Notes to Special Purpose Combined Financial Statements

1. Description of Business and Basis of Presentation

Description of Business

On July 15, 2019 (the “Acquisition Date”), Interpace Diagnostics Group, Inc. (the “Company”), Interpace BioPharma, Inc., a newly formed and wholly owned subsidiary of the Company (“Buyer”), Cancer Genetics, Inc. (“CGI”), Gentris, LLC, a wholly owned subsidiary of CGI (“Gentris”) and Partners for Growth IV, L.P., a secured creditor of CGI (“PFG” or “Seller”), entered into and closed on a Secured Creditor Asset Purchase Agreement (the “Asset Purchase Agreement”). The Asset Purchase Agreement contains the terms and conditions of the acquisition of assets and assumption of certain liabilities (the “Acquisition”) relating to CGI’s and Gentris’ biopharma services business ( “BioPharma” or “Business”). BioPharma provides pharmaceutical and biotech companies and non-profit entities performing clinical trials with lab testing services for patient stratification and treatment selection through an extensive suite of molecular- and biomarker-based testing services, DNA- and RNA- extraction and customized assay development and trial design consultation.

Under the Asset Purchase Agreement, Buyer acquired assets comprising the Business from Seller, through a private foreclosure sale under § 9-610 of the Uniform Commercial Code as enacted in all relevant jurisdictions (the “UCC”). Concurrently with the execution of the Asset Purchase Agreement, the Company entered into a financing arrangement with Ampersand 2018 Limited Partnership (the “Investor”), a fund managed by Ampersand Capital Partners, pursuant to which the Investor agreed to provide specified financing to the Company in connection with the Acquisition (the “Investment”), subject to the terms and conditions of such financing documents, as further discussed below.

At the closing, Seller irrevocably sold and transferred to Buyer all of its interests in CGI, free and clear of Seller’s security interest and any other lien, in all of the properties and assets of CGI used or held for use in connection with BioPharma (collectively, the “Purchased Assets”). To the extent any assets owned by CGI or Gentris and relating to BioPharma were not subject to Seller’s perfected and valid security interest, those assets were transferred directly to Buyer by CGI and Gentris. At closing, Seller delivered to CGI a release of all liens held by the first lien secured lender, Silicon Valley Bank (“SVB”), on CGI’s assets through UCC-3 termination statements for all liens of PFG and SVB.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

1. Description of Business and Basis of Presentation (continued)

Description of Business (continued)

Buyer paid $23,500,000, less certain closing adjustments totaling $1,978,240 (the “Base Purchase Price”), as consideration for the Purchased Assets, of which $7,692,300 was in the form of a subordinated seller note (the “Excess Consideration Note”, as further described below) issued by Buyer to CGI, and the remainder was paid in cash to or on behalf of Seller on the closing date. In addition, Buyer is assuming certain liabilities (accounts payable and accrued expenses) of CGI related to BioPharma in the aggregate sum of approximately $5,000,000. Seller utilized the cash proceeds of approximately $13,829,000 to satisfy the outstanding balance of approximately $2,910,000 due to SVB under that certain loan and security agreement by and among CGI and SVB, as amended, to satisfy the outstanding balance of approximately $6,340,000 due to Seller under that certain loan and security agreement by and among CGI and Seller, as amended, and to satisfy certain transaction expenses. The balance of approximately $2,260,000, net of payment of transaction expenses, was delivered to CGI along with the Excess Consideration Note. The Base Purchase Price is subject to two additional adjustments following the closing: for the finalized net worth (assets less liabilities) of BioPharma as of June 30, 2019 (the “NWA”), subject to a cap of $775,000, and for certain older accounts receivable, in the aggregate amount of approximately $830,000, still uncollected as of December 31, 2019 (the “ARA”). Any amounts due to Buyer under the NWA will be set off against the Excess Consideration Note, and any amounts due to Buyer under the ARA will be either set off against the Excess Consideration Note or, if it is no longer outstanding, satisfied through an AR Holdback (as defined in the Asset Purchase Agreement) mechanism, in each case as further set forth in the Asset Purchase Agreement.

The Asset Purchase Agreement contains certain representations and warranties, which are made solely for purposes of the Asset Purchase Agreement and, in some cases, are subject to qualifications and limitations agreed to by the parties thereto in connection with the negotiated terms of the Asset Purchase Agreement, and which are qualified by certain disclosures that were made in connection with the parties’ entry into such agreement. The Asset Purchase Agreement provides for indemnification by CGI for limited breaches of representations and warranties, covenants and specified line-items, subject to agreed upon caps and baskets and survival periods. Indemnification payments due to Buyer may be (x) set off against the Excess Consideration Note, (y) if it is no longer outstanding, funded by a $735,000 holdback from payout to CGI under the Excess Consideration Note, subject to an additional retained AR Holdback if applicable, or (z) required to be paid directly by CGI, depending on the agreed upon limitations.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

1. Description of Business and Basis of Presentation (continued)

Basis of Presentation

BioPharma has not historically been accounted for as a separate entity, subsidiary or division of CGI. In addition, stand-alone financial statements related to BioPharma have not been prepared previously as CGI’s financial system is not designed to provide complete financial information of BioPharma. Therefore, special purpose combined financial statements have been prepared for the years ended December 31, 2018 and 2017 to satisfy the financial statement requirements of Rule 3-05 of Regulation S-X in lieu of full financial statements. Pursuant to a letter dated September 10, 2019 from the staff of the Division of Corporate Finance (the “Division”) of the SEC, the Division stated that it will not object to the Buyer’s proposal to provide abbreviated financial statements in satisfaction of the requirements of Rule 3-05 of Regulation S-X.

These special purpose combined financial statements have been derived from the historical accounting records of CGI. The special purpose combined financial statements do not represent revenues and direct expenses as if BioPharma had operated as a separate, stand-alone entity during the periods presented. In addition, the special purpose combined financial statements are not meant to be indicative of results of operations of BioPharma going forward as a result of future changes in the Business and the omission of various operating expenses.

All significant intracompany balances and transactions have been eliminated.

The revenues included in the accompanying special purpose combined statements of revenues and direct expenses represent revenues directly attributable to BioPharma. The costs and expenses included in the accompanying special purpose combined statements of revenues and direct expenses were incurred by CGI and include direct and allocated costs and expenses related to BioPharma. The allocated costs and expenses are allocated to the Business based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of test counts performed, revenue, or other relevant measures. The Business considers the expense allocation methodology and results to be reasonable for all periods presented.

The special purpose combined statements of revenues and direct expenses do not include expenses not directly associated with BioPharma business, such as corporate, shared services, indirect general and administrative expenses, interest income/expense, other income/expense, and income taxes.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the special purpose combined financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that may affect the reported amounts of revenues, direct expenses and related disclosures during the periods being presented. Management bases its estimates on historical experience and various other assumptions it believes to be reasonable. Components of these special purpose combined financial statements particularly subject to estimation include the allocation of certain direct expenses. Actual results may differ from management’s estimates.

Revenue recognition under ASC 606

Revenues consist of customized solutions for patient stratification and treatment selection through an extensive suite of DNA-based testing services. The services are billed to pharmaceutical and biotechnology companies. Effective January 1, 2018, the Company recognizes revenue in accordance with FASB Accounting Standards Codification (“ASC”) 606. BioPharma adopted the new standard using the modified retrospective method. BioPharma recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit. Financial information for the year ended December 31, 2017 has not been restated and continues to be reported under the accounting standards in effect for that period.

The adoption of ASC 606 had no impact on BioPharma’s total cash flows from operations.

The following tables present the amounts by which revenue was affected by adopting the new revenue recognition guidance (in thousands):

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Revenue recognition under ASC 606 (continued)

Performance Obligations

Performance Obligation Satisfaction and Revenue Recognition: Performance obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Project level activities, including study setup and project management, are satisfied over the life of the contract. Revenues are recognized at a point in time when the test results or other deliverables are reported to the customer. Project level fee revenue is recognized ratably over the life of the contract.

Significant Payment Terms: Monthly invoices at a contractual rate are generated as services are delivered for work completed during the prior month. Some contracts have prepayments prior to services being rendered that are recorded as deferred revenue.

Nature of Services: BioPharma testing services, study setup and study management

Remaining Performance Obligations

Services offered 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. As of December 31, 2018, the Company had approximately $34.8 million in remaining performance obligations. BioPharma expects to recognize the remaining performance obligations over the next two to three years.

Practical Expedients

BioPharma’s customer arrangements do not contain any significant financing component (interest). BioPharma incurs incremental costs on its clients but has elected the practical expedient afforded by the new revenue standard to expense such costs as incurred. BioPharma excludes from the measurement of the transaction price all taxes collected from customers that are assessed by governmental authorities and are both imposed on and concurrent with specific revenue-producing transactions.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Revenue recognition under ASC 606 (continued)

Concentrations

There was one customer that accounted for 12% of revenues for the year ended December 31, 2018 and there was one customer that accounted for 21% of revenues for the year ended December 31, 2017. No other customers accounted for more than 10% of revenues in either year.

Revenue recognition under ASC 605

Prior to 2018, BioPharma recognized revenue in accordance with FASB ASC 605, as well as SEC Staff Accounting Bulletin 104. These standards generally required that four basic criteria be met before revenue could be recognized: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the customer or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured. For some customers billed directly, revenue was recorded based upon the contractually agreed upon fee schedule. When assessing collectability, BioPharma considered whether it had sufficient payment history to reliably estimate a payor’s individual payment patterns. BioPharma did not bill customers for shipping and handling fees, other than reimbursement of such expenses incurred on behalf of BioPharma clients, and BioPharma did not collect any sales or other taxes from customers.

Depreciation

For the special purpose combined statements of revenues and direct expenses, depreciation is calculated on CGI’s historical cost basis of property and equipment using the straight-line method over the estimated useful lives of the respective assets, which generally range from five to seven years. Leasehold improvements are depreciated over the lesser of the lease term or the estimated useful lives of the improvements using the straight-line method. The cost of computer software developed for internal use, which consists of lab information system that is still in its configuration and implementation stages, is capitalized and will be amortized on a straight-line basis over its estimated useful life of ten years when complete. Repairs and maintenance are charged to expense as incurred while improvements are capitalized.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Depreciation (continued)

Depreciation expense included in the special purpose combined statements of revenues and direct expenses was $795,563 and $1,060,972 for the years ended December 31, 2018 and 2017, respectively. Of these amounts, $490,677 and $542,253 was included in cost of goods sold for the years ended December 31, 2018 and 2017, respectively.

Lease expense

The special purpose combined statements of revenues and direct expenses includes an allocation of amortization of the right of use assets and finance costs related to the lease liabilities for both operating and finance leases.

Amortization of intangible assets

For the special purpose combined statements of revenues and direct expenses, amortization of intangible assets is calculated on CGI’s historical cost basis over their useful lives. Patents are amortized over the useful lives of the assets, using the straight-line method. Certain patents are in the legal application process and therefore are not currently being amortized.

Other intangible assets consist of software acquired with Response Genetics and vivoPharm’s customer list and trade name, which are all amortized using the straight-line method over the estimated useful lives of the assets, which range from three to ten years.

Amortization expense included in the special purpose combined statements of revenues and direct expenses was $93,781 and $29,970 for the years ended December 31, 2018 and 2017, respectively.

Research and development

Research and development costs associated with service and product development include direct costs of payroll, employee benefits, stock-based compensation and supplies and an allocation of indirect costs including rent, utilities, depreciation and repairs and maintenance. All research and development costs are expensed as they are incurred.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Stock-based compensation

Direct expenses related to BioPharma include an allocation of stock-based compensation. Stock-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. BioPharma estimates the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

All issuances of stock options or other issuances of equity instruments to employees as the consideration for services received by us are accounted for based on the fair value of the equity instrument issued.

BioPharma accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity Based Payments to Non-Employees. Under ASC 505-50, BioPharma determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Stock-based compensation awards issued to non-employees are recorded in expense and additional paid-in capital in stockholders’ equity over the applicable service periods based on the fair value of the awards or consideration received at the vesting date.

3. Recent Accounting Pronouncements

Recent Standards Not Yet Effective

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. Management is evaluating ASU 2017-04 to determine the impact on the special purpose combined financial statements.

 BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

3. Recent Accounting Pronouncements (continued)

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions. Under the new guidance, equity-classified share-based payment awards issued to nonemployees will now be measured on the grant date, instead of the previous requirement to remeasure the awards through the performance completion date. Awards that include performance conditions will recognize compensation cost when the achievement of the performance condition is probable, rather than upon achievement of the performance condition. Finally, the current requirement to reassess the classification (equity or liability) for nonemployee awards will be eliminated, except for awards in the form of convertible instruments. The ASU is effective for annual periods beginning after December 15, 2018, but no earlier than the adoption of ASC 606. Management plans to adopt the guidance on January 1, 2019. The adoption of ASU 2018-07 is not expected to have a material impact on special purpose combined financial statements.

4. Lease Commitments

BioPharma leases laboratory, research facility and administrative office space under various operating leases. At December 31, 2018, BioPharma has approximately 17,900 square feet of office and laboratory space in Rutherford, New Jersey and 24,900 square feet in Morrisville, North Carolina. During 2018, BioPharma had a lease agreement for approximately 19,100 square feet of laboratory space in Los Angeles, California which expired on December 31, 2018. For a portion of 2018, BioPharma also had 10,000 square feet in Hyderabad, India, which was vacated in April 2018. BioPharma has escalating lease agreements for our New Jersey and North Carolina spaces, which expire February 2023 and May 2020, respectively. These leases require monthly rent with periodic rent increases that vary from $0.32 to $0.50 per square foot of the rented premises per year. The difference between minimum rent and straight-line rent is recorded as deferred rent payable. The terms of the New Jersey lease require that a $350,000 security deposit for the facility be held in a stand by letter of credit in favor of the landlord.

BioPharma acquired office and scientific equipment under long term leases which have been capitalized at the present value of the minimum lease payments.

Lease expense included the special purpose combined statements of revenues and direct expenses was approximately $808,000 and $924,000 for the years ended December 31, 2018 and 2017, respectively.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

5. Stock-based Compensation

CGI has 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 of BioPharma to remain in BioPharma’s employment. Options granted are generally exercisable for up to 10 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 CGI 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 CGI’s common stock, a risk-free interest rate, and expected dividends. BioPharma records forfeitures of unvested stock options when they occur. No compensation cost is recorded for options that do not vest. CGI uses 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 CGI’s 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. CGI uses an expected dividend yield of zero, as CGI has not paid dividends historically.

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

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statements (continued)

5. Stock-based Compensation (continued)

The following table presents the effects of stock-based compensation related to stock option and restricted stock awards to employees and non-employees on the special purpose combined statements of revenues and direct expenses during the periods presented (in thousands):

6. Commitments and Contingencies

In the ordinary course of business, the Business is involved in litigation, claims, government inquiries, investigations and proceedings, relating to intellectual property, commercial, employment, environmental and regulatory matters. Management does not believe that the resolution of such claims and disputes will have a material adverse effect on the Company’s financial statements.

7. Subsequent Events

Management has evaluated subsequent events through September 19, 2019, the date the special purpose combined financial statements were available to be issued. No events were identified requiring additional recognition of disclosure in the notes to the abbreviated financial statements.

Notes to Special Purpose Combined Financial Statement

1. Description of Business and Basis of Presentation

Description of Business

On July 15, 2019 (the “Acquisition Date”), Interpace Diagnostics Group, Inc. (the “Company”), Interpace BioPharma, Inc., a newly formed and wholly owned subsidiary of the Company (“Buyer”), Cancer Genetics, Inc. (“CGI”), Gentris, LLC, a wholly owned subsidiary of CGI (“Gentris”) and Partners for Growth IV, L.P., a secured creditor of CGI (“PFG” or “Seller”), entered into and closed on a Secured Creditor Asset Purchase Agreement (the “Asset Purchase Agreement”). The Asset Purchase Agreement contains the terms and conditions of the acquisition of assets and assumption of certain liabilities (the “Acquisition”) relating to CGI’s and Gentris’ biopharma services business ( “BioPharma” or “Business”). BioPharma provides pharmaceutical and biotech companies and non-profit entities performing clinical trials with lab testing services for patient stratification and treatment selection through an extensive suite of molecular- and biomarker-based testing services, DNA- and RNA- extraction and customized assay development and trial design consultation.

Under the Asset Purchase Agreement, Buyer acquired assets comprising the Business from Seller, through a private foreclosure sale under § 9-610 of the Uniform Commercial Code as enacted in all relevant jurisdictions (the “UCC”). Concurrently with the execution of the Asset Purchase Agreement, the Company entered into a financing arrangement with Ampersand 2018 Limited Partnership (the “Investor”), a fund managed by Ampersand Capital Partners, pursuant to which the Investor agreed to provide specified financing to the Company in connection with the Acquisition (the “Investment”), subject to the terms and conditions of such financing documents, as further discussed below.

At the closing, Seller irrevocably sold and transferred to Buyer all of its interests in CGI, free and clear of Seller’s security interest and any other lien, in all of the properties and assets of CGI used or held for use in connection with BioPharma (collectively, the “Purchased Assets”). To the extent any assets owned by CGI or Gentris and relating to BioPharma were not subject to Seller’s perfected and valid security interest, those assets were transferred directly to Buyer by CGI and Gentris. At closing, Seller delivered to CGI a release of all liens held by the first lien secured lender, Silicon Valley Bank (“SVB”), on CGI’s assets through UCC-3 termination statements for all liens of PFG and SVB.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

1. Description of Business and Basis of Presentation (continued)

Description of Business (continued)

Buyer paid $23,500,000, less certain closing adjustments totaling $1,978,240 (the “Base Purchase Price”), as consideration for the Purchased Assets, of which $7,692,300 was in the form of a subordinated seller note (the “Excess Consideration Note”, as further described below) issued by Buyer to CGI, and the remainder was paid in cash to or on behalf of Seller on the closing date. In addition, Buyer is assuming certain liabilities of CGI related to BioPharma in the aggregate sum of approximately $5,000,000. Seller utilized the cash proceeds of approximately $13,829,000 to satisfy the outstanding balance of approximately $2,910,000 due to SVB under that certain loan and security agreement by and among CGI and SVB, as amended, to satisfy the outstanding balance of approximately $6,340,000 due to Seller under that certain loan and security agreement by and among CGI and Seller, as amended, and to satisfy certain transaction expenses. The balance of approximately $2,260,000, net of payment of transaction expenses, was delivered to CGI along with the Excess Consideration Note. The Base Purchase Price is subject to two additional adjustments following the closing: for the finalized net worth (assets less liabilities) of BioPharma as of June 30, 2019 (the “NWA”), subject to a cap of $775,000, and for certain older accounts receivable, in the aggregate amount of approximately $830,000, still uncollected as of December 31, 2019 (the “ARA”). Any amounts due to Buyer under the NWA will be set off against the Excess Consideration Note, and any amounts due to Buyer under the ARA will be either set off against the Excess Consideration Note or, if it is no longer outstanding, satisfied through an AR Holdback (as defined in the Asset Purchase Agreement) mechanism, in each case as further set forth in the Asset Purchase Agreement.

The Asset Purchase Agreement contains certain representations and warranties, which are made solely for purposes of the Asset Purchase Agreement and, in some cases, are subject to qualifications and limitations agreed to by the parties thereto in connection with the negotiated terms of the Asset Purchase Agreement, and which are qualified by certain disclosures that were made in connection with the parties’ entry into such agreement. The Asset Purchase Agreement provides for indemnification by CGI for limited breaches of representations and warranties, covenants and specified line-items, subject to agreed upon caps and baskets and survival periods. Indemnification payments due to Buyer may be (x) set off against the Excess Consideration Note, (y) if it is no longer outstanding, funded by a $735,000 holdback from payout to CGI under the Excess Consideration Note, subject to an additional retained AR Holdback if applicable, or (z) required to be paid directly by CGI, depending on the agreed upon limitations.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

1. Description of Business and Basis of Presentation (continued)

Basis of Presentation

BioPharma has not historically been accounted for as a separate entity, subsidiary or division of CGI. In addition, stand-alone financial statements related to BioPharma have not been prepared previously as CGI’s financial system is not designed to provide complete financial information of BioPharma. Therefore, this special purpose combined financial statement has been prepared as of July 15, 2019 to satisfy the financial statement requirements of Rule 3-05 of Regulation S-X in lieu of full financial statements. Pursuant to a letter dated September 10, 2019 from the staff of the Division of Corporate Finance (the “Division”) of the SEC, the Division stated that it will not object to the Buyer’s proposal to provide abbreviated financial statements in satisfaction of the requirements of Rule 3-05 of Regulation S-X.

This special purpose combined financial statement has been derived from the purchase price allocation, which represents the fair value of assets acquired and liabilities assumed at the Acquisition Date. The special purpose combined financial statement does not represent the assets sold or liabilities assumed as if BioPharma had operated as a separate, stand-alone entity. In addition, the special purpose combined financial statement is not meant to be indicative of the financial condition of BioPharma going forward as a result of future changes in the Business. The special purpose combined statement of assets acquired and liabilities assumed includes only the specific assets and liabilities related to the Business that is being acquired by the Buyer in accordance with the Agreement.

All significant intracompany balances and transactions have been eliminated.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the special purpose combined financial statement in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that may affect the reported amounts of the assets acquired, liabilities assumed, and related disclosures as of the period being presented. Management bases its estimates on historical experience and various other assumptions it believes to be reasonable. Components of this special purpose combined financial statement particularly subject to estimation include the fair value of assets acquired and liabilities assumed. Actual results may differ from management’s estimates.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

2. Summary of Significant Accounting Policies (continued)

Accounts Receivable and Accrued Revenue

Accounts receivable and accrued revenue are carried at fair value.

Lab Supplies

Lab supplies are recorded at fair value.

Property and equipment

Property and equipment consists of lab equipment, furniture and fixtures, internally developed software and leasehold improvements. Property and equipment are stated at fair value in the special purpose combined statement of assets acquired and liabilities assumed.

Lease assets and liabilities

Operating lease assets and liabilities, and finance lease liabilities are recorded at fair value. Management has elected to use the package of practical expedients, which allows BioPharma 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. Management did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.

ROU assets represent BioPharma’s right to use an underlying asset for the lease term and lease liabilities represents BioPharma’s 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 the leases assumed do not provide an implicit rate, management used the incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate was determined by adjusting the secured borrowing interest rate for the longer-term nature of the leases. Variable lease payments primarily consist of maintenance and other operating expenses from 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. Lease terms may include options to extend or terminate the lease when it is reasonably certain that management will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

2. Summary of Significant Accounting Policies (continued)

Lease assets and liabilities (continued)

BioPharma has lease agreements with lease and non-lease components. Management has elected to account for these lease and non-lease components as a single lease component. Management 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.

Goodwill and other intangible assets

Goodwill represents the excess of the purchase price of the acquisition over the fair value of the net assets acquired. Other intangible assets are carried at fair value. Certain patents are in the legal application process and therefore are not currently being amortized.

Other intangible assets consist of software acquired with Response Genetics and vivoPharm’s customer list and trade name, which are all amortized using the straight-line method over the estimated useful lives of the assets, which range from three to ten years.

Deferred revenue

Deferred revenue is recorded at fair value and represents payments received in advance of services rendered.

Fair value measurements

Assets acquired and liabilities assumed have been recorded at fair value in accordance with ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 requires a three level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of the inputs used in the valuation of such items at the measurement date based on the lowest level of input that is significant to the fair value measurement.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

2. Summary of Significant Accounting Policies (continued)

Fair value measurements (continued)

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

Assets acquired and liabilities assumed measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:

The fair value of the acquired accounts receivable and other current assets and the fair value of the assumed accounts payable and accrued expenses approximated their carrying value at the acquisition date. Inventories, property and equipment, intangible assets and contingent consideration were valued using Level 3 inputs.

3. Recent Accounting Pronouncements

Recent Standards Not Yet Effective

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. Management is evaluating ASU 2017-04 to determine the impact on the special purpose combined financial statements.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

3. Recent Accounting Pronouncements (continued)

Recent Standards Not Yet Effective (continued)

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features (Part 2) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This guidance changes the methodology for determining the liability or equity classification of certain financial instruments with a down round feature and clarifies existing disclosure requirements for equity-classified instruments, among other things. The revised guidance is effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted and applied retrospectively. Management is evaluating the guidance to determine the potential impact of adoption.

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. Management is evaluating the guidance to determine the potential impact of adoption.

4. Preliminary Purchase Price Allocation

The special purpose combined statement of assets acquired and liabilities assumed is presented on the basis of BioPharma’s preliminary purchase price allocation. BioPharma accounts for business combinations under the acquisition method of accounting, which requires recognition separately from goodwill, the assets acquired and the liabilities assumed at their acquisition date fair values. The valuation of net assets acquired and the contingent consideration comprising a portion of the total consideration is based on estimates and assumptions made at the time of the acquisition and as a result, the allocation of purchase price and estimated useful lives of property and equipment, and intangible assets is considered preliminary at this time. As additional information becomes available, the preliminary purchase price allocation may be revised during the remainder of the measurement period, which will not exceed 12 months from the acquisition date. Any such revisions or changes may be material.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

4. Preliminary Purchase Price Allocation (continued)

The fair value of goodwill on the acquisition date is approximately $8.0 million. The fair value of intangible assets includes trademarks and trade names ($1.6 million), customer relationships ($5.7 million), and developed technology and know-how ($0.3 million). Intangible assets will begin amortization on a straight-line basis after the acquisition date. The useful lives of trademarks and trade names and developed technology and know-how is estimated to be 10 years and the useful life of customer relationships is estimated to be 8 years.

5. Property and Equipment

The following is a summary of property and equipment by major classifications (in thousands):

6. Lease Commitments

BioPharma leases laboratory, research facility and administrative office space under various operating leases. At December 31, 2018, BioPharma has approximately 17,900 square feet of office and laboratory space in Rutherford, New Jersey and 24,900 square feet in Morrisville, North Carolina. BioPharma has escalating lease agreements for our New Jersey and North Carolina spaces, which expire February 2023 and May 2020, respectively. These leases require monthly rent with periodic rent increases that vary from $0.32 to $0.50 per square foot of the rented premises per year. The difference between minimum rent and straight-line rent is recorded as deferred rent payable. The terms of the New Jersey lease require that a $350,000 security deposit for the facility be held in a stand by letter of credit in favor of the landlord.

BioPharma acquired office and scientific equipment under long term leases which have been capitalized at the present value of the minimum lease payments. The equipment under these finance leases had a fair value of $1,016,034 and no accumulated depreciation as of July 15, 2019.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Combined Financial Statement (continued)

6. Lease Commitments (continued)

Minimum future lease payments under all finance and operating leases as of July 15, 2019 are as follows (in thousands):

Other supplemental information related to leases assumed was as follows as of July 15, 2019:

7. Commitments and Contingencies

In the ordinary course of business, the Business is involved in litigation, claims, government inquiries, investigations and proceedings, relating to intellectual property, commercial, employment, environmental and regulatory matters. Management doesn’t believe that the resolution of such claims and disputes will have a material adverse effect on the Company’s Financial Statement.

8. Subsequent Events

Management has evaluated subsequent events through September 19, 2019, the date the special purpose combined financial statement was available to be issued. No events were identified requiring additional recognition of disclosure in the notes to the abbreviated financial statement.

Notes to Special Purpose Interim Combined Financial Statements

(unaudited)

1. Description of Business and Basis of Presentation

Description of Business

On July 15, 2019 (the “Acquisition Date”), Interpace Diagnostics Group, Inc. (the “Company”), Interpace BioPharma, Inc., a newly formed and wholly owned subsidiary of the Company (“Buyer”), Cancer Genetics, Inc. (“CGI”), Gentris, LLC, a wholly owned subsidiary of CGI (“Gentris”) and Partners for Growth IV, L.P., a secured creditor of CGI (“PFG” or “Seller”), entered into and closed on a Secured Creditor Asset Purchase Agreement (the “Asset Purchase Agreement”). The Asset Purchase Agreement contains the terms and conditions of the acquisition of assets and assumption of certain liabilities (the “Acquisition”) relating to CGI’s and Gentris’ biopharma services business ( “BioPharma” or “Business”). BioPharma provides pharmaceutical and biotech companies and non-profit entities performing clinical trials with lab testing services for patient stratification and treatment selection through an extensive suite of molecular- and biomarker-based testing services, DNA- and RNA- extraction and customized assay development and trial design consultation.

Under the Asset Purchase Agreement, Buyer acquired assets comprising the Business from Seller, through a private foreclosure sale under § 9-610 of the Uniform Commercial Code as enacted in all relevant jurisdictions (the “UCC”). Concurrently with the execution of the Asset Purchase Agreement, the Company entered into a financing arrangement with Ampersand 2018 Limited Partnership (the “Investor”), a fund managed by Ampersand Capital Partners, pursuant to which the Investor agreed to provide specified financing to the Company in connection with the Acquisition (the “Investment”), subject to the terms and conditions of such financing documents, as further discussed below.

At the closing, Seller irrevocably sold and transferred to Buyer all of its interests in CGI, free and clear of Seller’s security interest and any other lien, in all of the properties and assets of CGI used or held for use in connection with BioPharma (collectively, the “Purchased Assets”). To the extent any assets owned by CGI or Gentris and relating to BioPharma were not subject to Seller’s perfected and valid security interest, those assets were transferred directly to Buyer by CGI and Gentris. At closing, Seller delivered to CGI a release of all liens held by the first lien secured lender, Silicon Valley Bank (“SVB”), on CGI’s assets through UCC-3 termination statements for all liens of PFG and SVB.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

1. Description of Business and Basis of Presentation (continued)

Description of Business (continued)

Buyer paid $23,500,000, less certain closing adjustments totaling $1,978,240 (the “Base Purchase Price”), as consideration for the Purchased Assets, of which $7,692,300 was in the form of a subordinated seller note (the “Excess Consideration Note”, as further described below) issued by Buyer to CGI, and the remainder was paid in cash to or on behalf of Seller on the closing date. In addition, Buyer is assuming certain liabilities (accounts payable and accrued expenses) of CGI related to BioPharma in the aggregate sum of approximately $5,000,000. Seller utilized the cash proceeds of approximately $13,829,000 to satisfy the outstanding balance of approximately $2,910,000 due to SVB under that certain loan and security agreement by and among CGI and SVB, as amended, to satisfy the outstanding balance of approximately $6,340,000 due to Seller under that certain loan and security agreement by and among CGI and Seller, as amended, and to satisfy certain transaction expenses. The balance of approximately $2,260,000, net of payment of transaction expenses, was delivered to CGI along with the Excess Consideration Note. The Base Purchase Price is subject to two additional adjustments following the closing: for the finalized net worth (assets less liabilities) of BioPharma as of June 30, 2019 (the “NWA”), subject to a cap of $775,000, and for certain older accounts receivable, in the aggregate amount of approximately $830,000, still uncollected as of December 31, 2019 (the “ARA”). Any amounts due to Buyer under the NWA will be set off against the Excess Consideration Note, and any amounts due to Buyer under the ARA will be either set off against the Excess Consideration Note or, if it is no longer outstanding, satisfied through an AR Holdback (as defined in the Asset Purchase Agreement) mechanism, in each case as further set forth in the Asset Purchase Agreement.

The Asset Purchase Agreement contains certain representations and warranties, which are made solely for purposes of the Asset Purchase Agreement and, in some cases, are subject to qualifications and limitations agreed to by the parties thereto in connection with the negotiated terms of the Asset Purchase Agreement, and which are qualified by certain disclosures that were made in connection with the parties’ entry into such agreement. The Asset Purchase Agreement provides for indemnification by CGI for limited breaches of representations and warranties, covenants and specified line-items, subject to agreed upon caps and baskets and survival periods. Indemnification payments due to Buyer may be (x) set off against the Excess Consideration Note, (y) if it is no longer outstanding, funded by a $735,000 holdback from payout to CGI under the Excess Consideration Note, subject to an additional retained AR Holdback if applicable, or (z) required to be paid directly by CGI, depending on the agreed upon limitations.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

1. Description of Business and Basis of Presentation (continued)

Basis of Presentation

BioPharma has not historically been accounted for as a separate entity, subsidiary or division of CGI. In addition, stand-alone financial statements related to BioPharma have not been prepared previously as CGI’s financial system is not designed to provide complete financial information of BioPharma. Therefore, special purpose interim combined financial statements have been prepared for the six-months ended June 30, 2019 and 2018 to satisfy the financial statement requirements of Rule 3-05 of Regulation S-X in lieu of full financial statements. Pursuant to a letter dated September 10, 2019 from the staff of the Division of Corporate Finance (the “Division”) of the SEC, the Division stated that it will not object to the Buyer’s proposal to provide abbreviated financial statements in satisfaction of the requirements of Rule 3-05 of Regulation S-X.

These special purpose interim combined financial statements have been derived from the historical accounting records of CGI. The special purpose interim combined financial statements do not represent revenues and direct expenses as if BioPharma had operated as a separate, stand-alone entity during the periods presented. In addition, the special purpose interim combined financial statements is not meant to be indicative of results of operations of BioPharma going forward as a result of future changes in the Business and the omission of various operating expenses.

All significant intracompany balances and transactions have been eliminated.

The revenues included in the accompanying special purpose interim combined statements of revenues and direct expenses represent revenues directly attributable to BioPharma. The costs and expenses included in the accompanying special purpose interim combined statements of revenues and direct expenses were incurred by CGI and include direct and allocated costs and expenses related to BioPharma. The allocated costs and expenses are allocated to the Business based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of test counts performed, revenue, or other relevant measures. The Business considers the expense allocation methodology and results to be reasonable for all periods presented.

The special purpose interim combined statements of revenues and direct expenses do not include expenses not directly associated with BioPharma business, such as corporate, shared services, indirect general & administrative expenses, interest income/expense, other income/expense, and income taxes.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

1. Description of Business and Basis of Presentation (continued)

The special purpose interim combined financial statements and notes thereto are unaudited and, in the opinion of management, include all adjustments consisting only of normal recurring adjustments considered necessary for a fair statement of BioPharma’s results of operations. The results reported in these special purpose interim combined financial statements should not be considered as necessarily indicative of the results that may be expected for the entire year. These special purpose interim combined financial statements should be read in conjunction with the special purpose combined financial statements for the years ended December 31, 2018 and 2017 and the related notes thereto.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the special purpose interim combined financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that may affect the reported amounts of revenues, direct expenses and related disclosures during the periods being presented. Management bases its estimates on historical experience and various other assumptions it believes to be reasonable. Components of these special purpose interim combined financial statements particularly subject to estimation include the allocation of certain direct expenses. Actual results may differ from management’s estimates.

Revenue recognition

Revenues consist of customized solutions for patient stratification and treatment selection through an extensive suite of DNA-based testing services. The services are billed to pharmaceutical and biotechnology companies.

Performance Obligations

Performance Obligation Satisfaction and Revenue Recognition: Performance obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Project level activities, including study setup and project management, are satisfied over the life of the contract. Revenues are recognized at a point in time when the test results or other deliverables are reported to the customer. Project level fee revenue is recognized ratably over the life of the contract.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

2. Summary of Significant Accounting Policies (continued)

Revenue recognition (continued)

Significant Payment Terms: Monthly invoices at a contractual rate are generated as services are delivered for work completed during the prior month. Some contracts have prepayments prior to services being rendered that are recorded as deferred revenue.

Nature of Services: BioPharma testing services, study setup and study management

Remaining Performance Obligations

Services offered 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. As of June 30, 2019, the Company had approximately $37 million in remaining performance obligations. BioPharma expects to recognize the remaining performance obligations over the next two to three years.

Practical Expedients

BioPharma’s customer arrangements do not contain any significant financing component (interest). BioPharma incurs incremental costs on its clients but has elected the practical expedient afforded by the new revenue standard to expense such costs as incurred. BioPharma excludes from the measurement of the transaction price all taxes collected from customers that are assessed by governmental authorities and are both imposed on and concurrent with specific revenue-producing transactions.

Concentrations

There was one customer that accounted for 11% of revenues for the six months ended June 30, 2019 and there was one customer that accounted for 11% of revenues for six months ended June 30, 2018. No other customers accounted for more than 10% of revenues in either period.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

2. Summary of Significant Accounting Policies (continued)

Depreciation

For the special purpose interim combined statements of revenues and direct expenses, depreciation is calculated on CGI’s historical cost basis of property and equipment using the straight-line method over the estimated useful lives of the respective assets, which generally range from five to seven years. Leasehold improvements are depreciated over the lesser of the lease term or the estimated useful lives of the improvements using the straight-line method. The cost of computer software developed for internal use, which consists of lab information system that is still in its configuration and implementation stages, is capitalized and will be amortized on a straight-line basis over its estimated useful life of ten years when complete. Repairs and maintenance are charged to expense as incurred while improvements are capitalized.

Depreciation expense included in the special purpose interim combined statements of revenues and direct expenses was $337,138 and $395,370 for the six-months ended June 30, 2019 and 2018, respectively. Of these amounts, $215,388 and $229,631 was included in cost of goods sold for the six months ended June 30, 2019 and 2018, respectively.

Lease expense

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). The most significant impact of adopting ASC 842 is related to the recognition of right-of-use assets and lease liabilities for operating leases. BioPharma’s accounting for finance leases remains substantially unchanged. The adoption of ASC 842 had no impact on the special purpose interim combined statements of revenues and direct expenses.

The special purpose interim combined statements of revenues and direct expenses includes an allocation of amortization of the right of use assets and finance costs related to the lease liabilities for both operating and finance leases.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

2. Summary of Significant Accounting Policies (continued)

Amortization of intangible assets

For the special purpose interim combined statements of revenues and direct expenses, amortization of intangible assets is calculated on CGI’s historical cost basis over their useful lives. Patents are amortized over the useful lives of the assets, using the straight-line method. Certain patents are in the legal application process and therefore are not currently being amortized.

Other intangible assets consist of software acquired with Response Genetics and vivoPharm’s customer list and trade name, which are all amortized using the straight-line method over the estimated useful lives of the assets, which range from three to ten years.

Amortization expense included in the special purpose interim combined statements of revenues and direct expenses was $55,828 and $42,168 for the six-months ended June 30, 2019 and 2018, respectively.

Research and development

Research and development costs associated with service and product development include direct costs of payroll, employee benefits, stock-based compensation and supplies and an allocation of indirect costs including rent, utilities, depreciation and repairs and maintenance. All research and development costs are expensed as they are incurred.

Stock-based compensation

Direct expenses related to BioPharma include an allocation of stock-based compensation. Stock-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. BioPharma estimates the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

All issuances of stock options or other issuances of equity instruments to employees as the consideration for services received by us are accounted for based on the fair value of the equity instrument issued.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

2. Summary of Significant Accounting Policies (continued)

Stock-based compensation (continued)

BioPharma accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity Based Payments to Non-Employees. Under ASC 505-50, BioPharma determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Stock-based compensation awards issued to non-employees are recorded in expense and additional paid-in capital in stockholders’ equity over the applicable service periods based on the fair value of the awards or consideration received at the vesting date.

3. Recent Accounting Pronouncements

Recent Standards Not Yet Effective

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. Management is evaluating ASU 2017-04 to determine the impact on the special purpose interim combined financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions. Under the new guidance, equity-classified share-based payment awards issued to nonemployees will now be measured on the grant date, instead of the previous requirement to remeasure the awards through the performance completion date. Awards that include performance conditions will recognize compensation cost when the achievement of the performance condition is probable, rather than upon achievement of the performance condition. Finally, the current requirement to reassess the classification (equity or liability) for nonemployee awards will be eliminated, except for awards in the form of convertible instruments. The ASU is effective for annual periods beginning after December 15, 2018, but no earlier than the adoption of ASC 606. Management adopted the guidance on January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on special purpose interim combined financial statements.

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

4. Lease Commitments

BioPharma leases laboratory, research facility and administrative office space under various operating leases. At June 30, 2019, BioPharma has approximately 17,900 square feet of office and laboratory space in Rutherford, New Jersey and 24,900 square feet in Morrisville, North Carolina. During 2018, BioPharma had a lease agreement for approximately 19,100 square feet of laboratory space in Los Angeles, California which expired on December 31, 2018. For a portion of 2018, BioPharma also had 10,000 square feet in Hyderabad, India, which was vacated in April 2018. BioPharma has escalating lease agreements for our New Jersey and North Carolina, which expire February 2023 and May 2020, respectively. These leases require monthly rent with periodic rent increases that vary from $0.32 to $0.50 per square foot of the rented premises per year. The difference between minimum rent and straight-line rent is recorded as deferred rent payable. The terms of BioPharma’s New Jersey lease require that a $350,000 security deposit for the facility be held in a stand by letter of credit in favor of the landlord.

BioPharma acquired office and scientific equipment under long term leases which have been capitalized at the present value of the minimum lease payments.

Lease expense included the special purpose interim combined statements of revenues and direct expenses was approximately $385,000 and $425,000 for the six-months ended June 30, 2019 and 2018, respectively.

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

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

5. Stock-based Compensation

CGI has 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 of BioPharma to remain in BioPharma’s employment. Options granted are generally exercisable for up to 10 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 CGI 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 CGI’s common stock, a risk-free interest rate, and expected dividends. BioPharma records forfeitures of unvested stock options when they occur. No compensation cost is recorded for options that do not vest. CGI uses 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 CGI’s 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. CGI uses an expected dividend yield of zero, as CGI has not paid dividends historically.

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

BioPharma

(A Business of Cancer Genetics, Inc.)

Notes to Special Purpose Interim Combined Financial Statements (continued)

(unaudited)

5. Stock-based Compensation (continued)

The following table presents the effects of stock-based compensation related to stock option and restricted stock awards to employees and non-employees on the special purpose interim combined statements of revenues and direct expenses during the periods presented (in thousands):

6. Commitments and Contingencies

In the ordinary course of business, the Business is involved in litigation, claims, government inquiries, investigations and proceedings, relating to intellectual property, commercial, employment, environmental and regulatory matters. Management does not believe that the resolution of such claims and disputes will have a material adverse effect on the Company’s financial statements.

7. Subsequent Events

Management has evaluated subsequent events through September 19, 2019, the date the special purpose interim combined financial statements were available to be issued. No events were identified requiring additional recognition of disclosure in the notes to the abbreviated financial statements.