3. Property and Equipment and Intangible Assets

Property and equipment and intangible assets consist of the following:

	December 31, 2012		September 30, 2013
			(Unaudited)
Laboratory equipment	$	3,315,812	$	4,434,373
Furniture and equipment		660,626		726,558
Leasehold improvements		305,059		345,277
		4,281,497		5,506,207
Less: Accumulated depreciation		(3,258,299)		(3,613,972)
Total property and equipment, net	$	1,023,198	$	1,892,235
Purchased software	$	562,699	$	707,698
Internally developed software and other intangible assets		108,362		246,360
		671,061		954,058
Less: Accumulated amortization		(95,652)		(189,161)
Total intangible assets, net	$	575,409	$	764,897

Intangible assets are carried at the cost to obtain them. Purchased software and other intangible assets are amortized using the straight-line method over the estimated useful life of four to five years. Depreciation expense, included in cost of revenue, general and administrative expenses, and research and development expenses for the three months ended September 30, 2012 and 2013 was $118,153 and $162,328, respectively, and for the nine months ended September 30, 2012 and 2013 was $348,284 and $449,184, respectively.

During the second quarter of 2013, the Company committed to purchase laboratory equipment, software and related maintenance agreements totaling $360,000. During June 2013, the Company signed two financing agreements for $239,150 in aggregate and accounted for both of these financings as capital leases. In July 2013, the Company entered into a third financing agreement for the remaining $125,850 and accounted for this agreement as an operating lease. The Company recorded the cost of the purchased items in the balance sheet as $33,850 in prepaid expenses, $197,800 in laboratory equipment, and $7,500 in purchased software. The Company began depreciating and amortizing these amounts during August 2013.

On August 23, 2013, the Company entered into an asset purchase agreement (the “Pathwork Purchase Agreement”) with Pathwork (assignment for the benefit of creditors), LLC (“Seller”), pursuant to which the Company acquired substantially all of the assets of Pathwork Diagnostics, Inc. (“Pathwork”), which had previously assigned all of its assets to Seller for the benefit of its creditors pursuant to a General Assignment, dated as of April 2, 2013. Pursuant to the Pathwork Purchase Agreement, the Company acquired all intellectual property, know-how, data, equipment and materials formerly owned by Pathwork which relate to its FDA-cleared Tissue of Origin (“TOO”) test. Management evaluated the assets acquired from the Seller and concluded the combined assets did not meet the definition of a business primarily because the necessary processes were not acquired. Accordingly, the Company accounted for the transaction as a basket purchase of assets in which the purchase price was allocated to the individual assets acquired based upon relative fair value.

The Company acquired the assets for the following consideration: (i) an aggregate of 500,000 newly-issued registered shares of the Company’s common stock issued to two senior secured creditors of Pathwork which were designated by Seller in the Pathwork Purchase Agreement and (ii) a cash payment of $200,000 to Seller.

Based upon a valuation of the acquired Pathwork assets, the purchase price was allocated as follows: $257,000 to accounts receivable, $785,000 to laboratory equipment, $138,000 to internally developed software and other intangible assets. Currently, the Company anticipates that the assets will be placed in service during the first quarter of 2014. Upon deployment of these assets, the Company will begin depreciating or amortizing them over their expected useful lives, which range from four to five years.

Capital Lease

The Company leases certain equipment that is recorded as capital leases. This equipment is included in property and equipment on the accompanying balance sheet as of September 30, 2013, as follows:

	(Unaudited)
Equipment purchased under capital leases	$	690,384
Less: Accumulated amortization		(346,548)
Equipment purchased under capital leases, net	$	343,836

Future minimum lease payments under capital leases as of September 30, 2013, are as follows:

Years ending December 31,	(Unaudited)
2013	$	66,155
2014		188,428
2015		101,309
2016		46,852
Total minimum lease payments		402,744
Less amount representing interest		(54,425)
Less current portion		(192,441)
Capital lease obligation, net of current portion	$	155,878