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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Cancer Genetics, Inc.    CGIX

CANCER GENETICS, INC.

(CGIX)
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CANCER GENETICS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/13/2020 | 05:29pm EDT
As used herein, the "Company" refer to Cancer Genetics, Inc. and its wholly
owned subsidiaries at June 30, 2020: Cancer Genetics Italia, S.r.l., Gentris,
LLC, and vivoPharm Pty, Ltd, except as expressly indicated or unless the context
otherwise requires. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") is intended to help
facilitate an understanding of the Company's financial condition and its
historical results of operations for the periods presented. This MD&A should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K filed with the SEC
on May 29, 2020. This MD&A may contain forward-looking statements that involve
risks and uncertainties. See "Cautionary Note Regarding Forward-Looking
Statements" below. The share numbers in the following discussion reflect a
1-for-30 reverse stock split that the Company effected October 24, 2019.

Overview


Cancer Genetics, Inc. (the "Company") 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 the Company's diagnostic tests, services and
molecular markers. Following the Business Disposals, 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's
tests and techniques target a wide range of indications, covering all ten of the
top cancers in prevalence in the United States, with additional unique
capabilities offered by its FDA-cleared Tissue of Origin® test for identifying
difficult to diagnose tumor types or poorly differentiated metastatic disease.

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 the Company's Australian-based
facilities in Clayton, Victoria, and Gilles Plains, South Australia (effective
in February 2020).

The Company does not project that cash at June 30, 2020, 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. 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.
The Company is continuing to evaluate strategic options, with the assistance of
an investment bank, which could include the sale of assets, a merger, reverse
merger, or strategic transaction. These factors raise substantial doubt about
the Company's ability to continue as a going concern. 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. These factors raise
substantial doubt about the Company's ability to continue as a going concern for
the next twelve months from the issuance of this Quarterly Report on Form 10-Q.

Business Disposals - Discontinuing Operations

Interpace Diagnostics Group, Inc.


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

Pursuant to the BioPharma Agreement, Buyer purchased from PFG certain assets and
assumed certain liabilities of the Company relating to the BioPharma Business,
providing as gross consideration $23.5 million, less certain closing adjustments
totaling $2.0 million, of which $7.7 million was paid in the form of a
promissory note issued by Buyer to the Company (the "Excess Consideration Note")
and the remainder was paid to PFG in cash. PFG utilized the cash proceeds to
satisfy the outstanding balances of the Silicon Valley Bank ("SVB") asset-based
revolving line of credit ("ABL") and the $6.0 million term note to PFG ("PFG
Term Note"), and to satisfy certain transaction expenses. The balance of
approximately $2.3 million was delivered to the Company along with the Excess
Consideration Note. The Excess Consideration Note which required interest-only
quarterly payments at a rate of 6% per year, matured in October 2019 and was
settled on October 24,
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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, respectively.

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

siParadigm, Inc.


On July 5, 2019, the Company entered into an asset purchase agreement (the
"Clinical Agreement") by and among the Company and siParadigm, LLC
("siParadigm"), pursuant to which the Company sold to siParadigm, certain assets
associated with the Company's clinical laboratory business (the "Clinical
Business," and such assets, the "Designated Assets"), and agreed to cease
operating its Clinical Business. The Designated Assets include intellectual
property, equipment and customer lists associated with the Clinical Business,
and the Company is providing certain transitional services to siParadigm
pursuant to the Clinical Agreement. The cash consideration paid by siParadigm at
closing was approximately $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 approximately $177 thousand of supplier
invoices paid directly by siParadigm, an adjustment of $11 thousand and
transaction costs of approximately $110 thousand. The Earn-Out, to be paid over
the 24 months post-closing, is based on fees for all tests performed by
siParadigm for the Company's clinical customers during the 12-month period
following the closing (the "Earn-Out"). The Clinical Business sale (together
with the BioPharma Disposal, the "Business Disposals") was completed on July 8,
2019.

The Business Disposals have been classified as 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. Unless otherwise indicated,
information in Management's Discussion and Analysis relates only to continuing
operations.

2019 Offerings

In January 2019, the Company closed two public offerings and issued an aggregate
of 952 thousand shares of common stock for approximately $5.4 million, net of
expenses and discounts of approximately $1.1 million. The Company also issued 67
thousand warrants to its underwriters in conjunction with these offerings.

Note Payable to Atlas Sciences, LLC


On October 21, 2019, the Company issued an unsecured promissory note to Atlas
Sciences, LLC ("Atlas Sciences"), an affiliate of Iliad Research and Trading,
L.P. ("Iliad"), for $1.3 million (the "Atlas Sciences Note"). The Company
received consideration of $1.3 million, reflecting an original issue discount
of $88 thousand and expenses payable by the Company of $10 thousand. The Atlas
Sciences Note has a 12-month term and bears interest at 10% per annum. The
proceeds from the Atlas Sciences Note were utilized to partially repay the
convertible promissory note issued to Iliad on July 17, 2018 (the "Convertible
Note"), which was settled in cash for $2.7 million in October 2019.

Between June 3, 2020 and June 9, 2020, the Company issued an aggregate of
approximately 153 thousand shares of the Company's common stock, with a fair
value of $531 thousand, to Atlas Sciences in exchange for the return to the
Company of $500 thousand of principal amount from their unsecured promissory
note. At June 30, 2020, the Atlas Sciences Note had a principal balance of
approximately $848 thousand, which is presented net of discounts and unamortized
debt issuance costs of $7 thousand and $1 thousand, respectively. Subsequent to
June 30, 2020, the Company issued approximately 47 thousand shares of common
stock to Atlas Sciences in exchange for the return to the Company of $150
thousand of principal amount from its unsecured promissory note.
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Key Factors Affecting the Company's Results of Operations and Financial Condition


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

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

The Company believes that the factors discussed in the following paragraphs have
had and are expected to continue to have a material impact on its results of
operations and financial condition.

Revenues from Continuing Operations


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

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

Cost of Revenues from Continuing Operations


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

Operating Expenses from Continuing Operations


The Company classifies its operating expenses into two categories: general and
administrative, and sales and marketing. The Company's operating expenses
principally consist of personnel costs, including non-cash stock-based
compensation, outside services, laboratory consumables and overhead, development
costs, marketing program costs and legal and accounting fees.

General and Administrative Expenses. General and administrative expenses consist
principally of personnel-related expenses, professional fees, such as legal,
accounting and business consultants, occupancy costs, bad debt and other general
expenses.

Sales and Marketing Expenses. The Company's sales and marketing expenses consist
principally of personnel and related overhead costs for its business development
team and their support personnel, travel and entertainment expenses, and other
selling costs including sales collaterals and trade shows. The Company expects
its sales and marketing expenses to increase due to additional salaries as it
continues to operate and grow its Discovery Services business.

Coronavirus (COVID-19) Pandemic. 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 COVID-19 continues to rapidly evolve, and the extent to which
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 has yet to experience a significant slowdown in its project work,
however, the future of
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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.

Results of Operations

Three Months Ended June 30, 2020 and 2019

The following table sets forth certain information concerning the Company's results of continuing operations for the periods shown:

                                           Three Months Ended June 30,                            Change
(dollars in thousands)                        2020                  2019            $            %
Revenue                                $        1,446$ 1,525$    (79)         (5) %
Cost of revenues                                  640                734            (94)        (13) %

General and administrative                      2,232              1,184          1,048          89  %
Sales and marketing                               284                317            (33)        (10) %

Loss from continuing operations                (1,710)              (710)        (1,000)        141  %
Interest expense, net                             (97)              (514)           417         (81) %
Change in fair value of acquisition
note payable                                        -                  7             (7)           n/a
Change in fair value of other
derivatives                                         -                 55            (55)           n/a
Change in fair value of warrant
liability                                          25                206           (181)        (88) %
Change in fair value of siParadigm
Earn-Out                                          (89)                 -            (89)           n/a
Other expense                                     105                (11)           116            n/a

Loss before income taxes                       (1,766)              (967)          (799)         83  %
Income tax expense (benefit)                        -               (512)           512        (100) %
Loss from continuing operations        $       (1,766)$  (455)

$ (1,311) 288 %

Non-GAAP Financial Information


In addition to disclosing financial results in accordance with United States
generally accepted accounting principles ("GAAP"), the table below contains
non-GAAP financial measures that the Company believe are helpful in
understanding and comparing its past financial performance and its future
results. The non-GAAP financial measures disclosed by the Company exclude the
non- operating changes in the fair value of derivative instruments. These
non-GAAP financial measures should not be considered a substitute for, or
superior to, financial measures calculated in accordance with GAAP, and the
financial results calculated in accordance with GAAP and reconciliations from
these results should be carefully evaluated. Management believes that these
non-GAAP measures provide useful information about the Company's core operating
results and thus are appropriate to enhance the overall understanding of the
Company's past financial performance and its prospects for the future. The
non-GAAP financial measures in the table below include adjusted net loss and the
related adjusted basic and diluted net loss per share amounts.

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

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                                                                         Three Months Ended June 30,
                                                                          2020                   2019

Reconciliation of net loss from continuing operations: Net loss from continuing operations

                                $       (1,766)                 (455)
Adjustments:
Interest expense, net                                                          97                   514
Depreciation                                                                   38                    22
Amortization                                                                  135                   141
Stock-based compensation                                                       55                    67
Change in fair value of acquisition note payable                                -                    (7)
Change in fair value of other derivatives                                       -                   (55)
Change in fair value of warrant liability                                     (25)                 (206)
Change in fair value of siParadigm Earn-Out                                    89                     -
Income tax expense (benefit)                                                    -                  (512)
Adjusted EBITDA loss from continuing operations                    $       

(1,377) $ (491)




Adjusted EBITDA loss from continuing operations increased 180% to $1.4 million
during the three months ended June 30, 2020, from an adjusted EBITDA loss from
continuing operations of $491 thousand during the three months ended June 30,
2019.

Revenue from Continuing Operations


Revenue from continuing operations decreased 5%, or $79 thousand, during the
three months ended June 30, 2020 compared to the same period in 2019 principally
due to the timing of discovery service studies.

Cost of Revenues from Continuing Operations


Cost of revenues from continuing operations decreased 13%, or $94 thousand, for
the three months ended June 30, 2020, principally due to a $83 thousand decrease
in lab supplies and decreased salaries of $51 thousand, offset in part by $48
thousand increase in outsourcing costs. As a result of the changes in revenues
and cost of revenues, gross margin from continuing operations increased to 56%
during the three months ended June 30, 2020, up from 52% for the three months
ended June 30, 2019.

Operating Expenses from Continuing Operations


General and administrative expenses from continuing operations increased 89%, or
$1.0 million, to $2.2 million for the three months ended June 30, 2020, from
$1.2 million for the three months ended June 30, 2019, principally due to $901
thousand increase in professional services (of which $619 thousand represent
one-time costs), $136 thousand increase in taxes and insurance, and $40 thousand
increase in legal costs, offset in part by $36 thousand decrease in travel,
meals and entertainment.

Sales and marketing expenses from continuing operations decreased 10%, or $33
thousand, to $284 thousand for the three months ended June 30, 2020 from $317
thousand for the three months ended June 30, 2019. The decrease was primarily
related to salaries.

Interest Expense, Net

Net interest expense from continuing operations decreased by $417 thousand
during the three months ended June 30, 2020 due to the payoff of various debt
agreements that were previously in place during the three months ended June 30,
2019. From the end of the same quarter in 2019, the Advance from NDX has
declined from $1.5 million to $50 thousand at June 30, 2020, resulting in a
reduction of $78 thousand of interest expense. The Convertible Note with Iliad
of approximately $3.1 million at June 30, 2019 has been replaced by a note
payable to Atlas Sciences with a balance at June 30, 2020 of $848 thousand,
resulting in a reduction of $928 thousand of interest expense. The Company
allocated $657 thousand of these interest expenses to discontinuing operations
during the three months ended June 30, 2019.


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Change in Fair Value of Acquisition Note Payable

There was no change in fair value of acquisition note payable during the three
months ended June 30, 2020. During the three months ended June 30, 2019, the
Company recognized a gain of $7 thousand from the change in fair value of
acquisition note payable.

Change in Fair Value of Other Derivatives

There were no other derivatives in 2020. During the three months ended June 30, 2019, the Company recognized a gain of $55 thousand from the change in fair value of other derivatives.

Change in Fair Value of Warrant Liability


Changes in fair value of some of the Company's common stock warrants may impact
its quarterly results.  Accounting rules require the Company to record certain
of its warrants as a liability, measure the fair value of these warrants each
quarter and record changes in that value in earnings. As a result of changes in
the Company's stock price, it recognized non-cash income of $25 thousand and
$206 thousand during the three months ended June 30, 2020 and 2019,
respectively. The Company may be exposed to non-cash charges, or the Company may
record non-cash income, as a result of this warrant exposure in future periods.

Change in Fair Value of siParadigm Earn-Out

During the three months ended June 30, 2020, the Company recognized a $89 thousand reduction in the fair value of the siParadigm Earn-Out due to a decrease in expected future payments.

Income Tax Benefit


On April 4, 2019, the Company sold $11.6 million of gross State of New Jersey
NOL's relating to the 2017 tax year as well as $100 thousand of state research
and development tax credits. The sale resulted in the net receipt to the Company
of $512 thousand.

Six Months Ended June 30, 2020 and 2019

The following table sets forth certain information concerning the Company's results of continuing operations for the periods shown:

                                              Six Months Ended June 30,                           Change
(dollars in thousands)                          2020                2019            $            %
Revenue                                   $      2,872$  3,347$  (475)        (14) %

Cost of revenues                                 1,454              1,736          (282)        (16) %
General and administrative                       3,765              2,966           799          27  %
Sales and marketing                                625                502           123          25  %
Loss from operations                            (2,972)            (1,857)       (1,115)         60  %
Interest expense, net                             (171)            (1,127)          956         (85) %
Change in fair value of acquisition note
payable                                              4                  7            (3)           n/a
Change in fair value of other derivatives            -                 86           (86)       (100) %
Change in fair value of warrant liability          152                199           (47)        (24) %
Change in fair value of siParadigm
Earn-Out                                           (65)                 -           (65)           n/a
Other income (expense)                             105                (11)          116            n/a
Loss before income taxes                        (2,947)            (2,703)         (244)          9  %
Income tax expense (benefit)                         6               (512)          518            n/a
Loss from continuing operations           $     (2,953)$ (2,191)$  (762)         35  %





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Non-GAAP Financial Information

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

Reconciliation from GAAP to Non-GAAP Results (in thousands):

Six Months Ended June 30,

                                                                         2020                  2019

Reconciliation of net loss from continuing operations: Net loss from continuing operations

                                $     (2,953)               (2,191)
Adjustments:
Interest expense, net                                                       171                 1,127
Depreciation                                                                 90                    36
Amortization                                                                214                   223
Stock-based compensation                                                    113                   186
Change in fair value of acquisition note payable                             (4)                   (7)
Change in fair value of other derivatives                                     -                   (86)
Change in fair value of warrant liability                                  (152)                 (199)
Change in fair value of siParadigm Earn-Out                                  65                     -
Income tax expense (benefit)                                                  6                  (512)
Adjusted EBITDA loss from continuing operations                    $     

(2,450) $ (1,423)




Adjusted EBITDA loss from continuing operations increased 72% to $2.5 million
during the six months ended June 30, 2020, from an adjusted EBITDA loss from
continuing operations of $1.4 million during the six months ended June 30, 2019.

Revenue from Continuing Operations


Revenue from continuing operations decreased 14%, or $475 thousand, to $2.9
million for the six months ended June 30, 2020, from $3.3 million for the six
months ended June 30, 2019, principally due to Tissue of Origin® tests of
approximately $300 thousand in 2019 that are not expected to occur until the
second half of 2020, and the timing of discovery service studies.

Cost of Revenues from Continuing Operations


Cost of revenues from continuing operations decreased 16%, or $282 thousand, to
$1.5 million for the six months ended June 30, 2020 from $1.7 million for the
six months ended June 30, 2019, principally due to a reduction in outsourcing
costs of $132 thousand and reduction in lab supplies of $126 thousand. As a
result of the changes in revenues and cost of revenues, gross margin increased
to 49% during the six months ended June 30, 2020 from 48% during the six months
ended June 30, 2019.

Operating Expenses from Continuing Operations


General and administrative expenses from continuing operations increased 27%, or
$799 thousand, to $3.8 million for the six months ended June 30, 2020, from $3.0
million for the six months ended June 30, 2019, principally due to $903 thousand
increase in professional services (of which $619 thousand represent one-time
costs), and a $202 thousand increase in taxes and insurance, offset in part by
$225 thousand decrease in salaries and a $97 thousand decrease in legal costs.

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Sales and marketing expenses from continuing operations increased 25%, or $123
thousand, to $625 thousand for the six months ended June 30, 2020, from $502
thousand for the six months ended June 30, 2019, principally due to increased
salary costs.

Interest Expense, Net

Net interest expense from continuing operations decreased by $956 thousand
during the six months ended June 30, 2020 due to the payoff of various debt
agreements that were previously in place during the six months ended June 30,
2019. From the end of the same quarter in 2019, the Advance from NDX has
declined from $1.5 million to $50 thousand at June 30, 2020, resulting in a
reduction of $1.1 million of interest expense. The Convertible Note with Iliad
of approximately $3.1 million at June 30, 2019 has been replaced by a note
payable to Atlas Sciences with a balance at June 30, 2020 of $848 thousand,
resulting in a reduction of $1.3 million of interest expense. The Company
allocated $1.4 million of these interest expenses to discontinuing operations
during the six months ended June 30, 2019.
Change in Fair Value of Acquisition Note Payable

During the six months ended June 30, 2020, the Company recognized a gain of $4
thousand from the change in fair value of acquisition note payable. During the
six months ended June 30, 2019, the Company recognized a gain of $7 thousand
from the change in fair value of acquisition note payable.

Change in Fair Value of Other Derivatives


There were no other derivatives in 2020. During six months ended June 30, 2019,
the Company recognized a gain of $86 thousand from the change in fair value of
other derivatives.

Change in Fair Value of Warrant Liability


Changes in fair value of some of the Company's common stock warrants may impact
its quarterly results.  Accounting rules require the Company to record certain
of its warrants as a liability, measure the fair value of these warrants each
quarter and record changes in that value in earnings. As a result of changes in
the Company's stock price, it recognized non-cash income of $152 thousand and
$199 thousand during the six months ended June 30, 2020 and 2019, respectively.
The Company may be exposed to non-cash charges, or the Company may record
non-cash income, as a result of this warrant exposure in future periods.

Change in Fair Value of siParadigm Earn-Out

During the six months ended June 30, 2020, the Company recognized a $65 thousand reduction in the fair value of the siParadigm Earn-Out due to a decrease in expected future payments.

Income Tax Benefit


On April 4, 2019, the Company sold $11.6 million of gross State of New Jersey
NOL's relating to the 2017 tax year as well as $100 thousand of state research
and development tax credits. The sale resulted in the net receipt to the Company
of $512 thousand.

Liquidity and Capital Resources

Sources of Liquidity


The Company's primary sources of liquidity have been cash collections from
customers, funds generated from debt and equity financings, and cash received
from the Business Disposals. The Company expects to continue generating
additional cash from its customers in the future and from its Business Disposals
for a limited time until the Earn-Out is paid as discussed below.

In July 2019, the Company completed two business disposals, resulting in an
aggregate of $9.0 million of net cash proceeds at the time of closing;
however, $1.0 million of the funds received is an advance from siParadigm that
is being deducted from the Earn-Out amounts due during the period. At June 30,
2020. the estimated future Earn-Out payments from siParadigm, net of the
remaining balance of the advance, were $180 thousand, which are expected to be
collected in variable monthly payments through July 2021; the monthly payment
amount is based on the number of tests performed by siParadigm for the Company's
former Clinical Services' customers.
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The primary uses of the Company's liquidity have been cash used to fund the
Company's operations, as detailed in the cash flows section below, as well as
cash used to repay the Company's lenders. During 2020, the Company significantly
reduced the amount of its Advance from NDX. The Company is required to remit
monthly installments of $50 thousand to NDX until the Advance from NDX is
repaid. At December 31, 2019, the Company owed $350 thousand to NDX. At June 30,
2020, the Company owed NDX $50 thousand, and subsequent to quarter-end, the
remaining $50 thousand was repaid on the Advance from NDX. The note payable to
Atlas Sciences of $840 thousand matures in October 2020; furthermore, Atlas
Sciences is entitled to demand monthly redemptions of up to $300
thousand beginning in April 2020. In June 2020, the Company reduced the note
payable to Atlas Sciences by $500 thousand through the exchange of shares of
common stock. Subsequent to June 30, 2020, approximately 47 thousand shares of
common stock was exchanged to reduce the note payable to Atlas Sciences by $150
thousand.
The Company does not project that cash at June 30, 2020 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. 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.
The Company is continuing to evaluate strategic options, with the assistance of
an investment bank, which could include the sale of assets, a merger, reverse
merger or other strategic transaction. These factors raise substantial doubt
about the Company's ability to continue as a going concern for the next twelve
months from the issuance of 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.

Cash Flows from Continuing Operations

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

                                                                      Six Months Ended
                                                                          June 30,
(in thousands)                                                       2020           2019
Cash provided by (used in) continuing operations:
Operating activities                                              $ (1,420)          (33)
Investing activities                                                   885           (21)
Financing activities                                                  (323)        5,387

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

                                        (67) 

(41)

Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations

                        $   (925)

$ 5,292




The Company had cash and cash equivalents and restricted cash of $2.9 million at
June 30, 2020, and $4.2 million at December 31, 2019. Restricted cash of $350
thousand was released from restriction in May 2020.

The $925 thousand decrease in cash and cash equivalents and restricted cash from
continuing operations for the six months ended June 30, 2020, principally
resulted from cash flows used by operations of $1.4 million, payments of debt of
$323 thousand, and the effect of foreign currency exchange rates of $67
thousand, offset by receipts from investing activities of $885 thousand.

The $5.3 million increase in cash and cash equivalents and restricted cash for
the six months ended June 30, 2019, principally resulted from net proceeds from
the 2019 Offerings of $5.4 million.

At June 30, 2020, the Company had total debt of $1.5 million, excluding lease obligations.

Cash Used in Operating Activities from Continuing Operations


Net cash used by continuing operating activities was $1.4 million for the six
months ended June 30, 2020, consisting of a net loss from continuing operations
of $3.0 million, increased for non-cash adjustments of $496 thousand and
additional cash provided by working capital items of $1.0 million. Changes in
cash flows from working capital items were primarily driven by an increase in
amounts due to Interpace of $628 thousand, a net decrease in other current
assets of $136 thousand, a net increase in accounts payable, accrued expenses
and deferred revenue of $321 thousand, and a net decrease of accounts receivable
of $82
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thousand. The cash provided by these activities was partially offset by payments
on obligations under operating leases of $125 thousand. The increase in the
amount due to Interpace was due to collections from Interpace's customers
received under the TSA. This net amount was subsequently remitted under the TSA
arrangement.

For the six months ended June 30, 2019, the Company used $33 thousand of cash in
continuing operating activities. Cash used was made up of a net loss from
continuing operations of $2.2 million, positive non-cash adjustments of $1.2
million, and additional cash provided by working capital items of $926 thousand.
Changes in cash flows from working capital items was primarily driven by a net
decrease in accounts receivable of $86 thousand and a net increase in accounts
payable, accrued expenses and deferred revenue of $889 thousand. These uses of
cash were partially offset by payments on obligations under operating leases of
$107 thousand.

Cash Used in Investing Activities from Continuing Operations

Net cash provided by continuing investing activities was $885 thousand for the six months ended June 30, 2020, primarily related to the collection of the Excess Consideration Note of $888 thousand.

Net cash used in continuing investing activities was $21 thousand for the six months ended June 30, 2019, relating to the purchase of fixed assets.

Cash Provided by Financing Activities from Continuing Operations


Net cash used in continuing financing activities was $323 thousand for the six
months ended June 30, 2020 and relates principally to payments on the Advance
from NDX of $300 thousand.

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

Capital Resources and Expenditure Requirements


The Company expects to continue to incur operating losses in the future, as the
costs of being public have significant effect on losses that keep the Company
from being profitable. The Company expects losses to continue, only to the
extent that the business does not outpace the public company-related expenses,
such as legal and audit fees and director's and officer's liability insurance.
These losses have had, and will continue to have, an adverse effect on the
Company's working capital, total assets and stockholders' equity. Because of the
numerous risks and uncertainties associated with its revenue growth and costs
associated with being a public company, the Company is unable to predict when it
will become profitable, and it may never become profitable. Even if the Company
does achieve profitability, it may not be able to sustain or increase
profitability on a quarterly or annual basis. The Company's inability to achieve
and then maintain profitability would negatively affect its business, financial
condition, results of operations and cash flows. As a result, it may need to
raise additional capital to fund its current operations, to repay certain
outstanding indebtedness and to fund its business to meet its long-term business
objectives through public or private equity offerings, debt financings,
borrowings or strategic partnerships coupled with an investment in the Company
or a combination thereof. If the Company raises additional funds through the
issuance of convertible debt securities, or other debt securities, these
securities could be secured and could have rights senior to those of its common
stock. In addition, any new debt incurred by the Company could impose covenants
that restrict its operations and increase its interest expense. The issuance of
any new equity securities will also dilute the interest of current stockholders.

The Company owes $848 thousand to Atlas Sciences ($840 thousand net of discounts
and issuance costs) as of June 30, 2020 under an unsecured note due in October
2020, which principal was reduced by $150 thousand subsequent to June 30, 2020
through an exchange of approximately 47 thousand shares of common stock. The
Company also owes an aggregate of $50 thousand to NDX as of June 30, 2020
pursuant to the NDX Settlement Agreement, which is payable in monthly
installments of $50 thousand, which was paid in full subsequent to June 30,
2020. The Company has no material capital commitments outside of its existing
debt arrangements.

Even after the Business Disposals, the Company does not project that cash at
June 30, 2020 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. 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. The Company is continuing to evaluate strategic options,
with the assistance of an investment bank, which could include the sale of
assets, a merger, reverse merger or other strategic transactions. These factors
raise substantial doubt about the Company's ability to continue as a going
concern for the next twelve months from the issuance of these financial
statements in the
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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 Company made this assessment in
light of the continued impact of COVID 19.

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

•the Company's ability to adapt its business for future developments in-light of
the global outbreak of the novel coronavirus, which continues to rapidly evolve;
•the Company's ability to achieve profitability by increasing sales of the
Company's preclinical CRO services focused on oncology and immuno-oncology;
•the Company's ability to raise additional capital to repay its indebtedness and
meet its liquidity needs;
•the Company's ability to execute on its marketing and sales strategy for its
preclinical research services and gain acceptance of its services in the market;
•the Company's ability to keep pace with rapidly advancing market and scientific
developments;
•the Company's ability to satisfy U.S. (including FDA) and international
regulatory requirements with respect to its services;
•the Company's ability to maintain its present customer base and obtain new
customers;
•competition from preclinical CRO services companies, many of which are much
larger than the Company in terms of employee base, revenues and overall number
of customers and related market share;
•the Company's ability to maintain the Company's clinical and research
collaborations and enter into new collaboration agreements with highly regarded
organizations in the field of oncology so that, among other things, the Company
has access to thought leaders in advanced preclinical and translational science;
•potential product liability or intellectual property infringement claims;
•the Company's dependency on third-party manufacturers to supply it with
instruments and specialized supplies;
•the Company's ability to attract and retain a sufficient number of scientists,
clinicians, sales personnel and other key personnel with extensive experience in
oncology and immuno-oncology, who are in short supply;
•the Company's ability to obtain or maintain patents or other appropriate
protection for the intellectual property in its proprietary tests and services;
•the Company's ability to effectively manage its international businesses in
Australia, Europe and China, including the expansion of its customer base and
volume of new contracts in these markets;
•the Company's dependency on the intellectual property licensed to the Company
or possessed by third parties; and
•other risks and uncertainties discussed in the Company's annual report on Form
10-K for the year ended December 31, 2019, as updated in this Form 10-Q and
other reports, as applicable, the Company file with the Securities and Exchange
Commission.

The unaudited condensed consolidated financial statements for the three and six
months ended June 30, 2020 were prepared on the basis of a going concern, which
contemplates that the Company will be able to realize assets and discharge
liabilities in the normal course of business. Accordingly, they do not give
effect to adjustments that would be necessary should the Company be required to
liquidate its assets.  The ability of the Company to meet its obligations, and
to continue as a going concern is dependent upon the availability of future
funding and the continued growth in revenues. The unaudited condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

Income Taxes


Over the past several years the Company has generated operating losses in all
jurisdictions in which it may be subject to income taxes. As a result, the
Company has accumulated significant net operating losses and other deferred tax
assets. Because of the Company's history of losses and the uncertainty as to the
realization of those deferred tax assets, a full valuation allowance has been
recognized. The Company does not expect to report a benefit related to the
deferred tax assets until it has a history of earnings, if ever, that would
support the realization of its deferred tax assets.

Off-Balance Sheet Arrangements

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

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Critical Accounting Policies and Significant Judgment and Estimates

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

The notes to the Company's audited consolidated financial statements in its
annual report on Form 10-K for the year ended December 31, 2019 contain a
summary of the Company's significant accounting policies. Management considers
the following accounting policies critical to the understanding of the results
of the Company's operations:

•Revenue recognition;
•Accounts receivable and bad debts;
•Warrant liabilities and other derivatives;
•Stock-based compensation;
•Income taxes; and
•Impairment of intangibles and long-lived assets.

Cautionary Note Regarding Forward-Looking Statements

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


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

•the Company's ability to adapt its business for future developments in light of
the global outbreak of the novel coronavirus, which continues to rapidly evolve;
•the Company's ability to achieve profitability by increasing sales of the
Company's preclinical CRO services focused on oncology and immuno-oncology;
•the Company's ability to raise additional capital to repay its indebtedness and
meet its liquidity needs;
•the Company's ability to execute on its marketing and sales strategy for its
preclinical research services and gain acceptance of its services in the market;
•the Company's ability to keep pace with rapidly advancing market and scientific
developments;
•the Company's ability to satisfy U.S. (including FDA) and international
regulatory requirements with respect to its services;
•the Company's ability to maintain its present customer base and obtain new
customers;
•competition from preclinical CRO services companies, many of which are much
larger than the Company in terms of employee base, revenues and overall number
of customers and related market share;
•the Company's ability to maintain the Company's clinical and research
collaborations and enter into new collaboration agreements with highly regarded
organizations in the field of oncology so that, among other things, the Company
has access to thought leaders in advanced preclinical and translational science;
•potential product liability or intellectual property infringement claims;
•the Company's dependency on third-party manufacturers to supply it with
instruments and specialized supplies;
•the Company's ability to attract and retain a sufficient number of scientists,
clinicians, sales personnel and other key personnel with extensive experience in
oncology and immuno-oncology, who are in short supply;
•the Company's ability to obtain or maintain patents or other appropriate
protection for the intellectual property in its proprietary tests and services;
                                       31

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•the Company's ability to effectively manage its international businesses in
Australia, Europe and China, including the expansion of its customer base and
volume of new contracts in these markets;
•the Company's dependency on the intellectual property licensed to the Company
or possessed by third parties; and
•other risks and uncertainties discussed in the Company's annual report on Form
10-K for the year ended December 31, 2019, as updated in this Form 10-Q and
other reports, as applicable, the Company file with the Securities and Exchange
Commission.

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

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