UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FORM 10-Q

(Mark One)

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

For the quarterly period ended SeptemberJune 30, 20172022

OR

[  ]☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 000-24249

Interpace Diagnostics Group, Inc.

(Exact name of registrant as specified in its charter)

Interpace Biosciences, Inc.
(Exact name of registrant as specified in its charter)

Delaware22-2919486

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification No.)

Morris Corporate Center 1, Building C
300 Interpace Parkway, Parsippany, NJ07054
(Address of principal executive offices and zip code)
(855)776-6419
(Registrant’s telephone number, including area code)

Morris Corporate Center 1, Building CSecurities registered pursuant to Section 12(b) of the Act:

300 Interpace Parkway, Parsippany, NJ 07054

Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN//AN/A

(Address of principal executive offices and zip code)

(855) 776-6419

(Registrant’s telephone number, including area code)

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 [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] No [  ] ☒ No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [  ]☐Accelerated filer [  ]☐
Non-accelerated filer [  ] ☒Smaller reporting company [X]☒

(Do not check if a 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 Exchange Act). Yes [  ] ☐ No [X] ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class

Shares Outstanding

November 3, 2017

 August 5, 2022
Common stock, $0.01Stock, par value $0.01 per share26,849,0254,246,297

 

 
 

INTERPACE BIOSICENCES, INC.

INTERPACE DIAGNOSTICS GROUP, INC.

FORM 10-Q FOR PERIOD ENDED SEPTEMBERJUNE 30, 20172022

TABLE OF CONTENTS

Page

No.

PART I - FINANCIAL INFORMATION3
Item 1.Unaudited Interim Condensed Consolidated Financial Statements3
Condensed Consolidated Balance Sheets at SeptemberJune 30, 20172022 (unaudited) and December 31, 201620213
Condensed Consolidated Statements of Comprehensive LossOperations for the three- and nine-monthsix-month periods ended SeptemberJune 30, 20172022 and 20162021 (unaudited)4
Condensed Consolidated StatementStatements of Stockholders’ EquityDeficit for the nine-month periodthree- and six-month periods ended SeptemberJune 30, 20172022 and 2021 (unaudited)5
Condensed Consolidated Statements of Cash Flows for the nine-six- month periods ended SeptemberJune 30, 20172022 and 20162021 (unaudited)6
Notes to Unaudited Interim Condensed Consolidated Financial Statements7
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations3024
Item 3.Quantitative and Qualitative Disclosures About Market Risk34
Item 4.Controls and Procedures4234
PART II - OTHER INFORMATION43
Item 1.Legal Proceedings4335
Item 1A.Risk Factors4335
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds4335
Item 6.3.ExhibitsDefaults Upon Senior Securities4435
Item 4.Mine Safety Disclosures35
Item 5.Other Information35
Item 6.Exhibits36
Signatures4537

2

 

PART I -I. FINANCIAL INFORMATION

Item 1. Unaudited Interim Condensed Consolidated Financial StatementsINTERPACE BIOSCIENCES, INC.

INTERPACE DIAGNOSTICS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 September 30, 2017 December 31, 2016  June 30, December 31, 
 (unaudited)     2022  2021 
      (unaudited)    
ASSETS                
Current assets:                
Cash and cash equivalents $11,703  $602  $1,865  $3,064 
Accounts receivable, net  2,803   2,209 
Restricted cash  250   250 
Accounts receivable, net of allowance for doubtful accounts of $72 and $72, respectively  6,446   6,158 
Other current assets  1,267   1,415   2,697   2,694 
Current assets from discontinued operations  -   14 
Total current assets  15,773   4,240   11,258   12,166 
Property and equipment, net  668   929   5,970   6,349 
Other intangible assets, net  33,919   36,358   6,215   7,287 
Goodwill  8,433   8,433 
Operating lease right of use assets  3,483   4,032 
Other long-term assets  31   251   129   160 
Total assets $50,391  $41,778  $35,488  $38,427 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current liabilities:                
Accounts payable $704  $2,326  $3,522  $2,694 
Accrued salary and bonus  984   3,551   3,368   3,024 
Other accrued expenses  5,331   6,236   8,793   9,198 
Convertible debt  2,000   - 
Current liabilities from discontinued operations  1,283   4,128   766   766 
Total current liabilities  8,302   16,241   18,449   15,682 
Contingent consideration  1,157   7,254   762   1,383 
Long-term debt, net of debt discount  -   7,908 
Operating lease liabilities, net of current portion  2,691   3,154 
Line of credit  2,500   1,500 
Note payable at fair value  7,782   7,942 
Other long-term liabilities  4,554   3,844   4,720   4,648 
Total liabilities  14,013   35,247   36,904   34,309 
                
Commitments and contingencies (Note 6)        
Commitments and contingencies (Note 8)  -    -  
                
Stockholders’ equity:        
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding  -   - 
Common stock, $.01 par value; 100,000,000 shares authorized; 22,975,754 and 2,230,506 shares issued, respectively; 22,911,404 and 2,176,252 shares outstanding, respectively  230   22 
Redeemable preferred stock, $.01 par value; 5,000,000 shares authorized,
47,000 shares Series B issued and outstanding		 
 		 
 		 
46,536		 
 		 
 		 
 		 
46,536		 
 
        
Stockholders’ deficit:        
Common stock, $.01 par value; 100,000,000 shares authorized;
4,277,317 and 4,228,169 shares issued, respectively;
4,229,948 and 4,195,412 shares outstanding, respectively		 
 
 		 
 
 		 
 
404		 
 
 		 
 
 		 
 
 		 
 
403		 
 
 
Additional paid-in capital  164,611   127,736   186,823   186,106 
Accumulated deficit  (126,792)  (119,584)  (233,245)  (227,059)
Accumulated other comprehensive income  -   - 
Treasury stock, at cost (64,350 and 54,254 shares, respectively)  (1,671)  (1,643)
Total stockholders’ equity  36,378   6,531 
Total liabilities and stockholders’ equity $50,391  $41,778 
Treasury stock, at cost (47,369 and 32,757 shares, respectively)  (1,934)  (1,868)
Total stockholders’ deficit  (47,952)  (42,418)
Total liabilities and stockholders’ deficit  (11,048)  (8,109)
        
Total liabilities, preferred stock and stockholders’ deficit $35,488  $38,427 

The accompanying notes are an integral part of these condensed consolidated financial statements

3

 


INTERPACE DIAGNOSTICS GROUP,BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSOPERATIONS

(unaudited, in thousands, except for per share data)

 Three Months Ended Nine Months Ended  2022  2021  2022  2021 
 September 30, September 30,  Three Months Ended June 30,  Six Months Ended June 30, 
 2017 2016 2017 2016  2022  2021  2022  2021 
                  
Revenue, net $4,202  $3,316  $11,527  $9,963  $9,351  $11,155  $19,728  $20,989 
Cost of revenue (excluding amortization of $813 and $970 for the three months and $2,439 and $2,909 for the nine months, respectively)  2,069   1,846   5,719   4,866 
Cost of revenue (excluding amortization of $535 and $1,112 for the three months and $1,071 and $2,224 for the six months, respectively)  5,850   5,800   11,234   11,116 
Gross profit  2,133   1,470   5,808   5,097   3,501   5,355   8,494   9,873 
Operating expenses:                                
Sales and marketing  1,816   1,282   4,507   4,186   2,774   2,776   5,190   5,128 
Research and development  483   659   1,202   1,339   267   424   566   1,060 
General and administrative  2,116   2,858   6,431   7,655   3,907   3,326   7,597   6,362 
Transition expense  61   858   146   2,111 
Gain on DiamiR transaction  -   (235)  -   (235)
Acquisition related amortization expense  813   970   2,439   2,909   535   1,112   1,071   2,224 
Asset impairment  -   3,363   -   3,363 
Change in fair value of contingent consideration  -   (1,174)  (5,776)  (1,174)  (311)  -   (311)  (57)
Total operating expenses  5,228   7,958   8,803   18,278   7,233   8,261   14,259   16,593 
                                
Operating loss  (3,095)  (6,488)  (2,995)  (13,181)  (3,732)  (2,906)  (5,765)  (6,720)
Interest expense  (40)  (539)  (433)  (1,601)
Loss on extinguishment of debt  -   -   (4,278)  - 
Other (loss) income, net  (294)  4   (414)  14 
Interest accretion expense  36   (135)  (85)  (270)
Related party interest  -   (163)  -   (308)
Note payable interest  (210)  -   (390)  - 
Other income (expense), net  35   (168)  194   (212)
Loss from continuing operations before tax  (3,429)  (7,023)  (8,120)  (14,768)  (3,871)  (3,372)  (6,046)  (7,510)
(Benefit) provision for income taxes  (42)  173   (340)  (54)
Provision for income taxes  16   16   34   31 
Loss from continuing operations  (3,387)  (7,196)  (7,780)  (14,714)  (3,887)  (3,388)  (6,080)  (7,541)
Income (loss) from discontinued operations, net of tax  71   (297)  572   101 
                
Loss from discontinued operations, net of tax  (52)  (58)  (106)  (112)
                
Net loss $(3,316) $(7,493) $(7,208) $(14,613) $(3,939) $(3,446) $(6,186) $(7,653)
                                
Net Loss and Comprehensive Loss $(3,316) $(7,493) $(7,208) $(14,613)
                
Basic and Diluted (loss) income per share of common stock:                
Basic and diluted loss per share of common stock:                
From continuing operations $(0.15) $(3.96) $(0.65) $(8.16) $(0.92) $(0.83) $(1.44) $(1.84)
From discontinued operations  0.00   (0.16)  0.05   0.06   (0.01)  (0.01)  (0.03)  (0.03)
Net loss per basic and diluted share of common stock $(0.15) $(4.13) $(0.60) $(8.10) $(0.93) $(0.84) $(1.47) $(1.87)
                
Weighted average number of common shares and common share equivalents outstanding:                 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 		 
 
Basic  22,028   1,816   12,022   1,803   4,229   4,102   4,219   4,095 
Diluted  22,028   1,816   12,022   1,803   4,229   4,102   4,219   4,095 

The accompanying notes are an integral part of these condensed consolidated financial statements

4

INTERPACE BIOSCIENCES, INC.

INTERPACE DIAGNOSTICS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITYDEFICIT

(unaudited, in thousands)

 For The Three and Six For The Three and Six 
 For The Nine Months Ended  Months Ended Months Ended 
 September 30, 2017  June 30, 2022  June 30, 2021 
 Shares Amount  Shares  Amount  Shares  Amount 
Common stock:                        
Balance at January 1  2,230  $22   4,228  $403   4,075  $402 
Common stock issued  34   1   35   1   9   - 
Common stock issued through offerings  13,568   135 
Shares issued in debt exchange  3,795   38 
Exercise of warrants 3,348   34 
Balance at September 30  22,975   230 
Restricted stock issued  -   -   12   - 
Common stock issued through ESPP  9   -   36   - 
Balance at March 31  4,272   404   4,132   402 
Common stock issued  5   -   10   - 
Balance at June 30  4,277   404   4,142   402 
Treasury stock:                        
Balance at January 1  54   (1,643)  33   (1,868)  20   (1,773)
Treasury stock purchased  10   (28)  13   (60)  -   - 
Balance at September 30  64   (1,671)
Balance at March 31  46   (1,928)  20   (1,773)
Treasury stock purchased  1   (6)  -   - 
Balance at June 30  47   (1,934)  20   (1,773)
Additional paid-in capital:                        
Balance at January 1      127,736       186,106       184,404 
Common stock issued through offerings, net of expenses      13,984 
Issuance of warrants      7,553 
Shares issued in debt exchange      11,605 
Exercise of warrants      3,256 
Common stock issued      58       108 
Stock-based compensation expense      477       325       286 
Balance at September 30      164,611 
Balance at March 31      186,489       184,798 
Stock-based compensation expense      334       551 
Balance at June 30      186,823       185,349 
Accumulated deficit:                        
Balance at January 1      (119,584)      (227,059)      (212,116)
Net loss      (7,208)      (2,247)      (4,207)
Balance at September 30      (126,792)
Balance at March 31      (229,306)      (216,323)
Net loss      (3,939)      (3,446)
Balance at June 30      (233,245)      (219,769)
Balance at March 31      (229,306)      (216,323)
Net loss      (3,939)      (3,446)
                        
Total stockholders’ equity     $36,378 
Total stockholders’ deficit     $(47,952)     $(35,791)
Ending balance at June 30      (47,952)      (35,791)

The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.

5

 

INTERPACE DIAGNOSTICS GROUP,BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

  Nine Months Ended 
  September 30, 
  2017  2016 
       
Cash Flows Used in Operating Activities        
Net loss $(7,208) $(14,613)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  2,813   3,490 
Realignment accrual accretion  -   29 
Interest accretion  312   1,601 
Provision for bad debt  (6)  482 
Mark to market on warrants  401   - 
Amortization of debt issuance costs  117   - 
Mark to market on derivatives  61   - 
Loss on extinguishment of debt  4,278   - 
Reversal of severance accrual  (2,034)  - 
Non-employee share-based payment  216   - 
Stock-based compensation  477   109 
Asset impairment  -   3,363 
Change in fair value of contingent consideration  (5,776)  (1,174)
Other gains and expenses, net  -   (4)
Other changes in assets and liabilities:        
(Increase) decrease  in accounts receivable  (588)  4,639 
Decrease in unbilled receivable  -   16 
Decrease in other current assets  162   1,272 
Decrease in other long-term assets  220   754 
Decrease in accounts payable  (2,208)  (761)
Decrease in unearned contract revenue  -   (11)
Decrease in accrued salaries and bonus  (1,805)  (685)
Decrease in accrued liabilities  (2,210)  (4,561)
Decrease in long-term liabilities  (106)  (563)
Net cash used in operating activities  (12,884)  (6,617)
         
Cash Flows Used in Investing Activities        
Purchase of property and equipment  (29)  - 
Net cash used in investing activities  (29)  - 
         
Cash Flows From Financing Activities        
Issuance of common stock, net of expenses  24,042   - 
Cash paid for repurchase of restricted shares  (28)  - 
Net cash provided by financing activities  24,014   - 
         
Net increase (decrease) in cash and cash equivalents  11,101   (6,617)
Cash and cash equivalents – beginning  602   8,310 
Cash and cash equivalents – ending $11,703  $1,693 
Cash paid for interest $-  $- 
  2022  2021 
 For The Six Months Ended June 30, 
  2022  2021 
       
Cash Flows From Operating Activities        
Net loss $(6,186) $(7,653)
Adjustments to reconcile net loss to net cash used in operating activities: 
Depreciation and amortization  1,571   2,943 
Interest accretion expense  85   270 
Bad debt recovery  -   (140)
Mark to market on warrants  (68)  209 
Amortization of deferred financing fees  31   88 
Interest - note payable  -   220 
Stock-based compensation  613   777 
ESPP expense  46   60 
Change in fair value of note payable  (160)  - 
Change in fair value of contingent consideration  (311)  (57)
Gain on DiamiR transaction      (235)
Other gains and expenses, net  -   (2)
Changes in operating assets and liabilities:        
(Increase) decrease in accounts receivable  (288)  841 
Increase in other current assets  (3)  (548)
Increase (decrease) in accounts payable  794   (2,032)
Increase (decrease) in accrued salaries and bonus  278   (719)
Decrease in accrued liabilities  (646)  (802)
Increase (decrease) in long-term liabilities  72   (45)
Net cash used in operating activities  (4,172)  (6,825)
         
Cash Flows From Investing Activity        
Purchase of property and equipment  (86)  (48)
Sale of property and equipment  -   39 
Net cash used in investing activities  (86)  (9)
         
Cash Flows From Financing Activities        
Issuance of common stock, net of expenses  59   108 
Loan proceeds - related parties  -   7,500 
Financing fees - related party  -   (105)
Proceeds from convertible debt  2,000   - 
Borrowings on line of credit  1,000   - 
Net cash provided by financing activities  3,059   7,503 
         
Net (decrease) increase in cash, cash equivalents and restricted cash  (1,199)  669 
Cash, cash equivalents and restricted cash – beginning  3,314   3,372 
Cash, cash equivalents and restricted cash – ending $2,115  $4,041 

The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.

6

INTERPACE BIOSCIENCES, INC.

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular information in thousands, except per share amounts)

(unaudited)

1.OVERVIEW

Nature of Business

Interpace Biosciences, Inc. (“Interpace” or the “Company”) enables personalized medicine, offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications and pharma services. The Company provides molecular diagnostics, bioinformatics and pathology services for evaluation of risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. The Company also provides pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries. The Company advances personalized medicine by partnering with pharmaceutical, academic, and technology leaders to effectively integrate pharmacogenomics into their drug development and clinical trial programs.

COVID-19 pandemic

There continues to be widespread impact from the COVID-19 pandemic. Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains. We have also previously been affected by temporary laboratory closures, employment and compensation adjustments and impediments to administrative activities. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location.

In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID-19 pandemic and general global economic conditions.

The continuing impact that the COVID-19 pandemic will have on our operations, including duration, severity and scope, remains highly uncertain and cannot be fully predicted at this time. While we believe we have generally recovered from the adverse impact that the COVID-19 pandemic had on our business during 2020, we believe that the COVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition in the future.

We continue to monitor the COVID-19 pandemic and the guidance that is being provided by relevant federal, state and local public health authorities and may take additional actions based upon their recommendations. It is possible that we may have to make adjustments to our operating plans in reaction to developments that are beyond our control.

Transition costs

Transition expenses are primarily related to the Rutherford, New Jersey lab closing and subsequent move to Morrisville, North Carolina, which was completed during the first half of Fiscal 2021, as well as other cost-saving initiatives consisting primarily of reductions in headcount and the implementation of a new laboratory information system. To optimize the operations of laboratory operations within our pharma services, we transitioned activities from the Rutherford facility to our Morrisville facility. The transition included the transfer of personnel, expansion of the Morrisville facility and validation of transferred processes.

7

2.BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements and related notes (the “Interim Financial Statements”) should be read in conjunction with the consolidated financial statements of Interpace Diagnostics Group, Inc. (the “Company” or “Interpace”),the Company and its wholly-owned subsidiaries (Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation, Interpace Diagnostics Lab,Pharma Solutions, Inc. and Interpace Diagnostics, LLC,LLC), and related notes as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, as filed with the U.S. Securities and& Exchange Commission (“SEC”) on March 31, 2017,2022 and as amended on April 28, 2017.29, 2022.

The Interim Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Interim Financial Statements include all normal recurring adjustments that, in the judgment of management, are necessary for a fair presentation of such interim financial statements. Discontinued operations include the Company’s wholly-ownedwholly owned subsidiaries: Group DCA, LLC, (“Group DCA”); InServe Support Solutions (“Pharmakon”);Solutions; and TVG, Inc. (“TVG”, dissolved December 31, 2014) and its Commercial Services Organization (“CSO”) business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Results of operations, cash flows and comprehensive incomeOperating results for the three and nine-month periodssix-month period ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.2022.

2.3.LIQUIDITYGOING CONCERN

The accompanying condensed consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern whichand that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.

In October 2021, the Company entered into a $7.5 million revolving credit facility with Comerica. See Note 18, Revolving Line of Credit, for more details. In addition, also in October 2021, the Company entered into the $8.0 million BroadOak Term Loan, the proceeds of which were used to repay in full at their maturity the Ampersand Note and the 1315 Capital Note. In May 2022, the Company entered into a Convertible Note agreement with BroadOak for an additional $2.0 million, which was converted into a subordinated term loan and was added to the outstanding BroadOak Loan balance. See Note 14, Notes Payable, for more details.

In January 2022, the Company’s registration statement for a rights offering filed with the Securities and Exchange Commission (SEC) became effective; however, the rights offering was subsequently terminated later in January 2022 when the Company announced that the Centers for Medicare & Medicaid Services, or CMS, issued a new billing policy whereby CMS will no longer reimburse for the use of the Company’s ThyGeNEXT® and ThyraMIR® tests when billed together by the same provider/supplier for the same beneficiary on the same date of service. On February 28, 2022, the Company announced that the National Correct Coding Initiative (NCCI) program issued a response on behalf of CMS stating that the January 2022 billing policy reimbursement change for ThyGeNEXT® (0245U) and ThyraMIR® (0018U) tests has been retroactively reversed to January 1, 2022. In May 2022, the Company was notified by CMS/NCCI that processing of claims for dates of service after January 1, 2022 would be completed beginning July 1, 2022. However, on June 9, 2022, the Company was notified that Novitas re-priced ThyGeNEXT® (0245U) from $2,919 to $806.59 retroactively effective to January 1, 2022. On July 20, 2022 the Clinical Diagnostic Laboratory Tests (CDLT) Advisory Panel affirmed a gapfill price of $806.59. As a result of the ThyGeNEXT pricing change, the Company reduced its net realizable value, or NRV rates for ThyGeNEXT Medicare billing to reflect the $806.59pricing for tests performed during the second quarter of 2022. In addition, in order to reflect the retroactive pricing change to January 1, 2022, the Company recorded an NRV adjustment of $0.7 million during the second quarter of 2022 to reduce revenue recorded during the first quarter of 2022. During July 2022, the Company began implementing cost-savings initiatives including a reduction in headcount and incidental expenses and a freeze on all non-essential travel and hiring.

For the six months ended June 30, 2022, we had an operating loss of $5.8 million. As of SeptemberJune 30, 2017, the Company2022, we had cash, and cash equivalents and restricted cash of $11.7 million, net accounts receivable of $2.8 $2.1 million, total current assets of $15.8 $11.3 million and total current liabilities of $8.3 $18.4 million. For the nine months ended September 30, 2017, the CompanyAs of August 5, 2022, we had a net loss of $7.2 million and cash used in operating activities was $12.9 million.

During the nine months ended September 30, 2017, the Company closed on four equity offerings raising gross proceeds of $27.9 million. The details are as follows:

●On January 6, 2017, the Company completed a registered direct public offering (the “Second Registered Direct Offering”), to sell 630,000 shares of its common stock at a price of $6.81 per share to certain institutional investors, which resulted in gross proceeds to the Company of approximately $4.2 million.
●On January 25, 2017, the Company completed a registered direct public offering (the “Third Registered Direct Offering”), to sell 855,000 shares of its common stock and a concurrent private placement of warrants to purchase 855,000 shares of its common stock (the “Concurrent Warrants”), to the same investors participating in the Third Registered Direct Offering, (or the “Private Placement”). The Concurrent Warrants and the shares of its common stock issuable upon the exercise of the Concurrent Warrants were not registered under the Securities Act and were sold pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. The shares of common stock sold in the Third Registered Direct Offering and the Concurrent Warrants issued in the concurrent Private Placement were issued separately but sold together at a combined purchase price of $4.69 per share of common stock and accompanying Concurrent Warrant. The 855,000 unregistered Concurrent Warrants also have an exercise price of $4.69 and have a five-year term. The Third Registered Direct Offering and the Private Placement together resulted in gross proceeds to the Company of approximately $4.0 million. The Company used approximately $1.0 million of the proceeds to satisfy the severance obligations due to five former senior executives.

 7

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited) 

●On February 8, 2017, the Company completed an underwritten, confidentially marketed public offering (“CMPO”), to sell 1,200,000 shares of its common stock at a price of $3.00 per share. In addition, the Company granted the underwriters an option to purchase up to an additional 9% of the total number of shares of common stock sold by the Company in the CMPO, solely for the purpose of covering over-allotments, if any. The underwriters exercised the over-allotment option in full. The CMPO resulted in gross proceeds to the Company of approximately $3.9 million, including the over-allotment.
●On June 21, 2017, pursuant to its S-1 filing of its preliminary prospectus to register shares on May 22, 2017, as amended thereafter, the Company completed a public offering (the “Offering”) for 9,900,000 shares of common stock together with an equal number of common warrants (the “Base Warrants”), to purchase shares of its common stock (and the shares of common stock that are issuable from time to time upon exercise of the common warrants) for $1.10 per share. Each Base Warrant upon exercise at a price of $1.25 will result in the issuance of one share of common stock to the holder. A public trading market for the Base Warrants was established on July 5, 2017 on the OTC market under the trading symbol IDGGW. As part of the Offering, which closed on June 21, 2017, the related underwriters purchased the full over-allotment of 1,875,000 Base Warrants available to them for the specified $.01 per warrant. 2,600,000 of Pre-Funded Warrants were also sold at the specified $1.09 per warrant. The combined gross proceeds of the Offering totaled $13.7 million with approximately $12.3 million of net funds available to the Company after deducting underwriting discounts and other stock issuance expenses. As of July 7, 2017 all of the 2,600,000 Pre-Funded Warrants were exercised for the $.01 per warrant exercise price and all 2,600,000 common shares related to the warrants have been issued. On July 31, the Company and the underwriters closed on the exercise of the underwriters’ over-allotment option to purchase an additional 875,000 shares of common stock at a price of $1.09 per share for gross proceeds of $0.960 million.

 8

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

●During September 2017 the Company received approximately $0.9 million from the exercise of 747,800 Base Warrants issued as part of the Offering.

Subsequent to September 2017 the Company received approximately $6.2 million from the exercise of BaseWarrants issued as part of the Offering, as follows:

●During October 2017 the Company received approximately $1.2 million from the exercise of approximately 925,000 Base Warrants.
●On October 12, 2017 the Company entered into an agreement with certain holders of Base Warrants to exercise 4 million Base Warrants at the exercise price of $1.25 in exchange for 3.2 million additional private placement warrants with an exercise price of $1.80, resulting in gross proceeds to the Company of $5.0 million. The new warrants may not be exercised for six months from the issue date and expire in five and one-half years from their issuance date.

As part of our acquisition of RedPath Integrated Pathology, Inc., we issued a non-negotiable subordinated secured, non-interest bearing, promissory note, dated as of October 31, 2014, with an aggregate principal amount of $10.7 million outstanding (the “RedPath Note”). In December 2016 we repaid $1.33 million in principal of the RedPath Note resulting in an outstanding balance of $9.34 million. The RedPath Note was subsequently acquired by a single institutional investor (the “Investor”) for $8.87 million on March 22, 2017. Also on that date we and the Investor exchanged the RedPath Note for a senior secured convertible note in the aggregate principal amount of $5.32 million and a senior secured non-convertible note in the aggregate principal amount of $3.55 million. On April 18, 2017, we and the Investor exchanged the senior secured non-convertible note for $3.55 $2.0million of our senior secured convertible note. Between March 23, 2017 and April 18, 2017, the senior secured convertible notes were converted in full for 3,795,429 shares of our common stock. cash on hand, excluding restricted cash.

We no longer have any outstanding secured debt, and any security interests and liens related to our former secured debt have been fully settled.

The Company entered into a Credit Agreement with SCM Specialty Finance Opportunities Fund, L.P. (the “Credit Agreement”) on September 28, 2016 for $1.2 million. The Credit Agreement contains customary representations and warranties in favor of the Lender and certain covenants, including, among other things, financial covenants relating to loan turnover rates, liquidity and revenue targets. As of September 30, 2017 the Company is renegotiating terms of the Credit Agreement and haswill not borrowed any funds under the Credit Agreement.

While the Company has significantly increased its cash balance and has eliminated its long term indebtedness, the Company does not expect to generate positive cash flows from operations for the year ending December 31, 2017. 2022. We intend to meet our ongoing capital needs by using our available cash and availability under the Comerica Loan Agreement, as well as through targeted revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options and other strategic alternatives. However, if we are unable to meet the financial covenants under the Comerica Loan Agreement, the revolving line of credit and notes payable will become due and payable immediately.

The Company intendsis currently exploring various strategic alternatives, dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources in order to provide additional liquidity. With the Company’s delisting from Nasdaq in February 2021, its ability to raise additional capital on terms acceptable to the Company has been adversely impacted. There can be no assurance that the Company will be successful in obtaining such funding on terms acceptable to the Company.

8

Management has determined that certain factors raise substantial doubt about our ability to continue as a going concern. As of the date of this filing, the Company currently anticipates that current cash and cash equivalents will be insufficient to meet its anticipated cash requirements through the next twelve months. These factors include inadequate liquidity to sustain operations, our substantial debts, margin deterioration and volatility, and historic net losses. Our consolidated financial statements assume we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern depends on having working capital needs by revenue growth, containing costs, entering into strategic alliances as well as exploringfor vendor payments, meeting short-term obligations on other accrued liabilities, and amongst other requirements, making interest payments on our debt obligations. Without positive operating margins and sufficient working capital and the ability to meet our debt obligations, our business will be jeopardized and we may not be able to continue in our current structure, if at all. Under these circumstances, we would likely have to consider other options, including the possibility ofsuch as selling assets, raising additional debt or equity capital, as necessary. There is, however, no assurancecutting costs or otherwise reducing our cash requirements, or negotiating with our creditors to restructure our applicable obligations, including the Companypotential filing of a petition for relief under the United States Bankruptcy Code (the “Bankruptcy Code”). Such a filing would subject us to the risks and uncertainties associated with bankruptcy filing proceedings and may place investors in our stock at significant risk of losing some or all of their investment. In a bankruptcy, holders of our common stock will be successful in meeting its capital requirements priorsubordinated to becoming cash flow positive.our Series B Preferred Stock, which is likely to increase the risk of total loss of investment for holders of our common stock. A bankruptcy filing by us could cause a material adverse effect on our business, financial condition, results of operations and liquidity.

 9

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

3.4.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable under the circumstances. Significant estimates include best estimate of selling price in multiple element arrangements,accounting for valuation allowances related to deferred income taxes, self-insurance loss accruals,contingent consideration, allowances for doubtful accounts, revenue recognition, unrecognized tax benefits, and notes, income tax accruals, acquisition accounting, useful lives andasset impairments of long-lived assets and facilities realignment accruals.involving other intangible assets. The Company periodically reviews these matters and reflects changes in estimates in earnings as appropriate. Actual results could materially differ from those estimates.

Revenue Recognition

ThroughOur clinical services derive its revenues from the performance of its proprietary assays or tests. The Company’s molecular diagnostics business,performance obligation is fulfilled upon the completion, review and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based on the estimated transaction price or net realizable value, which is determined based on historical collection rates by each payer category for each proprietary test offered by the Company. To the extent the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, the Company aims to provide physicians and patients with diagnostic options for detecting genetic and other molecular alterationsestimates the amount of variable consideration that are associated with gastrointestinal, endocrine and lung cancers, which are principally focused on early detection of patients at high risk of cancer. Customersshould be included in the Company’s molecular diagnostics business consist primarilytransaction price using the expected value method based on historical experience.

For our clinical services, we regularly review the ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates and adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we will adjust the estimates of physicians, hospitalscontractual allowances, which affects net revenue in the period such variances become known. The Company recorded an NRV adjustment of $0.7 million as a reduction of revenue during the second quarter of 2022 to record the impact on revenue recorded during the first quarter of 2022. See Note 3, Going Concern, for more details.

For our pharma services, project level activities, including study setup and clinics. Under current GAAP, we recognize revenue from services renderedproject management, are satisfied over the life of the contract while performance-related obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Revenues are recognized at a point in time when the following four revenue recognition criteriatest results or other deliverables are met: persuasive evidence of an arrangementreported to the customer.

9

Financing and Payment

For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical services are typically thirty days and in our pharma services, up to sixty days. Commercial third-party-payers are required to respond to a claim within a time period established by their respective state regulations, generally between thirty to sixty days. However, payment for commercial third-party claims may be subject to a denial and appeal process, which could take up to two years in some instances where multiple appeals are submitted. The Company generally appeals all denials from commercial third-party payers. We bill Medicare directly for tests performed for Medicare patients and must accept Medicare’s fee schedule for the covered tests as payment in full.

Costs to Obtain or contract exists; servicesFulfill a Customer Contract

Sales commissions are expensed in the period in which they have been rendered;earned. These costs are recorded in sales and marketing expense in the selling price is fixed or determinable; and collectability is reasonably assured. condensed consolidated statements of operations.

Accounts Receivable

The Company’s accounts receivable represent unconditional rights to consideration and are generated using its clinical services and pharma services. The Company’s clinical services are generally considered renderedfulfilled upon completion of the test, and review and release of the test results, at which timeresults. In conjunction with fulfilling these services, the Company bills the third-party payer or hospital. We recognize revenue on an accrual basis when we are able to make a reasonable estimate of reimbursement at the time delivery is complete. In the first period in which revenue is accrued for a particular payer or test, there generally is a one-time increase in revenue. Until we have contracts with payers or can reasonably estimate the amount that will ultimately be received, we recognize the related revenue on the cash basis. Because the timing and amount of cash payments received from payers as well as one-time increases in revenue from newly accrued payers are difficult to predict, we expect that our revenue may fluctuate significantly in any given quarter.

The Company currently recognizes revenue and accounts receivable related to billings for Medicare and Medicare Advantage, on an accrual basis, net of contractual adjustment, as well as for hospitals (direct-bill clients), when collectability is reasonably assured.direct-bill payer. Contractual adjustments represent the difference between the list prices and the reimbursement raterates set by third-party payers, including Medicare, commercial payers, and Medicare Advantage, or the amounts billed to hospitals.

Specifically by test, PancraGEN® revenues have been recorded on the accrual basis in each of these categories since its acquisition in 2014. ThyGenX® has been recorded on an accrual basis since its Medicare approval in 2015 in two of the payer categories, Medicare and Medicare Advantage, and ThyraMIR®, a newer test, approved for Medicare in 2016, has been moved from cash basis to accrual basis in the same categories as ThyGenX, Medicare and Medicare Advantage in 2017, effective in the current quarter. As of September 30, 2017 there are no revenues for the Company’s lung assay called RespriDX™.

 10

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

The Company also provides services by way of commercial insurance carriers or governmental programs thatdirect-bill payers. Specific accounts may or may not have a contract or coverage in place for its proprietary tests. As contracts and coverage progress for payers in these categories, the Company will evaluate their collection history to determine the appropriate time to begin to recognized specific payers on the accrual basis as well. Currently, all are recognized on the cash basis. The Company does not enter into direct agreements with patients that commit them to pay any portion of the cost of the tests in the event that their commercial insurance carrier or governmental program does not pay the Company for its services; however, the Company does offer patients that do not have adequate insurance coverage the opportunity to pay cash for our services at a reduced rate.

Accounts Receivable

The Company recognizes Accounts Receivable as revenue is accrued, based upon its criteria for revenue recognition. The Company also records an Allowance for Doubtful Accounts based on the collection history for its accrual basis payer. For non-paying roster accounts, balances are generallybe written off after twelve months. Medicare and Medicare Advantage accounts are currently written off after eighteen months to allow for the appeal process,several appeals, which in some cases requires several appeals priormay take longer than twelve months. Pharma services represent, primarily, the performance of laboratory tests in support of clinical trials for pharma services customers. The Company bills these services directly to collection.the customer.

Leases

The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Unless a lease provides all of the information required to determine the implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. We use the implicit interest rate in the lease when readily determinable.

Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability. See Note 7, Leases.

Other Current Assets

Other current assets consisted of the following as of SeptemberJune 30, 20172022 and December 31, 2016:2021:

SCHEDULE OF OTHER CURRENT ASSETS

  June 30, 2022  December 31, 2021 
  (unaudited)    
Lab supply inventory $2,007  $1,786 
Prepaid expenses  582   800 
Other  108   108 
Total other current assets $2,697  $2,694 

10

 

  September 30, 2017  December 31, 2016 
Indemnification assets $875  $875 
Other receivables  247   325 
Other  145   215 
  $1,267  $1,415 

Long-Lived Assets, including Finite-Lived Intangible Assets

Finite-lived intangible assets are stated at cost less accumulated amortization. Amortization of finite-lived acquired intangible assets is recognized on a straight-line basis, using the estimated useful lives of the assets of approximately two years to nineten years in acquisition relatedacquisition-related amortization expense in the condensed consolidated statements of comprehensive loss.operations.

The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by future discounted cash flows. This analysis requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary.

 11

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

Discontinued Operations

The Company accounts for business dispositions and its businesses held for sale in accordance with ASC 205-20, Discontinued Operations. ASC 205-20 requires the results of operations of business dispositions to be segregated from continuing operations and reflected as discontinued operations in current and prior periods. See Note 11,Discontinued Operations for further information.

Basic and Diluted (Loss) IncomeNet Loss per Share

A reconciliation of the number of shares of common stock, par value $0.01 per share, used in the calculation of basic and diluted (loss) incomeloss per share for the three- and nine-monthsix-month periods ended SeptemberJune 30, 20172022 and 20162021 is as follows:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
Basic weighted average number of common shares  22,028   1,816   12,022   1,803 
Potential dilutive effect of stock-based awards -  -  -  - 
Diluted weighted average number of common shares 22,028  1,816  12,022  1,803 

SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE

  2022  2021  2022  2021 
  Three Months  Six Months Ended 
  Ended June 30,  June 30, 
  2022  2021  2022  2021 
  (unaudited)  (unaudited) 
Basic weighted average number of common shares      4,229          4,102         4,219          4,095   
Potential dilutive effect of stock-based awards  -   -   -   - 
Diluted weighted average number of common shares   4,229       4,102         4,219          4,095   

The Company’s Series B Redeemable Preferred Stock, on an as converted basis into common stock of 7,833,334 shares for the three- and six-months ended June 30, 2022, and the following outstanding stock-based awards and warrants, were excluded from the computation of the effect of dilutive securities on (loss) incomeloss per share for the following periods becauseas they would have been anti-dilutive:anti-dilutive (rounded to thousands):

SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
Options  1,496   -   1,496   - 
Stock-settled stock appreciation rights (SARs)  84   103   84   103 
Restricted stock and restricted stock units (RSUs)  68   115   68   115 
Warrants  15,267   -   15,267   - 
  16,915  218  16,915  218 

  Three Months  Six Months Ended 
  Ended June 30,  June 30, 
  2022  2021  2022  2021 
  (unaudited)  (unaudited) 
Options  641   747   641   747 
Restricted stock units (RSUs)  351   373   351   373 
Warrants  63   1,405   63   1,405 
   1,055   2,525   1,055   2,525 

 12

11

 

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

4.5.GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is attributable to the acquisition of our pharma services in July 2019. The carrying value of the intangible assets acquired was $15.6 million, with goodwill of approximately $8.3 million and identifiable intangible assets of approximately $7.3 million. The goodwill balance at June 30, 2022 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of SeptemberJune 30, 20172022 and December 31, 20162021 are as follows:

     As of September 30, 2017  As of December 31, 2016 
  Life  Carrying  Carrying 
  (Years)  Value  Value 
Diagnostic assets:            
Asuragen acquisition:            
Thyroid  9  $8,519  $8,519 
RedPath acquisition:            
Pancreas test  7   16,141   16,141 
Barrett’s test 9   18,351   18,351 
Total     $43,011  $43,011 
Diagnostic lab:            
CLIA Lab  2.3  $609  $609 
             
Accumulated Amortization     $(9,701) $(7,262)
             
Net Carrying Value     $33,919  $36,358 

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS CARRYING VALUE

  (Years)  Amount  Amount 
     As of June 30, 2022  As of December 31, 2021 
  Life  Carrying  Carrying 
  (Years)  Amount  Amount 
     (unaudited)    
Asuragen acquisition:            
Thyroid  9  $8,519  $8,519 
RedPath acquisition:            
Pancreas test  7   16,141   16,141 
Barrett’s test  9   6,682   6,682 
BioPharma acquisition:            
Trademarks  10   1,600   1,600 
Customer relationships  8   5,700   5,700 
             
CLIA Lab  2.3   609   609 
             
Total     $39,251  $39,251 
             
Accumulated Amortization      (33,036)  (31,964)
             
Net Carrying Value     $6,215  $7,287 

Amortization expense was approximately $0.8$0.5 million and $1.0$1.1 million for the three-month periods ended SeptemberJune 30, 20172022 and 2016, respectively,2021, and approximately $2.4$1.1 million and $2.9$2.2 million for the nine-monthsix-month periods ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Amortization of our diagnostic assets begins upon launch of the product. Estimated amortization expense for the remainder of 2022 and the next fivefour years is as follows, based on current assumptionsfollows:

SCHEDULE OF FUTURE ESTIMATED AMORTIZATION EXPENSE

2022  2023  2024  2025  2026 
                   
$1,071  $1,734  $873  $873  $873 

The following table displays a roll forward of future product launches:the carrying amount of goodwill from December 31, 2021 to June 30, 2022:

SCHEDULE OF GOODWILL CARRYING VALUE

  Carrying 
  Amount 
Balance as of December 31, 2021 $8,433 
Adjustments  - 
Balance as of June 30, 2022 $8,433 

12

 

 2017 2018  2019  2020  2021 
$3,252 $3,252  $5,292  $5,292  $4,908 

5.6.FAIR VALUE MEASUREMENTS

Cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their relative short-term nature. The Company'sCompany’s financial assets and liabilities reflected at fair value in the condensed consolidated financial statements include: cashinclude contingent consideration, warrant liability and cash equivalents; accounts receivable; other current assets; accounts payable; and contingent consideration.note payable. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

 13

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

Level 1:Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2:Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3:Valuations which incorporate unobservable inputs that reflect managementcertain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The valuation methodologies used for the Company’s financial assets and liabilitiesinstruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the tables below:

SCHEDULE OF FINANCIAL INSTRUMENT MEASURED ON RECURRING BASIS

  As of September 30, 2017  Fair Value Measurements 
  Carrying  Fair  As of September 30, 2017 
  Amount  Value  Level 1  Level 2  Level 3 
Assets:                    
Cash and cash equivalents:                    
Cash $11,703  $11,703  $11,703  $            -  $- 
  $11,703  $11,703  $11,703  $-  $- 
Liabilities:                    
Contingent consideration:                    
Asuragen $1,407  $1,407  $-  $-  $1,407 
Other long-term liabilities:                    
Warrant liability  733   733   -   -   733 
  $2,140  $2,140  $-  $-  $2,140 

  As of June 30, 2022  Fair Value Measurements 
  Carrying  Fair  As of June 30, 2022 
  Amount  Value  Level 1  Level 2  Level 3 
        (unaudited)       
Liabilities:               
Contingent consideration:                    
Asuragen (1) $1,281  $1,281  $-  $-  $1,281 
Other accrued expenses:                    
Warrant liability (2)  3   3   -   -   3 
Note payable:                    
BroadOak loan  7,782   7,782   -   -   7,782 
BroadOak convertible note  2,000   2,000   -   -   2,000 
  $11,066  $11,066  $-  $-  $11,066 

(1)(2)See Note 9, Accrued Expenses and Long-Term Liabilities
(1)See Note 9, Accrued Expenses and Long-Term Liabilities
(2)See Note 9, Accrued Expenses and Long-Term Liabilities

  As of December 31, 2021  Fair Value Measurements 
  Carrying  Fair  As of December 31, 2021 
  Amount  Value  Level 1  Level 2  Level 3 
Liabilities:                    
Contingent consideration:                    
Asuragen (1) $1,871  $1,871  $-  $-  $1,871 
Other accrued expenses:                    
Warrant liability (2)  71   71   -   -   71 
Note payable:                    
BroadOak loan  7,942   7,942   -   -   7,942 
  $9,884  $9,884  $-  $-  $9,884 

 14

13

(1)(2)See Note 9, Accrued Expenses and Long-Term Liabilities
(1)See Note 9, Accrued Expenses and Long-Term Liabilities
(2)See Note 9, Accrued Expenses and Long-Term Liabilities

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

  As of December 31, 2016  Fair Value Measurements 
  Carrying  Fair  As of December 31, 2016 
  Amount  Value  Level 1  Level 2  Level 3 
Assets:                    
Cash and cash equivalents:                    
Cash $602  $602  $602  $-  $- 
  $602  $602  $602  $-  $- 
Liabilities:                    
Contingent consideration:                    
Asuragen $1,545  $1,545  $-  $-  $1,545 
RedPath  5,969   5,969   -   -   5,969 
  $7,514  $7,514  $-  $-  $7,514 

Cash and cash equivalents are valued using market prices in active markets (level 1). As of September 30, 2017, the Company did not have any marketable securities in less active markets (level 2) or without observable market values that would require a high level of judgment to determine fair value (level 3).

In connection with the acquisition of certain assets from Asuragen, and the acquisition of RedPath,Inc., the Company recorded contingent consideration related to contingent payments and other revenue basedrevenue-based payments. The Company determined the fair value of the contingent consideration based on a probability-weighted income approach derived from revenue estimates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. On March 22, 2017, the Company entered into a Termination Agreement with the RedPath Equityholder Representative. Under the terms of the Termination Agreement, the RedPath Equityholder Representative agreed to terminate all royalty and milestone rights under the contingent consideration agreement. As a result the Company reversed approximately $6.0 million in Redpath contingent consideration liabilities in the first quarter of 2017, of which $5.8 million was a reversal within operating expenses in the Condensed Consolidated Statement of Comprehensive Loss.

On March 23, 2017, inIn connection with the Company entering into the Exchange Agreement, related to the RedPath Note (See Note 2,Liquidity and Note 12,Long-Term Debt) with the Investor, an embedded conversion option derivative liability was recorded due to a certain embedded conversion feature. The embedded conversion option is considered a liability and valued using the Black-Scholes Option-Pricing Model, the inputs for which include exercise price of the conversion feature, market price of the underlying common shares, expected term, volatility based on the Company’s historical market price, and the risk-free rate corresponding to the expected term of the Exchange Agreement. Any changes to the estimated fair value of this liability were recorded in Interest Expense. Between March 23, 2017 and April 18, 2017, the Investor had fully converted all outstanding debt, and as a result there are no liabilities remaining subsequent to April 18, 2017.

On June 21, 2017,BroadOak loan, the Company closed on an Offering (See Note 2,Liquidity), issuing both Pre-Funded Warrants and Underwriters Warrants to purchase 2,600,000 shares and 575,000 shares ofrecords the Company’s common stock, respectively. Both the Pre-Funded and Underwriters Warrants include a cash settlement feature in the event of certain circumstances. Accordingly, both the Pre-Funded and Underwriters Warrants are classified as liabilities, and wereloan at fair valued using the Black Scholes Option-Pricing Model, the inputs for which include exercise price of the respective warrants, market price of the underlying common shares, expected term, volatility based on the Company’s historical market price, and the risk-free rate corresponding to the expected term of the Exchange Agreement. Changes to thevalue. The fair value of the warrant liabilities were recorded to Other (loss) income, net.loan is determined by a probability-weighted approach regarding the loan’s change in control feature. See Note 14, Notes Payable, for more details. The Pre-Funded Warrants were fully exercised asfair value measurement is based on the estimated probability of September 30, 2017a change in control and therefore the Company has no remaining liability associated with those warrants.thus represents a Level 3 measurement.

 15

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

A roll forward of the carrying value of the contingent consideration, embedded conversion optionContingent Consideration Liability, 2017 Underwriters’ Warrants and warrant liabilities from December 31, 2016BroadOak Loans to SeptemberJune 30, 20172022 is as follows:

  December 31, 2016  Initial Liability  Payments  Accretion  Cancellation
of Obligation/
Conversions Exercises		  Mark to Market  September 30, 2017 
Contingent consideration:                            
Asuragen $1,545      $(260) $122  $-  $-  $1,407 
Redpath  5,969       -   -   (5,969)  -   - 
Embedded conversion option  -   208   -   -   (269)  61   - 
Pre-Funded Warrants  -   2,247   -   -   (2,337)  90   - 
Underwriters Warrants  -   422   -   -   -   311   733 
  $7,514  $2,877  $(260) $122  $(8,575) $462  $2,140 

SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION

The

              Adjustment    
  December 31, 2021  Issued  Earned  

Accretion/

Interest Accrued

  to Fair Value/ Mark to Market  June 30, 2022 
  (unaudited) 
Asuragen $1,871   -   $(364) $85  $(311) $1,281 
                         
Underwriters Warrants  71       -   -   (68)  3 
                         
BroadOak Loan  7,942       -   -   (160)  7,782 
                         
BroadOak Convertible Note  -   2,000   -   -   -   2,000 
  $9,884  $2,000  $(364) $85  $(539) $11,066 

Certain of the Company’s non-financial instruments, which primarily consist ofassets, such as other intangible assets and property and equipment,goodwill, are not required to be measured at fair value on a recurringnonrecurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for indefinite-lived intangible assets), non-financial instruments are assessed forwhen there is an indicator of impairment and, if applicable, written-down to and recorded at fair value considering market participant assumptions.only when an impairment charge is recognized.

6.7.LEASES

Finance lease assets are included in fixed assets, net of accumulated depreciation.

14

The table below presents the lease-related assets and liabilities recorded in the Condensed Consolidated Balance Sheet:

SCHEDULE OF FINANCING AND OPERATING LEASES

  Classification on the Balance Sheet June 30, 2022 
    (unaudited) 
Assets      
Financing lease assets Property and equipment, net $620 
Operating lease assets Operating lease right of use assets  3,483 
Total lease assets   $4,103 
       
Liabilities      
Current      
Financing lease liabilities Other accrued expenses $68 
Operating lease liabilities Other accrued expenses  963 
Total current lease liabilities   $1,031 
Noncurrent      
Financing lease liabilities Other long-term liabilities  24 
Operating lease liabilities Operating lease liabilities, net of current portion  2,691 
Total long-term lease liabilities    2,715 
Total lease liabilities   $3,746 

The weighted average remaining lease term for the Company’s operating leases was 6.3 years as of June 30, 2022 and the weighted average discount rate for those leases was 6.5%. The Company’s operating lease expenses are recorded within “Cost of revenue” and “General and administrative expenses.”

The table below reconciles the cash flows to the lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2022:

SCHEDULE OF MATURITIES OF OPERATING AND FINANCING LEASE LIABILITIES

  Operating Leases  Financing Leases 
2022 $626  $36 
2023  897   60 
2024  567   - 
2025  402   - 
2026-2030  1,924     
Total minimum lease payments  4,416   96 
Less: amount of lease payments representing effects of discounting  762   4 
Present value of future minimum lease payments  3,654   92 
Less: current obligations under leases  963   68 
Long-term lease obligations $2,691  $24 

As of June 30, 2022, contractual operating lease obligations with terms exceeding one year and estimated minimum future rental payments required by non-cancelable operating leases with initial or remaining lease terms exceeding one year were as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELABLE LEASES

     Less than  1 to 3  3 to 5  After 
  Total  1 Year  Years  Years  5 Years 
Operating lease obligations $4,416  $626  $1,464  $816  $1,510 
Total $4,416  $626  $1,464  $816  $1,510 

15

8.COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. There is no pending litigation involving the Company at this time.

Due to the nature of the businesses in which the Company is engaged, it is subject to certain risks. Such risks include, among others, risk of liability for personal injury or death to persons using products or services that the Company promotes or commercializes. There can be no assurance that substantial claims or liabilities will not arise in the future due to the nature of the Company’s business activitiesactivities. There is also the risk of employment related litigation and recent increasesother litigation in litigation related to healthcare products. As partthe ordinary course of the closeout of its CSO business, the Company seeks to reduce its potential liability under its service agreements through measures such as contractual indemnification provisions with customers (the scope of which may vary from customer to customer, and the performance of which is not secured) and insurance. business.

The Company could however, also be held liable for errors and omissions of its employees in connection with the services it performs that are outside the scope of any indemnity or insurance policy. The Company could be materially adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnification agreement; if the indemnity, although applicable, is not performed in accordance with its terms; or if the Company’s liability exceeds the amount of applicable insurance or indemnity.

 16

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

The Company routinely assesses its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made. As of September 30, 2017, the Company's accrual for litigation and threatened litigation was not material to the condensed consolidated financial statements.

In connection with the October 31, 2014 acquisition of RedPath, the Company assumed a liability for the settlement agreement (the “Settlement Agreement”) entered into by the former owners of RedPath with the Department of Justice (“DOJ”). Under the terms of the Settlement Agreement, the Company is obligated to make payments to the DOJ for the calendar years ended December 31, 2014 through 2017, up to a cumulative maximum amount of $3.0 million.

Payments are due on March 31st following the calendar year in which the revenue milestones are achieved. In May 2017, the Company renegotiated payment terms with the DOJ related to a $0.5 million payment due associated with performance in fiscal 2016. The negotiations resulted in an agreement that the Company pay $83,335 on July 3, 2017, and $83,333 for the five remaining months of 2017. The Company made payments of approximately $0.3 million in the three months ended September 30, 2017. For the nine months ended September 30, 2017, the Company has accrued $0.5 million for the remainder of these payments and its estimate of the potential liability for 2017, based upon the terms of the Settlement Agreement.

Prolias Technologies, Inc. v. PDI, Inc.

On April 8, 2015, Prolias Technologies, Inc. (“Prolias”) filed a complaint (the “Complaint”) against the Company with the Superior Court of New Jersey (Morris County) (the “Court”) in a matter entitled Prolias Technologies, Inc. v. PDI, Inc. (Docket No. MRS-L-899-15). In the Complaint, Prolias alleged that it and the Company entered into an August 19, 2013 Collaboration Agreement and a First Amendment thereto (collectively, the “Agreement”) whereby Prolias and the Company agreed to work in good faith to commercialize a diagnostic test known as “Thymira.” After various motions on October 13, 2016, the Company filed an application to enter final judgment and taxing of costs against Prolias. The Company requested that the Court enter final judgment against Prolias and for the Company.

 17

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

On March 9, 2017, the Court entered a final judgment in the Company’s favor against Prolias for the sum of $636,053 plus ten percent interest continuing to accrue on the principal balance of $500,000 (per diem $136.99) unless and until paid. Final judgment was also entered in the Company’s favor, and against Prolias, declaring Prolias is deemed to have executed and delivered to the Company a promissory note in the amount of $1,000,000 and Prolias is obligated to repay the Company the principal amount and all interest in accordance with the terms of the promissory note and Article 10.2(a) of the Collaboration Agreement by and between Prolias and the Company. On April 3, 2017, the final judgment against Prolias was recorded as a statewide lien. No assurance, however, can be given that the Company will ever be able to recover on the judgment against Prolias.

Severance

During the first quarter ended March 31, 2016 the Company recorded additional severance obligations as it continued to right-size the organization and wind down its CSO business. The Company recorded obligations of $1.1 million, $0.5 million of which was recorded in continuing operations.

The severance liability as of December 31, 2016 was approximately $3.1 million, of which $2.2 million is classified in continuing operations and $0.9 million is in discontinued operations. In January 2017, five former executives agreed to a settlement of their severance obligations agreeing to 35% of the total amount due them. These remaining obligations were paid out in February 2017 in payments totaling approximately $1.0 million. As a result of the settlement, the Company recorded a reversal of expense of approximately $2.0 million in the first quarter of 2017. Within continuing operations, $1.5 million of expense was reversed and was recorded in general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Loss and $0.5 million was recorded in discontinued operations. The Company has no severance obligations as of September 30, 2017.

Parsippany Lease

Our corporate headquarters are located in Parsippany, New Jersey where we had been leasing approximately 23,000 square feet on an operating lease scheduled to run through June 2017. On May 24, 2017 the Company entered into a new lease with its Parsippany landlord. The lease is for a space of approximately 5,900 square feet and is for a period of sixty-three months commencing July 1, 2017 at an initial monthly obligation of approximately $13,000 per month subject to annual increases of fifty cents per square foot. The initial year of the lease has a two-month rent abatement period. The lease has an early termination date of June 30, 2020 at the option of the Company, provided at least 12 months’ notice is given in advance.

Pittsburgh Lease

On September 26, 2017 the Company renewed its lease for its Pittsburgh laboratory for an additional three months. The lease is for 20,000 square feet of laboratory and office space and now ends on June 30, 2018. The lease obligation remains at $32,500 per month for the full term of the lease.

 18

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

7.9.ACCRUED EXPENSES AND LONG-TERM LIABILITIES

Other accrued expenses consisted of the following as of SeptemberJune 30, 20172022 and December 31, 2016:2021:

SCHEDULE OF OTHER ACCRUED EXPENSES

  June 30, 2022  December 31, 2021 
  (unaudited)    
Accrued royalties $4,311  $3,890 
Contingent consideration  520   488 
Operating lease liability  963   1,041 
Financing lease liability  68   79 
Deferred revenue  18   40 
Interest payable  89   120 
Warrant liability  3   71 
Accrued sales and marketing - diagnostics  41   47 
Accrued lab costs - diagnostics  148   228 
Accrued professional fees  782   932 
Taxes payable  218   245 
Unclaimed property  565   565 
All others  1,067   1,452 
Total other accrued expenses $8,793  $9,198 

  September 30, 2017  December 31, 2016 
Accrued royalties $931  $711 
Indemnification liability  875   875 
Contingent consideration  250   260 
Rent payable  18   110 
DOJ settlement  542   80 
Accrued professional fees  687   1,746 
Taxes payable  389   526 
Unclaimed property  565   565 
Directors' Fees  41   40 
Research related liabilities  388   496 
All others  1,074   1,363 
  $5,331  $6,236 

Other long-termLong-term liabilities consisted of the following as of SeptemberJune 30, 20172022 and December 31, 2016:2021:

  September 30, 2017  December 31, 2016 
Uncertain tax positions $3,733  $3,594 
DOJ settlement (indemnified by RedPath)  -   250 
Warrant liability  733   - 
Other  88   - 
  $4,554  $3,844 

8.STOCK-BASED COMPENSATION

SCHEDULE OF LONG TERM LIABILITIES

Stock Incentive Plan

  June 30, 2022  December 31, 2021 
  (unaudited)    
Uncertain tax positions $4,683  $4,577 
Deferred revenue  13   13 
Other  24   58 
Total other long-term liabilities $4,720  $4,648 

In 2015, the board of directors (the “Board”) and stockholders approved the Company’s Amended and Restated 2004 Stock Award and Incentive Plan, (or the “Amended and Restated Plan”). The Amended and Restated Plan authorized an additional 245,000 shares for new awards and also included the remaining shares available under the prior Amended and Restated Plan. On September 14, 2017, the Company stockholders approved an amendment to the Amended and Restated Plan to increase the maximum number of shares available for sale thereunder by 3,700,000 shares, of which 184,647 shares represented stockholders’ approval of contingent awards. Eligible participants under the Amended and Restated Plan include officers and other employees of the Company, members of the Board and outside consultants, as specified under the Amended and Restated Plan and designated by the Compensation and Management Development Committee of the Board (the “Compensation Committee”).  Unless earlier terminated by action of the Board, the Amended and Restated Plan will remain in effect until such time as no stock remains available for delivery under the Amended and Restated Plan and the Company has no further rights or obligations under the Amended and Restated Plan with respect to outstanding awards thereunder. 

 19

16

10.STOCK-BASED COMPENSATION

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

In MarchHistorically, stock options have been granted with an exercise price equal to the market value of 2017, the Company’s Chief Executive Officer, Chief Financial Officercommon stock on the date of grant, with expiration 10 years from the date they are granted, and generally vest over a one to three-year period for employees and members of the Board. Upon exercise, new shares will be issued by the Company. The restricted shares and restricted stock units (“RSUs”) granted to Board were granted incentive stock optionsmembers and employees generally have a three-year graded vesting period and are subject to purchase an aggregate of 172,077 shares of common stock with a weighted average exercise price of $2.13 per share (subject generally to the executive’s or board member’s, as applicable, continued service with the Company) which vest in equal monthly installments over a period of one year.accelerated vesting and forfeiture under certain circumstances.

The following table provides the weighted average assumptions used in determining the fair value of the stock option awards granted during the nine month periodsix-month periods ended SeptemberJune 30, 2017. There were no2022 and 2021.

SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS

  June 30, 2022  June 30, 2021 
  (unaudited) 
Risk-free interest rate  1.76%  0.78%
Expected life  6.0 years   6.0 years 
Expected volatility  129.93%  134.79%
Dividend yield  -   - 

During March 2021, the Company granted 312,500 stock options granted duringwith an exercise price of $6.00 and 152,500 RSUs. The market value of the nine month period ended September 30, 2016.

Nine Months Ended
September 30, 2017
Risk-free interest rate1.85%
Expected life4.93
Expected volatility141.73%
Dividend yield-

Company’s common stock was $5.00 at the grant date of these awards. The Company recognized approximately $0.3$0.3 million and $0.02$0.6 million of stock-based compensation expense during the three monththree-month periods ended SeptemberJune 30, 20172022 and 2016,2021, respectively and approximately $0.5$0.7 million and $0.1$0.8 million of stock-based compensation expense during the nine monthsix-month periods ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The following table has a breakout of stock-based compensation expense by line item.

SCHEDULE OF SHARE-BASED COMPENSATION ARRANGEMENTS BY SHARE-BASED PAYMENT AWARD

In 2017, the Company inadvertently granted 184,647 share options to six employees in excess of the number available for grant under the Amended and Restated Plan. These grants were cancelled and replaced with the new awards that were contingent upon stockholder approval which was received in September 2017. The replacement option grants were made on May 10, 2017, with a strike price of $2.46 and will vest in equal monthly installments over one year subject generally to the continued service of the grantees.

  Three Months Ended  Six Months Ended 
  June 30  June 30 
  2022  2021  2022  2021 
  (unaudited)  (unaudited) 
Cost of revenue $20  $52  $47  $102 
Sales and marketing  42   78   86   125 
Research and development  -   24   -   59 
General and administrative*  272   397   526   551 
Total stock compensation expense $334  $551  $659  $837 

In September 2017, subsequent to approval by shareholders, the Company granted 945,000 stock options to members of senior management. These options have an exercise price of a $1.45 and vest in equal monthly installments over one year. Also in September 2017, the Company granted 43,000 stock options to members of the Board of Directors with an exercise price of $1.48.

9.*INCOME TAXESIncludes ESPP expense

17

11.INCOME TAXES

Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows use of the discrete method when it provides a better estimate of income tax expense. Due to the Company’s valuation allowance position, it is the Company’s position that the discrete method provides a more accurate estimate of income tax expense and therefore income tax expense for the current quarter has been presented using the discrete method. As the year progresses, the Company refines its estimate based on the facts and circumstances by each tax jurisdiction. The following table summarizes the income tax (benefit) provisionexpense on the loss from continuing operations and the effective tax rate for the three- and nine-monthsix-month periods ended SeptemberJune 30, 20172022 and 2016:2021:

 20

INTERPACE DIAGNOSTICS GROUP, INC.SCHEDULE OF EFFECTIVE INCOME TAX RATE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

  2022  2021  2022  2021 
  Three Months Ended  Six Months Ended 
  June 30  June 30 
  2022  2021  2022  2021 
  (unaudited)  (unaudited) 
             
Provision for income tax $16  $16  $34  $31 
Effective income tax rate  (0.4)%  (0.5)%  (0.6)%  (0.4)%

(Tabular information in thousands, except per share amounts)

(unaudited)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
(Benefit) provision for income tax $(42) $173  $(340) $(54)
Effective income tax rate  1.2%  2.5%  4.2%  0.4%

Income tax (benefit) provisionexpense for both the three- and nine-monthsix-month periods ended SeptemberJune 30, 20172022 and 20162021 was primarily due to an allocation of tax expense between continuingminimum state and discontinued operations.local taxes.

10.12.SEGMENT INFORMATION

Since December 22, 2015,We operate under 1 segment which is the Company reports itsbusiness of developing and selling clinical and pharma services.

13.DISCONTINUED OPERATIONS

The components of liabilities classified as discontinued operations as one segment, molecular diagnostics. The Company’s reporting segment structure is reflectiveconsist of the way the Company’s management views the business, makes operating decisionsfollowing as of June 30, 2022 and assesses performance. This structure allows investors to better understand Company performance, better assess prospects for future cash flows, and make more informed decisions about the Company.December 31, 2021:

SCHEDULE OF DISCONTINUED OPERATIONS

  June 30, 2022  December 31, 2021 
  (unaudited)    
       
Accrued liabilities  766   766 
Current liabilities from discontinued operations  766   766 
Total liabilities $766  $766 

The Company’s molecular diagnostics business focuses on developing and commercializing molecular diagnostic tests, leveraging the latest technology and personalized medicine for better patient diagnosis and management. Through the Company’s molecular diagnostics business, the Company aims to provide physicians and patients with diagnostic options for detecting genetic and other molecular alterations that are associated with gastrointestinal, endocrine and lung cancers, which are principally focused on early detection of patients at high risk of cancer. Customers in the Company’s molecular diagnostics segment consist primarily of physicians, hospitals and clinics. The service offerings throughout the segment have similar long-term average gross margins, contract terms, types of customers and regulatory environments. They are promoted through one centrally managed marketing group and the chief operating decision maker views their results on a combined basis.

11.DISCONTINUED OPERATIONS

The table below presents the significant components of CSO, Group DCA's, Pharmakon's and TVG’sits former Commercial Services business unit’s results included within Income (Loss)loss from Discontinued Operations, Netdiscontinued operations, net of Taxtax in the condensed consolidated statements of comprehensive lossoperations for the three-three-and six-months ended June 30, 2022 and nine-months ended September 30, 2017 and 2016.2021.

  2022  2021  2022  2021 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
  (unaudited)  (unaudited) 
Income from discontinued operations, before tax $-  $-  $-  $- 
Income tax expense  52   58   106   112 
Loss from discontinued operations, net of tax $(52) $(58) $(106) $(112)

 21

18

 

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

  Three Months Ending September 30,  Nine Months Ending September 30, 
  2017  2016  2017  2016 
Revenue, net $-  $-  $-  $1,644 
                 
Income (loss) from discontinued operations  167   (414)  1,081   (1,006)
Gain on sale of assets  -   -   -   1,326 
Income (loss) from discontinued operations, before tax  167   (414)  1,081   320 
Income tax expense (benefit)  96   (117)  509   219 
Income (loss) from discontinued operations, net of tax $71  $(297) $572  $101 

The assets and liabilities classified as discontinued operations relate to the CSO, Group DCA, and TVG businesses and their composition are in the accompanying balance sheets as follows:

  September 30, 2017  December 31, 2016 
  CSO  DCA/TVG  Total  CSO  DCA/TVG  Total 
Other $-  $-  $-  $-  $14  $14 
Current assets from discontinued operations  -   -   -   -   14   14 
      Total assets $-  $-  $-  $-  $14  $14 
                         
Accounts payable $304  $-  $304  $890  $-  $890 
Accrued salary and bonus  -   -   -   1,272   -   1,272 
Other  979   -   979   1,966   -   1,966 
Current liabilities from discontinued operations  1,283   -   1,283   4,128   -   4,128 
     Total liabilities $1,283  $-  $1,283  $4,128  $-  $4,128 

12.14.LONG-TERM DEBTNOTES PAYABLE

BroadOak Loan

On October 31, 2014, the Company and its subsidiary, Interpace LLC, entered into an agreement to acquire RedPath (the “Transaction”). In connection with the Transaction, the Company entered into a note payable (the “RedPath Note”) requiring eight equal consecutive quarterly installments beginning October 1, 2016.

The obligations of the Company under the RedPath Note were guaranteed by29, 2021, the Company and its subsidiaries pursuant toentered into a GuaranteeLoan and CollateralSecurity Agreement (the “Subordinated Guarantee”“BroadOak Loan Agreement”) with BroadOak, providing for a term loan in favorthe aggregate principal amount of $8,000,000 (the “Term Loan”). Funding of the RedPath Equityholder Representative. Pursuant toTerm Loan took place on November 1, 2021. The Term Loan matures upon the Subordinated Guarantee,earlier of (i) October 31, 2024 or (ii) the Companyoccurrence of a change in control, and its subsidiaries also grantedbears interest at the rate of 9% per annum. The Term Loan is secured by a security interest in substantially all of theirthe Company’s and its subsidiaries’ assets including intellectual property, to secure their obligationsand is subordinate to the RedPath Equityholder Representative. BasedCompany’s $7,500,000 revolving credit facility with Comerica Bank. The Term Loan had an origination fee of 3% of the Term Loan amount, and a terminal payment equal to (i) 15% of the original principal amount of the Term Loan if the change of control occurs on or prior to the first anniversary of the funding of the Term Loan, (ii) 20% of the original principal amount of the Term Loan if the change of control occurs after the first anniversary but on or prior to the second anniversary of the funding of the Term Loan and (iii) 30% of the original principal amount of the Term Loan if the change of control occurs after the second anniversary of the funding of the Term Loan, or if the Term Loan is repaid on its maturity date.

The BroadOak Loan Agreement contains affirmative and negative restrictive covenants that are applicable from and after the date of the Term Loan advance. These restrictive covenants, which include restrictions on certain mergers, acquisitions, investments, encumbrances, etc., could adversely affect our ability to conduct our business. The BroadOak Loan Agreement also contains customary events of default.

In connection with the BroadOak Loan Agreement, the Company and its subsidiaries entered into that certain First Amendment to Loan and Security Agreement and Consent with Comerica, dated as of November 1, 2021 (the “Comerica Amendment”), pursuant to which Comerica consented to the Company’s incremental borrowing rate underand its Creditsubsidiaries’ entry into the BroadOak Loan Agreement, and amended that certain Loan and Security Agreement among Comerica, the Company and its subsidiaries (the “Comerica Loan Agreement”) to, among other things, permit the indebtedness, liens and encumbrances contemplated by the BroadOak Loan Agreement.

As a condition for BroadOak to extend the Term Loan to the Company and its subsidiaries, the Company’s existing creditor, Comerica, and BroadOak entered into that certain Subordination and Intercreditor Agreement, dated as of November 1, 2021, pursuant to which BroadOak agreed to subordinate all of the indebtedness and obligations of the Company and its subsidiaries owing to BroadOak to all of the indebtedness and obligations of the Company and its subsidiaries owing to Comerica (the “Intercreditor Agreement”). BroadOak further agreed to subordinate all of its respective security interests in assets or property of the Company and its subsidiaries to Comerica’s security interests in such assets or property. The Intercreditor Agreement provides that it is solely for the benefit of BroadOak and Comerica and is not for the benefit of the Company or any of its subsidiaries.

The Company concluded that the Note met the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4, and did not meet the definition of any of the RedPath Note at the date of issuance was $7.5 million. During the three months ended September 30, 2017 and 2016, the Company accreted zero and approximately $0.2 million in interest expense, respectively. During the nine months ended September 30, 2017 and 2016, the Company accreted approximately $0.2 million and $0.6 million into interest expense, respectively. At December 31, 2016,financial instruments listed within ASC 825-10-15-5 that are not eligible for the fair value balance ofoption. The Note is not convertible and does not have any component recorded to shareholders’ equity. Accordingly, the $9.3 million RedPathCompany elected the fair value option for the Note.

BroadOak Convertible Note was approximately $7.9 million and

On May 5, 2022, the unamortized discount was $1.4 million. As of June 30, 2017, theCompany issued a Subordinated Convertible Promissory Note was fully converted into the Company’s common stock (see below).

 22

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Tabular information in thousands, except per share amounts)

(unaudited)

Debt Exchange for RedPath Note

On December 23, 2016 we repaid $1.33 million in principal of the RedPath Note resulting in an outstanding balance of $9.34 million. The balance of the RedPath Note was subsequently acquired by the Investor, for $8.87 million on March 22, 2017. Also on that date we and the Investor exchanged the RedPath Note for(the “Convertible Note”) to BroadOak, pursuant to which BroadOak funded a senior secured convertible note (the “Exchanged Convertible Note”)term loan in the aggregate principal amount of $5.32$2 million and a senior secured non-convertible note in the aggregate principal amount of $3.55 million. On April 18, 2017, we and the Investor exchanged the senior secured non-convertible note for $3.55 million of our senior secured convertible note (the “Senior Secured Convertible Note”“Convertible Debt”). Between March 23, 2017The Company is using the proceeds of the Convertible Debt for general corporate purposes and April 18, 2017, the senior secured convertible notes wereworking capital.

The Convertible Note was to be converted in full for 3,795,429into shares of our common stock. Westock of the Company in connection with, and upon the consummation of, a private placement transaction pursuant to which the Company would issue common stock to certain investors, and such conversion would be subject to the same terms and conditions (including purchase price per share) applicable to the purchase of common stock of the Company by such investors. Since the private placement transaction was not consummated by August 5, 2022 (the “Maturity Date”), the Convertible Note will be converted into an additional term loan advance under the Company’s existing BroadOak Loan Agreement on the Maturity Date and will thereafter be subject to the terms of the definitive financing agreements for the BroadOak Loan Agreement until repaid in accordance with the terms thereof. The Convertible Debt bears interest at a fixed rate of interest equal to 9.0% per annum and is unsecured. There are no longer have anyscheduled amortization payments prior to the Maturity Date. The Convertible Note contains customary representations and warranties and customary events of default. On August 5, 2022, the Convertible Note was converted into a subordinated term loan and was added to the outstanding secured debt, and any security interests and liens related to our former secured debt have been fully released.BroadOak Loan balance discussed above.

19

 

In connection with the conversionissuance of the Exchanged Convertible Note, on May 5, 2022, the Company recordedand its subsidiaries entered into a) a loss of $4.3 million. Maxim Group LLC (“Maxim”consent letter (the “Comerica Consent”) acted as agent in connection with the exchanges into the Exchanged Convertible Note and the Senior Secured Convertible Note. Maxim was paid a cash fee of $0.6 million representing 6.5% of the balance of the $8.85 million exchanged RedPath Note. These costs are directly relatedComerica, pursuant to which Comerica consented to the issuance of the Company’s shares,Convertible Note, the incurrence of the Convertible Debt and as a result are recorded against equity.

In connectionthe conversion of the Convertible Debt into common stock of the Company or an additional term loan advance under the BroadOak Loan Agreement in accordance with the Exchangedterms of the Convertible Note, and the Senior Secured Convertible Note, the Company determined thereb) a First Amendment to be an embedded conversion option feature. Accordingly, the embedded conversion option contained in the Exchange Convertible Note was accounted for as a derivative liability at the date of issuance,Loan and shall be adjustedSecurity Agreement and Consent (the “BroadOak Amendment”) with BroadOak, pursuant to fair value through earnings at each reporting date.The fair value of the embedded conversion option derivative was determined using the Black-Scholes Option Pricing Model. On the initial measurement date, the fair value of the embedded conversion option derivative of $208,427 was recorded as a derivative liability and was allocated as a debt discount to the Exchanged Convertible Note. At each conversion date, subsequentwhich, among other things, BroadOak consented to the issuance of the Exchanged Convertible Note, the embeddedincurrence of the Convertible Debt and the conversion option derivative liability would be revalued, with any changes to its fair value being recorded to earnings. At March 31, 2017,of the Convertible Debt into common stock of the Company also revaluedor an additional term loan advance under the embedded conversion option derivative liability resultingBroadOak Loan Agreement in a loss fromaccordance with the changeterms of the Convertible Note.

The Convertible Debt is subordinated in fair value,right of payment to all of the indebtedness and accordingly. In connection with these revaluations,obligations of the Company recorded derivative losses of zero and approximately $0.1 million forowing to Comerica under the three and nine-month periods ended September 30, 2017. The value of the derivative liability as of September 30, 2017 was zero. The Company incurred $0.5 million of debt issuance costs, for investment banking, legal and placement fee services in connectionCompany’s existing senior secured credit facility with the Exchange Agreement. These costs were treated as a debt discount and amortized to interest expense over the term of the Exchanged Notes.Comerica. In connection with the conversionissuance of the Senior Secured Convertible Note, on April 18, 2017,May 5, 2022, the Company, recordedBroadOak and Comerica entered into a lossFirst Amendment to Subordination and Intercreditor Agreement (the “Intercreditor Amendment”), pursuant to which, among other things, BroadOak agreed that the Convertible Debt is subordinated to all of $2.3the indebtedness and obligations of the Company owing to Comerica on the same terms and conditions applicable to the indebtedness and obligations of the Company under the BroadOak Loan Agreement.

Related Party Secured Promissory Note

On January 7, 2021, the Company entered into secured promissory notes in the amount of $3 million and $2 million with Ampersand and 1315 Capital, respectively. On May 10, 2021, the Company amended the Ampersand Note to increase the principal amount to $4.5 million and amended the 1315 Capital Note to increase the principal amount to $3.0 million. The maturity dates of the Notes were the earlier of (a) June 30, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Notes. On June 24, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) August 31, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On June 25, 2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner. On August 31, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) September 30, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On August 31, 2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner.

On September 29, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) October 31, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On September 29, 2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner. The Company used the proceeds of the BroadOak Term Loan discussed above to repay in full at their maturity all outstanding indebtedness under the promissory notes with Ampersand, dated January 7, 2021 and as last amended on September 29, 2021, in the amount of $4.5 million, and 1315 Capital, dated January 7, 2021 and as last amended on September 29, 2021, in the amount of $3 million, respectively.

 23

20

 

INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)

13.15.SUPPLEMENTAL CASH FLOW INFORMATION

The following table represents cash flows used in the Company’s discontinued operations for the nine months ended September 30, 2017 and 2016:

  Nine Months Ended 
  September 30, 
  2017  2016 
Net cash used in operating activities of discontinued operations $(2,259) $(1,486)
         
Net cash used in investing activities of discontinued operations $-  $- 

Supplemental Disclosures of Non Cash Financing Activities

(in thousands)

  Nine Months Ended 
  September 30, 
  2017  2016 
       
Write-off of the RedPath Note $(8,098) $- 
Issuance of the Exchange Notes $11,375  $- 
Non-cash equity conversion costs $(173) $- 
Debt issuance costs $(511) $- 
Warrants issued through Termination Agreement (See Note 14,Equity) $193  $- 
Shares issued in debt exchange $11,643  $- 
Professional fees paid by a third party $685  $- 

14.EQUITY

SUPPLEMENTAL CASH FLOW INFORMATION

Public Equity Offerings

  2022  2021 
  Six Months Ended 
  June 30, 
  2022  2021 
    
Operating        
Taxes accrued for treasury stock purchased $66  $- 
         
Investing        
Investment in DiamiR $-  $248 
Purchase of property and equipment included in accounts payable  34   295 
         
Financing        
         
Accrued financing costs $-  $238 

During the nine months ended September 30, 2017, the Company closed on four separate equity offerings raising gross proceeds of $27.9 million. The details are as follows:

 

16.●On January 6, 2017, the Company completed the Second Registered Direct Offering to sell 630,000 shares of its common stock at a price of $6.81 per share to certain institutional investors, which resulted in gross proceeds to the Company of approximately $4.2 million.
●On January 25, 2017, the Company completed the Third Registered Direct Offering to sell 855,000 shares of its common stock and a concurrent private placement of warrants to purchase 855,000 shares of its common stock, or the Warrants, to the same investors participating in the Third Registered Direct Offering. The Warrants and the shares of the Company’s common stock issuable upon the exercise of the Warrants were not registered under the Securities Act and were sold pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. The shares of common stock sold in the Third Registered Direct Offering and the Warrants issued in the concurrent Private Placement were issued separately but sold together at a combined purchase price of $4.69 per share of common stock and accompanying Warrant. The Third Registered Direct Offering and the Private Placement together resulted in gross proceeds to the Company of approximately $4 million. The Company also used approximately $1.0 million to satisfy the obligations due to five former senior executives. See Note 6,Commitments and Contingencies. The fair value of these warrants issued was determined using the Black-Scholes Option Pricing Model and amounted to $1.67 million. The warrants do not include any cash settlement provisions and accordingly are not liability classified. As a result, the Company is not required to revalue the warrants at each reporting date. The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the warrants upon issuance:EQUITY

 24

Preferred Stock Issuance: Securities Purchase and Exchange Agreement

INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)

Market Price $4.33 
Exercise Price $4.69 
Risk-free interest rate  1.95%
Expected volatility  124.02%
Expected life in years  5.0 
Expected dividend yield  0.00%

●On February 8, 2017, the Company completed a CMPO to sell 1,200,000 shares of our common stock at a price of $3.00 per share. In addition, we granted the underwriters an option to purchase up to an additional 9% of the total number of shares of common stock sold by us in the CMPO, solely for the purpose of covering over-allotments, if any. The underwriters exercised the over-allotment option in full. The CMPO resulted in gross proceeds to us of approximately $3.9 million.

On March 22, 2017,January 10, 2020, the Company entered into a TerminationSecurities Purchase and Exchange Agreement (the “Securities Purchase and Exchange Agreement”) with 1315 Capital and Ampersand (collectively, the RedPath Equityholder Representative. Under the terms of the Termination Agreement, RedPath Equityholder Representative agreed“Investors”) pursuant to terminate all royalty and milestone rights under the contingent consideration agreement. In exchange for terminating the royalty and milestone right of RedPath,which the Company agreed to issuesell to the RedPath Equityholder Representative 5 year warrants to acquireInvestors an aggregate of 100,000$20.0 million in Series B Preferred Stock of the Company, at an issuance price per share of $1,000. Pursuant to the Securities Purchase and Exchange Agreement, 1315 Capital agreed to purchase 19,000 shares of Series B Preferred Stock at an aggregate purchase price of $19.0 million and Ampersand agreed to purchase 1,000 shares of Series B Preferred Stock at an aggregate purchase price of $1.0 million.

In addition, the Company agreed to exchange $27.0 million of the Company’s commonexisting Series A convertible preferred stock, atpar value $0.01 per share, held by Ampersand (the “Series A Preferred Stock”), represented by 270 shares of Series A Preferred Stock with a fixedstated value of $100,000 per share, which represents all of the Company’s issued and outstanding Series A Preferred Stock, for 27,000 newly issued shares of Series B Preferred Stock (such shares of Series B Preferred Stock, the “Exchange Shares” and such transaction, the “Exchange”). Following the Exchange, no shares of Series A Preferred Stock remained designated, authorized, issued or outstanding. The Series B Preferred Stock has a conversion price of $4.69 per share. The fair value of the warrants issued was determined using the Black-Scholes Option Pricing Model and amounted to $0.19 million. The warrants do not include any cash settlement provisions and accordingly are not liability classified. As a result, the Company is not required to revalue the warrants at each reporting date. The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the warrants upon issuance:$6.00.

Market Price $2.37 
Exercise Price $4.69 
Risk-free interest rate  1.95%
Expected volatility  125.58%
Expected life in years  5.5 
Expected dividend yield  0.00%

 25

INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)

As part of our acquisition of RedPath Integrated Pathology, Inc., we issued the RedPath Note. In December 2016 we repaid $1.33 million in principal of the RedPath Note resulting in an outstanding balance of $9.34 million. The RedPath Note was subsequently acquired by the Investor for $8.87 million on March 22, 2017. Also on that date we and the investor exchanged the RedPath Note for a senior secured convertible note in the aggregate principal amount of $5.32 million and a senior secured non-convertible note in the aggregate principal amount of $3.55 million. On April 18, 2017, we and the Investor exchanged the senior secured non-convertible note for $3.55 million of our senior secured convertible note. Between March 23, 2017 and April 18, 2017, the senior secured convertible notes were converted in full for 3,795,429 shares of our common stock. We no longer have any outstanding secured debt, and any security interests and liens related to our former secured debt have been or will be released and/or terminated upon the completion of applicable filings.

On June 16, 2017,2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”)support agreements with Maxim as the representative of several underwriters (the “Underwriters”) named therein with respect to the issuance and sale of an aggregate of (i) 9,900,000 shares (“Firm Shares”)each of the Company’s common stock, (ii) Base WarrantsSeries B Investors, pursuant to purchase 12,500,000which Ampersand and 1315 Capital, respectively, consented to, and agreed to vote (by proxy or otherwise), all shares of common stock at an exercise price equal to $1.25 per share,Series B Preferred Stock registered in its name or beneficially owned by it and/or over which it exercises voting control as of the date of the Support Agreement and (iii) Pre-Funded Warrants to purchase 2,600,000any other shares of CommonSeries B Preferred Stock at an exercise price equal to $0.01 per share in the Offering pursuant to the Underwriting Agreement. Each Firm Share and accompanying Base Warrant was sold for a combined effective price of $1.10, and each Pre-Funded Warrant and accompanying Base Warrant was sold for a combined effective price of $1.09. The Underwriters were entitled to receive an underwriting discount equal to 7.5% of the offer price of the aggregate number of Firm Shares and Pre-Funded Warrants sold in the Offering and Over-Allotment and reasonable out-of-pocket expenses of $0.1 million. The Company also granted the Underwriters a 45-day option to purchase up to an additional 1,875,000 Firm Shares and/legally or 1,875,000 Base Warrants to cover over-allotments, if any (the “Over-Allotment”). Additionally, the Company agreed to issue to the Underwriters warrants (the “Underwriter Warrant”) to purchase a number of Firm Shares of common stock equal to an aggregate of 4% of the total number of shares of Common Stock and Pre-Funded Warrants sold in the Offering.

The Company offered to each purchaser whose purchase of shares of common stock in this Offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding common stock immediately following the consummation of this Offering, the opportunity to purchase, if the purchaser so chooses, pre-funded warrants, in lieu of shares of common stock that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% of our outstanding common stock. Subject to limited exceptions, a holder of pre-funded warrants could not have the right to exercise any portion of its pre-funded warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect toheld or acquired by such exercise. Each pre-funded warrant was exercisable for one share of our common stock. The Offering also related to the shares of common stock issuable upon exercise of any pre-funded warrants sold in the Offering. Each pre-funded warrant was sold together with a common warrant with the same terms as the common warrant described above. The common warrants were exercisable immediately and will expire five yearsSeries B Investor after the date of issuance,the Support Agreement or June 22, 2022. The sharesover which it exercises voting control, in favor of common stock and pre-funded warrants could onlyany Fundamental Action desired to be purchased with the accompanying common warrants, but were issued separately, and were immediately separable upon issuance.

 26

INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)

On June 21, 2017,taken by the Company successfully closed its Offering, See Note 2,Liquidity. A public trading market foras determined by the Base WarrantsBoard. For purposes of each Support Agreement, “Fundamental Action” means any action proposed to be taken by the Company and set forth in Section 4(d)(i), 4(d)(ii), 4(d)(v), 4(d)(vi), 4(d)(viii) or 4(d)(ix) of the Certificate of Designation of Series B Preferred Stock or Section 8.5.1.1, 8.5.1.2, 8.5.1.5, 8.5.1.6, 8.5.1.8 or 8.5.1.9 of the Amended and Restated Investor Rights Agreement. The support agreement between the Company and Ampersand was establishedterminated by mutual agreement on July 5, 2017 on9, 2020; however, the OTC market under the trading symbol IDGGW. As part of the offering the Underwriters purchased the full over-allotment of 1,875,000 Base Warrants available to them for the specified $.01 per warrant, which are not exercisable for six months after the Offering. The full 2,600,000 of Pre-Funded Warrants were also sold on at the price of $1.09 per warrant. The combined gross proceeds of the Offering totaled $13.7 millionsupport agreement entered into with approximately $12.3 million of net funds available1315 Capital remains in effect. During October 2021, Ampersand and 1315 Capital provided consent to the Company after deducting underwriting discountsto enter into the Comerica Loan Agreement and other stock issuance expenses.the BroadOak Term Loan.

21

 

In summary, the Company

As of June 30, 2022 and December 31, 2021, there were 47,000 Series B issued 9,900,000and outstanding shares of Common Stock as well as Base Warrants, Overallotment Warrants, Pre-Funded Warrants and Underwriters Warrants to purchase 12,500,000, 1,875,000, 2,600,000 and 575,000 shares of the Company’s Common Stock,preferred stock, respectively. The Pre-Funded and Underwriters Warrants are classified as liabilities because in certain circumstances they could require cash settlement. The Base and Overallotment Warrants do not contain such provisions. As a result, the Company is not required to revalue the Base and Overallotment warrants at each reporting date. The Base Warrants are traded on the OTC market, however, trading volume has been insufficient to determine fair value. The fair value of the Base and Overallotment Warrants was determined using the Black-Scholes Option Pricing Model and amounted to $5.3 million and $0.8 million, respectively.

The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the Base Warrants and Overallotment Warrants upon issuance:

Market Price $0.87 
Exercise Price $1.25 
Risk-free interest rate  1.75%
Expected volatility  134.21%
Expected life in years  5.0 
Expected dividend yield  0.00%

As of July 7, 2017, all of the 2,600,000 Pre-Funded Warrants were exercised for $.01 per warrant exercise price and all 2,600,000 common shares related to the warrants have been issued. On July 31, the Underwriters exercised their right to purchase 875,000 Firm Shares for $0.960 million net of $0.072 million in underwriter discounts, or $0.882 million.

On July 5, 2017, the Company entered into an agreement for investor relations services. In consideration for these services, the Company paid $0.2 million in cash and agreed to issue a warrant expiring in August 2020, exercisable into 150,000 shares of Common Stock with an exercise price of $1.25.

 27

INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)

The warrant issuance is considered a share-based payment award issued to a nonemployee in exchange for services and falls within the scope of ASC 505-50. The fair value of the warrant was determined to be $0.2 million and was fully expensed during the quarter ended September 30, 2017.

The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the share- based warrant upon issuance:

Market Price $1.62 
Exercise Price $1.25 
Risk-free interest rate  1.66%
Expected volatility  172.29%
Expected life in years  3.1 
Expected dividend yield  0.00%

15.17.WARRANTS

Warrants outstanding and warrant activity for the nine monthssix-months ended June 30, 2022 are as follows:

SCHEDULE OF WARRANTS OUTSTANDING AND WARRANTS ACTIVITY

Classification Exercise Price  Expiration Date  Warrants Issued  Balance
December 31,
2021		  Warrants Exercised  Warrants Cancelled/ Expired  Balance
June 30,
2022		 
                      
Equity $46.90   June 2022   85,500   85,500   -   (85,500)  - 
Equity $46.90   September 2022   10,000   10,000   -   -   10,000 
Liability $13.20   December 2022   57,500   53,500   -   -   53,500 
Equity $12.50   June 2022   1,437,500   870,214   (9)  (870,205)  - 
Equity $18.00   April 2022   320,000   320,000   -   (320,000)  - 
Equity $9.40   January 2022   65,434   65,434   -   (65,434)  - 
                             
           1,975,934   1,404,648   (9)  (1,341,139)  63,500 

As of June 30, 2022, the weighted average exercise price of the outstanding warrants is $18.51 and the weighted average remaining contractual life is approximately 0.4 years.

18.REVOLVING LINE OF CREDIT

On October 13, 2021, the Company and its subsidiaries entered into a Loan and Security Agreement (the “Comerica Loan Agreement”) with Comerica Bank (“Comerica”), providing for a revolving credit facility of up to $7,500,000 (the “Credit Facility”). The Company may use the proceeds of the Credit Facility for working capital and other general corporate purposes.

The amount that may be borrowed under the Credit Facility is the lower of (i) the revolving limit of $7,500,000 (the “Revolving Line”) and (ii) 80% of the Company’s eligible accounts receivable plus an applicable non-formula amount consisting of $2,000,000 of additional availability at close not based upon the Company’s eligible accounts receivable, with such additional availability reducing by $250,000 per quarter beginning with the quarter ending June 30, 2022. Borrowings on the Credit Facility are limited to $5,000,000 until 80% of the Company’s and its subsidiaries’ customers are paying into a collection account or segregated governmental account with Comerica. The Revolving Line can also include, at the Company’s option, credit card services with a sublimit of $300,000. Borrowings on the Revolving Line are subject to an interest rate equal to prime plus 0.50%, with prime being the greater of (x) Comerica’s stated prime rate or (y) the sum of (A) the daily adjusting LIBOR rate plus (B) 2.5% per annum. The Company is also required to pay an unused facility fee quarterly in arrears in an amount equal to 0.25% per annum on the average unused but available portion of the Revolving Line for such quarter.

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The Credit Facility matures on September 30, 20172023, and is secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries. As of June 30, 2022, the balance of the revolving line was $2.5 million.

The Comerica Loan Agreement contains affirmative and negative restrictive covenants that are applicable whether or not any amounts are outstanding under the Comerica Loan Agreement. These restrictive covenants, which include restrictions on certain mergers, acquisitions, investments, encumbrances, etc., could adversely affect our ability to conduct our business. The Comerica Loan Agreement also contains financial covenants requiring specified minimum liquidity and minimum revenue thresholds, which the Company was in compliance with as follows:of June 30, 2022, and also contains customary events of default. In April 2022, Comerica waived certain covenants specifically relating to the Company receiving financial statements with a going concern comment or qualification. In April 2022 and August 2022, Comerica waived certain covenants specifically relating to failure to maintain bank accounts outside of Comerica in an aggregate amount not to exceed $0.5 million during the transition period.  Additionally, in August 2022, Comerica waived certain covenants relating to failure to segregate collections made from government account debtors from collections made from all other account debtors and customers.

As a condition for Comerica to extend the Credit Facility to the Company and its subsidiaries, the Company’s existing creditors, Ampersand and 1315 Capital (the “Existing Creditors”), entered into that certain Subordination Agreement, dated as of October 13, 2021, pursuant to which each Existing Creditor agreed to subordinate all of the indebtedness and obligations of the Company and its subsidiaries owing to such Existing Creditor to all of the indebtedness and obligations of the Company and its subsidiaries owing to Comerica (the “Subordination Agreement”). Each Existing Creditor further agreed to subordinate all of its respective security interests in assets or property of the Company and its subsidiaries to Comerica’s security interests in such assets or property. The Subordination Agreement provides that it is solely for the benefit of Comerica and each of the Existing Creditors and is not for the benefit of the Company or any of its subsidiaries.

Description Classification Exercise Price  Expiration Date 

Balance

December 31, 2016

  Warrants Issued  Warrants Exercised  Warrants Cancelled/ Expired  

Balance

September 30, 2017

 
                       
Pre-Funded Warrants, issued June 21, 2017 Liability $0.01  None  -   2,600,000   (2,600,000)  -   - 
Underwriters Warrants, issued June 21, 2017 Liability $1.32  December 2022  -   575,000   -   (40,000)  535,000 
Private Placement Warrants, issued January 25, 2017 Equity $4.69  June 2022  -   855,000   -   -   855,000 
RedPath Warrants, issued March 22, 2017 Equity $4.69  September 2022  -   100,000   -   -   100,000 
Base & Overallotment Warrants, issued June 21, 2017 Equity $1.25  June 2022  -   14,375,000   (747,800)  -   13,627,200 
Vendor Warrants, issued August 6, 2017 Equity $1.25  August 2020 -   150,000   -   -   150,000 
                             
          -   18,655,000   (3,347,800)  (40,000)  15,267,200 

16.19.RECENT ACCOUNTING PRONOUNCEMENTSSTANDARDS

Accounting Pronouncements Pending Adoption

In March 2016,February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Board (”FASB”) issuedUpdate No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify2016-13 and its amendments will be effective for the accounting and reporting for employee share-based payment transactions. The pronouncement is effectiveCompany for interim and annual periods in fiscal years beginning after December 31, 2016 with early15, 2022. The Company believes the adoption permitted. The adoption ofwill modify the guidance in ASU No. 2016-09 inway the first quarter of 2017 didCompany analyzes financial instruments, but it does not haveanticipate a material impact on results of operations. The Company is in the Company’sprocess of determining the effects adoption will have on its consolidated financial statements.

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INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)

In February 2016,August 2020, the FASB issued ASU 2016-02, Leases (Topic 842)2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), which when effective will require organizations that lease assets to recognize assets(“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and liabilities for the rightsequity, including convertible instruments and obligations created by the leasescontracts on the balance sheet. A lessee will be required to recognize assets and liabilities for leases with terms that exceed twelve months.an entity’s own equity. The standard will also require disclosures to help investors and financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The guidance isASU 2020-06 amendments are effective for annual periodsfiscal years beginning after December 15, 2018,2023, and interim periods within those annual periods.fiscal years. Early adoption is permitted. The Company is currently evaluating thedoes not expect this will have any impact of this standard on its consolidated financial position and results of operations.statements.

In May 2014,

20.

SUBSEQUENT EVENTS

BroadOak Convertible Note

On August 5, 2022, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The standard, including subsequently issued amendments, will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The key focus of the new standard is thatConvertible Note was converted into an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this key focus, there is a five-step approach outlined in the standard. Entities are permitted to apply the new standardadditional term loan advance under the full retrospective method, subject to certain practical expedients, or the modified retrospective method that requires the application of the guidance only to contracts that are uncompleted on the date of initial application. The Company will adopt the new revenue standard and subsequently issued amendments as of January 1, 2018 using the modified retrospective method.Company’s existing BroadOak Loan Agreement. See Note 14, Notes Payable, for more details.

The Company has formed an implementation team, which includes internal accounting resources and a third party consulting firm, to oversee the adoption of the new standard. The implementation team is performing a detailed review of the Company’s contracts and revenue streams to identify potential differences in accounting as a result of the new standard. The Company continues to assess the impact on its existing revenue accounting policies, newly required financial statement disclosures, and is executing on the project plan. The Company has not yet determined the impact from the adoption of the new standard on either its financial position or results of operations.

17.OTHER SUBSEQUENT EVENTS

Warrant Exercise Agreement

On October 12, 2017, the Company entered into warrant exercise agreements (each a “Warrant Exercise Agreement”) with certain holders (collectively, the “Warrant Holders” and each, a “Warrant Holder”) of the Company’s warrants (the “Warrants”) issued in June 2017. Pursuant to the Warrant Exercise Agreement, the Warrant Holders agreed to exercise Warrants for an aggregate of 4,000,000 shares of common stock, at the Warrant exercise price of $1.25 per share. The Warrants were issued pursuant to that certain warrant agency agreement, dated as of June 21, 2017 (the “Warrant Agency Agreement”), by and between the Company and American Stock Transfer & Trust Company, as warrant agent (the “Warrant Agent”). In connection with the exercises, the Company agreed to issue additional warrants to the Warrant Holders for the number of shares of Common Stock that is equal to eighty percent (or 3,200,000 warrants) of the number of shares exercised by such Warrant Holder (the “Additional Warrant Shares”), at an exercise price of $1.80 per share.

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23

 

INTERPACE DIAGNOSTICS GROUP, INC.BIOSCIENCES, INC

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

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934.1934, as amended (the “Exchange Act”). Statements that are not historical facts, including statements about our plans, objectives, beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “plans,” “estimates,” “intends,” “projects,” “should,” “could,” “may,” “will” or similar words and expressions. These forward-looking statements are contained throughout this Form 10-Q.

Forward-looking statements are only predictions and are not guarantees of future performance. These statements are based on current expectations and assumptions involving judgments about, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. These predictions are also affected by known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those expressed or implied by any forward-looking statement. Many of these factors are beyond our ability to control or predict. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors. Such factors include, but are not limited to, the following:

●the substantial doubt about our ability to profitably growcontinue as a going concern due to our history of operating losses, declining cash position and other liquidity factors, which in the absence of additional short term financing is causing us to reduce headcount and other expenses and may cause us to cease or scale back operations; without sufficient working capital and the ability to meet our debt obligations, our business will be jeopardized and we may not be able to continue in our current structure, if at all. Under these circumstances, we would likely have to consider other options, such as selling assets, raising additional debt or equity capital, cutting costs or otherwise reducing our cash requirements, or negotiating with our creditors to restructure our applicable obligations, including the potential filing of a petition for relief under the United States Bankruptcy Code;
●the effect of the Coronavirus (COVID-19) pandemic which has materially and adversely affected our business and financial results, particularly during portions of 2020, due to the slowdown in demand for our clinical services and pharma services, a reduction in samples received and testing volume and delayed third party collections and other factors and which may continue to have an adverse effect on our future business;
●our expectations of future revenues, expenditures, capital or other funding requirements;
●our reliance on Medicare reimbursement for our clinical services and our being subject to decisions of the Centers for Medicare and Medicaid Services (“CMS”) regarding reimbursement and pricing of our clinical services which could have a material adverse effect on our business and financial results, the reduction in reimbursement for our ThyGeNEXT® test is expected to have an approximate $5.0 million impact to Fiscal 2022 revenues;
●our secured lenders have the right to foreclose on substantially all of our assets if we are unable to timely repay our outstanding obligations;
●our dependence on sales and reimbursements from our clinical services for more than 50% of our revenue; the ability to continue to generate sufficient revenue from these and other products and/or solutions that we develop in the future is important for our ability to meet our financial and other targets;

●our revenue recognition is based, in part, on our estimates for future collections which may prove to be incorrect with the changes in reimbursement rates for ThyGeNEXT® by Medicare causing us to revise our NRV’s which will reduce revenues in future periods;
●our ability to finance our business on acceptable terms and successfully compete in the market;future, which may limit the ability to grow our business, develop and commercialize products and services, develop and commercialize new molecular clinical service solutions and technologies and expand our pharma services offerings;

24

●our obligations to make royalty and milestone payments to our licensors;
●our ability to obtain broad adoption of and reimbursement for our molecular diagnostic tests in a changing reimbursement environment;
● whether we are able to successfully utilize our operating experience to sell our molecular diagnostic tests;
●our limited operating history as a molecular diagnostics company;
● our dependence on a concentrated selection of payers for our molecular diagnostic tests;
●the demand for our molecular diagnostic tests from physicians and patients;
●our reliance on our internal sales forces for business expansion;
● our dependence on third parties for the supply of some of the materials used in our molecular diagnosticclinical and pharma services tests;
●our ability to scale our operations, testing capacity and processing technology;
● our ability to continue to secure sufficient levelsthe potential adverse impact of reimbursement to continue to progress our business;
●our ability to compete successfully with companies with greater financial resources;
● our ability to obtain sufficient data and samples to cost effectively and timely perform sufficient clinical trials in order to support our current and future products;

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INTERPACE DIAGNOSTICS GROUP, INC.

●product liability claims against us;
●patent infringement claims against us;
●our involvement in current and future litigation against us;
● the effect current and future laws, licensing requirements and regulation havegovernmental regulations upon our business operations, including but not limited to the evolving U.S. regulatory environment related to laboratory developed tests (“LDTs”), pricing of our tests and services and patient access limitations;
●our reliance on our sales and marketing activities for future business including the changing U.S. Food and Drug Administration, or the FDA, environment as it relates to molecular diagnostics;
● the effect of potential adverse findings resulting from regulatory audits of our billing practices and the impact such results could have on our business;
● our exposure to environmental liabilities as a result of our business;
●the susceptibility of our information systems to security breaches, loss of data and other disruptions;
● our ability to enter into effective electronic data interchange arrangements with our customers;
● our billing practicesgrowth and our ability to collect on claims for the sale ofcontinue to expand our molecular diagnostic tests;sales and marketing activities;
●our ability to attract and retain qualified sales representatives and other key employees and management personnel;
● competition in the segment of the molecular diagnostics industry in which we operate or expect to operate;
● our ability to obtain additional funds in order to implement our business modelsstrategy; and strategies;
●the resultspotential impact of anyexisting and future impairment testing for other intangible assets;
● our ability to successfully identify, complete and integrate any future acquisitions and the effects of any such itemscontingent liabilities on our revenues, profitability and ongoing business;
● our compliance with our license agreements and our ability to protect and defend our intellectual property rights;
● our ability to maintain our listing with The Nasdaq Capital Market;
● the effect of material weaknesses in our disclosure controls and procedures and internal controls;
● the effect of adverse weather conditions such as hurricanes on our business;
●failure of third-party service providers to perform their obligations to us; and
●  the volatility of our stock price and fluctuations in our quarterly and annual revenues and earnings.financial condition.

Please see Part I – Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as amended,2021 filed with the SEC on March 31, 2022, as well as other documents we file with the SEC from time-to-time, for other important factors that could cause our actual results to differ materially from our current expectations as expressed in the forward-looking statements discussed in this Form 10-Q. Because of these and other risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. In addition, these statements speak only as of the date of the report in which they are set forth and, except as may be required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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OVERVIEW

INTERPACE DIAGNOSTICS GROUP, INC.

OVERVIEW

We are a fully integrated commercial company that providesan emerging leader in enabling precision medicine principally in oncology by offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications through our clinical and pharma services. Through our clinical services, we enable physicians to personalize the clinical management of each individual patient by providing genomic information to better diagnose, monitor and inform cancer treatment. Our clinical services provide clinically useful molecular diagnostic tests, bioinformatics and pathology services. We develop and commercialize molecular diagnostic tests and related first line assays principally focused on early detection of patients at highservices for evaluating the risk of cancer and leverageby leveraging the latest technology andin personalized medicine for improved patient diagnosis and management. We currently have three commercializedThrough our pharma services, we develop, commercialize and provide molecular- and biomarker-based tests and services and provide companies with customized solutions for patient stratification and treatment selection through an extensive suite of molecular diagnostic assaysand biomarker-based testing services, DNA and RNA extraction and customized assay development and trial design consultation. Our pharma services provide pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries and advance personalized medicine by partnering with pharmaceutical, academic and technology leaders to effectively integrate pharmacogenomics into drug development and clinical trial programs with the goals of delivering safer, more effective drugs to market more quickly, and improving patient care.

Impact of Our Reliance on CMS

In January 2022, CMS stated they would no longer reimburse for the use of the Company’s ThyGeNEXT® and ThyraMIR® tests when billed together by the same provider/supplier for the same beneficiary on the same date of service. However, on February 28, 2022, the Company announced that the National Correct Coding Initiative (NCCI) program issued a response on behalf of CMS stating that the January 2022 billing policy reimbursement change for ThyGeNEXT® (0245U) and ThyraMIR® (0018U) tests has been retroactively reversed to January 1, 2022. In May 2022, the Company was notified by CMS/NCCI that processing of claims for dates of service after January 1, 2022 would be completed beginning July 1, 2022. However, on June 9, 2022, the Company was notified that Novitas re-priced ThyGeNEXT® (0245U) from $2,919 to $806.59 retroactively effective to January 1, 2022. On July 20, 2022 the Clinical Diagnostic Laboratory Tests (CDLT) Advisory Panel affirmed a gapfill price of $806.59. As a result of the ThyGeNEXT pricing change, the Company reduced its NRV rates for ThyGeNEXT Medicare billing to reflect the $806.59 pricing for tests performed during the second quarter of 2022. In addition, in order to reflect the retroactive pricing change to January 1, 2022, the Company recorded an NRV adjustment of $0.7 million during the second quarter of 2022 to reduce revenue recorded during the first quarter of 2022. The Company estimates the ThyGeNEXT pricing change will negatively impact Fiscal 2022 revenue by approximately $5.0 million. During July 2022, the Company began implementing cost-savings initiatives including a reduction in headcount and incidental expenses and a freeze on all non-essential travel and hiring. The Company is targeting an overall reduction of approximately $2.7 million in expenses year-over year by December 31, 2022.

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Impact of COVID-19 Pandemic

There continues to be widespread impact from the COVID-19 pandemic. Beginning in the marketplacefirst quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for whichlogistics and supply chains. We have also previously been affected by temporary laboratory closures, employment and compensation adjustments and impediments to administrative activities. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location.

In addition, we have experienced and are reimbursed by Medicareexperiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and multiple private payers: PancraGEN®, a pancreatic cysttransportation costs, increased raw material and pancreaticobiliary solid lesion molecular test that can aid in pancreatic cyst diagnosis and pancreatic cancer risk assessment utilizing our proprietary PathFinder platform; ThyGenX®, which assesses thyroid nodules for risk of malignancy; and ThyraMIR®, which assesses thyroid nodules for risk of malignancy utilizing a proprietary gene expression assay. We are also in the process of “soft launching” while we gather additional market data, BarreGEN®, an esophageal cancer risk classifier for Barrett’s Esophagus that utilizes our PathFinder platform and RespriDX™ for assessing metastatic versus primary lung cancer which was launched in September 2017. RespriDX™ differentiates the local recurrence of cancer versus new primary cancer formation. It compares the mutational fingerprint of two or more sites of lung cancer to determine whether the neoplastic deposits are representative of a recurrence of cancer or a new primary (independent) cancer.

Our mission is to provide personalized medicine through molecular diagnostics and innovation to advance patient care based on rigorous science. We are leveraging our Clinical Laboratory Improvement Amendments (“CLIA”) and College of American Pathologists (“CAP”), accredited laboratories to develop and commercialize our assays and products. We aim to provide physicians and patients with diagnostic options for detecting geneticlabor costs and other molecular mutationsdisruptions caused by the COVID-19 pandemic and general global economic conditions.

The continuing impact that are associated with gastrointestinalthe COVID-19 pandemic will have on our operations, including duration, severity and endocrine cancer. Our customers consist primarily of physicians, hospitalsscope, remains highly uncertain and clinics.

The global molecular diagnostics market is estimated tocannot be $6.45 billion and is a segment withinfully predicted at this time. While we believe we have generally recovered from the approximately $60 billion in vitro diagnostics market. Weadverse impact that the COVID-19 pandemic had on our business during 2020, we believe that the molecular diagnosticsCOVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition in the future.

We continue to monitor the COVID-19 pandemic and the guidance that is being provided by relevant federal, state and local public health authorities and may take additional actions based upon their recommendations. It is possible that we may have to make adjustments to our operating plans in reaction to developments that are beyond our control.

Impact of the ongoing military conflict between Russia and Ukraine.

In late February 2022, Russia invaded Ukraine, significantly amplifying already existing geopolitical tensions among Russia and other countries in the region and in the west, including the U.S. Russia’s invasion, the responses of countries and political bodies to Russia’s actions, the larger overarching tensions, and Ukraine’s military response and the potential for wider conflict have resulted in financial market offers significant growthvolatility and strong patient value givencapital markets disruption, potentially increasing in magnitude, and could have severe adverse effects on regional and global economic markets and international relations. The extent and duration of the substantial opportunity it affordsmilitary action, sanctions and resulting market disruptions, including inflation, are impossible to lower healthcare costs by helping to reduce unnecessary surgeriespredict, but could be substantial.

Following Russia’s actions, various countries, including the U.S., Canada and ensuring the appropriate frequency of monitoring. We are keenly focused on growing our test volumes, securing additional coverage and reimbursement, maintaining our current reimbursement and supporting revenue growth for our three commercialized innovative tests, introducing related first line product and service extensions,United Kingdom, as well as expandingthe European Union, issued broad-ranging economic sanctions against Russia. Such sanctions included, among other things, a prohibition on doing business with certain Russian companies, officials and oligarchs; a commitment by certain countries and the European Union to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) electronic banking network that connects banks globally; a ban on Russian oil and gas imports to the U.S.; and restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. The current sanctions (and potential further sanctions in response to continued Russian military activity) and other actions may have adverse effects on regional and global economic markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds and increasing the volatility of our stock price. Any of the abovementioned factors could affect our business, by developingprospects, financial condition, and promoting synergistic products, like BarreGEN®, and RespriDX® in our market.operating results.

Additional Reimbursement Coverage During 2017

Reimbursement progress is key for any molecular diagnostic company. We were successful in expanding the reimbursement of our products in 2016 and that has continued into 2017. Specifically the most significant progress we have made regarding payers so far in 2017 is as follows:

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INTERPACE DIAGNOSTICS GROUP, INC.

Revenue Recognition

● In April 2017, we announced that UnitedHealthcare, the largest health plan in the United States, has agreed to cover our ThyraMIR® test used in assessing indeterminate thyroid nodule fine needle aspirate (“FNA”) biopsies. The coverage is now in effect and is subject to members’ specific benefit plan design.
●In June 2017, we announced that we signed a new national contract with Aetna for our ThyGenX ® and ThyraMIR® molecular tests for indeterminate thyroid nodules. The agreement covers many of Aetna’s products, including commercial and Medicare Advantage plans. The agreement is our first national provider contract with a national health plan and means that we will now be part of Aetna’s laboratory network for these services. The agreement went into effect August 15, 2017.
● In July 2017, we announced that Cigna, one of the largest national health plans in the United States, has agreed to cover Interpace’s ThyGenX® test for Cigna’s 15 million members nationwide, with coverage effective immediately. Cigna’s coverage when combined with Aetna, UnitedHealthcare, Medicare and other payers brings the total number of covered lives for ThyGenX® to approximately 275 million patients nationwide.
● In October 2017, we announced that Medicare reimbursement for our ThyGenX® molecular test for indeterminate thyroid nodules will increase by 40% starting January 1, 2018. Medicare represents approximately 40% of the Company’s volume for the ThyGenX test.

Recent Equity Financings

From January 6, 2017 through September 30, 2017, we completed four public offeringsClinical services derive its revenues from the performance of common stock and a private placement of warrants, which resulted in aggregate gross proceeds to us of approximately $27.9 million. A description of the financings is as follows:

●On January 6, 2017, we completed a registered direct public offering, or the Second Registered Direct Offering, to sell 630,000 shares of our common stock at a price of $6.81 per share to certain institutional investors. The Second Registered Direct Offering resulted in gross proceeds to us of approximately $4.2 million. We are using the net proceeds from the Second Registered Direct Offering for working capital, repayment of indebtedness and general corporate purposes. In addition, we granted each institutional investor who participated in the Second Registered Direct Offering the right, for a period of 15 months following January 6, 2017, or until April 6, 2018, to participate in any public or private offering by us of equity securities, subject to certain exceptions, up to such investor’s pro rata portion of 50% of the securities being offered.
● On January 25, 2017, we completed a registered direct public offering, or the Third Registered Direct Offering, to sell 855,000 shares of our common stock and a concurrent private placement of warrants to purchase 855,000 shares of our common stock, or the Warrants, to the same investors participating in the Third Registered Direct Offering, (the “Private Placement”). The Warrants and the shares of our common stock issuable upon the exercise of the Warrants were not registered under the Securities Act and were sold pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. The shares of common stock sold in the Third Registered Direct Offering and the Warrants issued in the concurrent Private Placement were issued separately but sold together at a combined purchase price of $4.69 per share of common stock and accompanying Warrant. The Third Registered Direct Offering and the Private Placement together resulted in gross proceeds to us of approximately $4 million. We are using the net proceeds from the Third Registered Direct Offering for working capital, repayment of indebtedness and general corporate purposes and also used approximately $1.0 million to satisfy the severance obligations due to five former senior executives.
● On February 8, 2017, we completed an underwritten, confidentially marketed public offering, or the CMPO, to sell 1,200,000 shares of our common stock at a price of $3.00 per share. In addition, we granted the underwriters an option to purchase up to an additional 9% of the total number of shares of common stock sold by us in the CMPO, solely for the purpose of covering over-allotments, if any. The underwriters exercised the over-allotment option in full. The CMPO resulted in gross proceeds to us of approximately $3.9 million. We are using the proceeds from the CMPO for working capital, repayment of indebtedness and liabilities and for general corporate purposes.

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INTERPACE DIAGNOSTICS GROUP, INC.

●On June 21, 2017, pursuant to its S-1 filing of its preliminary prospectus to register shares on May 22, 2017, as amended thereafter, the Company completed a public offering for 9,900,000 shares of common stock together with an equal number of common warrants (the “Base Warrants”), to purchase shares of its common stock (and the shares of common stock that are issuable from time to time upon exercise of the common warrants) for $1.10 per share. Each Base Warrant upon exercise at a price of $1.25 will result in the issuance of one share of common stock to the holder. A public trading market for the Base Warrants was established on July 5, 2017 on the OTC market under the trading symbol IDGGW. As part of the offering (the “Offering”), which closed on June 21, 2017, the related underwriters purchased the full over-allotment of 1,875,000 Base Warrants available to them for the specified $.01 per warrant. 2,600,000 of Pre-Funded Warrants were also sold at the specified $1.09 per warrant. The combined gross proceeds of the Offering totaled $13.7 million with approximately $12.3 million of net funds available to the Company after deducting underwriting discounts and other stock issuance expenses. As of July 7, 2017 all of the 2,600,000 Pre-Funded Warrants were exercised for the $.01 per warrant exercise price and all 2,600,000 common shares related to the warrants have been issued. On July 31, the Company and the underwriters closed on the exercise of the underwriters’ over-allotment option to purchase an additional 875,000 shares of common stock at a price of $1.09 per share for gross proceeds of $0.960 million.

As of July 7, 2017 all of the 2,600,000 Pre-funded Warrants were exercised for the $.01 per warrant exercise price and all 2,600,000 common shares related to the warrants have been issued.

●During September 2017 the Company received approximately $0.9 million from the exercise of 747,800 Base Warrants.
●Additionally, On October 12, 2017, the Company”), entered into warrant exercise agreements (each a “Warrant Exercise Agreement”) with certain holders (collectively, the “Warrant Holders” and each, a “Warrant Holder”) of the Company’s warrants (the “Warrants”) issued in June 2017. The Warrants were issued pursuant to that certain warrant agency agreement, dated as of June 21, 2017 (the “Warrant Agency Agreement”), by and between the Company and American Stock Transfer & Trust Company, as warrant agent (the “Warrant Agent”). Pursuant to the Warrant Exercise Agreement, the Warrant Holders agreed to exercise Warrants for an aggregate of 4,000,000 shares of common stock, par value $0.01 per share in exchange for additional warrants to the Warrant Holders for the number of shares of Common Stock that is equal to eighty percent of the number of shares exercised by such Warrant Holder (the “Additional Warrant Shares”), at an exercise price of $1.80 per share. The Company received aggregate gross proceeds of $5,000,000 from the exercise of the Warrants, which will be used for general working capital purposes. The Warrants and Exercised Shares were registered pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-218140).

Recent Notices of NASDAQ Listing Compliance

●On July 31, 2017, NASDAQ notified the Company that its common stock failed to maintain a minimum bid price of $1.00 over the previous 30 consecutive business days as required by the Listing Rules of The Nasdaq Stock Market. On August 30, 2017 NASDAQ determined that the closing bid price of the Company’s common stock had been at $1.00 per share or greater for the 10 consecutive business days from August 15 to 28, 2017. Accordingly, NASDAQ has notified the Company that it had regained compliance with Listing Rule 5550(a)(2) and this matter is now closed.

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INTERPACE DIAGNOSTICS GROUP, INC.

●On October 6, 2016, NASDAQ notified the Company that it did not comply with the audit committee requirements for continued listing on The Nasdaq Capital Market set forth in Listing Rule 5605(c)(2) (the “Rule”). The Company was granted time to regain compliance until no later than its next annual meeting, which occurred on September 14, 2017. Based on the information regarding the appointment of Dr. Felice Schnoll-Sussman to the Company’s Board of Directors and audit committee, as detailed in our Form 8-K dated September 13, 2017, NASDAQ has notified the Company that it now complies with the Rule and this matter is now closed.

DESCRIPTION OF REPORTING SEGMENTS

We currently operate under one operating segment, which is our molecular diagnostic business. Until December 22, 2015 prior to the sale of the CSO business, we operated under two reporting segments: Commercial Services and Interpace Diagnostics. The CSO business is reported as discontinued operations in all periods presented.

Interpace Diagnostics

Under current GAAP, we recognize revenue from services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists; services have been rendered; the selling price is fixedits proprietary assays or determinable; and collectability is reasonably assured.

Our revenue is generated using our proprietary tests and related services.tests. Our performance obligation is fulfilled upon the completion, review and release of test results. In conjunction with fulfilling these services, we billresults to the third-party payer or hospital. We recognize our revenue related to billings for Medicare, Medicare Advantage, and hospitals on an accrual basis, net of contractual adjustment, when a contract is in place, a reliable pattern of collectability exists and collectability is reasonably assured. Contractual adjustments represent the difference between the list prices and the reimbursement rate set by Medicare and Medicare Advantage, the contractual rate or the amounts agreed to with hospitals.

Until a contract has been negotiated with a commercial insurance carrier or governmental program, the services may or may not be covered by these entities existing reimbursement policies. In the absence of an agreement with the patient or other clearly enforceable legal right to demand payment, the related revenue is only recognized upon the earlier of payment notification or cash receipt. Accordingly, we recognize revenue from commercial insurance carriers, government programs, and direct-bill healthcare providers without contracts, when payment is received.

Persuasive evidence of an arrangement exists and delivery is deemed to have occurred upon completion, review, and release of the test resultscustomer, at which time we will bill the third-party payer or hospital. The assessment of the fixed or determinable nature of the fees charged for diagnostic testing performed, and the collectability of those fees, requires significant judgment by our management. Our management believes that these two criteria have been met when there is contracted reimbursement coverage or a predictable pattern of collectability with individual third-party payers or hospitalsdirect-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based upon the estimated transaction price or net realizable value (“NRV”), which is determined based on historical collection rates by each payer category for each proprietary test offered. To the extent that the transaction price includes variable consideration, for all third party and accordingly, recognizesdirect-bill payers and proprietary tests, we estimate the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.

The ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates are regularly reviewed and we adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we adjust the estimates of contractual allowances, which affects net revenue upon deliveryin the period such variances become known.

With respect to our pharma services, customer performance obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Project level activities, including study setup and project management, are satisfied over the life of the contract. Revenues are recognized at a point in time when the test results. Inresults or other deliverables are reported to the absence of contracted reimbursement coverage or a predictable pattern of collectability, we believe that the fee is fixed or determinable and collectability is reasonably assured only upon request of third-party payer notification of payment or when cash is received, and we recognize revenue at that time.customer.

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INTERPACE DIAGNOSTICS GROUP, INC.

Cost of servicesRevenue

Cost of revenue consists primarily of the costs associated with operating our laboratories and other costs directly related to our tests. Personnel costs, which constitute the largest portion of cost of services, include all labor relatedlabor-related costs, such as salaries, bonuses, fringe benefits and payroll taxes for laboratory personnel. Other direct costs include, but are not limited to, laboratory supplies, certain consulting expenses, royalty expenses, and facility expenses.

Transition costs

Transition expenses are primarily related to the Rutherford, New Jersey lab closing and subsequent move to Morrisville, North Carolina, which was completed during the first half of Fiscal 2021, as well as other cost-saving initiatives consisting primarily of reductions in headcount and the implementation of a new laboratory information system. To optimize the operations of laboratory operations within our pharma services, we transitioned activities from the Rutherford facility to our Morrisville facility. The transition included the transfer of personnel, expansion of the Morrisville facility and validation of transferred processes.

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CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain statements of operations data. The trends illustrated in this table may not be indicative of future results.

Condensed Consolidated Results of Continuing Operations for the Quarter Ended SeptemberJune 30, 20172022 Compared to the Quarter Ended SeptemberJune 30, 2016 (in2021 (unaudited, in thousands)

 Three Months Ended Three Months Ended June 30, 
 September 30, 2022  2022  2021  2021 
�� 2017 2017 2016 2016 
    % to     % to 
    revenue     revenue 
                  
Revenue, net $4,202   100.0% $3,316   100.0% $9,351   100.0% $11,155   100.0%
Cost of revenue  2,069   49.2%  1,846   55.7%  5,850   62.6%  5,800   52.0%
Gross profit  2,133   50.8%  1,470   44.3%  3,501   37.4%  5,355   48.0%
Operating expenses:                                
Sales and marketing  1,816   43.2%  1,282   38.7%  2,774   29.7%  2,776   24.9%
Research and development  483   11.5%  659   19.9%  267   2.9%  424   3.8%
General and administrative  2,116   50.4%  2,858   86.2%  3,907   41.8%  3,326   29.8%
Transition expense  61   0.7%  858   7.7%
Gain on DiamiR transaction  -   0.0%  (235)  -2.1%
Acquisition related amortization expense  813   19.3%  970   29.3%  535   5.7%  1,112   10.0%
Asset impairment  -   0.0%  3,363   101.4%
Change in fair value of contingent consideration  -   0.0%  (1,174)      (311)  -3.3%  -   0.0%
Total operating expenses  5,228   124.4%  8,803   265.5%  7,233   77.4%  8,261   74.1%
                                
Operating loss  (3,095)  -73.7%  (6,488)  -195.7%  (3,732)  -39.9%  (2,906)  -26.1%
Interest expense  (40)  -1.0%  (539)  -16.3%
Other income (loss), net  (294)  -7.0%  4   0.1%
Interest accretion expense  36   0.4%  (135)  -1.2%
Related party interest  -   0.0%  (163)  -1.5%
Note payable interest  (210)  -2.2%  -   0.0%
Other income (expense), net  35   0.4%  (168)  -1.5%
Loss from continuing operations before tax  (3,429)  -81.6%  (7,023)  -211.8%  (3,871)  -41.4%  (3,372)  -30.2%
Benefit for income tax  (42)  -1.0%  173   5.2%
Provision for income taxes  16   0.2%  16   0.1%
Loss from continuing operations  (3,387)  -80.6%  (7,196)  -217.0%  (3,887)  -41.6%  (3,388)  -30.4%
Income (loss) from discontinued operations, net of tax  71   1.7%  (297)  -9.0%
                
Loss from discontinued operations, net of tax  (52)  -0.6%  (58)  -0.5%
                
Net loss $(3,316)  -78.9% $(7,493)  -226.0% $(3,939)  -42.1% $(3,446)  -30.9%

Revenue, net

NetConsolidated revenue, net for the three months ended SeptemberJune 30, 2017 increased2022 decreased by $0.9$1.8 million, or 26.7%16%, to $4.2$9.4 million, compared to $3.3$11.2 million for the three months ended SeptemberJune 30, 2016. This increase2021. The decrease in net revenue was principallylargely driven by the NRV adjustment related to the Medicare pricing change on ThyGeNEXT®. The pricing adjustment was retroactive to January 1, 2022 and the impact was approximately $0.7 million for revenue that was attributable to increased test and collection volume for our thyroid tests and the change from cash basis to accrual for ThyraMIR.first quarter.

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INTERPACE DIAGNOSTICS GROUP, INC.

Cost of revenue

CostConsolidated cost of revenue for the three months ended SeptemberJune 30, 2017 increased by $0.22022 was $5.9 million, or 12.1%. This increase was primarily dueas compared to $5.8 million for the increase in revenue discussed above.three months ended June 30, 2021. As a percentage of revenue, cost of revenue decreasedwas approximately 63% for the three months ended June 30, 2022 and 52% for the three months ended June 30, 2021, the percentage increase was due to 49.2% as comparedthe decrease in revenue discussed above.

Gross profit

Consolidated gross profit was approximately $3.5 million for the three months ended June 30, 2022 and $5.4 million for the three months ended June 30, 2021. The gross profit percentage was approximately 37% for the three months ended June 30, 3022 and 48% for the three months ended June 30, 2021.

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Sales and marketing expense

Sales and marketing expense was approximately $2.8 million for the three months ended June 30, 2022 and $2.8 million for the three months ended June 30, 2021. As a percentage of revenue, sales and marketing expense increased to 55.7%30% from 25% in the comparable prior year period asdue to the Company became more efficientdecrease in its manufacturing processrevenue.

Research and average reimbursement increased.development

Gross profit

Consolidated gross profit for the three months ended September 30, 2017 increased $0.7 million, or 45.1%, to $2.1 million, compared to gross profit of $1.5Research and development expense was $0.3 million for the three months ended SeptemberJune 30, 2016. This increase was primarily related to the increase in revenue2022 and improved efficiencies in manufacturing processes as discussed above.

Sales and marketing expense

Sales and marketing expense was $1.8$0.4 million for the three months ended SeptemberJune 30, 2017 and as2021. As a percentage of revenue, was 43.2%. For the three months ended September 30, 2016, sales and marketing expense was $1.3 million or 38.7% as a percentage of revenue. The increase in sales and marketing expense principally reflects a modest rebuilding of marketing and certain other costs that had been minimized in 2016 during cost reduction initiatives.

Research and development

Researchresearch and development expense reflects clinicaldecreased to 3% from 4% in the comparable prior year period.

General and research costs for supplies, laboratory tests and evaluations, scientificadministrative

General and administrative staff involved in clinical research, statistical research and product development related to new tests, products and programs. These costs wereexpense was approximately $0.5 million and $0.7$3.9 million for the three months ended SeptemberJune 30, 20172022 and September 30, 2016, respectively. As a percentage of revenue they were 11.5%$3.3 million for the three months ended SeptemberJune 30, 20172021. The increase can be primarily attributed to an increase in employee compensation costs and 19.9 %an increase in professional fees.

Transition expense

Transition expense was approximately $0.1 million for the three months ended SeptemberJune 30, 2016.

General2022 and administrative

General and administrative expense$0.9 million for the three months ended SeptemberJune 30, 20172021. In 2021, these expenses were related to the Rutherford, NJ lab closing and subsequent move to North Carolina as well as other cost-saving initiatives, primarily reductions in headcount. In 2022, these expenses were related to laboratory information management system implementation costs.

Acquisition amortization expense

During the three months ended June 30, 2022 and June 30, 2021, we recorded amortization expense of approximately $0.5 million and $1.1 million, respectively, which is related to intangible assets associated with prior acquisitions.

Change in fair value of contingent consideration

During the three months ended June 30 2022, there was $2.1a $0.3 million decrease in the contingent consideration liability due to the impact of the ThyGeNEXT® pricing change on future projected revenues.

Operating loss

Operating loss from continuing operations was $3.7 million for the three months ended June 30, 2022 as compared to $2.9 million for the three months ended SeptemberJune 30, 2016. This decrease2021. The higher operating loss was primarily attributable to a decrease in bad debt expense of approximately $0.3 million and a non-recurring charge of approximately $0.3 million recorded in the three months ended September 30, 2016.

Acquisition related amortization expense

During the three months ended September 30, 2017 and September 30, 2016, we recorded amortization expense of approximately $0.8 million and $1.0 million, respectively. This relates to the amortization for RedPath and Asuragen acquired intangible assets. The decrease relates to the impact of certain intangibles being fully written off in 2016. See Asset impairment, below. As a result the amortization expense is reduced going forward.

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INTERPACE DIAGNOSTICS GROUP, INC.

Asset impairment

During the three months ended September 30, 2016, we incurred an asset impairment charge of approximately $3.4 million for the write-off of a pancreas test and biobank-specimen assets associated with the acquisition of certain assets from Asuragen that were determined to have no future value .

Change in fair value of contingent consideration

During the three months ended September 30, 2016, there was a $1.2 million reduction in contingent consideration liability related to amounts associated with future royalty paymentsrevenue discussed above.

Provision for the pancreas asset acquired from Asuragen.income taxes

Operating loss

ThereIncome tax expense was an operating loss of $3.1 millionapproximately $16,000 for the three months ended SeptemberJune 30, 20172022 and an operating loss during the three months ended September 30, 2016 of $6.5 million. The decrease in the operating loss$16,000 for the three months ended SeptemberJune 30, 2017 was primarily attributable to the asset impairment charge of $3.4 million recorded in the three months ended September 30, 2016, as well as the increase in revenue and gross profit discussed above.

Benefit for income taxes

We had an income tax benefit of approximately $0.04 million for the three months ended September 30, 2017. We had income tax expense of approximately $0.2 million for the three months ended September 30, 2016. Both the income tax benefit for the three months ended September 30, 2017 and the income2021. Income tax expense for the three months ended September 30, 2016both periods was primarily due to allocation of tax expense between continuingdriven by minimum state and discontinued operations.local taxes.

Income (loss)Loss from discontinued operations, net of tax

We had incomea loss from discontinued operations of approximately $0.1 million for the three months ended SeptemberJune 30, 20172022 and a loss from discontinued operations of $0.3approximately $0.1 million for the three months ended SeptemberJune 30, 2016. The income from discontinued operations for the quarter ended September 30, 2017 was primarily related to the favorable settlement of outstanding obligations. The loss from discontinued operations for the quarter ended September 30, 2016 was primarily related to legacy costs associated with the CSO business.2021.

29

 

Condensed Consolidated Results of Continuing Operations for the NineSix Months Ended SeptemberJune 30, 20172022 Compared to the NineSix Months Ended SeptemberJune 30, 2016 (in2021 (unaudited, in thousands)

  Six Months Ended June 30, 
  2022  2022  2021  2021 
     % to     % to 
     revenue     revenue 
             
Revenue, net $19,728   100.0% $20,989   100.0%
Cost of revenue  11,234   56.9%  11,116   53.0%
Gross profit  8,494   43.1%  9,873   47.0%
Operating expenses:                
Sales and marketing  5,190   26.3%  5,128   24.4%
Research and development  566   2.9%  1,060   5.1%
General and administrative  7,597   38.5%  6,362   30.3%
Transition expense  146   0.7%  2,111   10.1%
Gain on DiamiR transaction  -   0.0%  (235)  -1.1%
Acquisition related amortization expense  1,071   5.4%  2,224   10.6%
Change in fair value of contingent consideration  (311)  -1.6%  (57)  -0.3%
Total operating expenses  14,259   72.3%  16,593   79.1%
                 
Operating loss  (5,765)  -29.2%  (6,720)  -32.0%
Interest accretion expense  (85)  -0.4%  (270)  -1.3%
Related party interest  -   0.0%  (308)  -1.5%
Note payable interest  (390)  -2.0%  -   0.0%
Other income (expense), net  194   1.0%  (212)  -1.0%
Loss from continuing operations before tax  (6,046)  -30.6%  (7,510)  -35.8%
Provision for income taxes  34   0.2%  31   0.1%
Loss from continuing operations  (6,080)  -30.8%  (7,541)  -35.9%
                 
Loss from discontinued operations, net of tax  (106)  -0.5%  (112)  -0.5%
                 
Net loss $(6,186)  -31.4% $(7,653)  -36.5%

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INTERPACE DIAGNOSTICS GROUP, INC.

  Nine Months Ended 
  September 30, 
  2017  2017  2016  2016 
             
Revenue, net $11,527   100.0% $9,963   100.0%
Cost of revenue  5,719   49.6%  4,866   48.8%
Gross profit  5,808   50.4%  5,097   51.2%
Operating expenses:                
Sales and marketing  4,507   39.1%  4,186   42.0%
Research and development  1,202   10.4%  1,339   13.4%
General and administrative  6,431   55.8%  7,655   76.8%
Acquisition related amortization expense  2,439   21.2%  2,909   29.2%
Asset impairment  -   0.0%  3,363   33.8%
Change in fair value of contingent consideration  (5,776)  -50.1%  (1,174)  -11.8%
Total operating expenses  8,803   76.4%  18,278   183.5%
                 
Operating loss  (2,995)  -26.0%  (13,181)  -132.3%
Interest expense  (433)  -3.8%  (1,601)  -16.1%
Loss on extinguishment of debt  (4,278)  -37.1%  -   0.0%
Other (loss) income, net  (414)  -3.6%  14   0.1%
Loss from continuing operations before tax  (8,120)  -70.4%  (14,768)  -148.2%
Benefit for income tax  (340)  -2.9%  (54)  -0.5%
Loss from continuing operations  (7,780)  -67.5%  (14,714)  -147.7%
Income from discontinued operations, net of tax  572   5.0%  101   1.0%
Net loss $(7,208)  -62.5% $(14,613)  -146.7%

Revenue, net

NetConsolidated revenue, net for the ninesix months ended SeptemberJune 30, 2017 increased2022 decreased by $1.5$1.3 million, or 15.7%6%, to $11.5$19.7 million, compared to net revenue of $10.0$21.0 million for the ninethree months ended SeptemberJune 30, 2016. This increase2021. The decrease in net revenue was principally attributablelargely driven by the NRV adjustment related to increased test and collection volume for our thyroid tests and the Medicare pricing change from cash basis to accrual for ThyraMIR.on ThyGeNEXT® discussed above.

Cost of revenue

CostConsolidated cost of revenue for the ninesix months ended SeptemberJune 30, 2017 increased by $0.92022 was $11.2 million, or 17.5% as compared to the same period in 2016. The primary reason$11.1 million for the change was the increase in revenue and the corresponding increase in expenses.six months ended June 30, 2021. As a percentage of revenue, cost of revenue was approximately 57% for the six months ended June 30, 2022 and 53% for the six months ended June 30, 2021, the percentage increase was due to the decrease in revenue discussed above.

Gross profit

Consolidated gross profit was approximately $8.5 million for the six months ended June 30, 2022 and $9.9 million for the six months ended June 30, 2021. The gross profit percentage was approximately 43% for the six months ended June 30, 3022 and 47% for the six months ended June 30, 2021. The decrease was a result of the NRV pricing adjustment discussed above.

30

Sales and marketing expense

Sales and marketing expense was approximately $5.2 million for the six months ended June 30, 2022 and $5.1 million for the six months ended June 30, 2021. As a percentage of revenue, sales and marketing expense increased to 49.6% as compared to 48.8%26% from 24% in the comparable prior year period.period primarily due to the decrease in revenue.

Gross profitResearch and development

Gross profit asResearch and development expense was $0.6 million for the six months ended June 30, 2022 and $1.1 million for the six months ended June 30, 2021. As a percentage of revenue, research and development expense decreased slightly to 50.4%3% from 5% in the comparable prior year period.

General and administrative

General and administrative expense was approximately $7.6 million for the ninethree months ended SeptemberJune 30, 2017 as compared to 51.2%2022 and $6.3 million for the ninethree months ended SeptemberJune 30, 2016 due2021. The increase can be primarily attributed to an increase in lab supplies expense.employee compensation costs and an increase in professional fees.

 39

Transition expense

INTERPACE DIAGNOSTICS GROUP, INC.

Sales and marketing expense

Sales and marketingTransition expense was $4.5approximately $0.1 million for the ninesix months ended SeptemberJune 30, 20172022 and as a percentage of net revenue was 39.1%. For the nine months ended September 30, 2016, sales and marketing expense was $4.2 million or 42.0% as a percentage of net revenue. The increase in sales and marketing expense principally reflects an increase in employee costs and the decline as a percentage of net revenue is a function of the growth in revenues.

Research and development

Research and development costs totaled $1.2$2.1 million for the ninesix months ended SeptemberJune 30, 20172021. In 2021, these expenses were related to the Rutherford, NJ lab closing and subsequent move to North Carolina as a percentage of net revenue theywell as other cost-saving initiatives, primarily reductions in headcount. In 2022, these expenses were 10.4%. Forrelated to laboratory information management system implementation costs.

Acquisition amortization expense

During the ninesix months ended SeptemberJune 30, 2016 the expense was $1.3 million2022 and as a percentage of net revenue was 13.4%. The decrease as a percentage of net revenue was primarily due to increased revenues.

General and administrative

General and administrative expense for the nine months ended SeptemberJune 30, 2017 was $6.4 million as compared to $7.7 million for the nine months ended September 30, 2016. This decrease was primarily attributable to a reduction in severance expense of $2.0 million due to the settlement of severance obligations with former executives in the first quarter of 2017. This decrease was partially offset by the expense associated with our DOJ settlement of $0.9 million, $0.5 million pertains to 2016 and $0.4 million pertains to a potential 2017 liability.

Acquisition related amortization expense

During the nine months ended September 30, 2017 and September 30, 2016,2021, we recorded amortization expense of approximately $2.4$1.1 million and $2.9$2.2 million, respectively, which is related to the amortization for RedPath and Asuragen acquired intangible assets. The decrease relates to the impact of certain intangibles being fully written off in 2016. See Asset impairment, below. As a result the amortization expense is reduced going forward.

Asset impairment

During the nine months ended September 30, 2016, we incurred an asset impairment charge of approximately $3.4 million for the write-off of a pancreas test and biobank-specimen assets associated with the acquisition of certain assets from Asuragen that were determined to have no future value .prior acquisitions.

Change in fair value of contingent consideration

During the ninesix months ended SeptemberJune 30 2017,2022, there was a $5.8$0.3 million reductiondecrease in the contingent consideration liability related to amounts associated with future royalty paymentsand a $0.1 million decrease for the assets acquired from Redpath. See Note 5 to the Consolidated Financial Statements for more details. During the ninesix months ended SeptemberJune 30, 2016, there was a $1.2 million reduction in contingent consideration liability related to amounts associated with future royalty payments for the pancreas asset acquired from Asuragen.2021.

Operating loss

There was an operatingOperating loss from continuing operations of $3.0was $5.8 million for the ninesix months ended SeptemberJune 30, 2017 and an operating loss during2022 as compared to $6.7 million for the ninesix months ended SeptemberJune 30, 2016 of $13.2 million.2021. The increase inlower operating income for the nine months ended September 30, 2017loss was primarily attributable to the reversal of our Redpath contingent consideration liability of $5.8 millionreduction in the nine months ended September 30, 2017 and the asset impairment charge of $3.3 million in the nine months ended September 30, 2016.transition expenses discussed above.

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INTERPACE DIAGNOSTICS GROUP, INC.

BenefitProvision for income taxes

Income tax expense was approximately $34,000 for the six months ended June 30, 2022 and $31,000 for the six months ended June 30, 2021. Income tax expense for both periods was primarily driven by minimum state and local taxes.

Loss from discontinued operations, net of tax

We had an income tax benefit of approximately $0.3 million for the nine months ended September 30, 2017. We had an income tax benefita loss from discontinued operations of approximately $0.1 million for the ninesix months ended SeptemberJune 30, 2016. The income tax benefit for both periods was primarily due to allocation of tax expense between continuing2022 and discontinued operations.

Income from discontinued operations, net of tax

We had incomea loss from discontinued operations of $0.6 million for the nine months ended September 30, 2017 and income from discontinued operations ofapproximately $0.1 million for the ninesix months ended SeptemberJune 30, 2016. The income from discontinued operations for the nine months ended September 30, 2017 was primarily related to reversals of severance accruals and for 2016 it was primarily related2021.

Non-GAAP Financial Measures

In addition to the gain on saleUnited States generally accepted accounting principles, or GAAP, results provided throughout this document, we have provided certain non-GAAP financial measures to help evaluate the results of $1.3 million relatedour performance. We believe that these non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to both management and investors in analyzing our ongoing business and operating performance. We believe that providing the non-GAAP information to investors, in addition to the final working capital adjustment regardingGAAP presentation, allows investors to view our financial results in the saleway that management views financial results.

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In this 10-Q, we discuss Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a metric used by management to measure cash flow of the CSO businessongoing business. Adjusted EBITDA is defined as income or loss from continuing operations, plus depreciation and amortization, acquisition related expenses, transition expenses, noncash stock based compensation, interest and taxes, and other non-cash expenses including asset impairment costs, bad debt expense, loss on extinguishment of debt, goodwill impairment and change in Decemberfair value of 2015 partially offset by expensescontingent consideration, and warrant liability. The table below includes a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure.

Reconciliation of Adjusted EBITDA (Unaudited)

($ in thousands)

  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
Loss from continuing operations (GAAP Basis) $(3,887) $(3,388) $(6,080) $(7,541)
Bad debt (recovery) expense  -   -   -   (140)
Transition expenses  61   858   146   2,111 
Depreciation and amortization  790   1,411   1,571   2,943 
Stock-based compensation  334   551   659   837 
Tax expense  16   16   34   31 
Interest accretion expense  (36)  135   85   270 
Financing interest and related costs  210   163   390   308 
Gain on DiamiR transaction  -   (235)  -   (235)
Mark to market on warrant liability  (5)  168   (68)  209 
Change in fair value of note payable  (53)  -   (160)  - 
Change in fair value of contingent consideration  (311)  -   (311)  (57)
Adjusted EBITDA $(2,881) $(321) $(3,734) $(1,264)

LIQUIDITY AND CAPITAL RESOURCES

The accompanying consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments relating to the winding downrecoverability and classification of CSO.recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.

In October 2021, the Company and its subsidiaries entered into a Loan and Security Agreement (the “Comerica Loan Agreement”) with Comerica Bank (“Comerica”), providing for a revolving credit facility of up to $7,500,000 (the “Credit Facility”). The Company may use the proceeds of the Credit Facility for working capital and other general corporate purposes.

The amount that may be borrowed under the Credit Facility is the lower of (i) the revolving limit of $7,500,000 (the “Revolving Line”) and (ii) 80% of the Company’s eligible accounts receivable plus an applicable non-formula amount consisting of $2,000,000 of additional availability at close not based upon the Company’s eligible accounts receivable, with such additional availability reducing by $250,000 per quarter beginning with the quarter ending June 30, 2022. Borrowings on the Credit Facility are limited to $5,000,000 until 80% of the Company’s and its subsidiaries’ customers are paying into a collection account or segregated governmental account with Comerica. The Revolving Line can also include, at the Company’s option, credit card services with a sublimit of $300,000. Borrowings on the Revolving Line are subject to an interest rate equal to prime plus 0.50%, with prime being the greater of (x) Comerica’s stated prime rate or (y) the sum of (A) the daily adjusting LIBOR rate plus (B) 2.5% per annum. The Company is also required to pay an unused facility fee quarterly in arrears in an amount equal to 0.25% per annum on the average unused but available portion of the Revolving Line for such quarter. See Note 18, Revolving Line of Credit, for more details. Comerica has a first priority security interest in substantially all of the Company’s and its subsidiaries’ assets.

 

LIQUIDITY AND CAPITAL RESOURCES

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In addition, also in October 2021, the Company entered into a Loan and Security Agreement (the “BroadOak Loan Agreement”) with BroadOak, providing for a term loan in the aggregate principal amount of $8,000,000 (the “Term Loan”). Funding of the Term Loan took place on November 1, 2021. The Term Loan matures upon the earlier of (i) October 31, 2024 or (ii) the occurrence of a change in control, and bears interest at the rate of 9% per annum. The Term Loan is secured by a security interest in substantially all of the Company’s and its subsidiaries’ assets and is subordinate to the Company’s $7,500,000 revolving credit facility with Comerica Bank. The Term Loan has an origination fee of 3% of the Term Loan amount, and a terminal payment equal to (i) 15% of the original principal amount of the Term Loan if the change of control occurs on or prior to the first anniversary of the funding of the Term Loan, (ii) 20% of the original principal amount of the Term Loan if the change of control occurs after the first anniversary but on or prior to the second anniversary of the funding of the Term Loan and (iii) 30% of the original principal amount of the Term Loan if the change of control occurs after the second anniversary of the funding of the Term Loan, or if the Term Loan is repaid on its maturity date. Upon receipt of the term loan, the proceeds were used to repay in full at their maturity the notes extended by Ampersand and 1315 Capital discussed above. See Note 14, Notes Payable, for more details. In May 2022, the Company issued a Convertible Note to BroadOak, pursuant to which BroadOak funded a term loan in the aggregate principal amount of $2.0 million. See Note 14, Notes Payable, for more details. The Company will use the proceeds of the Convertible Debt for general corporate purposes and working capital.

The BroadOak Loan Agreement contains affirmative and negative restrictive covenants, including restrictions on certain mergers, acquisitions, investments and encumbrances which could adversely affect our ability to conduct our business. The BroadOak Loan Agreement also contains customary events of default. The Comerica Loan Agreement contains affirmative and negative restrictive covenants that are applicable whether or not any amounts are outstanding under the Comerica loan agreement. These restrictive covenants, which include restrictions on certain mergers, acquisitions, investments, encumbrances, etc., could adversely affect our ability to conduct our business. The Comerica Loan Agreement also contains financial covenants requiring specified minimum liquidity and minimum revenue thresholds and also contains customary events of default. However, if we are unable to meet the financial covenants under the Comerica Loan Agreement, the revolving line of credit and notes payable will become due and payable immediately.

 

In January 2022, the Company’s registration statement for a rights offering filed with the Securities and Exchange Commission (SEC) became effective; however, the rights offering was subsequently terminated later in January 2022 when the Company announced that the Centers for Medicare & Medicaid Services, or CMS, issued a new billing policy whereby CMS will no longer reimburse for the use of the Company’s ThyGeNEXT® and ThyraMIR® tests when billed together by the same provider/supplier for the same beneficiary on the same date of service. On February 28, 2022, the Company announced that the National Correct Coding Initiative (NCCI) program issued a response on behalf of CMS stating that the January 2022 billing policy reimbursement change for ThyGeNEXT® (0245U) and ThyraMIR® (0018U) tests has been retroactively reversed to January 1, 2022. In May 2022, the Company was notified by CMS/NCCI that processing of claims for dates of service after January 1, 2022 would be completed beginning July 1, 2022. However, on June 9, 2022, the Company was notified that Novitas re-priced ThyGeNEXT® (0245U) from $2,919 to $806.59 retroactively effective to January 1, 2022. On July 20, 2022 the Clinical Diagnostic Laboratory Tests (CDLT) Advisory Panel affirmed a gapfill price of $806.59. As a result of the ThyGeNEXT pricing change, the Company reduced its net realizable value, or NRV rates for ThyGeNEXT Medicare billing to reflect the $806.59 pricing for tests performed during the second quarter of 2022. In addition, in order to reflect the retroactive pricing change to January 1, 2022, the Company recorded an NRV adjustment of $0.7 million during the second quarter of 2022 to reduce revenue recorded during the first quarter of 2022. During July 2022, the Company began implementing cost-savings initiatives including a reduction in headcount and incidental expenses and a freeze on all non-essential travel and hiring.

For the ninesix months ended SeptemberJune 30, 2017,2022, we had an operating loss of $3.0$5.8 million. As of SeptemberJune 30, 2017,2022, we had cash and cash equivalents of $11.7$1.9 million, net of restricted cash, total current assets of $11.0 million, net of restricted cash, and current liabilities of $8.3$18.4 million.

It is anticipated that we may require additional capital to fund our operations in the future. There is no guarantee that additional capital can be raised to fund our future operations. We intend to meet our capital needs by driving revenue growth, containing costs as well as exploring other options.

We completed four public offerings and a private placement of warrants from January 6, 2017 through September 2017, which resulted in aggregate gross proceeds to us of approximately $27.9 million. See “Recent Equity Financings”.

See Note 2, Liquidityin the unaudited condensed consolidated financial statements for a discussion of the RedPath Note.

On September 28, 2016, the Company and its wholly owned direct and indirect subsidiaries, Interpace LLC and Interpace Diagnostics Corporation, entered into the Credit Agreement with SCM Specialty Finance Opportunities Fund, L.P., or the Lender. Pursuant to and subject to the terms of the Credit Agreement, the Lender agreed to provide a revolving loan, or the Loan, to us in the maximum principal amount of $1.2 million. The maturity date of the Loan is September 28, 2018. The Loan bears interest at an annual rate equal to the Prime Rate (as defined in the Credit Agreement) plus 2.75%, payable in cash monthly in arrears. The interest rate will be increased by 5.0% in the event of a default under the Credit Agreement. We have not yet drawn down on the credit facility. As of September30, 2017, the Company is seeking to renegotiate the termsAugust 5, 2022, we had approximately $2.0 million of the Credit Agreement and had not borrowed any funds under the Credit Agreement.cash on hand, net of restricted cash.

During the ninesix months ended SeptemberJune 30, 2017,2022, net cash used in operating activities was $12.9 million, of which $10.6 million was used in continuing operations and $2.3 million was used in discontinued operations.$4.2 million. The main component of cash used in operating activities during the nine months ended September 30, 2017 was aour net loss of $7.2$6.2 million, a decrease in accrued payrollpartially offset by depreciation and amortization expense of $1.8 million and accounts payable of $2.2 million related to past due obligations from the prior year. $1.6 million. During the ninesix months ended SeptemberJune 30, 2016,2021, net cash used in operating activities was $6.6 million, of which $5.1 million was used in continuing operations and $1.5 million was used in discontinued operations.$6.8 million. The main component of cash used in operating activities duringwas our net loss of $7.7 million.

For the ninesix months ended SeptemberJune 30, 2016 was our loss from continuing operations of $14.7 million.

There was net cash used in investing activities for the nine-months ended September 30, 2017 of $29,000. There was no net cash from investing activities in 2016.

For the nine months ended September 30, 2017, there was net2022, cash provided from financing activities was $3.1 million, of $24.0which $1.0 million which resultedwas from the issuancedrawdown on the revolving line of common stock in our four direct offerings completed incredit and $2.0 million was the first nine months of 2017 as well as the subsequent exercise of warrants related to those offerings. Convertible Debt agreement entered into with BroadOak. See Note 14, Notes Payable, for more details. For the ninesix months ended SeptemberJune 30, 2016, there was no2021, cash provided from financing activities.activities was $7.5 million, of which $7.4 million were the net proceeds from the Company’s secured promissory notes with Ampersand and 1315. See Note 14, Notes Payable, for more details.

We will not generate positive cash flows from operations for the year ending December 31, 2022. We intend to meet our ongoing capital needs by using our available cash and availability under the Comerica Loan Agreement, as well as through targeted revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options and other strategic alternatives. However, if we are unable to meet the financial covenants under the Comerica Loan Agreement, the revolving line of credit and notes payable will become due and payable immediately.

The Company is currently exploring various strategic alternatives, dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources in order to provide additional liquidity. With the Company’s delisting from Nasdaq in February 2021, its ability to raise additional capital on terms acceptable to the Company has been adversely impacted. There can be no assurance that the Company will be successful in obtaining such funding on terms acceptable to the Company.

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Inflation

Management has determined that certain factors raise substantial doubt about our ability to continue as a going concern. As of the date of this filing, the Company currently anticipates that current cash and cash equivalents will be insufficient to meet its anticipated cash requirements through the next twelve months. These factors include inadequate liquidity to sustain operations, our substantial debts, margin deterioration and volatility, and historic net losses. Our consolidated financial statements assume we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern depends on having working capital for vendor payments, meeting short-term obligations on other accrued liabilities, and amongst other requirements, making interest payments on our debt obligations. Without positive operating margins and sufficient working capital and the ability to meet our debt obligations, our business will be jeopardized and we may not be able to continue in our current structure, if at all. Under these circumstances, we would likely have to consider other options, such as selling assets, raising additional debt or equity capital, cutting costs or otherwise reducing our cash requirements, or negotiating with our creditors to restructure our applicable obligations, including the potential filing of a petition for relief under the United States Bankruptcy Code (the “Bankruptcy Code”). Such a filing would subject us to the risks and uncertainties associated with bankruptcy filing proceedings and may place investors in our stock at significant risk of losing some or all of their investment. In a bankruptcy, holders of our common stock will be subordinated to our Series B Preferred Stock, which is likely to increase the risk of total loss of investment for holders of our common stock. A bankruptcy filing by us could cause a material adverse effect on our business, financial condition, results of operations and liquidity.

Inflation

We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing basis, we attempt to minimize any effects ofHowever, inflation on our operating resultsand supply chain disruptions, whether caused by controlling operating costs and whenever possible, seeking to insure that billing rates reflectrestrictions or slowdowns in shipping or logistics, increases in costs due to inflation.demand for certain goods used in our operations, or otherwise, could impact our operations in the near term.

Off-Balance Sheet Arrangements

None.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

INTERPACE DIAGNOSTICS GROUP, INC.

As a smaller reporting company, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

Item 4. Controls and Procedures

Evaluation of disclosure controlsDisclosure Controls and proceduresProcedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives including that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In addition, management is required to apply its judgment in evaluating the benefits of possible disclosure controls and procedures relative to their costs to implement and maintain.

Based on theirthe evaluation ourof the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Exchange Act the Chief Executive Officer of the Company and the Chief Financial Officer of the Company have concluded that ourthe Company’s disclosure controls and procedures were not effective atas of June 30, 2022.

Reference should be made to our Form 10-K for the reasonable assurance level in 2016 during which timeyear ended December 31, 2021 filed with the following material weaknesses existed:

●We lack a sufficient complement of personnel to appropriately account for, review, and disclose the completeness and accuracy of transactions entered into by the Company.
●We lack sufficient qualified resources to ensure the appropriate design and operating effectiveness of our internal control over financial reporting. Specifically, ineffective monitoring controls related to our accounting and reporting functions around management review were not adequately designed and/or operating effectively and can result in adjustments to our financial statements and disclosures.

Management believes that the material weaknesses noted were due in part to the small sizeSEC on March 31, 2022 for additional information regarding discussion of the staff resulting from staff downsizing and cost containment. As parteffectiveness of our remediation plan in 2017, we have taken steps to improve our financial reporting and have implemented new policies, procedures and controls in addition to hiring competent accounting professionals to review transactions recorded and classifications in the financial statements. Through the hiring of independent consultants we have also received external technical accounting assistance to review the accounting and related disclosures for complex accounting matters when necessary. Accordingly, our Chief Executive Officer and Chief Financial Officer concluded that our disclosureCompany’s controls and procedures were greatly improved in 2017 and were effective at the reasonable assurance level as of September 30, 2017.procedures.

Changes in internal controlsInternal Controls

During the third quarter ended September 30, 2017 management believes that it has completed its remediation plan to address the material weaknesses that existed at the end of 2016 and through the first and second quarters of 2017. Other than the completion of this remediation plan, thereThere has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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34

 

INTERPACE DIAGNOSTICS GROUP, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

“Item 3- Legal Proceedings” of our most recent Annual Report on Form 10-K filed on March 31, 2017 includes a discussion of our legal proceedings, as does Note 6 to the accompanying condensed consolidated financial statements. During the fiscal quarter ended September 30, 2017,there have been no material changes to the legal proceedings disclosed within our 2016 Form 10-K, as supplemented and amended within our quarterly reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.None.

Item 1A. Risk Factors.

Not applicable as we are a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 5, 2017, the Company agreed to issue a warrant to purchase 150,000 shares of Common Stock, $.01 par value, to a consultant of the Company, who is an accredited investor, at an exercise price of $1.25 in consideration of services to the Company in a private placement exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.None.

Item 3. Defaults Upon Senior Securities.Securities

None.

Item 4. Mine Safety Disclosures.Disclosures

None.

Item 5. Other Information.Information

None.

35

 

None.

Item 6. Exhibits

Exhibit No.Description
1.1 *3.1Underwriting Agreement, datedConformed version of Certificate of Incorporation of Interpace Biosciences, Inc., as amended by the Certificate of June 16, 2017, byAmendment, effective January 15, 2020, and between Interpace Diagnostics Group, Inc.the Certificate of Designation of Preferences, Rights and Maxim Group LLC,Limitations of Series B Convertible Preferred Stock, filed January 17, 2020, incorporated by reference to Exhibit 3.1 of the designated exhibitCompany’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on April 22, 2020, as amended from time to time.
3.2Amended and Restated Bylaws of Interpace Biosciences, Inc., incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2017.November 14, 2019.
4.1*10.1*&Form of Additional Warrant, incorporated by reference to the designated exhibit of the Company’s Current Report on Form 8-K, filed with the SEC on October 12, 2017.
4.2*Warrant Agency Agreement, dated as of June 21, 2017, by and between Interpace Diagnostics Group, Inc. and American Stock Transfer & Trust Company, incorporated by reference to the designated exhibit of the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2017.
4.3*Form of Underwriting Warrant, incorporated by reference to the designated exhibit of the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2017.
4.4 *Form of Pre-Funded Warrant, incorporated by reference to the designated exhibit of the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2017.
4.5 *Form of Base Warrant, incorporated by reference to the designated exhibit of the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2017.
10.1*Warrant Exercise Agreement, dated October 12, 2017, by and between Interpace Diagnostics Group, Inc. and certain Warrant Holders, incorporated by reference to the designated exhibit of the Company's Current Report on Form 8-K, filed with the SEC on October 12, 2017.
10.2 *Form of Amendment and ExchangeRobert Gorman Letter Agreement dated April 18, 2017, incorporated by reference to the designated exhibit of the Company’s Current Report on Form 8-K, filed with the SEC on April 18, 2017.16, 2020
10.4*31.1*Lease Agreement, dated March 31, 2017, by and between Saddle Lane Realty, LLC and Interpace Diagnostics Group, Inc., incorporated by reference to the designated exhibit of the Company’s S-1/A, filed with the SEC on June 13, 2017.
31.1Certification of ChiefPrincipal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.2002..
31.231.2*Certification of ChiefPrincipal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.2002.
32.1+Certification of ChiefPrincipal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adoptedAdopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.2002.
32.2+Certification of ChiefPrincipal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adoptedAdopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.2002.
101The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended SeptemberJune 30, 20172022 formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Stockholders’ Deficit; (iv) the Condensed Consolidated Statements of Cash Flows; and (iv)(v) the Notes to Condensed Consolidated Financial Statements.

+Exhibits 32.1 and 32.2 are being furnished herewith and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference to any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise stated in any such filing.
*&previously filedDenotes compensatory plan, compensation arrangement or management contract.
*Filed herewith

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36

 

SIGNATURES


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 13, 2017August 15, 2022Interpace Diagnostics Group,Biosciences, Inc.
(Registrant)
/s/ Jack E. StoverThomas W. Burnell
Jack E. StoverThomas W. Burnell
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 15, 2022/s/ James EarlyThomas Freeburg
James EarlyThomas Freeburg
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

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37