were 60,408,467 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.
 
 
 
 
 
 
 
 
 
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.    Condensed Financial Statements (Unaudited)
Cancer Genetics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except par value)
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
667

 
$
161

Accounts receivable
691

 
777

Other current assets
536

 
553

Current assets of discontinued operations
24,660

 
23,421

Total current assets
26,554

 
24,912

FIXED ASSETS, net of accumulated depreciation
634

 
497

OTHER ASSETS
 
 
 
Operating lease right-of-use assets
153

 
—

Restricted cash
350

 
350

Patents and other intangible assets, net of accumulated amortization
3,126

 
3,349

Investment in joint venture
92

 
92

Goodwill
5,963

 
5,963

Other
243

 
243

Total other assets
9,927

 
9,997

Total Assets
$
37,115

 
$
35,406

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable and accrued expenses
$
2,777

 
$
3,100

Obligations under operating leases, current portion
207

 
—

Obligations under finance leases, current portion
36

 
20

Deferred revenue
1,622

 
1,215

Convertible note, net
3,101

 
2,481

Advance from NovellusDx, Ltd., net
1,500

 
535

Other derivatives
—

 
86

Current liabilities of discontinued operations
22,665

 
20,742

Total current liabilities
31,908

 
28,179

Obligations under finance leases, less current portion
140

 
23

Obligations under operating leases, less current portion
78

 
—

Deferred rent payable and other
—

 
154

Warrant liability
49

 
248

Total Liabilities
32,175

 
28,604

COMMITMENTS AND CONTINGENCIES

 

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

 
—

Common stock, authorized 100,000 shares, $0.0001 par value, 57,816 and 27,726 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
6

 
3

Additional paid-in capital
171,021

 
164,455

Accumulated other comprehensive income
19

 
60

Accumulated deficit
(166,106
)
 
(157,716
)
Total Stockholders’ Equity
4,940

 
6,802

Total Liabilities and Stockholders’ Equity
$
37,115

 
$
35,406


1
Table of Contents


See Notes to Unaudited Condensed Consolidated Financial Statements.

2
Table of Contents

Cancer Genetics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Other Comprehensive Loss (Unaudited)  
(in thousands, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
1,525

 
$
1,281

 
$
3,347

 
$
2,708

Cost of revenues
725

 
875

 
1,719

 
1,633

Gross profit
800

 
406

 
1,628

 
1,075

Operating expenses:
 
 
 
 
 
 
 
Research and development
7

 
16

 
15

 
31

General and administrative
1,266

 
1,464

 
3,173

 
3,384

Sales and marketing
322

 
386

 
514

 
612

Total operating expenses
1,595

 
1,866

 
3,702

 
4,027

Loss from continuing operations
(795
)
 
(1,460
)
 
(2,074
)
 
(2,952
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(514
)
 
(2
)
 
(1,129
)
 
(5
)
Interest income
—

 
—

 
2

 
21

Change in fair value of acquisition note payable
7

 
64

 
7

 
81

Change in fair value of other derivatives
55

 
—

 
86

 
—

Change in fair value of warrant liability
206

 
2,154

 
199

 
2,846

Other expense
(11
)
 
(23
)
 
(11
)
 
(23
)
Total other income (expense)
(257
)
 
2,193

 
(846
)
 
2,920

Income (loss) before income taxes
(1,052
)
 
733

 
(2,920
)
 
(32
)
Income tax benefit
(512
)
 
—

 
(512
)
 
—

Income (loss) from continuing operations
(540
)
 
733

 
(2,408
)
 
(32
)
Loss from discontinuing operations
(3,233
)
 
(4,366
)
 
(5,982
)
 
(8,057
)
Net loss
(3,773
)
 
(3,633
)
 
(8,390
)
 
(8,089
)
Foreign currency translation gain (loss)
35

 
85

 
(41
)
 
65

Comprehensive loss
$
(3,738
)
 
$
(3,548
)
 
$
(8,431
)
 
$
(8,024
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share from continuing operations
$
(0.01
)
 
$
0.03

 
$
(0.05
)
 
$
—

Basic and diluted net loss per share from discontinuing operations
(0.06
)
 
(0.16
)
 
(0.11
)
 
(0.30
)
Basic and diluted net loss per share
$
(0.07
)
 
$
(0.13
)
 
$
(0.16
)
 
$
(0.30
)
 
 
 
 
 
 
 
 
Basic and diluted weighted-average shares outstanding
57,164

 
27,049

 
53,049

 
27,049

See Notes to Unaudited Condensed Consolidated Financial Statements.

3
Table of Contents

Cancer Genetics, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)  
(in thousands)

 
 
Three and Six Months Ended June 30, 2019
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total
 
 
Shares
 
Amount
 
Balance, January 1, 2019
 
27,726

 
$
3

 
$
164,455

 
$
60

 
$
(157,716
)
 
$
6,802

Stock based compensation—employees
 
(1
)
 
—

 
158

 
—

 
—

 
158

Issuance of common stock - 2019 Offerings, net
 
28,551

 
3

 
5,409

 
—

 
—

 
5,412

Unrealized loss on foreign currency translation
 
—

 
—

 
—

 
(76
)
 
—

 
(76
)
Net loss
 
—

 
—

 
—

 
—

 
(4,617
)
 
(4,617
)
Balance, March 31, 2019
 
56,276

 
6

 
170,022

 
(16
)
 
(162,333
)
 
7,679

Stock based compensation—employees
 
—

 
—

 
102

 
—

 
—

 
102

Issuance of common stock - Iliad conversions
 
1,540

 
—

 
350

 
—

 
—

 
350

Increase in fair value of embedded conversion option
 
—

 
—

 
547

 
—

 
—

 
547

Unrealized gain on foreign currency translation
 
—

 
—

 
—

 
35

 
—

 
35

Net loss
 
—

 
—

 
—

 
—

 
(3,773
)
 
(3,773
)
Balance, June 30, 2019
 
57,816

 
$
6

 
$
171,021

 
$
19

 
$
(166,106
)
 
$
4,940


 
 
Three and Six Months Ended June 30, 2018
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total
 
 
Shares
 
Amount
 
Balance, January 1, 2018
 
27,754

 
$
3

 
$
161,527

 
$
69

 
$
(134,834
)
 
$
26,765

Stock based compensation—employees
 
(24
)
 
—

 
274

 
—

 
—

 
274

Transition adjustment for adoption of Accounting Standards Codification Topic 606
 
—

 
—

 
—

 
—

 
(2,509
)
 
(2,509
)
Unrealized loss on foreign currency translation
 
—

 
—

 
—

 
(20
)
 
—

 
(20
)
Net loss
 
—

 
—

 
—

 
—

 
(4,456
)
 
(4,456
)
Balance, March 31, 2018
 
27,730

 
3

 
161,801

 
49

 
(141,799
)
 
20,054

Stock based compensation—employees
 
(4
)
 
—

 
268

 
—

 
—

 
268

Fair value of warrants reclassified from liabilities to equity
 
—

 
—

 
423

 
—

 
—

 
423

Warrant modification costs
 
—

 
—

 
83

 
—

 
—

 
83

Unrealized gain on foreign currency translation
 
—

 
—

 
—

 
85

 
—

 
85

Net loss
 
—

 
—

 
—

 
—

 
(3,633
)
 
(3,633
)
Balance, June 30, 2018
 
27,726

 
$
3

 
$
162,575

 
$
134

 
$
(145,432
)
 
$
17,280

See Notes to Unaudited Condensed Consolidated Financial Statements.


4
Table of Contents

Cancer Genetics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) 
(in thousands)
 
Six Months Ended June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(8,390
)
 
$
(8,089
)
Loss from discontinuing operations
5,982

 
8,057

Net loss from continuing operations
(2,408
)
 
(32
)
 
 
 
 
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
29

 
77

Amortization
223

 
258

Stock-based compensation
260

 
542

Change in fair value of warrant liability, acquisition note payable and other derivatives
(292
)
 
(2,927
)
Amortization of discount of debt and debt issuance costs
470

 
—

Interest added to Convertible Note
268

 
—

Modification of 2017 Debt warrants
—

 
83

Loss in equity-method investment
—

 
3

Loss on extinguishment of debt
256

 
—

Changes in:
 
 
 
Accounts receivable
85

 
(43
)
Other current assets
(61
)
 
65

Operating lease right-of-use assets
85

 
—

Other non-current assets
—

 
6

Accounts payable, accrued expenses and deferred revenue
306

 
201

Obligations under operating leases
(107
)
 
—

Deferred rent payable and other
—

 
(23
)
Net cash used in operating activities, continuing operations
(886
)
 
(1,790
)
Net cash used in operating activities, discontinuing operations
(3,974
)
 
(6,311
)
Net cash used in operating activities
(4,860
)
 
(8,101
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchase of fixed assets
(21
)
 
(4
)
Net cash used in investing activities, continuing operations
(21
)
 
(4
)
Net cash provided by (used in) investing activities, discontinuing operations
(34
)
 
963

Net cash provided by (used in) investing activities
(55
)
 
959

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Principal payments on obligations under finance leases
(12
)
 
(27
)
Proceeds from offerings of common stock, net of certain offering costs
5,412

 
—

Net cash provided by (used in) financing activities, continuing operations
5,400

 
(27
)
Net cash provided by (used in) financing activities, discontinuing operations
62

 
(832
)
Net cash provided by (used in) financing activities
5,462

 
(859
)
Effect of foreign exchange rates on cash and cash equivalents and restricted cash
(41
)
 
61

Net increase (decrease) in cash and cash equivalents and restricted cash
506

 
(7,940
)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
Beginning
511

 
9,891

Ending
$
1,017

 
$
1,951





5
Table of Contents

SUPPLEMENTAL CASH FLOW DISCLOSURE
 
 
 
Cash paid for interest
$
694

 
$
638

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Fixed assets acquired through capital lease arrangement
$
145

 
$
—

Conversion of debt and accrued interest into common stock
350

 
—

Increase in fair value of conversion option
547

 
 
Fair value of warrants reclassified from liabilities to equity
—

 
423


See Notes to Unaudited Condensed Consolidated Financial Statements.

6
Table of Contents

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1.     Organization, Description of Business, Basis of Presentation, Business Disposals, 2019 Offerings, Standstill Agreement, Advance from NDX, Recently Adopted Accounting Standard, and Recent Accounting Pronouncements

Cancer Genetics, Inc. supports the biotechnology and pharmaceutical industry to develop innovative new drug therapies.
Until the closing of the Business Disposals (as defined below) in July 2019, we were an emerging leader in enabling precision medicine in oncology by providing multi-disciplinary diagnostic and data solutions, facilitating individualized therapies through our diagnostic tests, services and molecular markers. Following the Business Disposals described below, we currently have an extensive set of anti-tumor referenced data based on predictive xenograft and syngeneic tumor models from the acquisition of vivoPharm, Pty Ltd. (“vivoPharm”) in 2017, to provide 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, until the Business Disposals, had offices and state-of-the-art laboratories located in New Jersey and North Carolina and today continue to have laboratories in Pennsylvania and Australia. Our laboratories comply with the highest regulatory standards as appropriate for the services they deliver including CLIA, CAP, and NY State. Our services are built on a foundation of world-class scientific knowledge and intellectual property in solid and blood-borne cancers, as well as strong academic relationships with major cancer centers such as Memorial Sloan-Kettering, Mayo Clinic, and the National Cancer Institute. We offer preclinical services such as predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology relevant tumor models in our Hershey PA facility, and 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 consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions for interim reporting as prescribed by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2018 , filed with the Securities and Exchange Commission on April 16, 2019. The consolidated balance sheet as of December 31, 2018 , included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP. Interim financial results are not necessarily indicative of the results that may be expected for any future interim period or for the year ending December 31, 2019 .

Business Disposals - Discontinued Operations

Interpace Diagnostics Group, Inc.

On July 15, 2019, the Company entered into and consummated a secured creditor asset purchase agreement (the “BioPharma Agreement”) by and among the Company, Gentris, LLC, a wholly owned subsidiary of the Company, Partners for Growth IV, L.P. (“PFG”), Interpace Diagnostics Group, Inc. (“IDXG”) and a newly-formed subsidiary of IDXG, Interpace BioPharma, Inc. (“Buyer”). The BioPharma Agreement provides for a consensual private foreclosure sale by PFG of all assets relating to the Company’s BioPharma Business (as defined in the BioPharma Agreement) to Buyer (the “BioPharma Disposal”).
 
Pursuant to the BioPharma Agreement, Buyer purchased from PFG certain assets and assumed certain liabilities of the Company relating to the BioPharma Business, providing as gross consideration of $23,500,000 , less certain closing adjustments totaling $1,978,240 , of which $7,692,300 was paid in the form of a promissory note issued by Buyer to the Company (the “Excess Consideration Note”) and the remainder was paid to PFG in cash. PFG utilized the cash proceeds to satisfy the outstanding balances of the Silicon Valley Bank (“SVB”) asset-based revolving line of credit (“ABL”) and the $6.0 million  term note to PFG (“PFG Term Note”), and to satisfy certain transaction expenses. The balance of approximately $2,260,000 was delivered to the Company along with the Excess Consideration Note. The Excess Consideration Note will mature on the earlier of the date of (i) the consummation of an investment by Ampersand Capital Partners or any of its affiliates into IDXG or Buyer, following IDXG receiving the approval of its shareholders of the issuance of shares of its common stock in connection therewith and (ii) July 15, 2022, and will be paid interest-only quarterly prior to maturity at a rate of 6% per year.


7

Following closing, the purchase price will be adjusted based on the net worth (assets less liabilities) of the BioPharma business as of June 30, 2019 as compared to the net worth of the BioPharma business as of April 30, 2019, with any increase or decrease in net worth over such period being added or subtracted, respectively, to the principal of the Excess Consideration Note, with such adjustment not to exceed $775,000 . The Excess Consideration Note is also subject to set-off in the event that certain older accounts receivable of the Company purchased by Buyer, in the aggregate amount of approximately $830,000 , are not collected prior to December 31, 2019, and as indemnification for breaches of certain limited warranties and of covenants of the Company and other specified items, subject to agreed-upon caps, baskets and survival periods as set forth in the BioPharma Agreement. Alternatively, if the Excess Consideration Note is no longer outstanding after December 31, 2019, the above-mentioned accounts receivable adjustment will be satisfied through an AR Holdback (as defined in the BioPharma Agreement) mechanism, as set forth in the BioPharma Agreement. The Excess Consideration Note is subordinated in favor of Buyer’s senior lender, subject to certain exceptions set forth therein.

The Company and Buyer also entered into a transition services agreement (the “TSA”) pursuant to which the Company and Buyer will provide certain services to each other to accommodate the transition of the BioPharma Business to Buyer. In particular, the Company agreed to provide to Buyer, among other things, certain personnel services, payroll processing, administration services and benefit administration services described in an exhibit thereto, for a period not to exceed six months from July 15, 2019, subject to the terms and conditions of the TSA, in exchange for payment or reimbursement, as applicable, by Buyer for the costs related thereto, including salaries and benefits for certain of the Company’s BioPharma employees during the transition period. In addition, it is anticipated that John A. Roberts, the Company’s Chief Executive Officer, and Glenn Miles, the Company’s Chief Financial Officer, may enter into part-time consulting arrangements with Buyer and/or IDXG to assist with the transition.
 
In connection with the closing of the BioPharma Disposal, the SVB ABL and the PFG Term Note were terminated, and all related liens were released.

siParadigm, Inc.

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

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

The Business Disposals have been classified as discontinued operations in conformity with GAAP. Accordingly, BioPharma and Clinical operations and balances have been reported as discontinued operations and removed from all financial disclosures of continuing operations. As permitted by Accounting Standards Codification (“ASC”) 205-20, the Company elected to allocate approximately $657,000 and $1,442,000 of interest expense on debt not required to be repaid to discontinued operations during the three and six months ended June 30, 2019 , respectively. No interest expense was allocated to discontinued operations for the three and six months ended June 30, 2018 , as all debt outstanding during those periods was repaid as part of the BioPharma Disposal. Unless otherwise indicated, information in these notes to unaudited condensed consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued.

2019 Offerings

On January 9, 2019, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), relating to an underwritten public offering of 13,333,334 shares of our common stock for $0.225 per share. We received proceeds from the offering of approximately $2,437,000 , net of expenses and discounts of approximately $563,000 . We also issued warrants to purchase 933,334 shares of common stock to H.C. Wainwright in connection with this offering. The warrants are exercisable for five years from the date of issuance at a per share price of $0.2475 .

8


On January 26, 2019, we issued 15,217,392 shares of common stock at a public offering price of $0.23 per share. We received proceeds from the offering of approximately $2,975,000 , net of expenses and discounts of approximately $525,000 . We also issued warrants to purchase 1,065,217 shares of common stock to the underwriter, H.C. Wainwright, in connection with this offering. The warrants are exercisable for five years from the date of issuance at a per share price of $0.253 .

The January 9, 2019 and January 26, 2019 offerings will be referred to collectively as the “2019 Offerings.” As disclosed in Note 15, certain of our directors and executive officers purchased shares in the 2019 Offerings at the public offering price.

Standstill Agreement

In May 2019, we entered into a second standstill agreement (“Second Standstill”) with Iliad Research and Trading, L.P. (“Iliad”), related to the $2,625,000 convertible promissory note dated July 17, 2018 (“Convertible Note”) described further in Note 7. The Second Standstill provided that Iliad would not seek to redeem any portion of the Convertible Note until May 31, 2019. In consideration for the Second Standstill, we agreed to adjust the conversion price on the first $1,250,000 of our debt to Iliad from $0.80 to $0.2273 . In May 2019, Iliad converted $350,000 of the Convertible Note balance into 1,539,815 shares of our common stock at a conversion price of $0.2273 per share. On or about June 11, 2019, following the expiration of the Second Standstill, Iliad sent the Company a Redemption Notice (as defined in Note 7). On June 20, 2019, Iliad sent a notice to the Company asserting that the nonpayment of the redemption amount by the redemption due date constituted an event of default. Iliad asserted its right to increase the interest rate to 22% and to increase the then-outstanding balance of the loan by 15% (approximately $408,000 ). The Company and Iliad are currently negotiating a possible resolution.

Advance from NovellusDx, Ltd.

On September 18, 2018, we entered into an agreement and plan of merger (“Merger Agreement”) with NovellusDx, Ltd. (“NDX”). In connection with signing the Merger Agreement, NDX loaned us $1,500,000 (“Advance from NDX”). Interest accrued on the outstanding balance at 10.75% per annum until we terminated the Merger Agreement on December 15, 2018. As a result of the termination, the Advance from NDX, plus interest thereon, became due and payable on March 15, 2019 . The Company and NDX are currently negotiating a possible resolution or settlement of the Advance from NDX.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance codified in ASC 842,  Leases , which supersedes the guidance in former ASC 840,  Leases , to increase transparency and comparability among organizations by requiring recognition of right-of-use assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements (with the exception of short-term leases).
In July 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-11 to the existing transition guidance that allows entities to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. Effective January 1, 2019, we adopted ASC 842 using this new transition guidance. The comparative information has not been restated and continues to be reported under the accounting standard in effect for those periods.
We have elected to use the package of practical expedients, which allows us to not (1) reassess whether any expired or existing contracts are considered or contain leases; (2) reassess the lease classification for any expired or existing leases; and (3) reassess the initial direct costs for any existing leases. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.
The most significant impact of adopting ASC 842 is related to the recognition of right-of-use assets and lease liabilities for operating leases. Our accounting for finance leases remains substantially unchanged. The adoption of ASC 842 had no impact on our unaudited condensed consolidated statements of operations or total cash flows from operations.
The cumulative effect of the changes made to our unaudited consolidated January 1, 2019 balance sheet for the adoption of ASC 842 were as follows (in thousands):

9

 
 
As of December 31, 2018
 
Adjustment for Adoption of ASC 842
 
As of January 1, 2019
ASSETS
 
 
 
 
 
 
Current assets of discontinued operations
 
$
23,421

 
$
2,327

 
$
25,748

Operating lease right-of-use assets
 
—

 
238

 
238

 
 
$
23,421

 
$
2,565

 
$
25,986

LIABILITIES
 
 
 
 
 
 
Current liabilities of discontinued operations
 
$
20,742

 
$
2,327

 
$
23,069

Deferred rent payable and other
 
154

 
(154
)
 
—

Obligations under operating leases, current portion
 
—

 
204

 
204

Obligations under operating leases, less current portion
 
—

 
188

 
188

 
 
$
20,896

 
$
2,565

 
$
23,461


Recent Accounting Pronouncements

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

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): “ Simplifying the Accounting for Goodwill Impairment ,” which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted and applied prospectively. We do not expect ASU 2017-04 to have a material impact on our consolidated financial statements.

Note 2. Going Concern

At June 30, 2019 , 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. Prior to the closing of the Business Disposals transactions in July 2019, the Company did not have sufficient cash at June 30, 2019 to fund normal operations beyond the next three months from the date of this report unless certain current assets were converted to cash, as described below. After the Business Disposals, the Company’s ability to continue as a going concern is still dependent on the Company’s ability to raise additional equity or debt capital, spin-off non-core assets to raise additional cash, collect its outstanding accounts receivable and timely collect on the Excess Consideration Note or receive the Earn-Out payments from siParadigm without significant offsets, and negotiate discounts in good faith with its trade suppliers. These factors raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of this current report on Form 10-Q.

Net cash used in operating activities for continuing operations was $0.9 million for the six months ended June 30, 2019 and the Company had unrestricted cash and cash equivalents of $0.7 million at June 30, 2019 , an increase from $0.2 million at December 31, 2018 . The Company has negative working capital from continuing operations at June 30, 2019 of $7.3 million .

The Company currently requires a significant amount of additional capital to fund operations and pay its unsecured debt and accounts payable, and its ability to continue as a going concern is dependent upon its ability to collect its Excess Consideration Note and its outstanding accounts receivable, receive the Earn-Out payments from siParadigm and negotiate discounts in good faith with its trade suppliers. In July 2019, we sold our BioPharma Business and Clinical Business as described in Note 1. While the Buyer assumed certain of our liabilities in the BioPharma Disposal, the cash received to date from the Business Disposals is insufficient to satisfy all of the Company’s liabilities and other obligations, and the Company cannot determine at this time if future Earn-Out payments and payoff of the Excess Consideration Note, combined with settlements of claims against the Company will enable all creditors to be paid in full and provide sufficient funds for future operations. We are continuing to evaluate additional strategic options, which could include the sale of other assets, a merger, reverse merger or

10

other strategic transaction. We can provide no assurances that our current actions will be successful or that additional sources of cash or financing will be available to us on favorable terms, if at all. If the Company is not able to collect its accounts and notes receivable or raise additional capital on a timely basis or on favorable terms, the Company may need to scale back further or, in extreme cases, discontinue its operations or liquidate its assets.

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

Note 3. Discontinued Operations

As described in Note 1, the Company sold its BioPharma Business and Clinical Business in July 2019. In conjunction with the BioPharma Disposal, the Company repaid its debt to SVB and PFG. At June 30, 2019 , we had borrowings of approximately $2.8 million on the ABL and the principal balance of the PFG Term Note was $6.0 million . The Company elected to allocate approximately $657,000 and $1,442,000 of interest expense from the Convertible Note and Advance from NovellusDx to discontinued operations during the three and six months ended June 30, 2019 , respectively. No interest expense was allocated to discontinued operations for the three and six months ended June 30, 2018 , as all debt outstanding during those periods was repaid as part of the BioPharma Disposal. Revenue and other significant accounting policies associated with the discontinued operations have not changed since the most recently filed audited financial statements as of and for the year ended December 31, 2018, except for the adoption of ASC 842 as described in Note 1.

Summarized results of our unaudited condensed consolidated discontinuing operations are as follows for the three and six months ended June 30, 2019 and 2018 (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
4,621

 
$
5,755

 
$
9,638

 
$
11,995

Cost of revenues
3,438

 
3,978

 
7,081

 
8,302

Gross profit
1,183

 
1,777

 
2,557

 
3,693

Operating expenses:
 
 
 
 
 
 
 
Research and development
429

 
657

 
875

 
1,323

General and administrative
1,937

 
3,955

 
3,339

 
7,295

Sales and marketing
585

 
955

 
1,501

 
2,320

Transaction costs
402

 
—

 
651

 
—

Total operating expenses
3,353

 
5,567

 
6,366

 
10,938

Loss from discontinuing operations
(2,170
)
 
(3,790
)
 
(3,809
)
 
(7,245
)
Other expense:
 
 
 
 
 
 
 
Interest expense
(1,063
)
 
(576
)
 
(2,173
)
 
(812
)
Total other expense
(1,063
)
 
(576
)
 
(2,173
)
 
(812
)
Net loss from discontinuing operations
$
(3,233
)
 
$
(4,366
)
 
$
(5,982
)
 
$
(8,057
)

Unaudited condensed consolidated carrying amounts of major classes of assets and liabilities from discontinued operations were as follows as of June 30, 2019 and December 31, 2018 (in thousands):


11

 
June 30, 2019
 
December 31, 2018
Current assets of discontinued operations:
 
 
 
Accounts receivable, net of allowance for doubtful accounts of $3,487 in 2019; $3,462 in 2018
$
6,150

 
$
6,261

Other current assets
1,422

 
1,652

Fixed assets, net of accumulated depreciation
3,090

 
3,559

Operating lease right-of-use assets
2,060

 
—

Patents and other intangible assets, net of accumulated amortization
644

 
655

Goodwill
11,294

 
11,294

Current assets of discontinued operations
$
24,660

 
$
23,421

 
 
 
 
Current liabilities of discontinued operations
 
 
 
Accounts payable and accrued expenses
$
10,154

 
$
9,967

Operating lease liabilities
2,109

 
—

Obligations under finance leases
502

 
666

Deferred revenue
1,053

 
1,337

Line of credit
2,847

 
2,621

Term note
6,000

 
6,000

Deferred rent payable and other
—

 
151

Current liabilities of discontinued operations
$
22,665

 
$
20,742


Note 4.     Revenue

Revenue from the Company’s Discovery Services comes from preclinical oncology and immuno-oncology services offered to our biotechnology and pharmaceutical customers. The Company is a leader in orthotopic and metastases tumor models and offers whole body imaging, in addition to toxicology testing and bionalytical analysis. Our Discovery Services are designed to support new compounds being studied to guide drug development, starting from compound libraries and ending with a comprehensive set of  in vitro  and  in vivo  data and reports, as needed for Investigational New Drug (IND) filing.

During the six months ended June 30, 2019 , three customers accounted for approximately 68% of our consolidated revenue from continuing operations. During the six months ended June 30, 2018 , two customers accounted for approximately 37% of our consolidated revenue from continuing operations.

During the three months ended June 30, 2019 , one customer accounted for approximately 65% of our consolidated revenue from continuing operations. During the three months ended June 30, 2018 , four customers accounted for approximately 69% of our consolidated revenue from continuing operations.

Remaining Performance Obligations :

Services offered under Discovery Services frequently take time to complete under their respective contacts. These times vary depending on specific contract arrangements including the length of the study and how samples are delivered to us for processing. In the case of Discovery Services, the duration of performance obligations is less than one year .

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. For all periods presented, all common stock equivalents outstanding were anti-dilutive.

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

12

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Common stock purchase warrants
8,378

 
10,055

 
8,378

 
10,055

Stock options
1,743

 
3,085

 
1,743

 
3,085

Convertible note
4,710

 
—

 
4,710

 
—

Advance from NovellusDx, Ltd.
2,819

 
—

 
2,819

 
—

Restricted shares of common stock
19

 
57

 
19

 
57

 
17,669

 
13,197

 
17,669

 
13,197


Note 6. Leasing Arrangements

Operating Leases

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

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

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

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

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

 
 
Three months ended June 30, 2019
 
Six months ended
June 30, 2019
Operating lease cost
 
$
44

 
$
87

Short-term lease cost
 
29

 
54

Variable lease cost
 
15

 
45

 
 
$
88

 
$
186


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


13

 
 
Three months ended June 30, 2019
 
Six months ended
June 30, 2019
Cash paid amounts included in the measurement of lease liabilities:
 
 
 
 
Operating cash flows from operating leases
 
$
55

 
$
110


Other supplemental information related to leases of our continuing operations was as follows for the six months ended June 30, 2019:

Weighted average remaining lease term (in years)
 
 
Operating leases
 
1.49

 
 
 
Weighted average discount rate
 
 
Operating leases
 
7.96
%

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

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

2019 (remaining 6 months)
 
$
94

2020
 
209

2021
 
12

Total minimum lease payments
 
315

Less amount representing interest
 
30

Total
 
$
285


Note 7. Financing

Convertible Note

On July 17, 2018, the Company entered into the Convertible Note, pursuant to which the Company issued a convertible promissory note to an institutional accredited investor in the initial principal amount of $2,625,000 . The Company received consideration of $2,500,000 , reflecting an original issue discount of $100,000 , a beneficial conversion feature discount of approximately $328,000 and expenses payable by the Company of $25,000 . The Convertible Note has an 18 month term, carries interest at 10% per annum and is subordinated in right of payment to the ABL and PFG Term Note. The note is convertible into shares of the Company’s common stock at a conversion price of $0.80 per share (“Conversion Price”) upon five trading days’ notice, subject to certain adjustments (standard dilution) and ownership limitations specified in the Convertible Note. In May 2019, the conversion price was reduced to $0.2273 for $1,250,000 of the balance of the Convertible Note; the remainder is still convertible at $0.80 . The reduction in the conversion price increased the fair value of the embedded conversion option by approximately $547,000 . The future cash flows of the Convertible Note changed by more than 10% as a result of the Standstill Agreement, so the Company amortized the remaining debt discount and debt issuance costs of $37,000 , resulting in a loss on debt extinguishment of approximately $584,000 during the three and six months ended June 30, 2019 , of which approximately $328,000 was allocated to discontinuing operations. Loss on debt extinguishment allocated to continuing operations was recorded in interest expense.

The investor can redeem any portion of the Convertible Note upon five trading days’ notice (“Redemption Notice”) subject to a maximum monthly redemption amount of $650,000 , with the Company having the option to pay such redemptions in cash, the Company’s common stock at the Conversion Price, or by a combination thereof, subject to certain conditions, including that the stock price is $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

14

multiplied by 15% plus outstanding amount) by providing written notice to the Company. In addition, the interest rate increases to 22% upon default. The Convertible Note is the general unsecured obligation of the Company. At June 30, 2019 , the principal balance of the Convertible Note is approximately $3.1 million .

In May 2019, Iliad converted $350,000 of the Convertible Note balance into 1,539,815 shares of our common stock at $0.2273 per share. Between July 24, 2019 and July 31, 2019, the Company issued an aggregate of 2,571,429 shares of common stock to Iliad in exchange for the return of $375,000 of principal amount of the Convertible Note to the Company.

As of June 20, 2019, the Company is in default on the Convertible Note. The Convertible Note is accruing interest at the default rate of 22% , and the outstanding balance was increased by 15% (approximately $408,000 ) upon the notice of default.

Advance from NDX

On September 18, 2018, we entered into the Merger Agreement with NDX. In connection with signing the Merger Agreement, NDX loaned us $1,500,000 . Interest accrued on the outstanding balance at 10.75% per annum until we terminated the Merger Agreement on December 15, 2018. As a result of the termination, the Advance from NDX, plus interest thereon, became due and payable on March 15, 2019 . The termination was a specified event of default, so on December 15, 2018, the interest rate was increased to 21% . The default also gives NDX the right to convert all, but not less than all, of the outstanding balance into shares of the Company’s common stock at a conversion price of $0.606 per share. At June 30, 2019 , the principal balance of the Advance from NDX was $1,500,000 .

The Advance from NDX is the general unsecured obligation of the Company and is subordinated in right of payment to the ABL and PFG Term Note, provided that NDX has asserted that its obligation to standstill under its subordination agreements will not be applicable at a time when the Company attains certain levels of unrestricted cash, as a result of the Company having improperly terminated the Merger Agreement. The Company does not believe it improperly terminated the Merger Agreement. The Company and NDX are currently negotiating a possible resolution or settlement of the Advance from NDX.

Note 8. Capital Stock

2019 Offerings

On January 9, 2019, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), relating to an underwritten public offering of 13,333,334 shares of our common stock for $0.225 per share. We received proceeds from the offering of approximately $2,437,000 , net of expenses and discounts of approximately $563,000 .

On January 26, 2019, we issued 15,217,392 shares of common stock at a public offering price of $0.23 per share. We received proceeds from the offering of approximately $2,975,000 , net of expenses and discounts of approximately $525,000 .

Exchanges of Debt into Common Stock

In May 2019, Iliad converted $350,000 of the Convertible Note into an aggregate of 1,539,815 shares of our common stock at a conversion price of $0.2273 per share. Between July 24, 2019 and July 31, 2019, the Company issued an aggregate of 2,571,429 shares of common stock to Iliad in exchange for the return of $375,000 of principal amount of the Convertible Note to the Company.

Note 9. Sale of Net Operating Losses

On April 4, 2019, we sold  $11,638,516  of gross State of New Jersey NOL’s relating to the 2017 tax year as well as  $71,968  of state research and development tax credits. The sale resulted in the net receipt by the Company of approximately  $512,000 . This figure includes all costs and expenses associated with the sale of these state tax attributes as deducted from the gross sales price of approximately $521,000 .

Note 10. Stock-Based Compensation

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


15

At June 30, 2019 , 1,174,875 shares remain available for future awards under the 2011 Plan. On July 23, 2019, the Company issued 100,000 stock options to each of its five non-employee directors. The options will vest in equal monthly installments over the next twelve months and have an exercise price of $0.15 per share.

A summary of employee and non-employee stock option activity for the six months ended June 30, 2019 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, 2019
3,004

 
$
5.77

 
5.70
 
$
—

Granted
95

 
0.44

 
 
 
 
Cancelled or expired
(1,356
)
 
5.55

 
 
 
 
Outstanding June 30, 2019
1,743

 
$
5.66

 
6.91
 
$
—

Exercisable June 30, 2019
1,149

 
$
7.92

 
5.93
 
$
—


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 June 30, 2019 , total unrecognized compensation cost related to non-vested stock options granted to employees was $423,948 which we expect to recognize over the next 2.89 years.

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 June 30,
 
Six Months Ended June 30,
 
2018
 
2019
 
2018
Volatility
77.81
%
 
90.15
%
 
77.81
%
Risk free interest rate
2.89
%
 
2.54
%
 
2.89
%
Dividend yield
0.00
%
 
0.00
%
 
0.00
%
Term (years)
6.49

 
6.32

 
6.49

Weighted-average fair value of options granted during the period
$
0.63

 
$
0.34

 
$
0.63


Restricted stock awards have been granted to employees, directors and consultants as compensation for services. At June 30, 2019 , there was $13,817 of unrecognized compensation cost related to non-vested restricted stock granted to employees and directors; we expect to recognize the cost over 0.25 years.

The following table summarizes the activities for our non-vested restricted stock awards for the six months ended June 30, 2019 :

16

 
Non-vested Restricted Stock Awards
 
Number of
Shares
(in thousands)
 
Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2019
29

 
$
3.43

Vested
(9
)
 
4.15

Cancelled
(1
)
 
6.30

Non-vested at June 30, 2019
19

 
$
2.94


The TSA with Buyer described in Note 1 requires the Company to continue to employ individuals who will transfer to Buyer no later than six months from the closing of the transaction. Buyer will reimburse the Company for the payroll and benefit costs of these employees, but not the stock-based compensation. Therefore, stock-based compensation is considered part of the Company’s continuing operations. The following table presents the effects of stock-based compensation related to stock option and restricted stock awards to employees and non-employees on our Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss during the periods presented (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Cost of revenues
$
28

 
$
90

 
$
56

 
$
181

Research and development
7

 
16

 
15

 
31

General and administrative
62

 
140

 
178

 
298

Sales and marketing
5

 
22

 
11

 
32

Total stock-based compensation
$
102

 
$
268

 
$
260

 
$
542


Note 11. Warrants

On January 14, 2019, we issued 933,334 warrants to purchase common stock at $0.2475 per share. The warrants are immediately exercisable and expire on January 9, 2024. On January 31, 2019 we issued 1,065,217 warrants to purchase common stock at $0.253 per share. These warrants are immediately exercisable and expire on January 26, 2024. All of these warrants were issued in conjunction with the 2019 Offerings.

During the three and six months ended June 30, 2019 , 3,675,000 warrants issued as part of the 2017 Offering expired unexercised.

The following table summarizes the warrant activity for the six months ended June 30, 2019 (in thousands, except exercise price):  

17

Issued With / For
Exercise
Price
 
Warrants
Outstanding
January 1,
2019
 
2019 Warrants Issued
 
2019 Warrants Expired
 
Warrants Outstanding June 30, 2019
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


443

 
—

 
—

 
443

2019 Offering
0.2475

 
—

 
933

 
—

 
933

2019 Offering
0.253

 
—

 
1,065

 
—

 
1,065

Total non-derivative warrants
3.86

B
4,412

 
1,998

 
—

 
6,410

Derivative Warrants:
 
 
 
 
 
 
 
 
 
2016 Offerings
2.25

A
1,968

 
—

 
—

 
1,968

2017 Offering
2.35

A
3,500

 
—

 
(3,500
)
 
—

2017 Offering
2.50

A
175

 
—

 
(175
)
 
—

Total derivative warrants
2.25

B
5,643

 
—

 
(3,675
)
 
1,968

Total
$
3.48

B
10,055

 
1,998

 
(3,675
)
 
8,378


A
These warrants are subject to fair value accounting and contain a contingent net cash settlement feature. See Note 12.
B
Weighted-average exercise prices are as of June 30, 2019 .

Note 12. Fair Value of Warrants

The following table summarizes the derivative warrant activity subject to fair value accounting for the six months ended June 30, 2019 (in thousands):
Issued with/for
Fair value of warrants
outstanding as of
December 31, 2018
 
Change in fair
value of warrants
 
Fair value of warrants
outstanding as of
June 30, 2019
2016 Offerings
$
225

 
$
(176
)
 
$
49

2017 Offering
23

 
(23
)
 
—

 
$
248

 
$
(199
)
 
$
49


The derivative warrants issued as part of the 2016 Offerings are valued using a probability-weighted Binomial model, while the derivative warrants issued in conjunction with the 2017 Offering were valued using a Black-Scholes model. The following tables summarize the assumptions used in computing the fair value of derivative warrants subject to fair value accounting at June 30, 2019 and December 31, 2018 .

2016 Offerings
As of June 30, 2019
 
As of December 31, 2018
Exercise price
$
2.25

 
$
2.25

Expected life (years)
2.58

 
3.08

Expected volatility
114.13
%
 
100.51
%
Risk-free interest rate
1.73
%
 
2.46
%
Expected dividend yield
—
%
 
—
%


18

2017 Offering
As of December 31, 2018
Exercise price
$
2.36

Expected life (years)
0.44

Expected volatility
172.5
%
Risk-free interest rate
2.56
%
Expected dividend yield
—
%

Note 13. Fair Value Measurements

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

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

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

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

The following table summarizes the financial liabilities measured at fair value on a recurring basis segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
 
June 30, 2019
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Warrant liability
$
49

 
$
—

 
$
—

 
$
49

Note payable
13

 
—

 
—

 
13

 
$
62

 
$
—

 
$
—

 
$
62

 
 
 
 
 
 
 
 
 
December 31, 2018
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Warrant liability
$
248

 
$
—

 
$
—

 
$
248

Note payable
20

 
—

 
—

 
20

Other derivatives
86

 
$
—

 
$
—

 
86

 
$
354

 
$
—

 
$
—

 
$
354


At June 30, 2019 and December 31, 2018 , the Company had a liability payable to VenturEast from a prior acquisition. The ultimate payment to VenturEast will be the fair value of 84,278 shares of our common stock at the time of payment. During the

19

three months ended June 30, 2019 and 2018 , we recognized gains of approximately $7,000 and $64,000 , respectively, due to the change in value of the note. During the six months ended June 30, 2019 and 2018 , we recorded gains of approximately $7,000 and $81,000 , respectively, due to the change in value of the note.

At June 30, 2019 , the warrant liability consists of stock warrants issued as part of the 2016 Offerings that contain contingent net settlement features. In accordance with derivative accounting for warrants, we calculated the fair value of warrants and the assumptions used are described in Note 12, “Fair Value of Warrants.” During the three months ended June 30, 2019 and 2018 , we recognized gains of approximately $206,000 and $2,154,000 , respectively, on the derivative warrants due to the decrease in our stock price. During the six months ended June 30, 2019 and 2018 , we recognized gains of approximately $199,000 and $2,846,000 on the derivative warrants primarily due to changes in our stock price.

Realized and unrealized gains and losses related to the change in fair value of the VenturEast note, warrant liability and other derivatives are included in other income (expense) on the Unaudited Condensed 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 and other derivatives, which were measured at fair value using Level 3 inputs (in thousands):
 
Note Payable
 
Warrant
 
Other
 
to VenturEast
 
Liability
 
Derivatives
Fair value at December 31, 2018
$
20

 
$
248

 
$
86

Change in fair value
(7
)
 
(199
)
 
(86
)
Fair value at June 30, 2019
$
13

 
$
49

 
$
—


Note 14. Joint Venture Agreement

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

The agreement requires aggregate capital contributions by us of up to $6.0 million , of which $2.0 million has been paid to date. The timing of the remaining installments is subject to the JV’s achievement of certain operational milestones agreed upon by the board of governors of the JV. In exchange for its membership interest, Mayo’s capital contribution takes the form of cash, staff, services, hardware and software resources, laboratory space and instrumentation, the fair market value of which will be approximately equal to $6.0 million . Mayo’s continued contribution will also be conditioned upon the JV’s achievement of certain milestones. We are in the process of winding down the JV and do not expect to incur further liabilities in connection with the JV.

During the three and six months ended June 30, 2019 , there was no activity in the JV. Our share of the JV’s net loss was approximately $1,000 and $3,000 for the three and six months ended June 30, 2018 , respectively, and is included in research and development expense on the Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss. We have a net receivable due from the JV of approximately $10,000 at June 30, 2019 , which is included in other assets in the Unaudited Condensed Consolidated Balance Sheets.

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

Note 15. Related Party Transactions

We had a consulting agreement with Equity Dynamics, Inc. (“EDI”), an entity controlled by the former Chairman of our Board of Directors, John Pappajohn, effective April 1, 2014 through August 31, 2018, pursuant to which EDI received a monthly fee of $10,000 . Total expenses for the three and six months ended June 30, 2018 were $30,000 and $60,000 , respectively. As of June 30, 2019 , we accrued liabilities of $70,000 for unpaid fees due to EDI.


20

As described in Note 1, the Company closed two public offerings in January 2019, in which various executives and directors purchased shares at the public offering price. On January 14, 2019, John Pappajohn, John Roberts, our President and Chief Executive Officer, and Geoffrey Harris, a Director, purchased 1,000,000 shares, 100,000 shares and 100,000 shares, respectively, at the public offering price of $0.225 per share. On January 31, 2019, John Pappajohn, John Roberts, Edmund Cannon, a Director, and M. Glenn Miles, our Chief Financial Officer, purchased 1,000,000 shares, 185,436 shares, 43,479 shares and 150,000 shares, respectively, at the public offering price of $0.23 per share.

On July 23, 2019, the Company issued 100,000 stock options to each of its five non-employee directors. The options will vest in equal monthly installments over the next twelve months and have an exercise price of $0.15 per share. The directors have waived their rights to any claim for past due director compensation as a condition of these option grants.

Note 16. Contingencies

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

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

Note 17. Subsequent Events

Business Disposals

In July 2019, we sold our BioPharma Business and our Clinical Business as described in Note 1.

Assignment of Leases

In connection with the BioPharma Disposal in July 2019, we assigned the lease to our North Carolina location to Buyer, and we are currently in the process of assigning the lease to our New Jersey location to Buyer. Such leases were assumed by Buyer as part of the BioPharma Disposal, effective July 15, 2019.


21

Issuance of Stock Options

On July 23, 2019, the Company issued 100,000 stock options to each of its five non-employee directors. The options will vest in equal monthly installments over the next twelve months and have an exercise price of $0.15 per share. The directors have waived their rights to any claim for past due director compensation as a condition of these option grants.

Exchanges of Debt into Common Stock

Between July 24, 2019 and July 31, 2019, the Company issued an aggregate of 2,571,429 shares of common stock to Iliad in exchange for the return of an aggregate of $375,000 of principal amount of the Convertible Note to the Company.

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 June 30, 2019 : 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 16, 2019. This MD&A may contain forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” below.

Overview

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

For the period ended June 30, 2019, we were executing a strategy of partnering with pharmaceutical and biotech companies and clinicians as oncology diagnostic specialists by supporting therapeutic discovery, development and patient care.

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

The non-proprietary testing services we offered were focused in part on specific oncology categories where we were developing proprietary tests.

Net cash used in operating activities for continuing operations was $0.9 million for the six months ended June 30, 2019 and the Company had unrestricted cash and cash equivalents of $0.7 million at June 30, 2019 , an increase from $0.2 million at December 31, 2018 . The Company has negative working capital from continuing operations at June 30, 2019 of $7.3 million .

The Company currently requires a significant amount of additional capital to fund operations and pay its unsecured debt and accounts payable, and its ability to continue as a going concern is dependent upon its ability to collect its outstanding accounts and notes receivable, receive the Earn-Out payments from siParadigm and negotiate discounts in good faith with its trade suppliers. In July 2019, we sold our BioPharma Business and Clinical Business as described below. While the Buyer assumed certain of our liabilities in the BioPharma Disposal, the cash received to date from the Business Disposals is insufficient to satisfy all of the Company’s liabilities and other obligations, and the Company cannot determine at this time if future Earn-Out

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payments and payoff of the Excess Consideration Note, combined with settlements of claims against the Company will enable all creditors to be paid in full and provide sufficient funds for future operations. We are continuing to evaluate additional strategic options, which could include the sale of other assets, a merger, reverse merger or other strategic transaction. We can provide no assurances that our current actions will be successful or that additional sources of cash or financing will be available to us on favorable terms, if at all. If the Company is not able to collect its accounts and notes receivable or raise additional capital on a timely basis or on favorable terms, the Company may need to scale back further or, in extreme cases, discontinue its operations or liquidate its assets.

Business Disposals - Discontinued Operations

Interpace Diagnostics Group, Inc.

On July 15, 2019, the Company entered into a secured creditor asset purchase agreement (the “BioPharma Agreement”) by and among the Company, Gentris, LLC, a wholly owned subsidiary of the Company, Partners for Growth IV, L.P. (“PFG”), Interpace Diagnostics Group, Inc. (“IDXG”) and a newly-formed subsidiary of IDXG, Interpace BioPharma, Inc. (“Buyer”). The BioPharma Agreement provides for a consensual private foreclosure sale by PFG of all assets relating to the Company’s BioPharma Business (as defined in the BioPharma Agreement) to Buyer (the “BioPharma Disposal”). The BioPharma Disposal was consummated on July 15, 2019.
 
Pursuant to the BioPharma Agreement, Buyer purchased from PFG certain assets and assumed certain liabilities of the Company relating to the BioPharma Business, providing as gross consideration $23,500,000 , less certain closing adjustments totaling $1,978,240 , of which $7,692,300 was paid in the form of a promissory note issued by Buyer to the Company (the “Excess Consideration Note”) and the remainder was paid to PFG in cash. PFG utilized the cash proceeds to satisfy the outstanding balances of the Silicon Valley Bank (“SVB”) asset-based revolving line of credit (“ABL”) and the $6.0 million  term note to PFG (“PFG Term Note”), and to satisfy certain transaction expenses. The balance of approximately $2,260,000 was delivered to the Company along with the Excess Consideration Note. The Excess Consideration Note will mature on the earlier of the date of (i) the consummation of an investment by Ampersand Capital Partners or any of its affiliates into IDXG or Buyer, following IDXG receiving the approval of its shareholders of the issuance of shares of its common stock in connection therewith and (ii) July 15, 2022, and will be paid interest-only quarterly prior to maturity at a rate of 6% per year.

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

siParadigm, Inc.

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

The Business Disposals have been classified as discontinued operations in conformity with GAAP. Accordingly, BioPharma and Clinical operations and balances have been reported as discontinued operations and removed from all financial disclosures of continuing operations.

2019 Offerings

23
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In January 2019, we closed two public offerings and issued an aggregate of 28,550,726 shares of common stock for approxim ately $5.4 million , net of expenses and discounts of approximately $1.1 million . The Company also issued 1,998,551 warrants to its underwriters in conjunction with these offerings.

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 in the drug discovery field. Our wholly-owned subsidiary, vivo Pharm, provides proprietary preclinical oncology and immuno-oncology services, offering integrated services in different disease areas to the biotechnology and pharmaceutical industries.  vivo Pharm is a leader in orthotopic and metastases tumor models. The Company provides all services including toxicology testing and bionalytical analysis to GLP. vivo Pharm specializes in conducting studies tailored to guide drug development, starting from compound libraries and ending with a comprehensive set of  in vitro  and  in vivo  data and reports, as needed for Investigational New Drug (IND) filing.

Our ability to complete such studies is dependent upon our ability to leverage our collaborative relationships with pharmaceutical and biotechnology companies and leading institutions to facilitate our research and obtain data for our quality assurance and test validation efforts.

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

Revenues from Continuing Operations

Revenue from our Discovery Services comes from preclinical oncology and immuno-oncology services offered to our biotechnology and pharmaceutical customers.  We are a leader in orthotopic and metastases tumor models and offers whole body imaging, in addition to toxicology testing and bionalytical analysis. Discovery Services are designed to specialize in conducting studies tailored to guide drug development, starting from compound libraries and ending with a comprehensive set of  in vitro  and  in vivo  data and reports, as needed for Investigational New Drug (IND) filing.

Due to the Business Disposals that occurred in July 2019, revenues from our Biopharma Services and Clinical Services are presented net of expenses in discontinued operations.

Cost of Revenues from Continuing Operations

Our cost of revenues consists principally of internal personnel costs, including non-cash stock-based compensation, laboratory consumables, shipping costs, overhead and other direct expenses, such as specimen procurement and third party validation studies. We continue to pursue various strategies to control our cost of revenues, including automating our processes through more efficient technology and attempting to negotiate improved terms with our suppliers.

Operating Expenses from Continuing Operations

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. Prior to the Business Disposals, we incurred research and development expenses principally in connection with our efforts to develop our proprietary tests. Our primary research and development expenses consisted of direct personnel costs, laboratory equipment and consumables and overhead expenses. All research and development expenses were charged to operations in the periods they are incurred. In our Discovery Services business, we are limited in the demand for continuing research and development requirements, so are not expended our capital resources on these activities.

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, and other general expenses. We have incurred increases in our general and administrative expenses and anticipate only modest increases as our Discovery Business grows.

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Table of Contents


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 remain relatively flat as we continue to operate and grow our Discovery Services business.

Results of Operations

Three Months Ended June 30, 2019 and 2018

The following table sets forth certain information concerning our results of operations for the periods shown:  
 
Three Months Ended June 30,
 
Change
(dollars in thousands)
2019
 
2018
 
$
 
%
Revenue
$
1,525

 
$
1,281

 
$
244

 
19
 %
Cost of revenues
725

 
875

 
(150
)
 
(17
)%
Research and development expenses
7

 
16

 
(9
)
 
(56
)%
General and administrative expenses
1,266

 
1,464

 
(198
)
 
(14
)%
Sales and marketing expenses
322

 
386

 
(64
)
 
(17
)%
Loss from continuing operations
(795
)
 
(1,460
)
 
665

 
(46
)%
Interest expense, net
(514
)
 
(2
)
 
(512
)
 
25,600
 %
Change in fair value of acquisition note payable
7

 
64

 
(57
)
 
(89
)%
Change in fair value of other derivatives
55

 
—

 
55

 
n/a

Change in fair value of warrant liability
206

 
2,154

 
(1,948
)
 
(90
)%
Other expense
(11
)
 
(23
)
 
12

 
(52
)%
Income (loss) before income taxes from continuing operations
(1,052
)
 
733

 
(1,785
)
 
(244
)%
Income tax benefit
(512
)
 
—

 
(512
)
 
n/a

Net income (loss) from continuing operations
(540
)
 
733

 
(1,273
)
 
(174
)%
Net loss from discontinuing operations
(3,233
)
 
(4,366
)
 
1,133

 
(26
)%
Net loss
$
(3,773
)
 
$
(3,633
)
 
$
(140
)
 
4
 %

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):

25
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Three Months Ended June 30,
 
 
2019
 
2018
Reconciliation of net income (loss) from continuing operations:
 
 
 
 
Net income (loss) from continuing operations
 
$
(540
)
 
$
733

Adjustments:
 
 
 
 
Change in fair value of acquisition note payable
 
(7
)
 
(64
)
Change in fair value of other derivatives
 
(55
)
 
—

Change in fair value of warrant liability
 
(206
)
 
(2,154
)
Adjusted net loss from continuing operations
 
$
(808
)
 
$
(1,485
)
Reconciliation of basic and diluted net loss per share from continuing operations:
 
 
 
 
Basic and diluted net income (loss) per share from continuing operations
 
$
(0.01
)
 
$
0.03

Adjustments to net loss
 
—

 
(0.08
)
Adjusted basic and diluted net loss per share from continuing operations
 
$
(0.01
)
 
$
(0.05
)
Basic and diluted weighted-average shares outstanding
 
57,164

 
27,049


Adjusted net loss from continuing operations decreased 46% to $0.8 million during the three months ended June 30, 2019 , from an adjusted net loss from continuing operations of $1.5 million during the three months ended June 30, 2018 . Adjusted basic and diluted net loss per share from continuing operations decreased 80% to $0.01 during the three months ended June 30, 2019 , from $0.05 during the three months ended June 30, 2018 .

Revenue from Continuing Operations

Revenue from continuing operations increased 19% , or $0.2 million , during the three months ended June 30, 2019 compared to the same period in 2018 primarily due to a higher volume of active projects as the demand for toxicity and efficacy studies continued to increase.

Cost of Revenues from Continuing Operations

Cost of revenues from continuing operations decreased 17% , or $0.2 million , for the three months ended June 30, 2019 , principally due to a $0.1 million decrease in payroll and benefit costs and accruals for study-related costs in the comparable periods. Correspondingly, gross margin from continuing operations increased to 52% during the three months ended June 30, 2019 up from 32% for the three months ended June 30, 2018 .

Operating Expenses from Continuing Operations

Research and development expenses from continuing operations decreased 56% , or $9,000 , to $7,000 for the three months ended June 30, 2019 , from $16,000 for the three months ended June 30, 2018 , principally due to a decrease in stock-based compensation.

General and administrative expenses from continuing operations decreased 14% , or $0.2 million , to $1.3 million for the three months ended June 30, 2019 , from $1.5 million for the three months ended June 30, 2018 principally due to a $0.3 million decrease in professional services and board of director fees.

Sales and marketing expenses from continuing operations decreased 17% , or $0.1 million , to $0.3 million for the three months ended June 30, 2019 , from $0.4 million for the three months ended June 30, 2018 .

Interest Expense, Net

Net interest expense from continuing operations increased by $0.5 million during the three months ended June 30, 2019 due to the addition of two financing agreements that were not in place during the three months ended June 30, 2018 . The Company incurred $0.2 million of interest on its Convertible Note and Advance from NovellusDx. The Company also recognized $0.5 million of additional interest as a result of reducing the conversion price on a portion of the Convertible Note debt. In June 2019, the Company defaulted on the Convertible Note, creating a 15% increase in the outstanding balance at the date of default, which approximated $0.4 million. The Company allocated $0.6 million of this interest to discontinuing operations.


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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, we recognized non-cash income of $0.2 million and $2.2 million for the three months ended June 30, 2019 and 2018 , 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.

Income Tax Benefit

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

Six Months Ended June 30, 2019 and 2018

The following table sets forth certain information concerning our results of operations for the periods shown: 
 
Six Months Ended June 30,
 
Change
(dollars in thousands)
2019
 
2018
 
$
 
%
Revenue
$
3,347

 
$
2,708

 
$
639

 
24
 %
Cost of revenues
1,719

 
1,633

 
86

 
5
 %
Research and development expenses
15

 
31

 
(16
)
 
(52
)%
General and administrative expenses
3,173

 
3,384

 
(211
)
 
(6
)%
Sales and marketing expenses
514

 
612

 
(98
)
 
(16
)%
Loss from continuing operations
(2,074
)
 
(2,952
)
 
878

 
(30
)%
Interest income (expense), net
(1,127
)
 
16

 
(1,143
)
 
(7,144
)%
Change in fair value of acquisition note payable
7

 
81

 
(74
)
 
(91
)%
Change in fair value of other derivatives
86

 
—

 
86

 
n/a

Change in fair value of warrant liability
199

 
2,846

 
(2,647
)
 
(93
)%
Other expense
(11
)
 
(23
)
 
12

 
(52
)%
Income (loss) before income taxes from continuing operations
(2,920
)
 
(32
)
 
(2,888
)
 
9,025
 %
Income tax benefit
(512
)
 
—

 
(512
)
 
n/a

Net income (loss) from continuing operations
(2,408
)
 
(32
)
 
(2,376
)
 
7,425
 %
Net loss from discontinuing operations
(5,982
)
 
(8,057
)
 
2,075

 
(26
)%
Net loss
$
(8,390
)
 
$
(8,089
)
 
$
(301
)
 
4
 %

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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Six Months Ended June 30,
 
 
2019
 
2018
Reconciliation of net income (loss) from continuing operations:
 
 
 
 
Net income (loss) from continuing operations
 
(2,408
)
 
(32
)
Adjustments:
 
 
 
 
Change in fair value of acquisition note payable
 
(7
)
 
(81
)
Change in fair value of other derivatives
 
(86
)
 
—

Change in fair value of warrant liability
 
(199
)
 
(2,846
)
Adjusted net loss from continuing operations
 
$
(2,700
)
 
$
(2,959
)
Reconciliation of basic and diluted net loss per share from continuing operations:
 
 
 
 
Basic and diluted net loss per share from continuing operations
 
$
(0.05
)
 
$
—

Adjustments to net loss
 
—

 
(0.11
)
Adjusted basic and diluted net loss per share from continuing operations
 
$
(0.05
)
 
$
(0.11
)
Basic and diluted weighted-average shares outstanding
 
53,049

 
27,049


Adjusted net loss from continuing operations decreased 9% to $2.7 million during the six months ended June 30, 2019 , from an adjusted net loss from continuing operations of $3.0 million during the six months ended June 30, 2018 . Adjusted basic and diluted net loss per share from continuing operations decreased 55% to $0.05 during the six months ended June 30, 2019 from $0.11 during the six months ended June 30, 2018 .

Revenue from Continuing Operations

Revenue from continuing operations increased 24% , or $0.6 million , to $3.3 million for the six months ended June 30, 2019 , from $2.7 million for the six months ended June 30, 2018 , principally due to a higher volume of active projects as the demand for toxicity and efficacy studies continued to increase.

Cost of Revenues from Continuing Operations

Cost of revenues from continuing operations increased $0.1 million to $1.7 million for the six months ended June 30, 2019 from $1.6 million for the six months ended June 30, 2018 , principally due to a $0.3 million increase in lab supplies, offset in part by a $0.1 decrease in payroll and benefit costs and decreased facility costs of $0.1 million. Correspondingly, gross margin increased to 49% during the six months ended June 30, 2019 from 40% during the six months ended June 30, 2018 .

Operating Expenses from Continuing Operations

Research and development expenses from continuing operations decreased 52% , or $16,000 , to $15,000 for the six months ended June 30, 2019 , from $31,000 for the six months ended June 30, 2018 , due to a decrease in stock-based compensation.

General and administrative expenses from continuing operations decreased 6% , or $0.2 million , to $3.2 million for the six months ended June 30, 2019 , from $3.4 million for the six months ended June 30, 2018 , principally due to decreased board of director fees of $0.2 million.

Sales and marketing expenses from continuing operations decreased 16% , or $0.1 million , to $0.5 million for the six months ended June 30, 2019 , from $0.6 million for the six months ended June 30, 2018 , principally due to a $0.1 million decline in facility costs.

Interest Expense, Net

Net interest expense from continuing operations increased by $1.1 million during the six months ended June 30, 2019 due to the addition of two financing agreements that were not in place during the six months ended June 30, 2018 . The Company incurred $0.3 million of interest on its Convertible Note and Advance from NovellusDx. The Company also amortized $1.1 million of debt discounts on these two agreements during the six months ended June 30, 2019 . The Company entered into a standstill agreement with Iliad in January 2019, which resulted in $0.2 million of additional fees. It later entered into a second standstill agreement that reduced the conversion price on a portion of the Convertible Note, resulting in $0.5 million of additional interest. In June 2019, the Company defaulted on the Convertible Note, creating a 15% increase in the outstanding balance at

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the date of default, which approximated $0.4 million. At June 30, 2019 the Company is accruing interest at the default rate on both of these agreements. The Company allocated $1.4 million of this interest to discontinuing operations.
 
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, we recognized non-cash income of $0.2 million and $2.8 million during the six months ended June 30, 2019 and 2018. Consequently, we may be exposed to non-cash charges, or we may record non-cash income, as a result of this warrant exposure in future periods.

Income Tax Benefit

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

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of liquidity have been funds generated from our debt financings and equity financings. In addition, we have generated funds from the following sources: (i) cash collections from customers and (ii) cash received from the sale of state NOL’s. In January 2019, we closed two public offerings and issued an aggregate of 28,550,726 shares of common stock for approxim ately $5.4 million , net of expenses and discounts of approximately $1.1 million . On April 4, 2019, we sold  $11.6 million  of gross State of New Jersey NOL’s relating to the 2017 tax year as well as  $0.1 million  of state research and development tax credits. The sale resulted in the net receipt by the Company of approximately  $0.5 million . In July 2019, we completed two business disposals, resulting in an aggregate of $3.0 million of net cash proceeds at the time of closing; however, $1.0 million of the funds received is an advance from siParadigm that will be deducted from the Earn-Out amounts earned during the period. In addition, we also have a promissory note from IDXG for approximately $7.7 million, subject to adjustments, that will mature on the earlier of the date of (i) the consummation of an investment by Ampersand Capital Partners or any of its affiliates into IDXG or Buyer, following IDXG receiving the approval of its shareholders of the issuance of shares of its common stock in connection therewith and (ii) July 15, 2022, and will be paid interest-only quarterly prior to maturity at a rate of 6% per year.

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

Cash Flows from Continuing Operations

Our net cash flow from operating, investing and financing activities from continuing operations for the periods below were as follows:
 
Six Months Ended 
 June 30,
(in thousands)
2019
 
2018
Cash provided by (used in) continuing operations:
 
 
 
Operating activities
$
(886
)
 
$
(1,790
)
Investing activities
(21
)
 
(4
)
Financing activities
5,400

 
(27
)
Effect of foreign currency exchange rates on cash and cash equivalents and restricted cash
(41
)
 
61

Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations
$
4,452

 
$
(1,760
)

We had cash and cash equivalents and restricted cash of $1.0 million at June 30, 2019 , and $0.5 million at December 31, 2018 .

The $4.5 million increase in cash and cash equivalents and restricted cash from continuing operations for the six months ended June 30, 2019 , principally resulted from net proceeds from the 2019 Offerings of $5.4 million.


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The $1.8 million decrease in cash and cash equivalents and restricted cash for the six months ended June 30, 2018 , principally resulted from net cash used in operations of $1.8 million.

At June 30, 2019 , we had total indebtedness of $13.4 million, excluding finance lease obligations, of which $8.8 million is included in current liabilities of discontinued operations and was repaid as part of the BioPharma Disposal. At June 30, 2019, we are in default of our Convertible Debt and Advance from NovellusDx agreements.

Cash Used in Operating Activities from Continuing Operations

Net cash used in continuing operating activities was $0.9 million for the six months ended June 30, 2019 . We used $1.2 million in net cash to fund our core continuing operations. We incurred additional uses of cash when adjusting for working capital items as follows: a net reduction in our operating lease liabilities of $0.1 million and a net increase in other current assets of $0.1 million, offset in part, by a net increase in accounts payable, accrued expenses and deferred revenue of $0.3 million, a decrease in operating right-of-use assets of $0.1 million and a decrease in accounts receivable of $0.1 million.

For the six months ended June 30, 2018 , we used $1.8 million of cash in continuing operating activities. We used $2.0 million in net cash to fund our continuing operations, offset, in part, when adjusting for working capital items as follows: a net increase in accounts payable, accrued expenses and deferred revenue of $0.2 million and a net decrease in other current assets of $0.1 million.

Cash Used in Investing Activities from Continuing Operations

Net cash used in continuing investing activities was $21,000 for the six months ended June 30, 2019 and resulted from the purchase of fixed assets.

Net cash used in continuing investing activities was $4,000 for the six months ended June 30, 2018 and resulted from the purchase of fixed assets.

Cash Provided by Financing Activities from Continuing Operations

Net cash provided by continuing financing activities was $5.4 million for the six months ended June 30, 2019 and principally resulted from net proceeds from the 2019 Offerings.

Net cash used in continuing financing activities was $27,000 for the six months ended June 30, 2018 and resulted from principal payments on finance lease obligations.

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 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, additional capital may not be available when needed on acceptable terms, or at all. If adequate funds are not available, we may need to sell off non-core assets, or, in extreme cases, discontinue our operations or liquidate our assets. In July 2019, we repaid our ABL and Term Note as part of the Business Disposals. However, we are currently in default with our Convertible Note from Iliad and our Advance from NovellusDx. We are working with both parties to negotiate a possible resolution or settlement of these debts.

Net cash used in operating activities for continuing operations was $0.9 million for the six months ended June 30, 2019 and the Company had unrestricted cash and cash equivalents of $0.7 million at June 30, 2019 , an increase from $0.2 million at December 31, 2018 . The Company has negative working capital from continuing operations at June 30, 2019 of $7.3 million .

Prior to the closing of the Business Disposals transactions in July 2019, we did not believe that our current cash would support operations beyond the next three months from the date of this report unless certain assets were converted to cash as described below with respect to the Business Disposals. The Company currently requires a significant amount of additional capital to

30
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fund operations and pay its unsecured debt and accounts payable, and its ability to continue as a going concern following the Business Disposals is dependent upon its ability to collect its Excess Consideration Note related to the BioPharma Disposal and its outstanding accounts receivable, receive the Earn-Out payments from siParadigm and negotiate discounts in good faith with its trade suppliers. These factors raise substantial doubt about our ability to continue as a going concern for the next twelve months from the date of this report. In July 2019, we sold our BioPharma Business and Clinical Business as described in the Business Disposal section above. While the Buyer assumed certain of our liabilities in the BioPharma Disposal, the cash received to date from the Business Disposals is insufficient to satisfy all of the Company’s liabilities and other obligations, and the Company cannot determine at this time if future Earn-Out payments and payoff of or downward adjustments to the Excess Consideration Note, combined with settlements of claims against the Company will enable all creditors to be paid in full and provide sufficient funds for future operations. We are continuing to evaluate additional strategic options, which could include the sale of other assets, a merger, reverse merger or other strategic transaction. We can provide no assurances that our current actions will be successful or that additional sources of cash or financing will be available to us on favorable terms, if at all. If the Company is not able to collect its accounts and notes receivable or raise additional capital on a timely basis or on favorable terms, the Company may need to scale back further or, in extreme cases, discontinue its operations or liquidate its assets.

Meanwhile we are taking steps to improve our operating cash flow. We can provide no assurances that our current actions will be successful or that any additional sources of financing will be available to us on favorable terms, if at all, when needed. Our 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, 2018 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 customers, 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 realize upon our note receivable from Interpace in a timely manner, and the magnitude of the adjustments to the face amount of such notes, if any;

•
our ability to realize upon the earn-out obligations due from siParadigm in a timely manner, and the possible reduction in the current or future volume of business acquired from us;
•
our ability to collect the accounts receivable from third-party commercial insurance payers we have retained;
•
our ability to negotiate discounted settlements with our creditors;
•
the ability of our vivoPharm subsidiary to achieve revenue growth and profitability;
•
our ability to maintain our present customer base and obtain new customers for vivoPharm;
•
the costs of operating and enhancing our laboratory facilities;
•
our ability to develop and rationalize our business strategy going forward to be commensurate with our corporate overhead;
•
our ability to satisfy regulatory requirements;
•
our ability to secure new financing and the amount thereof;
•
our ability to maintain our listing on Nasdaq;
•
our ability to retain our management team and have them be able to devote sufficient time and attention to our business in light of potentially competing obligations to assist the acquirers in the transition of the Business Disposals;
•
the effect of competing technological and market developments; and
•
other risks and uncertainties discussed in our annual report on Form 10-K for the year ended December 31, 2018, as updated in this Form 10-Q and other reports, as applicable, we file with the Securities and Exchange Commission.

The unaudited condensed consolidated financial statements for the six months ended June 30, 2019 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 unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Income Taxes

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

The notes to our audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2018 contain a summary of our significant accounting policies. The adoption of ASC 842 is discussed in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q. We consider the following accounting policies critical to the understanding of the results of our operations:
 
•
Revenue recognition;
•
Accounts receivable and bad debts;
•
Warrant liabilities and other derivatives;
•
Stock-based compensation;
•
Income taxes; and
•
Impairment of intangibles and long-lived assets.

Cautionary Note Regarding Forward-Looking Statements

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

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

•
our ability to realize upon the earn-out obligations due from siParadigm in a timely manner, and the possible reduction in the current or future volume of business acquired from us;
•
our ability to collect the accounts receivable from third-party commercial insurance payers we have retained;
•
our ability to negotiate discounted settlements with our creditors;
•
the ability of our vivoPharm subsidiary to achieve revenue growth and profitability;
•
our ability to maintain our present customer base and obtain new customers for vivoPharm;
•
the costs of operating and enhancing our laboratory facilities;
•
our ability to develop and rationalize our business strategy going forward to be commensurate with our corporate overhead;
•
our ability to satisfy regulatory requirements;
•
our ability to secure new financing and the amount thereof;
•
our ability to maintain our listing on Nasdaq;

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•
our ability to retain our management team and have them be able to devote sufficient time and attention to our business in light of potentially competing obligations to assist the acquirers in the transition of the Business Disposals;
•
the effect of competing technological and market developments; and
•
other risks and uncertainties discussed in our annual report on Form 10-K for the year ended December 31, 2018, as updated in this Form 10-Q and other reports, as applicable, 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 June 30, 2019 , the end of the period covered by this report on Form 10-Q. Based on this evaluation, our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer) have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level at June 30, 2019 because of the material weakness in the Company’s internal control over financial reporting that existed at December 31, 2018 that has not been fully remediated by the end of the period covered by this quarterly report on Form 10-Q. 

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

Changes in Internal Control over Financial Reporting

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

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

Material Weakness in Internal Control over Financial Reporting

Subsequent to the evaluation made in connection with filing our annual report on Form 10-K for the year ended December 31, 2018, management has begun the process of remediation of the material weakness. The further remediation is being conducted due to latency effects associated with the ASC 606 implementation as well as a legacy location that involves design changes to

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our internal controls over revenue recognition. In 2019, management plans to include additional reconciliations between its general ledger and billing systems to enhance its remediation efforts. We believe these actions to be sufficient to remediate the identified material weakness and to enhance our internal control over financial reporting. However, the new enhanced controls have not operated long enough to conclude at the time of this filling that the material weakness was fully remediated. The Company expects this deficiency to be corrected by the end of 2019.


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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 alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 based on allegedly false and misleading statements and omissions regarding our business, operational, and financial results. The lawsuits sought, among other things, unspecified compensatory damages in connection with purchases of our stock between March 23, 2017 and April 2, 2018, as well as interest, attorneys’ fees, and costs. On August 28, 2018, the Court consolidated the two actions in one action captioned  In re Cancer Genetics, Inc. Securities Litigation  (the “Securities Litigation”) and appointed shareholder Randy Clark as the 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. On December 31, 2018, Defendants filed a motion to dismiss the amended complaint for failure to state a claim. On March 1, 2019, lead plaintiff filed its opposition to the motion to dismiss. On April 15, 2019, defendants filed their reply in further support of their motion to dismiss. Defendants' motion remains pending before the Court. The Company is unable to predict the ultimate outcome of the Securities Litigation and therefore cannot estimate possible losses or ranges of losses, if any.

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

Item 1A.    Risk Factors

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, 2018 except as noted below:

Our recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern.

At June 30, 2019, 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. Prior to the closing of the Business Disposals transactions in July 2019, the Company did not have sufficient cash at June 30, 2019 to fund normal operations beyond the next three months from the date of this report unless certain current assets were converted to cash, as described below. The Company’s ability to continue as a going concern after the Business Disposals is dependent on the Company’s ability to raise additional equity or debt capital, spin-off non-core assets to raise additional cash, collect its outstanding accounts receivable and timely collect on the Excess Consideration Note or receive the Earn-Out payments from siParadigm without significant offsets, and negotiate discounts in good faith with its trade suppliers. These factors raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of this current report on Form 10-Q.

Net cash used in operating activities for continuing operations was $0.9 million for the six months ended June 30, 2019 and the Company had unrestricted cash and cash equivalents of $0.7 million at June 30, 2019 , an increase from $0.2 million at December 31, 2018 . The Company has negative working capital from continuing operations at June 30, 2019 of $7.3 million .


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

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

The Company’s ability to collect timely on the Excess Consideration Note due it from IDXG is uncertain .

On July 15, 2019, the Company entered into a secured creditor asset purchase agreement (the “BioPharma Agreement”) by and among the Company, Gentris, LLC, a wholly-owned subsidiary of the Company, Partners for Growth IV, L.P. (“PFG”), Interpace Diagnostics Group, Inc. (“IDXG”) and a newly-formed subsidiary of IDXG, Interpace BioPharma, Inc. (“Buyer”). The BioPharma Agreement provided for a consensual private foreclosure sale by PFG of all assets relating to the Company’s BioPharma Business (as defined in the BioPharma Agreement) to Buyer (the “BioPharma Disposal”). Pursuant to the BioPharma Agreement, Buyer purchased from PFG certain assets and assumed certain liabilities of the Company relating to the BioPharma Business, providing as gross consideration $23,500,000, less certain closing adjustments totaling $1,978,240, of which $7,692,300 was paid in the form of a promissory note issued by Buyer to the Company (the “Excess Consideration Note”) and the remainder was paid to PFG in cash. PFG utilized the cash proceeds to satisfy the outstanding balances of the Silicon Valley Bank (“SVB”) asset-based revolving line of credit (“ABL”) and the $6.0 million term note to PFG (“PFG Term Note”), and to satisfy certain transaction expenses. The balance of approximately $2,260,000 was delivered to the Company along with the Excess Consideration Note. The Excess Consideration Note will mature on the earlier of the date of (i) the consummation of an investment (the “Ampersand Investment”) by Ampersand Capital Partners or any of its affiliates (“Ampersand”) into IDXG or Buyer, following IDXG receiving the approval of its shareholders of the issuance of shares of its common stock in connection therewith and (ii) July 15, 2022, and will be paid interest-only quarterly prior to maturity at a rate of 6% per year.

The annual meeting of the IDXG shareholders is currently scheduled for October 10, 2019. If the IDXG shareholders approve the Ampersand Investment and if all other closing conditions to the Ampersand Investment are satisfied, then following such annual meeting, Buyer will be required to use the proceeds from the Ampersand Investment to repay the Excess Consideration Note, subject to certain set-off rights. If the IDXG shareholder do not approve the Ampersand Investment, or if the other closing conditions thereto are not otherwise satisfied or waived, Buyer will not be obligated to make payment on the Excess Consideration Note to us in the immediate short term. If for any reason, payment of the Excess Consideration Note is not made by Buyer to the Company in the near term, the Company’s ability to satisfy its obligations to existing creditors will be severely compromised. No assurance can be given that the IDXG shareholders will approve the Ampersand Investment, that the other closing conditions thereto will be satisfied or that repayment of the Excess Consideration Note otherwise will be made.

In addition, the purchase price is to be adjusted based on the net worth (assets less liabilities) of the BioPharma business as of June 30, 2019 as compared to the net worth of the BioPharma business as of April 30, 2019, with any increase or decrease in net worth over such period being added to or subtracted from, respectively, the principal of the Excess Consideration Note, with such adjustment not to exceed $775,000. The Excess Consideration Note is also subject to set-off in the event that certain older accounts receivable of the Company purchased by Buyer, in the aggregate amount of approximately $830,000, are not collected prior to December 31, 2019, and as indemnification for breaches of certain limited warranties and of covenants of the Company and other specified items, subject to agreed-upon caps, baskets and survival periods as set forth in the BioPharma Agreement. Alternatively, if the Excess Consideration Note is no longer outstanding after December 31, 2019, the above-mentioned accounts receivable adjustment will be satisfied through an AR Holdback (as defined in the BioPharma Agreement) mechanism, as set forth in the BioPharma Agreement. The Excess Consideration Note is subordinated in favor of IDXG’s senior lender, subject to certain exceptions set forth therein. Accordingly, even if the IDXG shareholders approve the Ampersand Investment and the closing thereof occurs, the cash available to the Company to satisfy its creditors is likely to be less than the $7,692,300 initial principal amount of the Excess Consideration Note.

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The Company is in default under certain of its debt agreements, and its ability to satisfy claims of all its creditors in full is uncertain .

While in connection with the closing of the BioPharma Disposal, the SVB ABL and the PFG Term Note were terminated, and all related liens were released, the Company remains liable to various unsecured creditors. The Company is also in default under the convertible promissory note dated July 17, 2018 (“Convertible Note”) with Iliad Research and Trading, L.P. (“Iliad”), which had an outstanding principal amount of $3.1 million as of June 30, 2019, and under the loan (the “Advance from NDX”) advanced by NovellusDx, Ltd. (“NDX”), which had an outstanding principal amount of $1.5 million as of June 30, 2019. In the aggregate, liabilities other than those of discontinued operations, as of June 30, 2019, consisted of an aggregate of $9.2 million in current liabilities and $9.5 million in total liabilities. This is compared to current assets other than those of discontinued operations of $1.9 million , as of June 30, 2019. While the Company believes that if the Excess Consideration Note is paid in October 2019 this will significantly improve the Company’s ability to satisfy its obligations to unsecured creditors, no assurance can be given that such unsecured creditors will be willing to wait for the Company to receive payment on the Excess Consideration Note or that claims will not be asserted in addition to the amounts which the Company believes it is liable for at this time.

The Company’s additional sources of funds are also uncertain.

The Company has three sources of funds following the Business Disposals in addition to payments on the Excess Consideration Note. First, as part of the sale of the Clinical Business to siParadigm, the Company is to receive earn-out payments based on the revenues of siParadigm from the former customers of the Company’s Clinical Services business. Such earn-out payments are based on revenues generated in the 12 months following the closing of the sale of the Clinical Services business, and are to be paid over 24 months following such sale. No assurances can be given with respect to the amount and timing of such payments. The Company is also attempting to collect on certain accounts receivable it owns that were not sold to siParadigm or Buyer. The net amount of such accounts receivable as of June 30, 2019 was approximately $2,100,000. No assurances can be given as to the amounts and timing of collections on such accounts receivable.

Finally, the Company continues to own its Discovery Business through its vivoPharm subsidiary. For the first six months of 2019, the Discovery Business had a net loss of $0.5 million and had cash used in operations of $0.9 million . All vivoPharm revenues will have to be used to satisfy vivoPharm’s liabilities and obligations. No assurance can be given as to whether the Discovery Business will ever generate sufficient positive cash flow so as to be able to pay dividends to the parent company, and support our corporate overhead.

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

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

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

As a result, our board of directors may elect to pursue a strategic transaction to attempt to expand the business and create additional value for shareholders, or in light of the time, costs and uncertainties inherent in seeking such a strategic transaction, and the costs in remaining as a public company, our board may decide to pursue a dissolution and liquidation of the Company. If our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation of the Company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. Our commitments and contingent liabilities may include severance obligations related to the recent asset sales. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these

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matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.

Management may have conflicts of interest.

Current management of the Company, principally its Chief Executive Officer and Chief Financial Officer, are responsible for the day-to-day operations of the Company, including planning for the future direction of the Company after the Business Disposals. Such officers also are expected to enter into consulting agreements with IDXG (and, in the case of the Chief Executive Officer, siParadigm) pursuant to which they will assist in the transition of the Clinical Business and BioPharma Business to siParadigm and IDXG, as applicable. It is possible that the dual roles will create conflicts of interest for such officers with respect to allocation of their time and otherwise. No assurance can be given that the officers of the Company will have sufficient time and resources to properly direct the future operations of the Company, or that other conflicts of interest in their dual roles will not arise.

We are not currently in compliance with the continued listing requirements for the Nasdaq Capital Market. If we do not regain compliance and continue to meet the 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 and that we hold an annual meeting of stockholders within twelve months of the end of our fiscal year. In addition, on January 29, 2019, the Company received written notice from the Listing Qualifications Staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that it was required to seek stockholder approval of the execution of the NDX Credit Agreement, under which the Company was advanced $1,500,000, the outstanding balance of which, including interest, is convertible, at the option of NDX, into shares of common stock at a conversion price of $0.606 per share, due to the potential for the Company, upon a conversion of such outstanding balance, with interest, to be required to issue common stock at a discount to the market price of the common stock on the day of execution of such agreement in excess of 20% of the pre-transaction outstanding shares of common stock, pursuant to Nasdaq Listing Rule 5635(d) (the “Approval Requirement”). On January 3, 2019, we received written notice from the Listing Qualifications Staff Nasdaq notifying us that we no longer comply with Nasdaq Listing Rule 5620(a) due to our failure to hold an annual meeting of stockholders within twelve months of the end of our fiscal year ended December 31, 2017 (the “Annual Meeting Requirement”).

We submitted a plan to regain compliance with the Approval Requirement and Annual Meeting Requirement to Nasdaq, which plans were approved on May 15, 2019, subject to our holding our annual meeting by May 31, 2019 and the Company’s stockholders approving the potential issuances to NDX at the annual meeting. As a result of the annual meeting being held on May 31, 2019 and the stockholders approving such issuances, Nasdaq notified the Company on June 3, 2019 that the Company had regained compliance with the Approval Requirement and Annual Meeting Requirement, and the matters were closed.

However, on November 13, 2018, we received a written notice from Nasdaq indicating that we were not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. We had 180 calendar days in which to regain compliance, or until May 13, 2019, which we did not do. On May 15, 2019, Nasdaq granted us an additional 180 days within which to regain compliance.

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. To that end, at our 2019 annual meeting of stockholders held on May 31, 2019, our stockholders voted to approve an amendment to the Company’s certificate of incorporation to effect a reverse stock split of common stock, at a ratio in the range from 5-for-1 to 30-for-1, with such specific ratio to be determined by the Company’s board of directors. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement, or maintain compliance even if we effect a reverse stock split.

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, 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).

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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

Between July 24, 2019 and July 31, 2019, the Company issued an aggregate of 2,571,429 shares (the “Exchange Shares”) of common stock to Iliad in exchange for the return of $375,000 of principal amount of the Convertible Note to the Company. The Exchange Shares are not registered under the Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws. The Company has relied on the exemption from the registration requirements of the Securities Act by virtue of Section 3(a)(9) under the Securities Act.

Item 6.        Exhibits

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



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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: August 19, 2019
 
 
 
 
 
/s/ John A. Roberts
 
 
 
 
 
 
John A. Roberts
 
 
 
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
 
 
Date: August 19, 2019
 
 
 
 
 
/s/ M. Glenn Miles
 
 
 
 
 
 
M. Glenn Miles
 
 
 
 
 
 
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
 
 
 
 
 

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INDEX TO EXHIBITS
 
Exhibit
No.
  
Description
 
 
 
2.1
 
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
31.1
  
 
 
 
31.2
 
 
 
32.1
  
 
 
 
32.2
 
 
 
101
  
The following materials from the Registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet at June 30, 2019 (unaudited) and December 31, 2018, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the three and six month periods ended June 30, 2019 and 2018 (unaudited), (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and six month periods ended June 30, 2019 and 2018 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2019 and 2018 (unaudited) and (v) Condensed Notes to Consolidated Financial Statements (unaudited)
 
 
 
*
 
Filed herewith.
**
 
Furnished herewith.
 

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EXECUTION VERSION ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of July 5, 2019, by and between siParadigm, LLC, a New Jersey limited liability company (d/b/a siParadigm Diagnostic Informatics), with a principal place of business at 25 Riverside Drive, Pine Brook, NJ 07058 (“Buyer”), and Cancer Genetics Inc., a Delaware corporation, with a principal place of business at Meadows Office Complex, 201 Route 17 North, 2nd Floor, Rutherford, NJ 07070 (“Seller”, and collectively with Buyer, the “Parties” and each a “Party”). WITNESSETH: WHEREAS, Seller provides personalized diagnostics and services that enable precision medicine in the field of oncology, including clinical lab testing services that provides critical genomic information used for patients and physicians to diagnose, monitor and inform cancer treatment; WHEREAS, Buyer is a specialized reference laboratory with expertise in hematopathology and oncology diagnostics, offering next-generation sequencing, karyotyping, flow cytometry, and other testing allowing personalized medicine; WHEREAS, Seller wishes to sell to Buyer certain assets associated with its clinical laboratory services business (the “Clinical Lab Services Business”) and cease the operation of its Clinical Lab Services Business from and after the Closing; WHEREAS, Buyer desires to purchase the Designated Assets (as hereinafter defined) upon the terms and subject to the conditions hereinafter set forth; and WHEREAS, in connection with the execution and delivery of this Agreement and as a condition to the willingness of Buyer to enter into this Agreement, (i) Seller’s Chief Executive Officer, Jay Roberts (“Mr. Roberts”), and (ii) Seller’s Chief Commercial Officer, Michael McCartney (“Mr. McCartney”, and together with Mr. Roberts, the “Executives”), are each entering into a separate consulting agreement with Buyer concurrently herewith (each, a “Consulting Agreement”), whereby each Executive will agree to provide certain transition services to Buyer, and which Consulting Agreements shall contain an agreement that such Executive, as applicable, shall not, directly or indirectly, solicit, seek business from, or contact for any purpose other than in connection with Seller’s Biopharma or Discovery businesses as currently conducted, any CGI Customer, for a period of three (3) years after Closing. NOW, THEREFORE, in consideration of the foregoing and the promises and covenants hereafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, on the basis of, and in reliance upon, the representations, warranties, covenants, obligations, and agreements set forth in this Agreement, hereby agree as follows: ARTICLE I SALE AND PURCHASE OF DESIGNATED ASSETS Section 1.01 Sale and Purchase of Designated Assets. 204490255

 
At the Closing (as hereinafter defined), upon the terms and conditions set forth in this Agreement, Seller shall sell, convey pursuant to and as evidenced by the Assignment and Assumption and Bill of Sale (as hereinafter defined), set over, assign, transfer, and deliver, to Buyer, and Buyer shall purchase and acquire from Seller, free and clear of any and all liens and encumbrances, all of Seller’s right, title, and interest in and to the following (the “Designated Assets”): (a) one (1) Personal Genome Machine used in the operation of the Clinical Lab Services Business (the “Equipment”); (b) a list of all customers of Seller’s Clinical Lab Services Business from whom the Seller has received orders for clinical laboratory specimens during the period from and after April 1, 2019 until June 30, 2019 (the “CGI Customers”, and such list, the “CGI Customers List”), which list is attached as Schedule 1.01(b); (c) copies of the records primarily relating to and used in the operation of the Clinical Lab Services Business to the extent determined and designated by Buyer, including to the extent permitted by applicable law (i) any employment or personnel records of employees of Transferred Employees, (ii) to the fullest extent permitted by applicable laws, medical records and patient files in connection with the CGI Customers, and (iii) books, files, invoices, flow sheets, and other technical and non-technical data and information primarily relating to the continuing operations and services provided by the Clinical Lab Services Business (collectively, the “Clinical Lab Assets Records”); (d) (i) certain clinical protocols, policies and procedures, review tools and forms used in the operation of the Clinical Lab Services Business specified on Schedule 1.01(d) (collectively, the “Clinical Lab Services Business Materials”); (e) all of Seller's rights, interests, powers and privileges in, to and under any the contracts of Seller used in the operation of the Clinical Lab Services Business with respect of the CGI Customers, including the contracts between Seller and hospitals for provision of laboratory testing, specified on Schedule 1.01(e) (the “Contracts”); (f) all manufacturer or vendor warranties, service policies, customer support agreements solely to the extent related to the Designated Assets; and (g) all the goodwill in or arising from the Clinical Lab Services Business (the “Goodwill”). Section 1.02 Excluded Assets. Notwithstanding anything to the contrary contained herein, there is excluded from the sale and purchase contemplated by this Agreement, any and all assets of Seller of any nature whatsoever other than the specific Designated Assets including but not limited to the following assets of Seller (the “Excluded Assets”): -2

 
(a) all contracts of Seller which are not Contracts, whether or not relating to a Designated Asset being purchased hereby, (the “Excluded Contracts”); (b) all cash or cash equivalents held by or on behalf of Seller; (c) all accounts receivable for services provided by Seller; (d) all rights to claims, refunds or adjustments with respect to Excluded Assets or Excluded Liabilities; (e) all current and prior insurance policies of Seller and all rights of any nature with respect thereto, including all insurance recoveries, prepaid or unearned premiums thereunder and rights to assert claims as to any such insurance recoveries (except to the extent set forth elsewhere herein); (f) all assets of any nature of Seller and its affiliates that are not directly related to the Clinical Lab Services Business. Section 1.03 Assumed Liabilities. At the Closing, upon the terms and conditions set forth in this Agreement, from and after the Closing Date, Buyer will assume, perform, and pay only the Liabilities (as defined below) of Seller arising and relating to periods after the Closing Date in the nature of services to be performed, payments to be made, or goods to be delivered under the Contracts that are specifically assigned to and assumed by Buyer but not including any payments or obligations of Seller thereunder which relate to any period prior to the Closing Date (the “Assumed Liabilities”), but only to the extent the same are not incurred or resulting from (directly or indirectly) any violation by Seller of any applicable laws, or any breach or default by Seller under any Contract with any person or any representation, warranty or covenant of such Seller noted herein. “Liability” means any debt, liability or obligation of any nature. Section 1.04 Non-Assumption of Liabilities. (a) Notwithstanding anything in this Agreement to the contrary, except for the specific Assumed Liabilities, Buyer does not assume, and shall in no event be liable for, any Liabilities of Seller to any person (collectively, the “Excluded Liabilities”), regardless of when or how any such may have arisen, and all such Liabilities of Seller shall be and remain the sole and exclusive liability, obligation and responsibility of Seller; (b) except for the Assumed Liabilities, Seller shall pay or otherwise fully discharge, as the same shall become due, all of its Liabilities first existing after the Closing Date or thereafter; and (c) following the Closing Date, to the extent any creditor of Seller or any other person asserts a claim against Buyer or any Buyer Indemnitee with respect to any Liability of Seller not specifically assumed by Buyer pursuant to this Agreement, Seller, subject to and in accordance with Article IX, will indemnify Buyer and each Buyer Indemnitee and hold Buyer and each Buyer Indemnitee harmless from and against any and all Losses incurred by Buyer or any Buyer Indemnitee as a result of -3

 
Seller’s failure to pay such creditor or other person, or incurred or suffered by Buyer or any Buyer Indemnitee as a result of the foregoing; and (d) following the Closing Date, to the extent any person asserts a claim against Seller or any Seller Indemnitee with respect to any Assumed Liability, Buyer, subject to and in accordance with Article IX, will indemnify Seller and each Seller Indemnitee and hold Seller and each Seller Indemnitee harmless from and against any and all Losses incurred by Seller or any Seller Indemnitee as a result of Buyer’s failure to pay such person, or incurred or suffered by Seller or any Seller Indemnitee as a result of the foregoing. Section 1.05 Obligations of Seller Associated with Purchase of Assets/Post-Closing Obligations. The Parties acknowledge and agree that Buyer requires certain cooperation from Seller to transition CGI Customers to Buyer, including time for Buyer to meet with CGI Customers and develop requisitions and other forms for use by CGI Customers. The Parties agree to cooperate with each other as to such transition, including exchange of information necessary and for the transition, and including the following: (a) Within thirty (30) days following the Closing Date (or such longer time as mutually agreed upon by the Parties), Seller will provide Buyer with any validation samples for any tests offered by Seller that Buyer does not currently offer in-house, to allow Buyer to internalize all testing, and the Parties agree that until such testing is successfully internalized, such testing shall be performed by Seller at Seller’s or its designee’s premises and at Seller’s expense, and payment for such testing requested by Buyer will be at eighty percent (80%) of the New Jersey Medicare fee schedule, regardless of anything to the contrary in this Agreement. (b) Seller hereby licenses to Buyer, on a non-exclusive royalty-free basis worldwide, for a period of six (6) months from and after the Closing Date, Seller’s Focus NGS panel proprietary tests, at such price in accordance with Section 2.01(b)(vi). (c) For ninety (90) days following the Closing Date (or such longer time as mutually agreed upon by the Parties), the Seller will forward the client service telephone line to Buyer’s line designated by Buyer, unless ownership of such client service telephone line is earlier transferred to Buyer. (d) Within five (5) days of Closing, Seller will provide to Buyer all in-house requisition forms and specimen transport boxes in its possession at no additional charge, including its electronic requisition form, and Seller shall further provide to Buyer an electronic copy of all protocols used by Seller as part of the Clinical Lab Services Business for any tests not already being run in-house by Buyer. (e) Seller will provide one or more mutually acceptable contact persons to provide information on daily operational requirements for Buyer. (f) Seller hereby licenses to Buyer, on a non-exclusive royalty-free basis, for a period of three (3) months from and after the Closing Date, the Transition IP. For purposes hereof, “Transition IP” shall mean all trademarks and trade names of Seller related to or used in the Clinical Lab Services -4

 
Business solely to the extent such trademarks and trade names are included in the requisitions and specimen transport boxes to be provided to Buyer pursuant to Section 1.05(d). (g) Seller shall within five (5) business days of the Closing Date provide Buyer with an electronic version of all patient reports and data from Seller’s laboratory information system for patients for whom Buyer may provide services, in a manner usable by Buyer’s systems, for Buyer’s purpose of maintaining patient historical data and for optimal patient care, to be held in custody by Buyer, and used only to the extent permitted by applicable law, under and pursuant to a joint custodial agreement to be agreed upon in good faith between the Parties in form and substance substantially consistent with the form provided on Buyer’s behalf prior to the date hereof; provided, that Buyer agrees to provide the applicable vendor (NovoPath) with any applicable fees in connection therewith. (h) As soon as practicable following the Closing, but in no event later than ten (10) business days following the Closing Date (or such longer time as reasonably agreed by Buyer), Seller shall pay any amounts remaining on the Equipment, and Seller shall arrange for and cooperate in good faith as to the transfer of the Equipment to Buyer’s premises, and shall make commercially reasonable best effort to have such transfer occur within no more than ten (10) business days following the Closing Date. ARTICLE II PURCHASE PRICE Section 2.01 Purchase Price. (a) The purchase price to be paid by Buyer to Seller for the Designated Assets (the “Purchase Price”) shall be as set forth below in Section 2.01(b). (b) Subject to the adjustments set forth in Section 2.01(b)(iii), the Purchase Price shall be paid as follows: (i) Forty-Five Thousand Ninety-Nine dollars and Twenty-Nine cents ($45,099.29) (the “Closing Payment”), which is the amount that the parties agrees is the current net book value for the Equipment, (calculated as the depreciated value of the Equipment, with depreciation calculated over five (5) years), shall be paid at Closing; (ii) An amount equivalent to one times the New Jersey Medicare Fee Schedule for all tests actually performed by Buyer for CGI Customers during the twelve (12) month period (the “Earn-Out Period”) following the Closing (which amount shall be paid out during the twenty-four (24) month period following the Closing as set forth in sub-clause (iii) below), which the Parties acknowledge will be dependent on the levels of business from the CGI Customers performed by Buyer within the twelve (12) months after Closing (the “Earn-Out”). Notwithstanding the above, if the test is done for a hospital with which Seller currently has a direct billing arrangement, the price for a direct bill test will be the negotiated price with the hospital rather than the NJ Medicare Fee Schedule Price. (iii) Buyer will calculate the monthly Earn-Out payment for the preceding month by the tenth (10th) day of the following month each month during the thirteen (13) months following the Closing, reflecting 100% of the New Jersey Medicare fee schedule of all tests performed by Buyer for -5

 
CGI Customers in the previous month (or the alternative direct billing price pursuant to the terms of Section 2.01(b)(ii)), as indicated by billed CPT codes included in patients’ reports and billing records. One half (1/2) of the full applicable Earn-Out payment for any month in the twelve month period will be due and payable by Buyer by the tenth (10th) day of the following month (the “Initial Payment Date”) (such that, for example, the first payment due in respect of tests performed in July, 2019 will be due on August 10, 2019) with the remaining half to be due and payable on the twelve- (12) month anniversary of such Initial Payment Date (the “Second Payment Date”) (it being acknowledged and agreed that the Earn- Out payments shall be made over a twenty-four (24) month period). Buyer will advance to Seller One Million Dollars ($1,000,000) cash by wire transfer on the date hereof, minus $177,325.51 as the amount that Buyer has spent purchasing reagants for Seller, against future Earn-Out payments (the “Advance”). Any amounts spent by Buyer in purchasing reagants for Seller, in addition to the $177,325.51, after Closing, shall be credited by Buyer against the monthly payments due to Seller. Buyer shall be entitled to a credit against the Advance of 25% of each monthly Earn-Out payment due to Seller hereunder (and pay in cash 75% of the one half (1/2) amount due for that month on the applicable Initial Payment Date, with the remaining balance due and payable in cash on the applicable Second Payment Date) in respect of the first four (4) months after Closing, and thereafter a credit against the Advance of 75% of each monthly Earn-Out payment (with 25% of the one-half (1/2) amount due for that month, to be paid in cash on the applicable Initial Payment Date, with the remaining balance due and payable on the applicable Second Payment Date) until the aggregate amount of such credits against Earn-Out payments equal the $1,000,000 Advance. By way of example only, if 100% of the NJ Medicare fee schedule of all tests performed by Buyer for CGI Customers in July 2019 is equal to $200,000, Buyer would pay Seller $75,000 on August 10, 2019, with $25,000 credited against the Advance, and (assuming that the Advance had been fully set off) $100,000 on August 10, 2020. (iv) At any time after the second monthly Earn-Out payment has been made, Buyer shall have the right to prepay the Earn-Out amounts not yet paid to Seller without penalty by giving Seller a written notice (the “Earn-Out Prepayment Notice”) invoking the right to prepay the remainder of the Earn-Out, as set forth in this sub-clause. Prepayment of the remaining amount shall be made on an amount calculated by taking the amounts paid by Buyer in the months preceding the prepayment, and annualizing that amount. For example, if Buyer decides six (6) months after Closing to prepay the remaining Earn-Out, and the Earn-Out in the first six (6) months after Closing was One Million Dollars ($1,000,000) (calculated based upon the NJ Medicare fee schedule for the tests performed for the CGI Customers), such amount will be annualized to Two Million Dollars ($2,000,000), and the Earn-Out if the prepayment right is invoked shall be Two Million Dollars ($2,000,000). In the event that Buyer delivers an Earn-Out Prepayment Notice, the 50% of Earn-Out payment amounts not yet paid from the time prior to the Earn-Out Prepayment Notice shall continue to be due and payable on the applicable Second Payment Dates, but the remainder of the Earn-Out as annualized pursuant to the Earn-Out Prepayment Notice and as described in the preceding sentence shall be made within thirty (30) days of the Earn-Out Prepayment Notice. For example, in the previous example in this sub-clause (iv), if Buyer delivers an Earn-Out Prepayment Notice on the six- (6) month anniversary of the Closing where the applicable Earn-Out in such initial six (6) month period was One Million Dollars ($1,000,000) of which Five Hundred Thousand Dollars ($500,000) should have been paid on the applicable Initial Payment Dates, Buyer shall pay One Million Dollars ($1,000,000) in respect of the remaining six (6) months of the Earn-Out Period within thirty (30) days of delivery of the Earn-Out Prepayment Notice, and the remaining balance of Five Hundred Thousand Dollars ($500,000) of Earn-Out Payments in respect of initial six (6) month period shall continue to be due and payable on the applicable Second Payment Dates as if the Earn-Out -6

 
Prepayment Notice had not been delivered. Buyer may decide any time prior to making the prepayment to not prepay, in which case Buyer’s obligations under this Section 2.01 shall continue as if the Earn-Out Prepayment Notice had not been delivered. (v) Buyer’s records to the extent directly related to the Earn-Out are subject to audit by Seller. (vi) Buyer will pay Seller only for tests for CGI Customers that are performed in-house at Buyer (except for the Focus NGS panels (which, for the avoidance of doubt, includes the lymphoid panels), which will not be performed in-house by the Buyer (until such later time as Buyer chooses to perform such tests in-house) but instead performed at Seller or Seller’s designee, and for which the Buyer shall pay the Seller $1,000 (one-thousand dollars) per test for each test requested by Buyer and performed at Seller’s designee. For clients shared between Buyer and Seller (if any) (“Shared CGI Customers”), a schedule of which Shared CGI Customers is attached as Schedule 2.01(b) (subject to any modifications as determined in good faith as mutually agreed upon by the Parties, the “Shared CGI Customers List”), Buyer will pay Seller based on 100% of the CMS fee schedule for those tests performed by Seller at Seller’s or Seller’s designee’s site for Shared CGI Customers in the first two (2) quarters of 2019. For example, if Seller demonstrates that it performed testing on its, or its designee’s, site for Shared CGI Customers worth $400,000 in the first two (2) quarters of 2019, Buyer will pay Seller $400,000 within thirty (30) days of the end of such period. Section 2.02 Allocation of Purchase Price. The Parties agree that the Purchase Price shall be allocated among the Designated Assets as determined by the Parties in accordance with generally accepted accounting principles. ARTICLE III TRANSFER OF TITLE TO DESIGNATED ASSETS Section 3.01 Certain Allocations as of Closing. All accounts receivable of the Clinical Lab Services Business based on services rendered prior to 11:59pm EST on the Closing Date (the “Closing Accounts Receivable”) as determined by the Parties shall remain the property of Seller following the Closing. All accounts receivable relating to the operation of the Clinical Lab Services Business based on services rendered on or after 11:59pm EST on the Closing Date shall be the property of Buyer. For the avoidance of doubt, Seller shall be entitled to bill for and receive all amounts collected, in respect of services rendered by the Clinical Lab Services Business before the Closing, and Buyer shall be entitled to bill for and receive all amounts collected in respect of services rendered by the Clinical Lab Services Business after the Closing. Buyer shall not assume any liabilities or obligations relating to the operation of the Clinical Lab Services Business which are incurred prior to 11:59pm ET on the Closing Date. ARTICLE IV CLOSING DELIVERABLES Section 4.01 Transfers and Deliveries. -7

 
The Closing contemplated by this Agreement shall, except as otherwise provided herein, take place remotely via the electronic exchange of documents and signatures as of the close of business on the date hereof (the “Closing”). All transfers and deliveries required to be made hereunder at the Closing shall be deemed to take place simultaneously and to be effective as of 11:59pm ET on the date of the Closing (the “Closing Date”). Section 4.02 Documents to Be Delivered by Seller. In addition to any other documents or items specifically required to be delivered pursuant to this Agreement, Seller shall execute and deliver to Buyer at the Closing, in form and substance reasonably satisfactory to Buyer and its counsel: (a) certified copies of the resolutions of the Board of Directors of Seller authorizing and approving this Agreement and all other transactions and agreements contemplated hereby; (b) an assignment and assumption agreement and general bill of sale, pursuant to which Seller shall convey to Buyer all of Seller’s right and title to, and interest in, the Designated Assets (the “Assignment and Assumption and Bill of Sale”) in the form annexed hereto as Exhibit A, duly executed by Seller; and (c) consulting and non-solicitation agreements signed by Mr. Roberts and Mr. McCartney. Section 4.03 Documents to Be Delivered by Buyer. In addition payment of the Closing Payment and the Advance, and any other documents specifically required to be delivered pursuant to this Agreement, Buyer shall execute and deliver to Seller at the Closing, in form and substance reasonably satisfactory to Seller, and their counsel: (a) certified copies of the resolutions of the Board of Managers of Buyer authorizing this Agreement and all other transactions and agreements contemplated hereby; and (b) the Assignment and Assumption and Bill of Sale, duly executed by Buyer. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: Section 5.01 Status of Seller; Approval. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Seller has all requisite power and authority to (i) own, lease and operate its properties, to carry on its Clinical Lab Services Business as it is now being conducted or presently proposed to be conducted and (ii) enter into the transactions contemplated under the Agreement (the -8

 
“Contemplated Transactions”). The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the Contemplated Transactions have been duly authorized by all requisite corporate actions on Seller’s part and have been approved and authorized by the Board of Directors of Seller. This Agreement has been duly and validly executed and delivered by the Seller and constitutes the valid and binding obligation of the Seller, subject to applicable bankruptcy, reorganization, insolvency, and other laws affecting creditors’ rights generally from time to time in effect (the “Bankruptcy Exception”). Section 5.02 No Violation. Except as set forth on Schedule 5.02, neither the execution and delivery of this Agreement by Seller nor the performance of Seller’s obligations hereunder and thereunder will (a) violate, conflict with, or constitute a default under, (i) any of the terms of Seller’s Certificate of Incorporation or by-laws, or any provisions thereof or (ii) any term or condition of any Contract to which Seller is a party or by which Seller or any of the Designated Assets may be bound, or (b) result in the acceleration of any material obligation under any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment, or decree to which Seller is a party or by which Seller is bound, and will not constitute an event which, after a notice or lapse of time or both, will result in such material violation, conflict, default, or acceleration thereunder. The execution and delivery of this Agreement and the performance by Seller of the transactions contemplated will not violate any applicable laws, rules or regulations of any Governmental Authority or violate any judgment, decree, or order applicable to Seller. Section 5.03 Title and Authority. Seller owns and has good and marketable title to the Designated Assets, and none of the Designated Assets are subject to any liens or encumbrances other than Permitted Liens, as set forth on Schedule 5.03, and has the power and the right to sell, transfer, assign, and deliver to Buyer the Designated Assets and on the Closing Date shall sell, convey, transfer, assign, and deliver to Buyer the Designated Assets free and clear of all liens except for the Assumed Liabilities. “Permitted Liens” as used herein shall mean liens or encumbrances that will be released with respect to Designated Assets and removed as of record at the Closing Date unless set forth on Schedule 5.03. Section 5.04 Contracts. (a) Seller, to its knowledge, related to the operation of the Clinical Lab Services Business has no contracts that it has not disclosed to Buyer. (b) Seller has not materially breached or terminated, nor is it in default under, any of the Contracts, and there exists no condition or event which, after notice or lapse of time or both, would constitute any such breach, termination, or default that would result in a Material Adverse Effect. “Material Adverse Effect” means any effect or event that has, or could reasonably be expected to have, a substantial and materially adverse impact on the Designated Assets or their operation in the ordinary course after the Closing, or on the obligations of Seller to be provided after Closing pursuant to this Agreement. Except as disclosed, no other party to any such Contract has materially breached, terminated, or is in default thereunder, and to the knowledge of Seller, there exists no condition or event which, after -9

 
notice or lapse of time or both, would constitute any such breach, termination, or default. No modification, amendment, cancellation, or termination of the Contracts has occurred, except as agreed upon by the parties to such Contract and the parties to this Agreement. Section 5.05 Litigation. Except as set forth on Schedule 5.05, there is no litigation, action, suit, investigation, claim, or proceeding pending or threatened against Seller adversely affecting the Clinical Lab Services Business or the Designated Assets, at law or in equity, before any federal, state or local governmental entity or municipality or subdivision thereof, or any authority, department, commission, board, bureau, agency, court, or instrumentality (collectively, the “Governmental Authority”), or that would impede or otherwise impair in any manner Buyer’s ability to consummate the Contemplated Transactions. Section 5.06 Laws. Seller has complied in all material respects with all applicable laws and other requirements of any applicable Governmental Authority where the failure to do so may have a Material Adverse Effect. Section 5.07 Approvals. Seller has and holds all, certifications, licenses and approvals necessary under applicable law, rules and regulations to conduct the Clinical Lab Services Business as currently conducted. Seller is in compliance with its obligations under such approvals and to the knowledge of Seller no event has occurred that allows, or after notice or lapse of time would allow, suspension, revocation or termination of approvals. Seller has no knowledge of any facts or circumstances that could reasonably be expected to result in an inability of Seller to renew any such approvals. Seller further represents and warrants that, except as set forth on Schedule 5.02, no third party consents are required regarding the Clinical Lab Services Business, the transfer of the Designated Assets, or to perform its duties and obligations under this Agreement except to the extent such consents have been obtained. Section 5.08 Labor and Employment Matters. (a) Seller has complied in all material respects with all applicable laws relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of Social Security and similar taxes, and occupational safety and health with respect to the Transferred Employees. There are no claims in connection with the Transferred Employees for any material compensation, damages, taxes, fines, penalties, or other amounts, for failure to comply with any of the foregoing laws. (b) Seller is not a party to or bound by any labor or collective bargaining Contract that pertains to Transferred Employees of Seller or any of Seller’s affiliates. Solely to the extent related to the Transferred Employees: (i) there are no organizing activities or collective bargaining arrangements, that would affect Seller, that are pending or under discussion with any labor organization or group of employees of Seller; (ii) there is, and during the past five (5) years there has been, no labor dispute, strike, controversy, slowdown, work stoppage, or lockout pending or threatened against or affecting Seller; and -10

 
(iii) there are no pending or threatened union grievances or union representation questions involving employees of Seller. (c) All Transferred Employees are authorized for employment by Seller in the United States in accordance with the Immigration and Naturalization Act, as amended, and the regulations promulgated thereunder, no allegations of immigration-related unfair employment practices have been made with the Equal Employment Opportunity Commission or other government agency, in respect of such employees, and Seller has completed and retained in accordance with the Immigration and Naturalization Service regulations a Form 1-9 for all Clinical Lab Services Business employees working in the United States. (d) Seller has withheld and paid to the appropriate Governmental Authority all amounts required to be withheld from Transferred Employees and is not liable for any arrears of wages, taxes, penalties, or other sums for failure to comply with any applicable laws relating to the employment of labor. Seller has paid in full to all the Transferred Employees, or adequately accrued in accordance with GAAP, all wages, salaries, commissions, bonuses, benefits, and other compensation due to or on behalf of such employees. (e) Seller is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to the Transferred Employees or employment practices. Seller nor any of their managers, executives or officers have received within the past five (5) years any notice of intent by any Governmental Authority responsible for the enforcement of labor or employment laws to conduct an investigation relating to the Transferred Employees and to the knowledge of Seller no such investigation is in progress. All Transferred Employees were at all times correctly classified as “employees” rather than independent contractors. Section 5.09 Payer Matters. There is no material dispute or issue between the Seller and any Governmental Authority, and no pending or, to the knowledge of Seller, threatened audit, proceeding, inquiry, or investigation between any payer and payer contract involving the Clinical Lab Services Business, except in the ordinary course of business. Section 5.10 ERISA. In each case, solely to the extent related to the Transferred Employees, and except as set forth on Schedule 5.10: (a) Seller has no employee benefit plans, bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance, termination pay, salary continuation, employment, consulting, indemnification, layoff, unemployment, change in control, or other benefit plans, programs, policies, practices, arrangements, or Contracts, to which Seller is a party, with respect to which Seller has any liability or obligation or which are maintained, contributed to or sponsored by Seller for the benefit of any current or former employee, consultant, officer, or director of Seller’s Clinical Lab Services Business (the “Plans”). -11

 
(b) Neither Seller nor any affiliate has ever during the past six (6) years maintained, sponsored, contributed to, or incurred any liability or obligation with respect to any employee benefit plan subject to Title IV of Employee Retirement Security Act of 1974 (“ERISA”) or Section 412 of the Internal Revenue Code (“IRC”), and none of the Plans is a multiemployer plan within the meaning of Section 3(37) or 4001(a)(3) of ERISA or a single employer pension plan within the meaning of Section 4001(a)(15) of ERISA for which Seller could incur liability under Section 4063 or 4064 of ERISA. (c) Any such Plan has been maintained and operated in compliance in all material respects with its terms and with applicable provisions of ERISA, the IRC, and all applicable laws, regulations, rulings and other authority issued thereunder governing such Plans, and there are no unfunded pension liabilities with respect to any Plan. Section 5.11 Absence of Certain Changes or Events. Since January 1, 2019, Seller has not: (a) sold, assigned, transferred, leased, or committed to sell, assign, transfer, or lease, any of the Designated Assets, other than in the ordinary course of the Clinical Lab Services Business; (b) received or sent any notice, demand, claim, inquiry, or other communication to or from any customer which adversely affects, or could reasonably be expected to affect, any Contract, the Designated Assets or any party’s obligations under this Agreement, including post-Closing obligations of the Clinical Lab Services Business; (c) suffered any damage, destruction, or loss, which is not fully covered by insurance, and which adversely affects the Designated Assets; (d) received notice or had knowledge of any union organizational activity or actual or potential labor trouble, strike, or other occurrence, event or condition of any similar character, or any violation or alleged violation of any labor-related laws, related in any way to the Transferred Employees; (e) been subject to any claim, or have any claim brought against Seller, or threatened to be brought against Seller, or entered into a settlement with respect to any such claims related to the Clinical Lab Services Business; (f) cancelled or forgiven any indebtedness or otherwise waived any claim or right related to the CGI Customers or the Designated Assets (g) entered into any material transaction related to the Designated Assets other than in the ordinary course of the Clinical Lab Services Business consistent with past practice; or (h) agreed in writing, or otherwise, to take any action described in this Section. Section 5.12 Absence of Undisclosed Liabilities. Seller has no material liabilities or obligations relating or affecting the Designated Assets or CGI Customers, whether accrued, absolute, contingent, or otherwise, except those set out in Schedule 5.12. For purposes of this Section, the term “liabilities” or “obligations” shall include, without limitation, any -12

 
direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, or responsibility, known or unknown, fixed or unfixed, secured or unsecured, or whether accrued, absolute, contingent, or otherwise. Section 5.13 Health Care Matters. Except as set forth on Schedule 5.13: (a) Seller and its directors, managers, officers, employees and agents (while acting in such capacity), are and have been in compliance with all relevant laws, as applicable, regulating health services or payment, including, but not limited to, the federal Anti-Kickback Statute (42 U.S.C. § 1320a- 7b(b)), the Stark laws (42 U.S.C. § 1395nn), the Anti-Inducement laws (42 U.S.C. § 1320a-7a(a)(5)), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the administrative False Claims laws (42 U.S.C. § 1320a-7b(a)), the exclusion laws (42 U.S.C. § 1320a-7), the civil monetary penalty laws (42 U.S.C. § 1320a-7a), the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. §§ 1320d-1320d-8), the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Medicare (Title XVIII of the Social Security Act), Medicaid (Title XIX of the Social Security Act), the Food, Drug and Cosmetic Act (21 U.S.C.§§ 301 et seq.), the Prescription Drug Marketing Act of 1987, the Deficit Reduction Act of 2005, the Controlled Substances Act (21 U.S.C. §§ 801 et seq.), and all regulations promulgated pursuant to such laws, and any other laws, regulation, guidance document, manual provision, program memorandum, opinion letter, or other issuance of any Governmental Authority which regulates kickbacks, patient or program charges, recordkeeping, claims process, documentation requirements, medical necessity, referrals, the hiring of employees or acquisition of services or supplies from those who have been excluded from government health care programs, quality, safety, privacy, security, pharmacy practice, licensure, accreditation or any other aspect of providing health care (together, the “Health Care Laws”). Seller has not received notice of and there are no pending or threatened legal proceedings relating to non-compliance by, or liability of, Seller under any Health Care Laws. (b) If applicable, Seller meets all of the requirements of participation and payment of, and is a party to valid supplier or other participation agreements for payment by any state or federal government health care program, any private insurance company, health maintenance organization, preferred provider organization, managed care organization, government contracting agency, or any other public or private third party payor program (“Programs”) to the extent that Seller bills or receives reimbursement from a particular Program. There are no legal or administrative proceedings pending or threatened which would be reasonably likely to result in a revocation, suspension, termination, probation, restriction, limitation, or non-renewal of any Program supplier or other participation agreement or result in the exclusion of Seller or any of its managers, officers, employees, or agents from any Program. Seller has not had any audits, within the last seven (7) years, of a Program or by any payer with respect to Seller or its affiliates. Seller or its directors, officers, managers or managing employees have not engaged in any activities which are cause for civil penalties or mandatory or permissive exclusion from any Program. (c) All reports, documents, claims, applications, and notices required to be filed, maintained, or furnished under any Program, have been so filed, maintained, or furnished and all such reports, documents, claims, applications, and notices were complete and correct in all respects on the date filed (or were corrected or supplemented by a subsequent filing, without prejudice or harm to Seller). -13

 
(d) Neither Seller’s rights nor the right of any licensed professional or other individual employed by Seller to receive reimbursements pursuant to any Program has been terminated, suspended, or materially limited as a result of any investigation or action; and Seller has not, during the past six (6) years, been the subject of any non-ordinary course inspection, investigation, survey, audit, monitoring, or other form of review by any Governmental Authority, professional review organization, accrediting organization or certifying agency based upon any alleged improper activity related to any Health Care Laws or Program, nor has Seller received any notice of deficiency related to any Health Care Laws or Program (other than those that have been cured or for which a plan of correction has been submitted and implemented) during the past seven (7) years in connection with the operations of the Clinical Lab Services Business. (e) Seller does not have any non-ordinary course reimbursement or payment rate appeals, disputes, or contested positions currently pending before any Program re the Clinical Lab Services Business. (f) Seller has timely filed all reports required to be filed and timely filed all claims or billings prior to the date hereof in accordance with Programs and all such reports and billings are complete and accurate in all respects and have been prepared in compliance in all respects with all applicable laws, rules, and regulations governing reimbursement and payment claims. Seller has paid or caused to be paid all known and undisputed refunds, overpayments, discounts or adjustments which have become due pursuant to such reports and billings and has no liability under any Program for any refund, overpayment, discount or adjustment. There are been no other reports, claims, or billings required to be filed by Seller in order to be paid under any Program for services rendered in connection with the Clinical Lab Services Business, except for reports not yet due. (g) Except as permitted under applicable laws, Seller nor any of Seller’s affiliates have: (i) offered, paid, solicited, or received anything of value, paid directly or indirectly, overtly or covertly, in cash or in-kind (including any kick-back, self-referral, bribe, or rebate) (collectively, “Remuneration”) to or from any physician or actual or potential referral source, family member of a physician, or actual or potential referral source, or an entity in which a physician or actual or potential referral source or physician family member or actual or potential referral source family member has an ownership or investment interest, including: (A) payments for personal or management services pursuant to a medical director agreement, consulting agreement, management contract, personal services agreement, or otherwise; (B) payments for the use of premises leased to or from a physician, a family member of a physician or an entity in which a physician or actual or potential referral source or family member has an ownership or investment interest; or (C) payments for the acquisition or lease of equipment, goods or supplies from a physician or actual or potential referral source, a family member of a physician or actual or potential referral source or an entity in which any of them has an ownership or investment interest; (ii) except for lawful discounts offered in the ordinary course of the Clinical Lab Services Business consistent with industry practice, offered, paid, solicited, or received any Remuneration (excluding fair market value payments for equipment or supplies) to or from any health care provider, pharmacy, drug or equipment supplier, distributor or manufacturer, including discounts, rebates, or other reductions in price on a good or service received by Seller or any of Seller’s affiliates; (iii) except for lawful discounts offered in the ordinary course of the Clinical Lab Services Business consistent with industry practice, offered, paid, solicited, or received any Remuneration to or from any person or entity in order to induce business relating -14

 
to the Clinical Lab Services Business, including payments intended not only to induce actual or potential referrals of patients, but also to induce the purchasing, leasing, ordering, or arrangement for any good, facility, service, or item; (iv) entered into any financial relationships within the meaning of 42 C.F.R. § 411.354, including any joint venture, partnership, co-ownership, or other arrangement involving any ownership or investment interest by any physician, or family member of a physician, or an entity in which physician or physician family member has an ownership or investment interest, directly or indirectly, through equity, debt, or other means, including an interest in an entity providing goods or services to Seller or any of Seller’s affiliates; (v) entered into any compensation arrangement or Clinical Lab Services Business venture, including any joint venture, partnership, co-ownership or other arrangement involving any ownership or investment interest by any person or entity including a hospital, pharmacy, drug or equipment supplier, distributor or manufacturer, that is or was in a position to make or influence actual or potential referrals, furnish items or services to, or otherwise generate business relating to the Clinical Lab Services Business for Seller or Seller’s affiliates; or (vi) entered into any agreement providing for the actual or potential referral of any patient for the provision of goods or services by Seller or Seller’s affiliates, or payments by Seller as a result of any referrals of patients to Seller. (h) Seller nor any of their affiliates nor any independent contractor providing professional services on behalf of and in connection with Seller has engaged in any activities which are prohibited under 42 U.S.C. §§ 1320a-7b, 42 U.S.C. §§ 1395nn or 31 U.S.C. §§ 3729-3733 (or other federal or state statutes related to false or fraudulent claims), or similar state or local statutes or regulations, or which are prohibited by rules of professional conduct, including the following: (i) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any application for any benefit or payment; (ii) knowingly and willfully submitting claims for services when such services did not fully satisfy any conditions for payment; (iii) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (iv) failing to disclose knowledge by a claimant of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with intent to fraudulently secure such benefit or payment; and (v) billing for referrals from physicians with a financial relationship with Seller or any of Seller’s affiliates that does not meet an exception. Section 5.14 Insurance. Seller has maintained all insurance required to be maintained by it by law. Seller reasonably believes that such insurance policies are adequate to insure Seller against such risks as are customarily insured against by companies in the same or similar Clinical Lab Services Business with the same or similar size and scope of operations. Each such insurance policy is in full force and effect and all premiums due and payable in respect thereof have been paid. Except as set forth on Schedule 5.14, there are no pending claims with respect to Seller or its properties or assets under any such insurance policy. Except as set forth on Schedule 5.14, Seller has not received notice of cancellation or non-renewal of any such policy. All insurance policies are on an occurrence basis. There have been no lapses (whether cured or not) in the coverage provided under the insurance policies referenced herein during the term of such policies, as extended or renewed. Seller will make available to Buyer upon request true, correct and complete copies of each of the policies. Section 5.15 Related Party Transactions. -15

 
None of any of Seller’s affiliates, employees, officers, directors or managers, or family member of any such person (a) owns, directly or indirectly, in whole or in part, or maintains any direct or indirect interest in, any tangible or intangible property or assets that Seller uses in the Clinical Lab Services Business as of the date of this Agreement; (b) has any cause of action or other claim whatsoever against, or owes any amount to, Seller in any way related to the Clinical Lab Services Business; (c) is a party to any Contract; or (d) has received any loan, advance or investment from Seller that is related to the Clinical Lab Services Business and has not been repaid in full prior to the date hereof. Section 5.16 Equipment. (a) Seller (i) has good and valid title to all material tangible and intangible properties and assets which are part of the Designated Assets which it purports to own and use in the conduct of the Clinical Lab Services Business, and (ii) owns such Equipment and assets free and clear of all title defects or objections or liens or encumbrances of any nature whatsoever, other than Permitted Liens. (b) The equipment and the structures owned or leased by Seller which are part of the Designated Assets are structurally sound with no material defects and are in good and safe operating condition and repair (normal wear and tear excepted). Section 5.17 Full Disclosure. To Seller’s actual knowledge, no representation or warranty made by Seller, in this Agreement or pursuant hereto contains any untrue statement of any material fact. To Seller’s actual knowledge, the copies of Contracts and other documents referenced in the schedules to this Agreement or otherwise made available to Buyer, are accurate and complete in all material respects. The Seller has no actual knowledge of any facts or of the occurrence of any event or transaction that has not been disclosed to Buyer in writing or is not otherwise publicly available in the filings of Seller with the Securities and Exchange Commission and that could reasonably be expected to have a Material Adverse Effect. Section 5.18 No Reliance. Seller has conducted an independent investigation, review and analysis of the Contemplated Transaction, and based on such investigation, review and analysis, Seller has formed an independent judgement concerning the Contemplated Transactions and the rights and obligations to be transferred hereunder or pursuant hereto. No representation or warranty is made with respect to any financial projections in respect of Seller and delivered by or on behalf of Seller to Buyer. Seller has no reason to believe that any representation or warranty of any of the Buyer set forth in Article VI is not true and correct. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: Section 6.01 Status of Buyer; Approval. -16

 
Buyer is a New Jersey limited liability company duly organized, validly existing, and in good standing under the laws of the State of New Jersey and has all requisite power and authority to enter into the Contemplated Transactions and perform its obligations hereunder. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the Contemplated Transactions have been duly authorized by all requisite limited liability company actions on Buyer’s part and have been approved and authorized by the Board of Manager of Buyer. This Agreement has been duly and validly executed and delivered by the Buyer and constitutes the valid and binding obligation of the Buyer, subject to the Bankruptcy Exception. Section 6.02 No Violation. Neither the execution and delivery of this Agreement nor the performance of Buyer’s obligations hereunder and thereunder will violate, conflict with, or constitute a default under, any of the terms of Buyer’s Certificate of Formation or operating agreement, or any provisions thereof, or result in the acceleration of any material obligation under any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment, or decree to which Buyer is a party or by which Buyer is bound, and will not constitute an event which, after a notice or lapse of time or both, will result in such material violation, conflict, default, or acceleration thereunder. The execution and delivery of this Agreement and the performance by Buyer of the Contemplated Transaction hereby and thereby will not violate any material provision of applicable laws, rules, or regulations of any Governmental Authority or violate any judgment, decree, or order applicable to Buyer. Section 6.03 Litigation. There is no litigation, action, suit, investigation, claim, or proceeding pending or threatened against Buyer before any Governmental Authority that would impede or otherwise impair in any manner Buyer’s ability to consummate the Contemplated Transactions. Section 6.04 Laws. Buyer has complied in all material respects with all applicable laws and other requirements of any applicable Governmental Authority where the failure to do so may have a material adverse effect on Buyer or the conduct of its business. Section 6.05 Approvals. Buyer has obtained and holds all, certifications, licenses and approvals necessary under applicable law, rules and regulations to conduct the Clinical Lab Services Business after the date hereof. Buyer is in compliance with its obligations under such approvals and to the knowledge of Buyer no event has occurred that allows, or after notice or lapse of time would allow, suspension, revocation or termination of approvals. Buyer has no knowledge of any facts or circumstances that could reasonably be expected to result in an inability of Buyer to renew any such approvals. Section 6.06 No Reliance. -17

 
Buyer has conducted an independent investigation, review and analysis of the Designated Assets, and based on such investigation, review and analysis, Buyer has formed an independent judgement concerning the Contemplated Transactions and the rights and obligations to be transferred hereunder or pursuant hereto. Buyer has no reason to believe that any representation or warranty of Seller set forth in Article V is not true and correct. ARTICLE VII COVENANTS OF SELLER Section 7.01 Commercially Reasonable Efforts. The Parties agree to use commercially reasonable efforts to cause all covenants and agreements applicable to such Party to be performed, satisfied, and fulfilled. Section 7.02 Clinical Lab Employees. (a) As of or after the Closing Date, Buyer may, but is not obligated to, offer employment to certain of the employees employed by Seller in connection with the Clinical Lab Services Business, and all employees who are hired by Buyer shall be the “Transferred Employees” as set forth on Schedule 7.02. Each Transferred Employee, at the time such employee accepts employment with Buyer, shall be deemed to have voluntarily resigned from employment with Seller (such time of resignation, as applicable for such Transferred Employee, the “Transfer Date”), and Seller shall not continue to employ any Transferred Employee after such Transferred Employee’s Transfer Date unless otherwise agreed upon by Buyer. (b) Seller shall remain obligated after the Closing for any obligation of Seller to any Transferred Employee which arises prior to such Transferred Employee’s Transfer Date or as a result of the Closing or the termination of such Transferred Employee, including all accrued but unpaid vacation leave, personal days, and other benefits of all Transferred Employees, including, without limitation, hourly pay, commission, bonus, salary, accrued vacation, fringe, pension or profit sharing benefits, or severance pay for any period relating to the service with Seller at any time on or prior to the applicable Transferred Employee’s Transfer Date; all claims for medical, dental, life insurance, health accident, or disability benefits brought by or in respect of current or former employees, officers, directors, independent contractors or consultants of the Clinical Lab Services Business or the spouses, dependents or beneficiaries thereof, which claims relate to events occurring on or prior to the Transfer Date for such Transferred Employee; all worker’s compensation claims of any current or former employees, officers, directors, independent contractors, or consultants of the Clinical Lab Services Business which relate to events occurring on or prior to the Transfer Date for such Transferred Employee; and all group health plan continuation coverage pursuant to the requirements of Section 601, et seq. of ERISA and IRC Section 4980B, for all employees to whom it is required to offer the same under law. (c) For each Transferred Employee, (i) Buyer shall be free to set its own terms and conditions of employment for any employee listed on Schedule 7.02 it seeks to hire and to limit its hiring to those to whom it, in its sole discretion, deems capable of performing to its standards; (ii) neither this nor any other provision of this Agreement nor the consummation of the Contemplated Transactions shall constitute the agreement of Buyer to assume or be bound by the terms and conditions of any employment, collective bargaining, or employee benefit agreement to which Seller may be a party; and (iii) nothing -18

 
herein, express or implied, shall (A) create any third party beneficiary or other rights or confer upon any employee or former employee of Seller (whether or not a Transferred Employee, as defined below) any rights or remedies (including any right to employment or continued employment for any specified period) of any nature or kind whatsoever, under or by reason of this Agreement, (B) limit the right of Buyer or its affiliates to amend, terminate, or otherwise modify any employee benefit plan maintained by Buyer prior to or following the Closing Date. Notwithstanding the foregoing, Seller may terminate the employment of any employee listed on Schedule 7.02 at any time following the Closing Date, and any such terminated employee who is not hired by Buyer within ten (10) days following such termination shall not be considered a “Transferred Employee” (notwithstanding the fact that such employee may later be hired by Buyer). (d) For the period of one (1) year after Closing, Seller: (i) shall not directly solicit for employment any Transferred Employee, it being understood that routine job postings of open positions and solicitations of a generalized nature shall not be considered direct solicitation hereunder; (ii) except to the extent that the Parties otherwise agree, shall not employ any of such Transferred Employees without the prior approval of Buyer; and (iii) shall not solicit for employment nor hire any employees of Buyer to whom Seller has been introduced in connection with the Contemplated Transactions. Section 7.03 Non-Compete and Non-Solicitation. (a) Seller recognizes that Buyer is purchasing the Designated Assets in reliance on Seller ceasing the operation of its Clinical Lab Services Business. Therefore, Seller agrees that it will not perform any of the clinical lab testing that Seller performed prior to Closing, for hospitals, reference labs or physicians, for a three (3) year period after Closing (it being understood that Seller shall be permitted to continue to perform such tests for such non-hospital, non-physician or non-reference lab customers as part of its Biopharma and Discovery businesses as currently conducted, including for purposes of clinical trials). Notwithstanding the foregoing, this Section 7.03(a) and the restrictions set forth herein shall be deemed null, void and of no further force or effect for all purposes in the event of a change of control in, acquisition by an unaffiliated third party of more than fifty percent (50%) of the outstanding common stock of, direct or indirect acquisition of all or substantially all the assets of, or a merger or other substantially similar acquisition of, Seller (a “Change of Control”); provided, however, for the avoidance of doubt, the sale of Seller’s Biopharma business to Interpace Diagnostics Group, Inc. or an affiliate thereof shall not be deemed a Change of Control. (b) Seller agrees that it, and its subsidiaries or affiliates of which Seller has control or majority ownership, shall not, directly or indirectly, solicit, seek business from, or contact for any purpose, other than its Biopharma or Discovery businesses as currently conducted, any CGI Customer, for a period of three (3) years after Closing (it being acknowledged and agreed that the restriction set forth in this Section 7.03(b) shall continue to apply in the event of a Change of Control). Seller agrees that, in the event of a Change of Control, it shall obtain from the applicable third party acquirer or similar controlling -19

 
entity in connection with such Change of Control, a binding agreement (enforceable by Buyer) that contains an affirmative obligation of such Purchaser to comply with the covenants in this Section 7.03(b). (c) Seller agrees to fully enforce any restrictive covenant or non-solicitation provision that it has with any of its employees or contractors regarding the Clinical Lab Services Business, and that Buyer may enforce such restrictive covenant or non-solicitation provision if not fully enforced by Seller. (d) Seller may retain copies of the CGI Customers List and any Clinical Lab Services Business Materials (collectively, “Retained Copies”) solely to the extent, and for only so long as, (i) necessary to provide Buyer with the transition support required or contemplated by this Agreement or (ii) required to comply with applicable law, and, at such time as any Retained Copies are not necessary or required to be maintained in connection with the foregoing, Seller shall promptly and permanently delete and destroy any such Retained Copies from its records (physical, electronic or otherwise). Notwithstanding the foregoing, following the Closing, Seller shall at no time use any Retained Copies in violation of any of the restrictive covenants or non-solicitation provisions contained in Section 7.03(a) or Section 7.03(b); provided, however, that the obligation in this Section 7.03(d) shall survive indefinitely notwithstanding the last sentence of Section 7.03(a). (e) Following the Closing, Seller shall at no time use its present name in connection with the Clinical Lab Services Business or in violation of any of the restrictive covenants or non- solicitation provisions contained in Section 7.03(a) or Section 7.03(b); provided, however, that the obligation in this Section 7.03(e) shall survive indefinitely notwithstanding the last sentence of Section 7.03(a). (f) Notwithstanding anything contrary in this Agreement, Seller agrees that, following the Closing, Seller will no longer use the name “Cancer Genetics, Inc.,” “Cancer Genetics,” “CGI” or any derivative or similar name (the “CGI Name”) in connection with the Clinical Lab Services Business, and, as referenced above in Section 7.03(d), CGI will not retain the CGI Customer List or any Clinical Lab Services Business Materials except as allowed under Section 7.03(d) or as required under this Agreement for Seller to fulfill its post-Closing obligations to Buyer. To the extent that Seller has any right or access to the CGI Customer List or any Clinical Lab Services Business protocols or policies, Seller agrees not to utilize such after Closing in connection with the Clinical Lab Services Business except to comply with its obligations to Buyer under this Agreement, and Seller agrees that, in the event of a Change of Control, it shall obtain from the applicable third party acquirer or similar controlling entity in connection with such Change of Control, a binding agreement (enforceable by Buyer) that contains an affirmative obligation of such Purchaser to comply with the covenants in this Section 7.03(f). (g) Buyer and Seller acknowledge that the restrictive periods contained in this Section 7.03 are reasonable under the circumstances. Moreover, it is the desire and intent of the Parties that the provisions of Section 7.03 be enforceable to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, the Parties agree that if any Governmental Authority determines subsequently that the terms of Section 7.03 are unenforceable, the Parties will request that such Governmental Authority reform the terms by specifying the greatest time period and/or geographic area that would not render the terms unenforceable. Seller specifically agrees that, in the event of a breach or threatened breach of Section 7.03 by Seller, Buyer would suffer irreparable injury and damages at law would be an insufficient remedy, and Buyer shall be entitled to seek equitable -20

 
relief by way of temporary or permanent injunction (or any other equitable remedies), without proof of actual damages and without the need to post bond or other security. Section 7.04 Transition of Clinical Lab Assets Records. Seller shall prepare and use commercially reasonable best efforts to facilitate all forms, consents, and authorizations for all CGI Customers who receive services from Buyer after the Closing. Section 7.05 Assignments, Consents and Approvals. The Parties shall use commercially reasonable best efforts to obtain, within thirty (30) days of the Closing Date, all assignments, consents and approvals of any third party necessary in order for the Contracts set forth on Schedule 5.07 to be validly assigned to and assumed by Buyer. Section 7.06 UCC-3 Termination Statements. Within ten (10) business days of the Closing Date, Seller shall deliver to Buyer, in form and substance reasonably satisfactory to Buyer and its counsel, UCC-3 termination statements terminating all financing statements filed against CGI, solely to the extent necessary to evidence the discharge, removal and termination of any and all liens or encumbrances to which any of the Equipment is subject. Section 7.07 Equipment Maintenance Service Agreement. At the request of Buyer, Seller shall cooperate in good faith to, as promptly as practicable, to cause any maintenance service agreement with respect to the Equipment to be assigned to and assumed by Buyer, or use commercially reasonable best efforts to facilitate Buyer’s entry into any new maintenance service agreement to the extent required. Section 7.08 Insurance to cover claims that may arise after Closing. Seller agrees to continue (for not less than three (3) years) the insurance policies for itself and any Transferred Employee to the extent necessary to protect itself or such Transferred Employees from claims for any actions taken prior to Closing. Section 7.09 Bulk Sales Laws. Buyer and Seller hereby waive compliance with the provisions of any applicable bulk sales law or similar laws that may be applicable to the sale or transfer of the Designated Assets; provided, however, that Seller shall be liable for and shall indemnify, defend, and hold harmless Buyer and its representatives from and against any tax imposed on Buyer or any of its representatives as a result of the application of any bulk sales law or similar laws to the extent such tax is imposed as a result of the sale of transfer of the Designated Assets per the terms of this Agreement. Section 7.10 Post-Closing Audits. Any Liabilities related to audits conducted by payers for the periods prior to Closing shall remain the responsibility of Seller regardless of whether such audits occur after the Closing Date. Buyer agrees -21

 
to use commercially reasonable efforts to assist Seller and accommodate payer audits that occur after the Closing Date. ARTICLE VIII ADDITIONAL COVENANTS Section 8.01 Expenses. Except as expressly set forth herein, each Party will bear the legal, accounting and other expenses incurred by such Party in connection with this Agreement and the Contemplated Transactions. Section 8.02 Brokerage. Each Party represents and warrants that no person(s) assisted in or brought about the negotiation and execution of this Agreement as a broker, finder, or originator on behalf of it. Section 8.03 Further Assurance. From time to time after the Closing, upon reasonable notice and without further consideration, each of the Parties shall execute, acknowledge, and deliver all such other documents and instruments of sale, assignment, conveyance, and transfer and shall take all such other action as may be required, for the consummation of the Contemplated Transactions and to more effectively transfer to and vest in, and to put Buyer in possession of, the Designated Assets, free and clear of any and all liens or encumbrances except as otherwise permitted by this Agreement. The Parties shall use their respective commercially reasonable efforts to secure and to assist either Party in securing any permit, consent, or waiver from any person, entity, or Governmental Authority, which may be reasonably required for the consummation of the Contemplated Transactions and for the operation of the Clinical Lab Services Business by Buyer; provided, however, that any fees or other payments made to secure any such permit, consent or waiver shall be the sole responsibility of, and borne by, Buyer. Section 8.04 Confidentiality. Buyer and Seller agree that they will not, without the prior written consent of the other Party, issue, give, or make any press release, notification, or disclosure to any third party or to the public, in each case relating to this Agreement or any of the terms or conditions hereof or any of the Contemplated Transactions, except as required to perform the obligations of the Parties hereunder, including obtaining any consent or approval required by this Agreement, or as required by laws; provided, however, that the Parties shall mutually agree upon a press release to be issued by the Parties after the Closing. The provisions of this Section shall survive the Closing. -22

 
ARTICLE IX INDEMNIFICATION Section 9.01 Buyer Indemnity. (a) Buyer shall and hereby does agree to indemnify and hold Seller and its officers, directors, employees, and affiliates (each a “Seller Indemnitee”) harmless from and against any and all losses, damages, liabilities, claims, and expenses (collectively, “Losses”) actually incurred by Seller Indemnitee arising out of, attributable to, or in connection with: (i) any breach of a representation or warranty made by Buyer in this Agreement or any certificate delivered pursuant to any Section hereof; (ii) any breach by Buyer of any covenant or obligation of Buyer hereunder; (iii) any Assumed Liabilities; (iv) any and all liabilities of any nature relating in any manner to the Designated Assets subsequent to 11:59pm ET on the Closing Date; and (v) any and all actions, suits, proceedings, demands, assessments, or judgments, costs, and expenses (including reasonable legal and accounting fees and investigation costs) incident to the foregoing (i) through and including (iv), and the enforcement thereof. (b) Notwithstanding anything to the contrary herein or otherwise, Buyer shall not be required to indemnify any Seller Indemnitee, and shall not have any liability under sub-clause (i) of Section 9.01(a) (other than in respect of any Fundamental Representations of Buyer): (i) unless the aggregate of all Losses in respect of any claim or series of related claims for which Buyer would, but for this sub-clause (i), be liable thereunder exceeds on a cumulative basis an amount equal to Two Thousand Dollars ($2,000) (the “De Minimis Threshold”); (ii) unless the aggregate of all Losses for which Buyer would, but for this clause (ii), be liable thereunder exceeds on a cumulative basis an amount equal to Forty Thousand Dollars ($40,000) (the “Basket Amount”), in which event Buyer shall be responsible for the aggregate amount of all Losses; or (iii) for any amounts in excess of thirty percent (30%) of the Purchase Price (the “Cap”). For avoidance of doubt, the limitations on indemnity in this Section 9.01(b) shall apply only to the general representations and warranties set out in this agreement, and shall not apply to breaches of Fundamental Representations or any other indemnity categories such as covenants, excluded liabilities, etc. (c) Notwithstanding anything to the contrary herein or otherwise, Buyer shall not be required to indemnity any Seller Indemnitee, and shall not have any liability hereunder for amounts, in the aggregate, in excess of the Purchase Price (including claims based on a breach of Fundamental Representations of Buyer). -23

 
Section 9.02 Seller’s Indemnity. (a) Seller shall and hereby agrees to indemnify and hold Buyer and its officers, directors, employees, and affiliates (each a “Buyer Indemnitee”) harmless from and against any and all Losses actually incurred by a Buyer Indemnitee, arising out of, attributable to, or in connection with: (i) any breach of a representation or warranty made by Seller in this Agreement or any certificate delivered pursuant to any Section hereof; (ii) any breach by Seller of any covenant or obligation of Seller hereunder; (iii) any Excluded Liabilities or related to any Excluded Assets; (iv) any and all liabilities and obligations of Seller of any nature relating to the Designated Assets or the operation of the Clinical Lab Services Business which are incurred or arise prior to 11:59am ET on the Closing Date; and (v) any and all actions, suits, proceedings, demands, assessments, or judgments, costs, and expenses (including reasonable legal and accounting fees and investigation costs) incident to the foregoing (i) through (iv), and the enforcement thereof. (b) Notwithstanding anything to the contrary herein or otherwise, Seller shall not be required to indemnify any Buyer Indemnitee, and shall not have any liability under sub-clause (i) of Section 9.02(a) (other than in respect of any Fundamental Representations of Buyer): (i) unless the aggregate of all Losses in respect of any claim or series of related claims for which Seller would, but for this sub-clause (i), be liable thereunder exceeds on a cumulative basis an amount equal to the De Minimis Threshold; (ii) unless the aggregate of all Losses for which Seller would, but for this sub- clause (ii), be liable thereunder exceeds on a cumulative basis an amount equal to the Basket Amount, in which event Seller shall be responsible for the aggregate amount of all Losses; (iii) for any amounts in excess of the Cap. For avoidance of doubt, the limitations on indemnify in this Section 9.02(b) shall apply only to the general representations and warranties set out in this agreement, and shall not apply to breaches of Fundamental Representations or any other indemnity categories such as covenants, excluded liabilities, etc. (c) Notwithstanding anything to the contrary herein or otherwise, Seller shall not be required to indemnity any Buyer Indemnitee, and shall not have any liability hereunder for amounts, in the aggregate, in excess of the Purchase Price (including claims based on a breach of Fundamental Representations of Seller). -24

 
(d) If Buyer is required to make any payment to any payer as a result of an overpayment made to Seller for a period prior to the Closing Date, Buyer shall promptly notify Seller. Buyer shall be entitled to reimbursement of any payments made, with such reimbursement to occur within sixty (60) days after notice is made by Buyer, unless otherwise agreed to by the Parties. Buyer shall timely provide Seller and Seller’s counsel with any written notice received of the demand for payment and any other documentation evidencing such demand received prior to making any payment. Section 9.03 Notice of Claims. The Party seeking indemnification shall give the Party from whom the indemnification is sought notice of any claim for which it seeks indemnification within a reasonable period after receiving such notice. The indemnifying Party shall defend any actions or proceedings by counsel of its own choosing and at its own expense, and the Party seeking indemnification shall cooperate in such defenses to the fullest reasonable extent requested, and shall not settle, compromise, or otherwise adversely affect the interests of the indemnifying Party with respect to the foregoing. No compromise or settlement may be effected by the indemnifying Party without the prior written consent of the Party seeking indemnification, not to be unreasonably withheld, unless the compromise or settlement consists solely of monetary damages that are paid in full by the indemnifying party, in which case no consent is necessary. The indemnified Party may participate in the defense of any such matter at its own expense. Section 9.04 Duty to Mitigate. Each indemnified Party will exercise commercially reasonable efforts to mitigate the amount of any Losses for which they may be entitled to indemnification hereunder. Section 9.05 Other Limitation. (a) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT SHALL ANY OF THE PARTIES OR THEIR AFFILIATES BE LIABLE UNDER THIS ARTICLE IX FOR ANY CONSEQUENTIAL DAMAGES, PUNITIVE OR EXEMPLARY DAMAGES, TREBLE, REMOTE, OPPORTUNITY COST OR SPECIAL DAMAGES, DIMINUTION IN VALUE, MULITPLE OF EARNINGS, PROFITS OR CASH FLOWS OR OTHER SIMILAR MEASURES OR FOR LOSS OF BUSINESS REPUTATION OR OPPORTUNITY, INCIDENTAL DAMAGES, INDIRECT DAMAGES, UNREALIZED EXPECTATIONS OR OTHER SIMILAR ITEMS, NOR SHALL ANY DAMAGES BE CALCULATED USING A “MULTIPLIER” OR ANY OTHER SIMILAR METHOD HAVING A SIMILAR EFFECT, REGARDLESS OF THE FORM OF ACTION THROUGH WHICH SUCH DAMAGES ARE SOUGHT. (b) Notwithstanding anything in this Agreement to the contrary, no indemnified Party shall be indemnified or reimbursed for any Loss to the extent that such Loss is attributable to: (i) any voluntary act, omission, transaction or arrangement carried out at the request or direction of, or with the written consent of, the other Party, as applicable, on or after the Closing Date or under the terms of this Agreement or any transaction document contemplated hereunder; (ii) any voluntary act, omission, transaction or arrangement carried out by Seller or Buyer on or after the Closing Date, which Seller or Buyer, as applicable, knew, or ought reasonably to have known (after reasonable inquiry), would, or was reasonably likely to, result in a Loss; (iii) any admission of liability made in breach of the provisions of this Agreement after the date hereof by or on behalf of Seller or Buyer, as applicable; or (iv) any failure -25

 
by Seller or Buyer, as applicable, to comply with applicable law from and after the Closing. Neither Party shall be liable under this Article IX, as applicable, for any breach of a representation or warranty which would not have arisen but for any reorganization (including a cessation of the whole or part of any trade) or change in ownership of the other Party or of any assets of the other Party after the Closing Date. Section 9.06 Right of Setoff. Upon written notice to Seller specifying in reasonable detail the basis therefor, and subject in all respects to the limitations set forth in Section 9.02(b), Buyer may set off any amount to which it may be entitled under this Article IX against amounts otherwise payable under the Earn-Out obligations of Buyer under Section 2.01(b). Neither the exercise of nor the failure to exercise such right of setoff will constitute an election of remedies or limit Buyer in any manner in the enforcement of any other remedies that may be available to it. Section 9.07 Remedies Exclusive. OTHER THAN CLAIMS FOR SPECIFIC PERFORMANCE, INJUNCTIVE OR OTHER EQUITABLE RELIEF TO ENFORCE THE PARTIES’ RIGHTS UNDER SECTION 7.03, THE REMEDIES PROVIDED IN THIS ARTICLE IX SHALL BE THE SOLE AND EXCLUSIVE REMEDIES OF THE PARTIES AND THEIR HEIRS, SUCCESSORS AND ASSIGNS AFTER THE CLOSING WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY BREACH OR NON- PERFORMANCE OF ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT CONTAINED HEREIN, EXCEPT IN THE CASE OF TORT LIABILITY FOR ACTUAL FRAUD, IN WHICH CASE THE DEFRAUDED PARTY SHALL HAVE ALL RIGHTS AND REMEDIES AVAILABLE UNDER THIS AGREEMENT AND AVAILABLE UNDER THE LAW AGAINST THE PARTY THAT COMMITTED SUCH ACTUAL FRAUD. IF THE CLOSING OCCURS, NO PARTY MAY BRING OR COMMENCE ANY CLAIM, SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEPT TO BRING A CLAIM FOR (A) TORT LIABILITY FOR ACTUAL FRAUD AGAINST THE PARTY THAT COMMITTED SUCH ACTUAL FRAUD, OR (B) INDEMNIFICATION IN ACCORDANCE WITH TERMS OF THIS ARTICLE IX, OR (C) FOR SPECIFIC PERFORMANCE, INJUNCTIVE OR OTHER EQUITABLE RELIEF UNDER SECTION 7.03. IN FURTHERANCE OF THE FOREGOING, EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, ANY AND ALL RIGHTS, CLAIMS, AND CAUSES OF ACTION FOR ANY BREACH OR NON-PERFORMANCE OF ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT SET FORTH IN THIS AGREEMENT OR OTHERWISE RELATING TO THE TRANSACTIONS CONTEMPLATED HEREIN, THAT IT MAY HAVE AGAINST ANOTHER PARTY HERETO, EXCEPT FOR THOSE RIGHTS OF RECOVERY PROVIDED UNDER ARTICLE IX. Section 9.08 Survival. The obligations of Buyer and Seller under this Article IX shall survive the Closing. ARTICLE X MISCELLANEOUS -26

 
Section 10.01 Survival of Representations and Warranties. The representations and warranties of Buyer and Seller made in this Agreement shall survive the Closing for a period of two (2) years after the Closing; it being acknowledged and agreed that for the avoidance of doubt all claims for indemnification by any Party under Article IX hereof with respect to breaches of representations and warranties must be received by the other Party from whom indemnification is claimed hereunder within a reasonable time after such two (2) year period after the Closing, except the representations and warrants of the Parties set forth in Section 5.01 (Status of Seller; Approval), Section 5.03 (Title and Authority), Section 5.06 (Laws), Section 6.01 (Status of Buyer; Approval) and Section 6.04 (Laws) (the “Fundamental Representations”), which shall survive until the expiration of the applicable statute of limitations. Section 10.02 Amendment. This Agreement may be amended only by a writing executed by the Parties that refers to this Agreement. Section 10.03 Entire Agreement. This Agreement and the other agreements expressly referred to herein contain the entire understanding of the Parties and supersede all prior letters of intent, contracts, agreements, arrangements, communications, and discussions, whether oral or written, between the Parties. Section 10.04 Notice. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given when sent by certified mail, return receipt requested, postage prepaid, to the Parties at the respective addresses set forth below: To Seller: Cancer Genetics, Inc. 201 Route 17 North, 17th Floor Rutherford, NJ 07070 with a copy to: Samiul E. Khan, Lowenstein Sandler LLP 1251 Avenue of the Americas New York, NY 10020 To Buyer: siParadigm, LLC (d/b/a SiParadigm Diagnostic Informatics) 25 Riverside Drive Pine Brook, NJ 07058 with a copy to: Margaret J. Davino, Esq. Fox Rothschild, LLP -27

 
101 Park Avenue, 17th Floor New York, New York 10178 Either Party by written notice to the other may change the address or the person to whom notices or copies thereof shall be directed. Section 10.05 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. Electronically transmitted and facsimile copies of this document shall be originals for all purposes. Section 10.06 Severability. If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances. Upon such a determination, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. Section 10.07 Binding Nature. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of each Party hereto. No rights, obligations or liabilities hereunder shall be assignable by any Party without the prior written consent of the other Party and any attempt to do so without such consent shall be null and void. Section 10.08 Waivers of Breach. No waiver by any Party of the violation of, breach or a default under, any provision of this Agreement or any other agreements provided for herein by the other Party shall be construed as or constitute a continuing waiver of such provision or a waiver of any other violation of, breach, or a default under, any provisions of this Agreement or any other agreements. Section 10.09 Governing Law; Waiver of Jury Trial. This Agreement shall be governed by and construed under the laws of the State of New Jersey (without regard to the conflict of law principles thereof). Each Party hereby waives, to the fullest extent permitted by law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement or the Contemplated Transactions. Section 10.10 No Third Party Beneficiaries. -28

 
None of the provisions of this Agreement are or shall be construed to be for the benefit of, or enforceable by, any creditors of Seller or Buyer, or by a non-party to this Agreement. Section 10.11 Interpretation; Exhibits and Schedules; Certain Definitions. The headings contained in this Agreement, in any exhibit or schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All exhibits and schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any schedule or exhibit but not otherwise defined therein shall have the meaning as defined in this Agreement. When a reference is made in this Agreement to a section, exhibit or schedule, such reference shall be to a section of, or an exhibit or schedule to, this Agreement unless otherwise indicated. With respect to the schedules hereto, the disclosures made on any schedule with respect to any representation or warranty shall be deemed to be made with respect to any other representation or warranty to the extent such disclosure reasonably relates to such representation or warranty. The inclusion of any matter on any schedule will not be deemed an admission by any party that such listed matter is material or that such listed matter has or could have a Material Adverse Effect or constitutes a material liability. In addition, matters reflected in the schedules are not necessarily limited to matters required by this Agreement to be reflected in such schedules, and any such additional matters are set forth for informational purposes only and do not necessarily include other matters of a similar nature. For all purposes hereof, (i) definitions of terms shall apply equally to the singular and plural forms of the terms defined, (ii) whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms, (iii) the terms “include”, “includes” and “including” shall be deemed to be followed by the words “without limitation”, (iv) the words “hereof”, “herein” and “hereunder” and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement and (v) the word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and shall not simply mean “if”. The Parties have participated jointly in the negotiation and drafting of this Agreement. Any ambiguities with respect to any provision of this Agreement will be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement. [Signature Page Follows] -29

 
DocuSign Envelope ID: 9D41D4D1-406B-41A2-8030-E43BCF79173F IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement as of the day and year first written above. SELLER: CANCER GENETICS, INC. By: Name: John A. Roberts Title: President & CEO BUYER: SIPARADIGM, LLC, D/B/A SIPARADIGM DIAGNOSTIC INFORMATICS By: Name: Title: [SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]

 

 
Exhibit A Form of Assignment and Assumption and Bill of Sale

 
ASSIGNMENT AND ASSUMPTION AND BILL OF SALE This Assignment and Assumption and Bill of Sale (this “Agreement”) dated as of July 5, 2019, is entered into between siParadigm Diagnostic Informatics, a New Jersey limited liability company (“Buyer”), and Cancer Genetics, Inc., a Delaware corporation (“Seller”, and together with Buyer, the “Parties”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement, dated as of the date hereof, between Buyer and Seller (as amended, modified or supplemented from time to time in accordance with its terms, the “Purchase Agreement”). W I T N E S S E T H: WHEREAS, pursuant to the Purchase Agreement, upon the terms and conditions set forth in the Purchase Agreement, Seller has agreed to sell, convey, set over, assign, transfer, and deliver to Buyer, and Buyer has agreed to purchase and acquire from Seller, free and clear of any and all liens and encumbrances, all of Seller’s right, title and interest in and to the Designated Assets, as more particularly set forth in the Purchase Agreement; and WHEREAS, pursuant to the Purchase Agreement, upon the terms and conditions set forth in the Purchase Agreement, from and after the Closing Date, Buyer has agreed to assume, perform and pay the Assumed Liabilities, to the extent the Assumed Liabilities are not incurred or resulting from any violation by Seller of any applicable laws, or any breach or default by Seller under any Contract with any person or any representation, warrant or covenant of such Seller noted therein, as more particularly set forth in the Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained in the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows: 1. Effective as of the Closing Date, in accordance with and subject to the terms of the Purchase Agreement, Seller hereby sells, conveys, sets over, assigns, transfers and delivers to Buyer, and Buyer hereby purchases and acquires from Seller, free and clear of any and all liens and encumbrances, all of seller’s right, title and interest in and to all the tangible personal property included in the Designated Assets, as more particularly set forth in the Purchase Agreement. Seller hereby authorizes Buyer to take any appropriate action to protect the right, title and interest hereby conveyed in connection with the aforesaid property hereby sold, conveyed, set over, assigned, transferred and delivered to Buyer against each and every person or persons whomsoever claiming or asserting any claim against any or all of the same. Notwithstanding anything to the contrary, Seller has not, and shall not be deemed to have hereunder sold, conveyed, set over, assigned, transferred or delivered to Buyer any portion of any Excluded Asset, and Seller retains all right, title and interest in and to the Excluded Assets. 2. Effective as of the Closing Date, in accordance with and subject to the terms of the Purchase Agreement, Seller hereby sells, conveys, sets over, assigns, transfers and delivers to Buyer, and Buyer hereby purchases and acquires from Seller, free and clear of any and all liens and encumbrances, all of seller’s right, title and interest in and to the Designated Assets, 204558043

 
including, for the avoidance of doubt, the Intellectual Property and the Contracts, as more particularly set forth in the Purchase Agreement. Seller hereby authorizes Buyer to take any appropriate action to protect the right, title and interest hereby conveyed in connection with the aforesaid property hereby sold, conveyed, set over, assigned, transferred and delivered to Buyer against each and every person or persons whomsoever claiming or asserting any claim against any or all of the same. Notwithstanding anything to the contrary, Seller has not, and shall not be deemed to have hereunder sold, conveyed, set over, assigned, transferred or delivered to Buyer any portion of any Excluded Asset, and Seller retains all right, title and interest in and to the Excluded Assets. 3. Effective as of the Closing Date, in accordance with and subject to the terms of the Purchase Agreement, the Buyer does hereby assume and agree to perform and pay the Assumed Liabilities, to the extent the same are not incurred or resulting from any violation by Seller of any applicable laws, or any breach or default by Seller under any Contract with any person or any representation, warrant or covenant of such Seller noted therein, as more particularly set forth in the Purchase Agreement, and Seller shall have no further liability, obligation or responsibility therefor. Notwithstanding anything herein to the contrary, nothing herein shall modify the scope of any indemnity obligation created under the Purchase Agreement. Notwithstanding this Paragraph 3, the Assumed Liabilities shall exclude the Excluded Liabilities, and Seller shall retain all of its right, title and interest in and to the Excluded Liabilities. 4. This Assignment and Assumption and Bill of Sale and the Asset Purchase Agreement (in each case, including all Schedules and Exhibits hereto and thereto) contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, except for any written agreement of the Parties that expressly provides that it is not superseded by this Assignment and Assumption and Bill of Sale or the Asset Purchase Agreement. Nothing herein shall be deemed to limit the rights, duties and obligations of the Parties under the Asset Purchase Agreement and, to the extent of any conflict between the terms and conditions of this Assignment and Assumption and Bill of Sale and the terms and conditions of the Asset Purchase Agreement, the terms and conditions of the Asset Purchase Agreement shall govern, supersede and prevail. 5. The following provisions of the Asset Purchase Agreement are hereby incorporated by reference, substituting, in each such section, the term “Assignment and Assumption and Bill of Sale” as defined herein for the term “Agreement” as defined in the Purchase Agreement: Section 10.02 (Amendment); Section 10.04 (Notice); Section 10.05 (Counterparts); Section 10.06 (Severability); Section 10.07 (Binding Nature); Section 10.08 (Waivers of Breach) and Section 10.09 (Governing Law; Waiver of Jury Trial). [Remainder of this page intentionally left blank] -2-

 
IN WITNESS WHEREOF, the Parties have duly executed this Assignment and Assumption and Bill of Sale as of the date first written above. SELLER: CANCER GENETICS, INC. By: Name: John A. Roberts Title: President & CEO BUYER: SIPARADIGM, LLC, D/B/A SIPARADIGM DIAGNOSTIC INFORMATICS By: Name: Title: [Signature Page to Assignment and Assumption and Bill of Sale]

 


FORBEARANCE AND SIXTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

This Forbearance and Sixth Amendment to Amended and Restated Loan and Security Agreement (this “ Amendment ”) is entered into this 13th day of June, 2019 by and among (a) SILICON VALLEY BANK , a California corporation (“ Bank ”), and (b) (i) CANCER GENETICS, INC. , a Delaware corporation (“ Parent ”), (ii) GENTRIS, LLC , a Delaware limited liability company (“ Delaware Subsidiary ”), (iii) VIVOPHARM, LLC , a Delaware limited liability company (“ Vivo ”), and (iv) RDDT A VIVOPHARM COMPANY PTY LTD , a company incorporated under the laws of Australia (“ Australian Borrower ”, and together with Parent, Delaware Subsidiary, and Vivo, jointly and severally, individually and collectively, “ Borrower ”).
RECITALS
A.     Bank and Borrower have entered into that certain Amended and Restated Loan and Security Agreement dated as of March 22, 2017, as amended by that certain Waiver and First Amendment to Amended and Restated Loan and Security Agreement dated as of May 14, 2018, between Borrower and Bank, as further amended by that certain Joinder and Second Amendment to Amended and Restated Loan and Security Agreement dated as of June 21, 2018, between Borrower and Bank (the “ Second Amendment ”), as further amended by that certain Waiver and Third Amendment to Amended and Restated Loan and Security Agreement dated as of August 20, 2018 between Borrower and Bank, as further amended by that certain Waiver and Fourth Amendment to Amended and Restated Loan and Security Agreement dated as of November 19, 2018 (the “ Fourth Amendment ”) between Borrower and Bank, and as further amended by that certain Waiver and Fifth Amendment to Amended and Restated Loan and Security Agreement dated as of January 16, 2019 (the “ Fifth Amendment ”) (as the same may from time to time be further amended, modified, supplemented or restated, the “ Loan Agreement ”).
B.     Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C.     Borrower has requested that Bank amend the Loan Agreement to (i) forbear on the Stated Defaults (as defined herein) and (ii) make certain other revisions to the Loan Agreement as more fully set forth herein.
D.     In reliance upon the representations and warranties set forth below, Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent provided in this Amendment, and only in accordance with the terms and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2.      Amendments to Loan Agreement.
2.1      Section 13 (Definitions) . The following terms and their respective definitions set forth in Section 13.1 are amended in their entirety and replaced with the following:
“    “ Revolving Line ” is an aggregate principal amount equal to Three Million Dollars ($3,000,000.00).”

“    “ Revolving Line Maturity Date ” is July 15, 2019.”

2.2      Section 13 (Definitions) . The Loan Agreement shall be amended by inserting the following new definition to appear alphabetically in Section 13.1 thereof:
“    “ Sixth Amendment Effective Date ” means June 13, 2019.”

3.      Mandatory Prepayment . In addition to the other payments owed under the Loan Agreement, and not in replacement thereof, on or before July 4, 2019, Borrower shall make a prepayment in an amount equal to the then-outstanding principal balance of the Revolving Line less Two Million Five Hundred Thousand Dollars ($2,500,000.00), which payment shall be applied in permanent reduction of the outstanding balance of the Obligations in such order and manner as Bank deems appropriate in its sole discretion. Borrower’s failure or refusal to make such prepayment as and when due shall constitute an immediate Event of Default without grace or cure period.
4.      Limitation of Amendments.
4.1      The amendments set forth in Section 2 above are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
4.2      This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
5.      Forbearance Fee . In consideration of Bank’s forbearance with respect to the Stated Defaults (as defined below), and in addition to all other fees due under the Loan Documents, Borrower shall pay to Bank a forbearance fee equal to Twenty Five Thousand Dollars ($25,000.00) (the “ Second Forbearance Fee ”), which Second Forbearance Fee shall be (a) fully earned as of the Sixth Amendment Effective Date, (b) secured by the Collateral, and (c) constitute a portion of the Obligations. The Second Forbearance Fee and, notwithstanding anything to the contrary contained in the Fourth Amendment or the Fifth Amendment, (x) the Twenty Five Thousand Dollar ($25,000.00) Waiver Fee (as defined in the Fourth Amendment), (y) the Twenty Five Thousand Dollar ($25,000.00) waiver fee described in Section 12(b)(i) of the Fourth Amendment, and (z) the Forbearance Fee (as defined in the Fifth Amendment), shall each be due and payable upon the earliest of (i) the occurrence of an Event of Default (other than the Stated Defaults), (ii) the repayment in full of the Revolving Line, (iii) the acceleration of the Revolving Line, or (iv) July 15, 2019.
6.      Discretionary Advances .  Notwithstanding anything to the contrary contained in Section 2.2(a) of the Loan Agreement or otherwise contained in the Loan Agreement or the other Loan Documents, Borrower hereby confirms, acknowledges and agrees, that in consideration for Bank’s agreements hereunder, Bank shall have no obligation to make any Advances pursuant to Section 2.2(a) of the Loan Agreement, and any Advances made under Section 2.2(a) shall be made on a case by case basis in Bank’s sole and absolute discretion.  In addition to the foregoing, Borrower hereby confirms, acknowledges and agrees, that in consideration for Bank’s agreements hereunder, from and after the date of this Amendment, (a) the outstanding balance of Advances made under the Revolving Line shall not exceed at any time an aggregate amount equal to (i) on or before July 4, 2019, Three Million Dollars ($3,000,000.00), and (ii) from and after July 5, 2019, Two Million Five Hundred Thousand Dollars ($2,500,000.00) (the “ Discretionary Advance Cap ”), and (b) Bank shall have no obligation to make, and Borrower shall have no right to request, any Advance if after giving effect to such Advance the aggregate balance of Advances made under the Revolving Line would exceed the Discretionary Advance Cap.
7.      Acknowledgement of Defaults; Forbearance by Bank . Borrower acknowledges that it is (a) currently in default under the Loan Agreement by (i) its failure to comply with the Additional Capital Event set forth in Section 6.18 thereof as of November 30, 2018, (ii) its failure to provide Borrowing Base Reports for the months ended February 28, 2019, March 31, 2019, and April 30, 2019 as and when required pursuant to Section 6.2(a) of the Loan Agreement, (iii) its failure to provide monthly accounts receivable agings, monthly accounts payable agings, and monthly reconciliations for the months ended February 28, 2019, March 31, 2019, and April 30, 2019 as and when required pursuant to Section 6.2(b) of the Loan Agreement, (iv) its failure to provide Monthly Financial Statements for the months ended February 28, 2019, March 31, 2019, and April 30, 2019 as and when required pursuant to Section 6.2(c) of the Loan Agreement, (v) its failure to provide Compliance Certificates for the months ended February 28, 2019, March 31, 2019, and April 30, 2019 as and when required pursuant to Section 6.2(d) of the Loan Agreement, (vi) its failure to provide an annual budget and financial projections for the 2019 fiscal year as and when required pursuant to Section 6.2(e) of the Loan Agreement, (vii) its failure to comply with the following covenants: (A) the Adjusted EBITDA covenant set forth in Section 6.9(a) thereof as of the months ending December 31, 2018, January 31, 2019, February 28, 2019, and March 31, 2019, (B) the Minimum Revenue covenant contained in Section 6.9(b) thereof for the quarter ending December 31, 2018, (C) the requirement in Section 6.9(b) thereof to agree to Minimum Revenue covenant thresholds for Borrower’s 2019 fiscal year by February 15, 2019 and hence, the Minimum Revenue covenant contained in Section 6.9(b) thereof for the quarter ending March 31, 2019, and (D) the minimum Liquidity covenant sent forth in Section 6.9(c) thereof as of the months ending December 31, 2018, January 31, 2019, February 28, 2019 and March 31, 2019, (viii) its default under Section 8.12 thereof as a result of the occurrence of an Event of Default under and as defined in the PFG Loan Agreement, and (ix) its failure to repay all Obligations in full on or before the Revolving Line Maturity Date (collectively, the “ Existing Defaults ”); and (b) anticipated to be in default under the Loan Agreement by its failure to comply with the following covenants: (i) the Adjusted EBITDA covenant set forth in Section 6.9(a) thereof as of the months ending April 30, 2019, May 31, 2019 and June 30, 2019, and (ii) the minimum Liquidity covenant sent forth in Section 6.9(c) thereof as of the months ending April 30, 2019, May 31, 2019 and June 30, 2019, (iii) the requirement in Section 6.9(b) thereof to agree to Minimum Revenue covenant thresholds for Borrower’s 2019 fiscal year by February 15, 2019 and hence, the Minimum Revenue covenant contained in Section 6.9(b) thereof for the quarter ending June 30, 2019, (iv) its failure to provide Borrowing Base Reports for the months ended May 31, 2019, and June 30, 2019 as and when required pursuant to Section 6.2(a) of the Loan Agreement, (v) its failure to provide monthly accounts receivable agings, monthly accounts payable agings, and monthly reconciliations for the months ended May 31, 2019, and June 30, 2019 as and when required pursuant to Section 6.2(b) of the Loan Agreement, (vi) its failure to provide Monthly Financial Statements for the months ended May 31, 2019, and June 30, 2019 as and when required pursuant to Section 6.2(c) of the Loan Agreement, (vii) its failure to provide Compliance Certificates for the months ended May 31, 2019, and June 30, 2019 as and when required pursuant to Section 6.2(d) of the Loan Agreement, (collectively, the “ Anticipated Defaults ”, and together with the Existing Defaults, collectively, the “ Stated Defaults ”). Bank, however, hereby agrees to forbear from exercising its rights and remedies with respect to the Stated Defaults until the earliest to occur of (i) an Event of Default under the Loan Agreement (other than the failure of Borrower to comply with the above covenants for the testing periods set forth above), (ii) PFG taking action of any kind pursuant to its rights and remedies under the PFG Loan Agreement or applicable law, or (iii) July 15, 2019. Borrower hereby acknowledges and agrees that except as specifically provided herein, nothing in this Section or anywhere in this Amendment shall be deemed or otherwise construed as a waiver by Bank of any of its rights and remedies pursuant to the Loan Documents, applicable law or otherwise.
8.      Deferred Revenue . Borrower acknowledges that notwithstanding any other provision of the Loan Agreement, commencing on the Fifth Amendment Effective Date and continuing until the earlier of (a) the Forbearance End Date, and (b) July 15, 2019, Eligible Accounts shall include Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue), except for Deferred Revenue related to upfront storage fees.
9.      Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
9.1      Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing (other than the Stated Defaults);
9.2      Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
9.3      The organizational documents of (i) Parent and Delaware Subsidiary delivered to Bank on the Effective Date and (ii) Vivo and Australian Borrower delivered to Bank on the 2018 Amendment Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
9.4      The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
9.5      The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
9.6      The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and
9.7      This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
10.      Ratification of Intellectual Property Security Agreements . Parent hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Intellectual Property Security Agreement dated as of March 22, 2017 between Parent and Bank, as amended by that certain First Amendment to Intellectual Property Security Agreement dated as of June 16, 2017 (as amended, the “ Parent IP Security Agreement ”), and acknowledges, confirms and agrees that the Parent IP Security Agreement (a) contains an accurate and complete listing of all Intellectual Property Collateral, as defined in the Parent IP Security Agreement, and (b) shall remain in full force and effect. Delaware Subsidiary hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Intellectual Property Security Agreement dated as of June 16, 2017 between Delaware Subsidiary and Bank (the “ Delaware Subsidiary IP Security Agreement ”), and acknowledges, confirms and agrees that the Delaware Subsidiary IP Security Agreement (a) contains an accurate and complete listing of all Intellectual Property Collateral, as defined in the Delaware Subsidiary IP Security Agreement, and (b) shall remain in full force and effect. Vivo hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Intellectual Property Security Agreement dated as of June 21, 2018 between Vivo and Bank (the “ Vivo IP Security Agreement ”), and acknowledges, confirms and agrees that the Vivo IP Security Agreement (a) contains an accurate and complete listing of all Intellectual Property Collateral, as defined in the Vivo IP Security Agreement, and (b) shall remain in full force and effect. Australian Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Intellectual Property Security Agreement dated as of June 21, 2018 between Australian Borrower and Bank (the “ Australian Borrower IP Security Agreement ”), and acknowledges, confirms and agrees that the Australian Borrower IP Security Agreement (a) contains an accurate and complete listing of all Intellectual Property Collateral, as defined in the Australian Borrower IP Security Agreement, and (b) shall remain in full force and effect.
11.      Ratification of Perfection Certificates . Parent hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in the Perfection Certificate dated as of March 22, 2017, as amended in connection with the Second Amendment, delivered by Parent to Bank (the “ Parent Perfection Certificate ”), and acknowledges, confirms and agrees the disclosures and information Parent provided to Bank in said Parent Perfection Certificate have not changed, as of the date hereof. Delaware Subsidiary hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in the Perfection Certificate dated as of March 22, 2017, as amended in connection with the Second Amendment, delivered by Delaware Subsidiary to Bank (the “ Delaware Subsidiary Perfection Certificate ”), and acknowledges, confirms and agrees the disclosures and information Delaware Subsidiary provided to Bank in said Delaware Subsidiary Perfection Certificate have not changed, as of the date hereof. Vivo hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in the Perfection Certificate dated as of June 21, 2018, delivered by Vivo to Bank (the “ Vivo Perfection Certificate ”), and acknowledges, confirms and agrees the disclosures and information Vivo provided to Bank in said Vivo Perfection Certificate have not changed, as of the date hereof. Australian Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in the Perfection Certificate dated as of June 21, 2018, delivered by Australian Borrower to Bank (the “ Australian Borrower Perfection Certificate ”), and acknowledges, confirms and agrees the disclosures and information Australian Borrower provided to Bank in said Australian Borrower Perfection Certificate have not changed, as of the date hereof.
12.      No Defenses of Borrower. In consideration of the foregoing, Borrower hereby acknowledges and agrees that it has no offsets, defenses, causes of action, suits, damages, claims, or counterclaims against Bank, SVB Financial Group, or any of their respective officers, directors, employees, attorneys, representatives, predecessors, successors, and assigns (collectively, the “ Bank Released Parties ”) with respect to the Obligations, the Loan Documents, the Collateral, any Bank Services Agreement, any contracts, promises, commitments, or other agreements to provide, to arrange for, or to obtain loans or other financial accommodations to or for Borrower, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, causes of action, suits, damages, claims, or counterclaims against one or more of the Bank Released Parties, at law or in equity, whether known or unknown, from the beginning of the world through this date and through the time of execution of this Waiver (collectively, the “ Released Claims ”) all of them are hereby expressly WAIVED and Borrower hereby RELEASES the Bank Released Parties from any liability therefor. Borrower hereby irrevocably agrees to refrain from directly or indirectly asserting any claim or demand or commencing (or causing to be commenced) any suit, action, arbitration or proceeding of any kind, in any court or before any tribunal or arbiter or arbitration panel, against any Bank Released Party as to any of the Released Claims.
13.      Integration . This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
14.      Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
15.      Effectiveness . This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) Borrower’s payment to Bank of Bank’s legal fees and expenses incurred in connection with this Amendment, (c) Bank’s receipt of the Acknowledgement of Amendment and Reaffirmation of Guaranty substantially in the form attached hereto as Schedule 1 , duly executed by the Guarantor, and (d) Bank’s receipt of a fully executed amendment agreement for the PFG Loan Agreement in a form and substance acceptable to Bank in all respects.
[Signature page follows.]

IN WITNESS WHEREOF, this Amendment and all documents executed in connection therewith, or relating thereto, have been negotiated, prepared and deemed to be executed by Borrower in the United States of America. In addition, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

BANK

SILICON VALLEY BANK


By:  _/s/ John Lapides__________________
Name: ___ John Lapides __________
Title:  _____Vice President___________


BORROWER

CANCER GENETICS, INC.

By:  ______/s/ John A. Roberts___________
Name: ______ John A. Roberts __________
Title:  ________CEO______________

GENTRIS, LLC

By:  ______/s/ John A. Roberts___________
Name: ______ John A. Roberts __________
Title:  ________CEO______________

VIVOPHARM, LLC

By:  ______/s/ John A. Roberts___________
Name: ______ John A. Roberts __________
Title:  ________CEO______________

Executed  by RDDT A VIVOPHARM COMPANY PTY LTD  in accordance with Section 127 of the Corporations Act 2001
 
 
 
 
 
/s/ John A. Roberts
 
 
Signature of director
 
Signature of director/company secretary
(Please delete as applicable)
John A. Roberts
 
 
Name of director (print)
 
Name of director/company secretary (print)



    
Schedule 1

ACKNOWLEDGMENT OF AMENDMENT
AND REAFFIRMATION OF GUARANTY


Section 1.     Guarantor hereby acknowledges and confirms that it has reviewed and approved the terms and conditions of the Forbearance and Sixth Amendment to Amended and Restated Loan and Security Agreement dated as of even date herewith (“the “ Amendment ”).

Section 2.     Guarantor hereby consents to the Amendment and agrees that the Guaranty relating to the Obligations of Borrower under the Loan Agreement shall continue in full force and effect, shall be valid and enforceable and shall not be impaired or otherwise affected by the execution of the Amendment or any other document or instruction delivered in connection herewith.

Section 3.     Guarantor represents and warrants that, after giving effect to the Amendment, all representations and warranties contained in the Guaranty are true, accurate and complete as if made the date hereof.

Dated as of ___________________

GUARANTOR:
                    
Executed  by VIVOPHARM PTY LTD  in accordance with Section 127 of the Corporations Act 2001
 
 
 
 
 
/s/ John A. Roberts
 
 
Signature of director
 
Signature of director/company secretary
(Please delete as applicable)
John A. Roberts
 
 
Name of director (print)
 
Name of director/company secretary (print)


ny-1645127


Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE 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. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.





 
 
 
 
 
Date: August 19, 2019
 
 
 
/s/ John A. Roberts
 
 
 
 
John A. Roberts
 
 
 
 
President and Chief Executive Officer
 
 
 
 
(Principal Executive Officer)





Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, M. Glenn Miles, 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. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.





 
 
 
 
 
Date: August 19, 2019
 
 
 
/s/ M. Glenn Miles
 
 
 
 
M. Glenn Miles
 
 
 
 
Chief Financial Officer
 
 
 
 
(Principal Financial and Accounting 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 June 30, 2019 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: August 19, 2019

 
/s/ John A. Roberts
John A. Roberts
President and Chief Executive Officer
(Principal Executive 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.





Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Cancer Genetics, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, M. Glenn Miles, Chief Financial 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: August 19, 2019

 
/s/ M. Glenn Miles
M. Glenn Miles
Chief Financial Officer
(Principal Financial and Accounting 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.