cgix-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2020


☐			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 2nd Floor Rutherford, NJ						07070
Address of Principal Executive Offices						Zip Code

(201) 528-9200

Registrant’s Telephone Number, Including Area Code

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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 ☒ 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 ☒ 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

☒

Smaller reporting company

☒

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 ☒

As of November 9, 2020, there were 4,074,893 shares of common stock, par value $0.0001 of Cancer Genetics, Inc. outstanding.

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CANCER GENETICS, INC. AND SUBSIDIARIES

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PART I—FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations and Other Comprehensive Loss (Unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Sales of Registered Securities	41

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	42

SIGNATURE		43

INDEX TO EXHIBITS		44

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PART I — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

Cancer Genetics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value)


	September 30, 2020		December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,133	$	3,880
Restricted cash	—		350
Accounts receivable	773		696
Earn-Out from siParadigm, net, current portion	141		747
Excess Consideration Note	—		888
Other current assets	754		546
Current assets of discontinuing operations	—		71
Total current assets	2,801		7,178
FIXED ASSETS, net of accumulated depreciation	488		558
OTHER ASSETS
Operating lease right-of-use assets, net of accumulated amortization	47		94
Earn-Out from siParadigm, less current portion	—		356
Patents and other intangible assets, net of accumulated amortization	2,563		2,895
Investment in joint venture	56		92
Goodwill	3,090		3,090
Other	645		641
Total other assets	6,401		7,168
Total Assets	$	9,690	$	14,904
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	2,863	$	2,072
Obligations under operating leases, current portion	38		193
Obligations under finance leases, current portion	53		68
Deferred revenue	798		1,217
Note payable, net	—		1,277
Advance from NovellusDx, Ltd., net	—		350
Advance from siParadigm, current portion	—		566
Due to Interpace Biosciences, Inc.	421		—
Current liabilities of discontinuing operations	578		1,229
Total current liabilities	4,751		6,972
Obligations under operating leases, less current portion	10		10
Obligation under finance leases, less current portion	79		107
Advance from siParadigm, less current portion	—		252
Warrant liability	45		178
Total Liabilities	4,885		7,519
STOCKHOLDERS’ EQUITY
Preferred stock, authorized 9,764 shares, $0.0001 par value, none issued	—		—
Common stock, authorized 100,000 shares, $0.0001 par value, 2,506 and 2,104 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	—		—
Additional paid-in capital	173,517		171,783

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Accumulated other comprehensive income (loss)	(56)		26
Accumulated deficit	(168,656)		(164,424)
Total Stockholders’ Equity	4,805		7,385
Total Liabilities and Stockholders’ Equity	$	9,690	$	14,904

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Cancer Genetics, Inc. and Subsidiaries

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

(in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	$	1,568	$	2,069	$	4,440	$	5,416
Cost of revenues	912		993		2,366		2,729
Gross profit	656		1,076		2,074		2,687
Operating expenses:

General and administrative	1,217		1,239		4,982		4,205
Sales and marketing	354		322		979		824
Impairment of goodwill	—		2,873		—		2,873
Merger costs	454		284		454		284
Total operating expenses	2,025		4,718		6,415		8,186
Loss from operations	(1,369)		(3,642)		(4,341)		(5,499)
Other income (expense):
Interest expense	(108)		(200)		(283)		(1,327)
Interest income	—		—		4		—
Change in fair value of acquisition note payable	—		5		4		12
Change in fair value of other derivatives	—		—		—		86
Change in fair value of warrant liability	(19)		34		133		233
Change in fair value of siParadigm Earn-Out	(1)		(982)		(66)		(982)
Other income (expense)	146		—		251		(11)
Total other income (expense)	18		(1,143)		43		(1,989)
Loss from continuing operations before income taxes	(1,351)		(4,785)		(4,298)		(7,488)
Income tax expense (benefit)	2		—		8		(512)
Loss from continuing operations	(1,353)		(4,785)		(4,306)		(6,976)
Income from discontinuing operations	—		6,760		74		561
Net income (loss)	(1,353)		1,975		(4,232)		(6,415)
Foreign currency translation gain (loss)	(29)		(120)		(82)		(161)
Comprehensive income (loss)	$	(1,382)	$	1,855	$	(4,314)	$	(6,576)

Basic and diluted net loss per share from continuing operations	$	(0.58)	$	(2.38)	$	(1.96)	$	(3.77)
Basic and diluted net income per share from discontinuing operations	—		3.36		0.03		0.30
Basic and diluted net income (loss) per share	$	(0.58)	$	0.98	$	(1.93)	$	(3.47)

Basic and diluted weighted-average shares outstanding	2,328		2,014		2,193		1,850

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Cancer Genetics, Inc. and Subsidiaries

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

(in thousands)


	Three and Nine Months Ended September 30, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
	Shares	Amount
Balance, January 1, 2020	2,104	$	—	$	171,783	$	26	$	(164,424)	$	7,385
Stock based compensation—employees	—	—		58		—		—		58
Issuance of common stock—VenturEast settlement	3	—		12		—		—		12
Unrealized gain on foreign currency translation	—	—		—		104		—		104
Net loss	—	—		—		—		(1,179)		(1,179)
Balance, March 31, 2020	2,107	—		171,853		130		(165,603)		6,380
Stock based compensation—employees	—	—		47		—		—		47
Fair value of common stock exchanged to settle Note Payable	153	—		531		—		—		531
Unrealized loss on foreign currency translation	—	—		—		(157)		—		(157)
Net loss	—	—		—		—		(1,700)		(1,700)
Balance, June 30, 2020	2,260	—		172,431		(27)		(167,303)		5,101
Stock based compensation—employees	—	—		39		—		—		39
Fair value of common stock exchanged to settle Note Payable	246	—		1,047		—		—		1,047
Unrealized loss on foreign currency translation	—	—		—		(29)		—		(29)
Net loss	—	—		—		—		(1,353)		(1,353)
Balance, September 30, 2020	2,506	$	—	$	173,517	$	(56)	$	(168,656)	$	4,805


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

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Cancer Genetics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,232)	$	(6,415)
Income from discontinuing operations	(74)		(561)
Net loss from continuing operations	(4,306)		(6,976)

Adjustments to reconcile net loss to net cash used in operating activities, continuing operations:
Depreciation	130		53
Amortization	332		328
Stock-based compensation	152		226
Impairment of goodwill	—		2,873
Change in fair value of warrant liability, acquisition note payable and other derivatives	(137)		(331)
Amortization of operating lease right-of-use assets	154		123
Change in fair value of siParadigm Earn-Out	66		982
Amortization of discount on debt and debt issuance costs	71		470
Loss on extinguishment of debt	120		256
Interest added to Convertible Note	—		268
Changes in:
Accounts receivable	(72)		(36)
Other current assets	(203)		(422)
Other non-current assets	(3)		(2)
Accounts payable, accrued expenses and deferred revenue	400		1,516
Due to Interpace Biosciences, Inc.	421		—
Obligations under operating leases	(183)		(156)
Net cash used in operating activities, continuing operations	(3,058)		(828)
Net cash used in operating activities, discontinuing operations	(514)		(5,309)
Net cash used in operating activities	(3,572)		(6,137)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets	(39)		(21)
Distribution from Joint Venture	36		—
Receipts from Excess Consideration Note	888		—
Net cash provided by (used in) investing activities, continuing operations	885		(21)
Net cash provided by investing activities, discontinuing operations	78		3,044
Net cash provided by investing activities	963		3,023
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on obligations under finance leases	(66)		(36)
Proceeds from offerings of common stock, net of certain offering costs	—		5,412
Payments on Advance from NovellusDx, Ltd.	(350)		—
Net cash provided by (used in) financing activities, continuing operations	(416)		5,376
Net cash used in financing activities, discontinuing operations	—		(115)
Net cash provided by (used in) financing activities	(416)		5,261

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Effect of foreign exchange rates on cash and cash equivalents and restricted cash	(72)		(161)
Net increase (decrease) in cash and cash equivalents and restricted cash	(3,097)		1,986
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Beginning	4,230		511
Ending	$	1,133	$	2,497

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	1,133	$	2,147
Restricted cash	—		350
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	$	1,133	$	2,497


SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest	$	11	$	1,185
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued in VentureEast settlement	$	12	$	—
Fair value of common stock exchanged to settle Note Payable	1,578		—
Right of use assets obtained through operating leases	27		—
Fixed assets obtained through finance leases	17		145
Conversion of debt and accrued interest into common stock	—		350
Increase in fair value of conversion option	—		547
Exchanges of principal on Convertible Note for common stock	—		612
Disposal of Clinical Business:
Goodwill	$	—	$	1,188
Accounts payable and accrued expenses	—		(287)
Gain on disposal of Clinical Business	—		1,222
Earn-Out from siParadigm	—		(2,269)
Advance from siParadigm, net of repayments	—		974
Net cash received in disposal of Clinical Business	$	—	$	828
Disposal of BioPharma Business:
Accounts receivable	$	—	$	4,145
Other current assets	—		1,142
Fixed assets	—		2,998
Operating lease right-of-use assets	—		1,969
Patents and other intangible assets	—		42
Goodwill	—		10,106
Accounts payable and accrued expenses	—		(6,351)
Obligations under operating leases	—		(2,110)
Obligations under finance leases	—		(451)
Deferred revenue	—		(1,046)
Line of credit	—		(2,665)
Term note	—		(6,000)
Gain on disposal of BioPharma Business	—		7,274
Note receivable from IDXG	—		(6,795)
Net cash received in disposal of BioPharma Business	$	—	$	2,258

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See Notes to Unaudited Condensed Consolidated Financial Statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization, Description of Business, Merger Agreement, Basis of Presentation, Reclassifications, Reverse Stock Split and Business Disposals

Cancer Genetics, Inc. (the "Company" or "CGI") supports the efforts of the biotechnology and pharmaceutical industries to develop innovative new drug therapies. Until the closing of the Business Disposals (as defined below) in July 2019, the Company was an emerging leader in enabling precision medicine in oncology by providing multi-disciplinary diagnostic and data solutions, facilitating individualized therapies through its diagnostic tests, services and molecular markers. Following the Business Disposals described below, the Company currently has 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.

The Company was 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 continues to have laboratories in Pennsylvania and Australia. The Company’s corporate headquarters are in Rutherford, New Jersey. The Company offers preclinical services such as predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology relevant tumor models in its Hershey PA facility, and is 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 its Australian-based facilities in Clayton, Victoria. Beginning in February 2020, the Company also has an animal testing facility and laboratory in Gilles Plains, South Australia, Australia.

Merger Agreement

On August 24, 2020, the Company announced the entry into an Agreement and Plan of Merger and Reorganization dated August 21, 2020 (“Merger Agreement”) between the Company, StemoniX, Inc., a Minnesota corporation (“StemoniX”), and CGI Acquisition, Inc., a Minnesota corporation and wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub will merge with and into StemoniX, with StemoniX surviving the merger and becoming a direct, wholly-owned subsidiary of the Company (the “Merger”). The transaction is structured as a reverse merger with StemoniX as the acquirer for accounting purposes.

Pursuant to, and subject to the conditions of, the Merger Agreement, each share of common stock of StemoniX (other than Dissenting Shares (as defined in the Merger Agreement)), issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) shall be automatically converted into the right to receive an amount of shares of common stock, par value $0.0001 per share, of the Company (“CGI Common Stock”) equal to the Exchange Ratio (as defined in the Merger Agreement). All options to purchase shares of StemoniX Common Stock (“StemoniX Options”) outstanding immediately prior to the Effective Time, whether vested or unvested, will be converted into a stock option to purchase shares of CGI Common Stock, proportionately adjusted based on the Exchange Ratio. All warrants to purchase shares of StemoniX Common Stock (“StemoniX Warrants”) outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive the same consideration such warrantholder would have received had they exercised the StemoniX Warrants immediately prior to the merger, based on the Exchange Ratio, net of the exercise price. As a result, immediately following the Effective Time, but prior to the proportionate dilution to come from the contemplated private placement that is a condition of the merger (the “Private Placement”), the former StemoniX shareholders will hold approximately 78% of the outstanding shares of CGI Common Stock (which outstanding shares, the “Deemed Outstanding Shares”, in this context, includes the CGI Common Stock issuable on a net exercise basis with respect to any in-the-money CGI options, in-the-money CGI warrants, in-the-money StemoniX Options and in-the-money StemoniX Warrants but does not include any shares issued in the Private Placement) and the stockholders of CGI, will retain ownership of approximately 22% of the Deemed Outstanding Shares, with such percentages subject to certain closing adjustments based on the Net Cash (as defined in the Merger Agreement) held by each company (such adjustment, the “Net Cash Adjustment”) and, proportionately for all equity holders of the post-merger company, dilution from the Private Placement. The exact number of shares of CGI Common Stock that will be issued to StemoniX shareholders will be fixed immediately prior to the Effective Time to reflect the capitalization of CGI as of immediately prior to such time as well as the Net Cash Adjustment.

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 ("SEC"). Accordingly,

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they do not include all of the information and footnotes required by GAAP 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, 2019, filed with the SEC on May 29, 2020. The condensed consolidated balance sheet as of December 31, 2019, 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, 2020.

Reclassifications

Certain items in the prior year consolidated financial statements have been reclassified to conform to the current presentation.

Reverse Stock Split

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

Business Disposals - Discontinuing Operations

Interpace Diagnostics Group, Inc.

On July 15, 2019, the Company entered into 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 Biosciences, 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 $23.5 million, less certain closing adjustments totaling $2.0 million, of which $7.7 million was settled 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 $2.3 million was delivered to the Company in addition to the Excess Consideration Note.

The Excess Consideration Note, which required interest-only quarterly payments at a rate of 6% per year, matured in October 2019 and was settled on October 24, 2019 for $6.0 million, including interest of $24 thousand. The Buyer withheld from the settlement of the Excess Consideration Note approximately $775 thousand for a net worth adjustment (assets less liabilities) of the BioPharma business (“Net Worth”), $153 thousand to secure collection of certain older accounts receivable of the Company purchased by Buyer (“AR Holdback”) and an additional $735 thousand as security for indemnification obligations of the Company for any breaches of certain limited warranties and covenants of the Company and other specified items (“Indemnification Holdback”). The Company received the full amounts of the AR Holdback and the Indemnification Holdback in April and May 2020.

The Company and Buyer also entered into a transition services agreement (the “TSA”) pursuant to which the Company and Buyer are providing certain services to each other to accommodate the transition of the BioPharma Business to Buyer. In particular, the Company agreed to provide to Buyer, among other things, certain personnel services, payroll processing, administration services and benefit administration services, for a reasonable period commencing 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. The Buyer paid for certain costs of the Company under the TSA with respect to a limited number of employees and professionals. Such shared services amounted to $10 thousand and $208 thousand for the quarter and the nine months ended September 30, 2020, respectively. In addition, the Buyer was reimbursing the Company, in part, for the salaries and benefits of John A. Roberts, the Company’s Chief Executive Officer, and Glenn Miles, the Company’s Chief Financial Officer through July 2020. The reimbursed portion of such salaries and benefits amounted to $5 thousand and $155 thousand for the quarter and nine months ended September 30, 2020, respectively. Including the amounts due under the TSA described above, the net amount due

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to the Buyer is approximately $421 thousand at September 30, 2020. The TSA will continue until a mutually-agreed upon end date.

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. The cash consideration paid by siParadigm at closing was approximately $747 thousand, which includes approximately $45 thousand for certain equipment plus a $1.0 million advance payment of the Earn-Out (as defined below), less adjustments and costs of approximately $298 thousand. The Clinical Business sale (together with the BioPharma Disposal, the “Business Disposals”) was completed on July 8, 2019.

The Earn-Out, to be paid over the 24 months post-closing, is based on fees for all tests performed by siParadigm for the Company’s clinical customers during the 12-month period following the closing (the “Earn-Out”). The Company has netted the Earn-out and Advance from siParadigm as of September 30, 2020 as all amounts are fixed and determinable and the Company and siParadigm intend to offset. At September 30, 2020, the net Earn-Out receivable from siParadigm was approximately $141 thousand.

Under the Clinical Agreement, the Company agreed to certain non-competition and non-solicitation provisions, including that it 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 (through July 2022).

The Business Disposals have been classified as discontinuing operations in conformity with GAAP. Accordingly, BioPharma and Clinical operations and balances have been reported as discontinuing operations and removed from all financial disclosures of continuing operations. As permitted by Accounting Standards Codification (“ASC”) 205-20, the Company elected to allocate approximately $22 thousand and $1.5 million of interest expense on the convertible promissory note (“Convertible Note”) to Iliad Research and Trading, L.P. (“Iliad”) and Advance from NovellusDx, Ltd. (“NDX”) that was not required to be repaid to discontinuing operations during the three and nine months ended September 30, 2019, respectively. Unless otherwise indicated, information in these notes to unaudited condensed consolidated financial statements relates to continuing operations.

Note 2. Going Concern

At September 30, 2020, the Company's history of losses required management to assess its ability to continue operating as a going concern, according to ASC 2015-40, Going Concern. Even after the disposal of the Company's BioPharma Business and Clinical Business discussed in Note 1, the Company does not project that cash at September 30, 2020 along with the proceeds from the October 2020 offering will be sufficient to fund normal operations for the twelve months from the issuance of these financial statements in the Quarterly Report on Form 10-Q. Absent the Merger, the Company's ability to continue as a going concern is dependent on reduced losses and improved future cash flows. Alternatively, the Company may be required to raise additional equity or debt capital, or consummate other strategic transactions. These factors raise substantial doubt about the Company's ability to continue as a going concern for the twelve months from the issuance of these financial statements in the Quarterly Report on Form 10-Q. The Company can provide no assurance that these actions will be successful or that additional sources of financing will be available on favorable terms, if at all.

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

On March 11, 2020 the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. In addition, the Company is located in New Jersey and was under a shelter-in-place mandate. Many of the Company's customers worldwide were similarly impacted. The global outbreak of the COVID-19 continues to rapidly evolve, and the extent to which the COVID-19 may impact the Company's business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. As a healthcare provider, the Company is still providing Discovery Services and

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began to experience a slowdown in project work as a result of the COVID-19 pandemic during the third quarter of 2020 and expects the progress of many projects may be delayed. The Company continues to vigilantly monitor the situation with its primary focus on the health and safety of its employees and clients.

In response to COVID-19, the Australian government has provided the Company various grants totaling $251 thousand. The Job Keeper Allowance was provided to supplement employee wages and totaled $99 thousand and $155 thousand for the three and nine months ended September 30, 2020, respectively. An additional $47 thousand and $90 thousand relates to cash boost payments received as a reimbursement of payroll taxes during the three and nine months ended September 30, 2020, respectively. The final $6 thousand relates to small business grants received during the nine months ended September 30, 2020. These grants are recorded as other income.

Note 3. Discontinuing 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. The Company elected to allocate approximately $22 thousand and $1.5 million of interest expense from the Convertible Note and Advance from NDX to discontinuing operations during the three and nine months ended September 30, 2019. Revenue and other significant accounting policies associated with the discontinuing operations have not changed since the most recently filed audited financial statements as of and for the year ended December 31, 2019.

Summarized results of the Company's unaudited condensed consolidated discontinuing operations are as follows for the three and nine months ended September 30, 2020 and 2019 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	$	—	$	428	$	—	$	10,066
Cost of revenues	—		567		—		7,667
Gross profit	—		(139)		—		2,399
Operating expenses:
Research and development	—		47		—		937
General and administrative	(9)		796		(83)		4,306
Sales and marketing	—		15				1,528
Restructuring costs	—		100		—		100
Transaction costs	9		—		9		651
Impairment of patents and other intangible assets	—		601		—		601
Total operating expenses	—		1,559		(74)		8,123
Income (loss) from discontinuing operations	—		(1,698)		74		(5,724)
Other income (expense):
Interest expense	—		(38)		—		(2,211)
Gain on disposal of Clinical Business	—		1,222		—		1,222
Gain on disposal of BioPharma Business	—		7,274		—		7,274

Total other income (expense)	—		8,458		—		6,285
Net income (loss) from discontinuing operations	$	—	$	6,760	$	74	$	561

Unaudited condensed consolidated carrying amounts of major classes of assets and liabilities from discontinuing operations were as follows as of September 30, 2020 and December 31, 2019 (in thousands):

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	September 30, 2020		December 31, 2019
Current assets of discontinuing operations:
Accounts receivable, net of allowance for doubtful accounts of $4,518 in 2020; $4,536 in 2019	$	—	$	71

Current assets of discontinuing operations	$	—	$	71

Current liabilities of discontinuing operations
Accounts payable and accrued expenses	$	578	$	1,137
Due to Interpace Biosciences, Inc.	—		92
Current liabilities of discontinuing operations	$	578	$	1,229

Cash flows used in operating activities of discontinuing operations consisted of the following for the nine-months ended September 30, 2020 and 2019 (in thousands):


	Nine Months Ended September 30,
	2020		2019
Income from discontinuing operations	$	74	$	561

Adjustments to reconcile income from discontinuing operations to net cash used in operating activities, discontinuing operations
Depreciation	—		542
Amortization	—		613
Provision for bad debts	(28)		323
Accounts payable settlements	(43)		—
Stock-based compensation	(8)		91
Amortization of operating lease right-of-use assets	—		436
Amortization of discount of debt and debt issuance costs	—		601
Loss on extinguishment of debt	—		328
Interest added to Convertible Note	—		343
Gain on disposal of Clinical buisness	—		(1,222)
Gain on disposal of BioPharma buisness	—		(7,274)
Change in working capital components:
Accounts receivable	99		711
Other current assets	—		277
Other non-current assets	—		2
Accounts payable, accrued expenses and deferred revenue	(516)		(1,273)
Obligations under operating leases	—		(368)
Due to Interpace Biosciences, Inc.	(92)		—
Net cash used in operating activities, discontinuing operations	$	(514)	$	(5,309)

Note 4. Revenue

The Company has remaining performance obligations as of September 30, 2020 and December 31, 2019 of $798 thousand and $1.2 million, respectively. Deferred revenue of $1.2 million from December 31, 2019 was recognized as revenue in the nine

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months ended September 30, 2020. Of the remaining performance obligations as of September 30, 2020, approximately $798 thousand are expected to be recognized as revenue in the next twelve months.

During the three and nine months ended September 30, 2020, four customers accounted for approximately 66% and 63%, respectively, of the Company's consolidated revenue from continuing operations. During the three and nine months ended September 30, 2019, four customers accounted for approximately 83% and 79%, respectively, of the Company's consolidated revenue from continuing operations.

During the three and nine months ended September 30, 2020, approximately 58% and 35%, respectively, of the Company's continuing operations revenue was earned outside the United States and collected in local currency. During the three and nine months ended September 30, 2019, those amounts were approximately 22% and 24%.

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):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Common stock purchase warrants	279	279	279	279
Stock options	71	68	71	68
Convertible Note	—	206	—	206
Advance from NDX	—	98	—	98
	350	651	350	651

Note 6. Leasing Arrangements

Operating Leases

The Company leases its laboratory, research facility and administrative office space under various operating leases. The Company also leases scientific equipment under various finance leases. Following the Business Disposals, the Company has assigned its office leases in North Carolina and New Jersey to Buyer.

The Company determines 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 its unaudited condensed consolidated balance sheets. Finance leases are included in fixed assets, net of accumulated depreciation and obligations under finance leases.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease obligations represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease obligations are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company's incremental borrowing rate was determined by adjusting its secured borrowing interest rate for the longer-term nature of its leases. The Company's variable lease payments primarily consist of maintenance and other operating expenses from its 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. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. The Company has elected to account for these lease and non-lease components as a single lease component. The Company is also electing not to apply the recognition requirements

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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 operating and finance lease expense were as follows for the three and nine months ended September 30, 2020 and 2019, respectively, for continuing operations (in thousands):


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
Finance lease cost:
Amortization of right-of use assets	$	25	11	59	27
Interest on lease liabilities	3		4	10	9
Operating lease cost	60		43	176